Your house is not a piggybank

The Mortgage Professionals Canada fall report is out (actually has been for a few weeks) and as usual CanadianMortgageTrends has a good summary.

Lots of interesting tidbits in there, but I’m always fascinated at the rate of equity extraction.   In 2015, 850,000 mortgage holders took out an average of $70,000 each.  In other words people extracted $59.5 billion out of their homes, or some 3% of our entire GDP.   Of course some 1,000,000 people also made lump sum payments on their mortgage, but only an average of $15,300, or $15 billion total.

So it seems like as a nation we are sucking more equity out of our homes than we are putting in, or at least not really making much progress paying down the mortgages on our increasingly expensive houses.  When the market inevitably stalls out, I wonder if our economy will notice the missing billions?

Another puzzling statistic:  First time buyers continue to put down an average of over 20%.  The start of the generational wealth transfer out to save the millennials from CMHC?  Of course apparently a quarter of those down payments are actually borrowed, so should that even qualify as a down payment?


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69 thoughts on “Your house is not a piggybank

  1. You mean the bed the bank owns totoro? Unless you have clear title that’s what it is. My instinct is based on multiples of charts I’ve posted yet you ignore and spin as nothing to be concerned about. Same attitude many had in 2007 and 2008.

    Mike, the commodities and oil debts are far worse than 1986. China wasn’t the major driver back then nor about to implode as it is now.Massive personal debts,HELOC’s etc etc. So many other factors at play this time around that you’re really fooling yourself.

    Justin won’t be able to bail out the banks, indebted, and the over leveraged next time around like Harper did. His massive debt plan will keep his keep the government wallet shut tight other than food stamps.

  2. Every 6 months Victoria Hyundai sends me a letter saying there is currently huge demand for just my model of car and they would love to make me an offer so they can sell it to the buyers desperate for 5 year old Korean budget wagons.

    Difference is I don’t take that stuff seriously.

  3. A letter in today’s Times Colonist concerns “foreign buyers” being interested in Oak Bay properties

    I am sure if our friend Bruce had to sell his home he would be asking top dollar for it.

    I have never been to a listing presentation where the seller(s) has said, “I want this to be affordable to a young family so I am going to price it slightly below market value and only sell ot a family.”

    Sellers typically don’t care who they are selling to, especially if the offer being made is clearly better than the rest.

  4. I don’t agree with your take on home equity not being counted as part of your usable asset base, after all you can sell your primary residence without tax consequence and you can rent or downsize or become an international nomad as some do

    Agreed, it is possible, but I still believe the vast majority won’t do it. The value of your primary residence is of more interest to your heirs than to yourself.

  5. Are you including Victoria in that prediction Leo?

    No, Victoria will have a very strong year. Of the big markets included in the Teranet I think Victoria, Vancouver, and Toronto will remain positive for the year. I just can’t see how the current conditions could reverse that quickly. But I think a lot of the rest of the markets are tapped out. Calgary, Edmonton, Winnipeg, Saskatoon, Ottawa,Montreal, Halifax, etc.

  6. By the end of the year most of the major real estate markets in Canada will be in decline.

    I’ll go with stagnant…same as last time around (30 yrs ago).

    Victoria’s 2016-2020 road map on the other hand, has become quite clear lately. Makes it easier when we’ve had the exact same currency & commodity movements as 30 years ago, migration patterns, real interest rates, affordability, buyer demographics…
    From 1986 to 1990 prices went up ~75% in Victoria while everyone fretted over Canada’s economy, and similarly that was after Vic prices had already been rising strongly for over a year. Just like then, our prices soared as much of the country stagnated. Victoria should have no problem narrowing the gap with Vancouver land prices in the next few years.

    Best to ignore the permabeartroll.

  7. Yeah, well, good thing I get to lie in my own bed at night. Serve me right when the house of cards topples proving your incredible internet instincts correct.

  8. “There could be and probably are a number of “millionaires” reading and/or posting.”

    I’m sure there are but after reading your posts over time, I suspect you’re not.

    If you reread some of your diatribes, they shine through like someone protecting their assets at all costs, and not reflective of the real market risks out there right now. I see a house of cards and you don’t, it’s that simple, but it’s your money not mine.

  9. Are you including Victoria in that prediction Leo? I think Alberta is in that situation already. Vancouver and TO can’t go up up up forever at this pace. Kelowna is on the upswing though, as is Victoria currently although how long that could be maintained if the major markets shift I’m not sure.

    And yes, a million is not what it used to be whether it be in real estate or something else. It is a lot of money but it is not a ticket to quit your job and be set for life. And if you want a paid off house then a big part of the million is likely the house.

    I don’t agree with your take on home equity not being counted as part of your usable asset base, after all you can sell your primary residence without tax consequence and you can rent or downsize or become an international nomad as some do, but I do agree real estate prices can shift, just like the stock market, and you when you cash out of a house you usually go all out so the end game isn’t known until then.

    And Hawk, your style of posting is interesting. You put words in others’ mouths that support your preconceived notions. You have no idea what the financial position of anyone posting here is. There could be and probably are a number of “millionaires” reading and/or posting.

  10. “One of those things that doesn’t mean what it used to mean.”

    Sorry LeoS, should have said “multi- millionairess”. 😉

  11. RE that house on Doncaster A 6600 sq ft lot is “large”?

    Anyway the Vancouver parachuting thing is real. I’ve been seeing quite a few resumes from people wanting out. I was hoping they wouldn’t figure it out.

  12. Unless you are a millionairess

    One of those things that doesn’t mean what it used to mean. Probably hundreds of thousands of people in BC are real estate millionaires and it means very little to their lives. Wealth locked up in a primary residence is essentially meaningless.

    Oh and I’m adding another prediction to the mix. By the end of the year most of the major real estate markets in Canada will be in decline.

  13. Even TD sees the risks. Imagine the effect of job losses in banks, insurance agents, plus all those real estate agents and mortgage brokers having to go back to selling used cars.

    Canada’s Real Estate Problem
    Relying on a frothy real estate market.

    “Meanwhile, the services sector continues to chug along with real output up 1 percent. This suggests that the commodity collapse has yet to infect the broader economy. The bad news? The majority of that growth–53 percent–can be attributed to a single sub-sector, and one that many economists fear was cyclically overextended even before this stretch of out-performance.”

    “It is concerning to see that degree of concentration coming from one sector,” said Brian DePratto, economist at Toronto-Dominion Bank. “This underscores the importance of real estate to Canadian growth, and also reinforces how key of a risk the real estate sector is for the Canadian economy.”

  14. “We’ll be just fine thanks at will look at any significant decline as a buying opportunity.”

    You mean when you can’t borrow and are asked by the bank to pony up more cash ? Righto. Everyone says they’ll “just buy more” when the crash happens and banks tighten up credit lending like a vice. Unless you are a millionairess I highly doubt that will be happening.

    In which case I doubt you are, or you would be off doing better things than poo pooing anyone who dare says the market will ever go down in your life time.

  15. The explains a lot….
    A lot of people try to stay close by, to stay part of the Vancouver zeitgeist–Burnaby, or Coquitlam, or New Westminster, or Richmond. We’re going further, to Vancouver Island. It’s a stunningly lovely place that, in many ways, is Vancouver’s opposite–a place that’s quiet and steeped in history (versus Vancouver’s shiny-new gleam). But it’s also a place that retains a lot of what we love about Vancouver. It has mountains, and ocean, and I think–I hope–I’ll do some of the best work of my life out there. Affordable daycare and rentals that include a studio space mean that my wife can start her own business. It’s an oasis of Vancouver expats, and they brought some of the best pieces of the city with them–including, thank god, decent coffee.”

  16. “Chickens I can understand, although it’s a bit awkward having to take a bunch in a sack whenever you go shopping.”
    Eggs… and what are you shopping for? There is nothing on the shelves….

  17. No kidding mooselessness. It’s annoying to find whole house rentals. We ended up just looking for “whole house” only because most of places advertised as house rentals were only suites.

  18. Sigh, I wish Victoria landlords advertising for new tenants would recognize that they are not renting “a house” if the place comes with strangers living in the basement. You’re renting an “upper suite” or a “main floor” or, not to get too technical, “part of a house.”

    An amazing number of advertisers leave this revelation to the end of their post, sometimes only alluding to it with reference to “shared laundry” or “access to deck” or other oblique clues.

  19. While you are entitled to your opinion about the market will do you have no basis for pretending you know anything about anyone here if they have not stated it themselves.

    You have no idea about what my financial position is, nor what it would be in the event of your predicted just for starters 20% decline.

    I’d suggest you focus more on a Plan B for yourself if the crash you are waiting for never materializes. We’ll be just fine thanks at will look at any significant decline as a buying opportunity.

  20. If the average price of the 200 odd buyers from Van is $600K as Jack pointed out then 34 over $1 million is not very significant considering the insane market in Vancouver.

    My predictions on oil and financial markets have been bang on and I said that by spring or summer things will turn for housing as it did in 2008. You can’t keep a market built on free money propped up forever. Of course you will never agree because you’re up to your eyebrows in maximum high risk leverage.

    I’m only predicting what the rest of the real financial world is predicting based on economics and reality. Not real estate writers telling stories of some Van guy who cashed out and bought a place in Langford. 20% is just for starters.

  21. I said that over 10% of the homes over 1 million being bought by Vancouverites is significant. It is imo.

    I don’t care whether someone has sold or purchased with a saved down payment and good credit.

    If someone borrows using a HELOC which is what I presume you are referring to when you mention they “are borrowing against their Vancouver house” they will need to retain 35% equity in the Vancouver home. That is a significant buffer and not akin to borrowing on margin. Not to mention the terms attached to borrowing on margin are not as good as a HELOC and the risks are high.

    And the Vancouverite with a primary residence with at least 35% equity and more than 20% down on an investment property (investment financing requires a greater down payment) is going to be in better shape than the family buying with 10-20% down for a primary residence in the event of a crash. The two-home couple can always rent one out.

    I guess if you are predicting greater than a 20% drop in prices and this occurs all recent low equity buyers might a loss if they needed to sell. Not sure why they would unless rates rise a lot. Better to hold in that situation. That is why there is a credit check and down payment and the HELOC is only up to 65% – a buffer that is considered adequate.

    It appears you might not agree. You haven’t been right yet in your predictions but if we wait long enough maybe there will be some crash that will see prices drop 35% and rates double. I don’t see it happening right now myself but it has been promoted as imminent on this board by some posters for many years now.

  22. Looks like some happy sellers out there.

    475k (41k over asking) in 3 days – didn’t even have to change the dolphin shower curtains! 🙂

    Large corner lot, but wow! Just really want a yard, or a new build?

    (Hard to build something new when you’ve already paid 1/2 million for land)

    *Also thanks to Marko for posting that Point Grey Vancouver house which almost makes all Victoria issues seem irrelevant! Wowsers!

  23. “Relevant to what exactly? I’m not sure I follow.”

    You said this is “very significant” , then “who cares” and “so what” ? Hmmm. Not sure I follow that logic.

    If someone is buying against the value of their Vancouver house then that is the equivalent of buying stock on margin. If the market turns south then that second home for investment or a getaway, has a risk of having to be sold ASAP.

    If the person comes from Vancouver and never owned and simply has a down payment then that is what I say, “so what”. How would that be “very significant” ? It has zero bearing on the subject of Vancouverites moving here with big money payouts. You claim it’s a big deal they are buying but if it’s high risk investment here then it’s “who cares” ? Sorry, I don’t follow.

  24. “Determining if it’s a second home or wether they are actually living here permanently is a relevant question.”

    Relevant to what exactly? I’m not sure I follow.

  25. Better off to have bit coin or chickens.

    What’s a “bit coin”?

    Chickens I can understand, although it’s a bit awkward having to take a bunch in a sack whenever you go shopping.

  26. Thanks for posting this article mm…

    Great read on Vancouverites cashing in and moving to Victoria.

    “We are seeing in-migration and people cashing in from Vancouver and going across the pond to Victoria,” Ms. Moreton says. “And Albertans are coming in for jobs, construction, things like that. And there is a very vibrant tech industry in Victoria. We have daily flights between Silicon Valley and Victoria because of that… “Absolutely, we’re seeing a huge number of Vancouver. They are selling property and then banking pretty good money and coming here. For them, it’s the perfect storm.”

  27. Sorry to anyone that posted a comment in the last couple weeks and then had it not appear. I discovered 5 comments in the trash, not sure how they got there. Restored now.

  28. Ummm…. I think the discussion was that Vancouverites are selling their lottery winning homes to move here and you claimed that was “very significant”. Determining if it’s a second home or wether they are actually living here permanently is a relevant question. No need to get in a snit. With all the corrupt actions these days it could easily be just a blip of the charts caused by some shady agents and offshore buyers.

    Follow the money: Evidence submitted at fraud probe points to concerns about Vancouver real estate market

  29. Who cares whether someone sold to buy or saved up the down payment and qualified to buy. So what. Both routes require that the buyer can afford the place based on current lending standards.

  30. Interestingly enough, gold has a strong bid under it the last two months as the Chinese and Euros are starting to buy as they see their currencies devalue.

    I just heard of a professional couple (one whose job is in high demand here) now leaving here to go back east as they miss their family connections. Victoria isn’t Utopia to everyone. It’s also cheaper or “affordable” (as the homeowners will proudly say) for a reason, we are an island that can be a hassle to get on and off.

    Then put on the recent “second least affordable city in Canada” study and there you have it. At least the outsiders can see it, but when you’re inside the bubble, all is rosy.

    How do we know the Vancouverites sold there or just borrowed to buy an expensive condo for getaways or for down the road ? Seems like half the condos in this town have the lights off all night. Ghost condos here we come.

  31. I wasn’t stereotyping anyone. Marko’s recent post on where recent buyers have come from pointed largely to Vancouver. Your own post below points out that more than 10% of the sales over 1 million last year went to Vancouver buyers. That is a very significant amount.

    And Vancouver buyers may be selling places in Vancouver to buy those over 1 million dollar places and giving up on buying in Vancouver to buy those less than 605k if their jobs are portable – I certainly have met people from Vancouver who have done both.

    Vancouver has had a huge run up in prices. I’d consider cashing out and moving somewhere cheaper if it met with my age, stage and life goals – or moving to Victoria for cheaper home ownership. Good luck with doing the reverse. Our prices are way more affordable than Vancouver’s.

    And who is afraid of any buyers? I see no big social problems myself that I attribute to out of town buyers. I say welcome. Affordability is still pretty good here compared to historical data.

    You may want to question your own assumptions about the market and ensure the stats back up the fear you are feeling.

  32. Last year out of a total 4,614 home sales in the Victoria Core there were 201 property purchases by Vancouverites. The median price paid by them was $605,000. Only 34 Vancouverites paid over a million dollars for a home. That’s 34 sales out of a total of 317 homes that sold over a million last year.

    The fear that some would like to spread is that we are being bought out by wealthy Vancouverites flush with cash after selling their million dollar homes. But half of the Vancouverites paid less than $605,000.

    While it is true that there are more reported sales to Vancouverites than in years before what we don’t know is how many Victorians selling their homes then bought in Vancouver.

    Wrongfully stereotyping a group of people as the source of social problems leads to victimization and hatred of those people. When you point your finger at someone else for your problems remember that three of your fingers are pointing back at you.

  33. How is gold going to help? You can’t eat it and no one will want it if they are all broke. Better off to have bit coin or chickens.
    Well the media is turing from fear to greed now…Expect brisk sales this spring. They actually have both tools fear and greed! Fear of HAM and being prices out forever and the greed of big returns….

  34. In order to qualify for a 2 million dollar home in addition to the 500k down the household income is going to be well above 200k with no other debt. I don’t think your associate professor salary is going to get in the door and those that do aren’t going to have trouble paying 4500 a month mortgage. 2.5 million for that house makes oak bay look like a bargain. No wonder Vancouver buyers are cashing out and moving in here.

  35. Victoria City has the potential to double the number of listings and that has happened before.

    This may not happen until interest rates rise. Trouble is, a significant interest rate rise anywhere in North America or Europe would likely destroy the economy now hooked on ZIRP.

    So what’s actually going to happen?

    Probably ever lower rates, turning negative in nominal as well as real terms. At some point this strategy may no longer work, but the central banks seem to have no other idea, so it looks as though indebtedness and the asset price bubble will continue to grow for several years at a minimum, after which there will be the mother of all financial disruptions that will leave George Soros and about 25 other billionaires (or trillionaires) still standing, and everyone else, unemployed, homeless and hungry. (Which is why I have this seemingly nutty impulse to invest in gold maple leaves.)

  36. Why even bother posting pictures on that one? I like how they advertise the basement suite as if anyone is going to live there and treat it as a revenue property.

    Don’t see why that’s so unlikely. Imagine someone working at UBC or in the West end and commuting from Surrey, Langley, Abbotsford or Chilliwack. They’ve accumulated half-million in equity in the present home, so why not use that as a down payment on this Point Grey cutie and borrow the balance at 2.5%. The only problem is that on an associate professor’s salary they’re gonna be short of cash after paying the mortgage. But no prob, they can rent the basement for a couple of thousand a month. It’s a no brainer.

  37. Don’t think of it as 2.5 million for a lot, think of it as a bitcoin that you can trade anywhere in the world.

  38. Is there a way to find out how much volume a specific realtor does in a year or how many listings they had? Also, is it okay to ask, or is that like asking someone how much salary they make? then click on “Click here for my 2015 sales spreadsheet”

    The VREB makes this spreadsheet available to each individual realtor. All they have to do is save it and PDF it to you or print it off and give it to you.

    Note, it doesn’t include pre-sale contracts and off-MLS® transactions.

  39. Is there a way to find out how much volume a specific realtor does in a year or how many listings they had? Also, is it okay to ask, or is that like asking someone how much salary they make?

  40. Wow. Why even bother posting pictures on that one? I like how they advertise the basement suite as if anyone is going to live there and treat it as a revenue property.

    Although the place does have one of those ultra-modern green roofs on the back side..

  41. I should have said there is potential for a lot more houses coming onto the market. Saying hundreds of thousands was an exaggeration on my part to underscore a point.

    If we look at the ratio of population to listings, it is evident that Victoria City is under represented in the number of residential listings with 35 houses for sale out of a population of 80,000 people. In all of 2015 there were 450 house sales and 900 condominium sales in the City despite there being some 47,700 houses and condos.

    As for listings there was some 1,700 condos and homes listed for sale in Victoria City last year or 3.5% of the total inventory of housing. That is the size of the real estate market in Victoria. 96.5% of the inventory of housing is not in the real estate game at all.

    Compared to Langford City at 950 listings in 2015 and a stock of 12,750 homes or 7.5%

    Victoria City has the potential to double the number of listings and that has happened before. And that will be a game changer for the City. One of the ways this has happened in the past is due to the substitution effect. As properties become too expensive in one area prospective purchasers move to less costly areas of housing.

    And I suspect that is already happening in Oak Bay with 475 listings in 2015 out of a total inventory of 8,200 houses and condos or 5.8%

    So why is Victoria City so different than Langford or Oak Bay? The answer is that it isn’t. The number of listings will swell as more prospective purchasers opt for less costly neighborhoods. And now there is a choice for those who want to wait out the market and that is newer condominiums and renovated buildings where a one-bedroom suite starts at $1,300 a month. You don’t have to buy to have all the modern conveniences and location. You can rent and have a fat bank account at the same time.

  42. 3366 Kingsley bought for $560,000 in August. Renovated and just flipped for $705,000.

    Seems like 700k for an updated 1950s/1960s bungalow is now the new norm.

  43. Think The US Fed will rase rates again soon? I doubt it. There is no denying the currency war now. It’s what Tim Cook was referring to in his extreme conditions comment. It’s going to start showing up as job losses in the states soon… Japan just went into negative interest rate territory. Looks like we have plenty of headroom to go down….

    savers shall be punished.

  44. Hundreds of thousands of houses could come to market quickly in the core? Wow. What’s the scenario? Pestilence? The four horses?

  45. I would rather spend time and money on a dog than time and money in a mall. Personal choice my friends….

  46. It doesn’t matter what city you live in, if the economy is expanding supply is always constrained. It takes time to re-zone sites. While Victoria is constrained geographically this is not uncommon for coastal cities all over the world. We have lots and lots of land that can be re-zoned for higher density. It isn’t that we don’t have enough land its because we don’t have enough appropriately zoned land at a reasonable cost.

    However, the market can switch from not enough housing to an over supply very quickly. Calgary is an example where they couldn’t keep up with demand, now they have too much supply. The misunderstanding that people have is that they think the lack of supply will continue forever. It doesn’t.

    Victoria City has one of the lowest number of people per households in Canada. Yet we are not overbuilt because the supply is being absorbed and prices are not falling. And that’s how most people would gauge if there is or is not enough housing. How fast is it being absorbed. That’s the days-on-market which stands under 30 days right now. That can and has in the past gone to over 90 days too.

    What happens in hindsight, after a market correction, is that everyone is stunned that we didn’t see it coming because it was so obvious. We have hundreds of thousand of houses in the core that can come to market quickly and change everything.

  47. Thought I’d copy my response to this comment thread, since I answered just after the new post.
    Marko – I agree with your ideas about condo living. However, condos are looking like a poor investment compared to SFHs. Condo buildings are always depreciating – witness the current offerings of 60s through 80s built units, selling for $200k or less, even some 2 bedroom ones, and the land parcel (which presumably appreciates) is a very small amount of the unit held by the owner. The Victoria core clearly has a long way to go before being overly built up, so for the foreseeable future, supply will match market demand. SFHs, well, people are subdividing here and there, but supply is heavily constrained.
    But yeah, the money and time people spend on dogs here is ridiculous.

  48. Appreciation has more than compensated for HELOC use

    That’s exactly it. When national appreciation stalls out, that rate of equity extraction cannot be maintained and will be drastically reduced.

    I’m not overly concerned about people extracting equity, and I’m not even concerned about what it’s being used for, but the economy will certainly take a hit when that money dries up.

  49. Many people do borrow to invest and to improve their homes. We’ve had the stats posted here before.

    Not to mention that those taking out 70k will have very substantial equity remaining ie. at least 35%. On a 600K home this means they’ll still have 210k of equity at least. The stats show that 34% of these funds were used for financial and non-financial investments so you are really looking at an average of 47K being used for other purposes, including home renovations, debt repayment and consumption.

    I’m not too worried about these folks and there is no reason to believe that people are “sucking more out than is being put in”. Appreciation has more than compensated for HELOC use in many areas and people are paying their mortgages – default rate is extremely low.

    There are no missing billions as far as I can tell.

  50. @Michael I already have begun shifting into CAN assets. Part of my reshuffle of CAN dividend stocks in my TFSA.

  51. Wow, a lot of awesome stats in the report.

    ”21%: Percentage of those who rent out (or plan to rent out) a portion of their home, who indicated: “I need to rent a room/unit in my home to afford my mortgage”

    I always had a feeling that a decent percentage of people rented for extra cash versus actually needing to rent to make mortgage payments.

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