The impact of months of inventory
Months of inventory is one of the best indicators of market balance, and this year I’ve spent a lot of time talking about how it has dropped from just below balanced level back to a sellers market. I show this gauge on (most) monthly reports because it tends to correlate well with other characteristics of the market as a whole.
What is the impact of a low months of inventory? The conventional wisdom is that 6 months of inventory is a balanced market with stable prices, while lower levels indicate a sellers’ market with rising prices and higher levels indicate a buyers’ market with falling prices. That is generally true in Victoria if we look at price changes relative to months of inventory for the period where we have data.
However it’s clear from last year that this isn’t always true. In the short term the velocity (i.e. the change) in months of inventory is just as impactful as the level on prices. Last year we never left sellers market territory but prices still dropped as months of inventory shot up from 0.9 in February to 4.7 in September. Similarly in 2018 when the stress test was introduced, months of inventory remained in sellers market territory but prices flatlined as it rose from 2 to 5. However in the long term the absolute number of months of inventory will prevail as evidenced by the fact that prices returned to growth both after the stress test and after the rate shock when MOI stopped increasing.
There’s similar impact on other measures of market activity as well. The sales to list ratio decreases roughly linearly as months of inventory increases. At around 1 month of inventory that ratio explodes as we saw in the somewhat unhinged market of a 18 months ago. Currently detached properties are going for an average of 1% under the asking price.
This relationship is even more clear with the prevalence of bidding wars (over-ask sales), which are around 5% of sales in balanced or buyers markets, and explode upward when we have under 2 months of inventory. Note these charts are for detached sales, but the same relationship holds for condos.
Interestingly enough there seems to be no relationship between months of inventory and the number or rate of expired listings. If anything the rate is slightly higher in hotter markets with lower inventory potentially because there’s always a few dreamers around asking for unrealistic prices that end up not being sold. For days on market though, the relationship is back to what we would expect, with sales taking longer when the market is slower.
That relationship is also a factor in the stickiness of prices we normally observe when the market returns to a balanced or buyers market. Most sellers prefer to leave their properties on the market for weeks or months rather than accepting a quick sale at a lower price. Irrational perhaps in a declining market, but a property of the market where most buyers are not under immediate pressure to sell.
Also the weekly sales numbers:
| June 2023 |
June
2022
|
||||
|---|---|---|---|---|---|
| Wk 1 | Wk 2 | Wk 3 | Wk 4 | ||
| Sales | 95 | 264 | 410 | 612 | |
| New Listings | 159 | 473 | 781 | 1380 | |
| Active Listings | 2173 | 2228 | 2293 | 2059 | |
| Sales to New Listings | 60% | 56% | 52% | 44% | |
| Sales YoY Change | +7% | +23% | +10% | -35% | |
| New Lists YoY Change | -11% | -6% | -6% | +14% | |
| Inventory YoY Change | +21% | +19% | +19% | +50% | |
| Months of Inventory | 2.3 | ||||
Market activity remains above the year ago levels, but the outperformance is not remarkable. Sales have been stagnant in June while listings closed some of the gap to last year, continuing the slide in the sales to list ratio on a similar trend to this time last year.
It’s worth noting that last June was a 20 year low for sales. At the current rate of only 10% higher we’re on track for a pretty poor showing for sales again. Things could change still as the latter half of last June was pretty weak, but either way it won’t be a strong month for demand. Meanwhile on the supply side there’s a bit of relief with new listings down less than they have been. Similar stories are coming out of Toronto and Vancouver, so market conditions may be cooling more broadly as rising variable and fixed rates take a bite out of demand and trickle through to owners.
On inventory, it usually peaks in June but that peak is usually broad, and the exact day depends on which way the market is going. If it’s heating up the peak is earlier in the year, and if it’s cooling down it’s not until the fall. So far it’s still growing, and likely about to exceed last year’s peak.
In other news there’s an interesting paper on the impact of banning investors from the market in some Dutch cities. The authors found that banning investors allowed some wealthier renters to buy in to the housing market with less competition from investors but ultimately had no impact on house prices. Meanwhile rents increased a bit faster which hurt lower income renters that couldn’t afford to buy either way. Canadian housing markets do of course have differences to the Netherlands so there may be limited generalizability of that finding to our context. For example here there is more reliance on investors to finance condo construction which could have a secondary impact on new supply. However in general this result matches what one would expect. There’s reasonable arguments for and against restricting investment purchases, but it’s very unlikely to be the silver bullet for affordability that many hold it up to be.
New post: https://househuntvictoria.ca/2023/06/27/did-we-get-more-55-housing/
Huh, there was no vitriol. People just don’t have a lot of respect for a fellow that has been outspokenly wrong for 15 plus years. It’s actually a bit of a public service when his record is aired so newbies don’t view him as a credible source. Meanwhile there was zero anger directed at him (let alone threats), and I am sure all of us here respect and defend his right to continue being publicly wrong as long as he wants.
Interesting chart from latest CPI data… mortgage costs are pushing up CPI
Not so patiently waiting for your newest blog Leo.
As an example of the idea that buyers actualy can set the price, I read that,
“The median price of a new home [USA] plunged at the fastest rate six-month rate ever in April…Homebuilders have been cutting prices like mad starting in November of 2022…The recent six-month decline was 19 percent, the largest six-month decline in history.
…Home builders finally got the consumer message that houses were not affordable due to the combination of high price, rising mortgage rates, and rising inflation overall. The builders reacted by building cheaper homes and offering mortgage rate buydowns.”
Dare cite the author?
https://mishtalk.com/economics/largest-ever-6-month-decline-in-price-explains-the-new-home-buying-surge/
There is a possibility of a rate hike because the CPI is not at the preset goal level. However, the BoC could over shoot the target.
IMHO, core CPI is well on the way down, as illustrated by the BoC graph.
https://www.bankofcanada.ca/rates/price-indexes/cpi/
Sounds like the NIMBYs are going full MAGA.
That is the unadjusted number. Seasonally adjusted was 0.1% MoM, and 0.2% excluding energy and food. Those are good numbers.
What isn’t as good are the core measures posted in Leo’s graph below.
Agreed that a rate hike in July is likely, but there is still GDP and the monthly jobs report to come before then.
The vitriol shown here the other day towards an unmentionable financial blogger seems par for the course in Victoria.
(not to mention today’s gem about excluding certain people from moving to BC -if your get your way on that, who’s next on your list?)
… markets pricing in a 58% chance of a July 12 BoC hike.
https://twitter.com/RobMcLister/status/1673682565486575618
You mean to say that people have been finding ways to get into the country without going through the slow immigration process. Wow, I’m shocked!!!!!! Who woulda thunk????
While the headline YoY number is trending down, the MoM numbers are not encouraging. They are at 0.4% – indicating that the headline numbers will re-accelerate towards 4% in the next few months. BoC will probably hike next month again.
I’m hoping for CACs to be abolished but it might already be too late. Munis are starting to rely on them to keep taxes lower and will cry bloody murder if that is taken away
Sounds like changes might be coming to non-permanent resident admissions. Big and mostly unregulated problem in Ontario where you have private degree mills bringing in large numbers of international students and leading to a lot of essentially exploitation. The immigration minister called it out as a problem on a podcast recently
Victoria councillor pushes back on death threats
https://www.timescolonist.com/local-news/victoria-councillor-pushes-back-on-death-threats-7199886
Exciting news, Leo! I think we would all love to hear your take on this once whatever they have cooking is approved.
I also wonder, as you point out in this thread, whether adding more supply this way is now really limited by the secondary effects on land price inflation, and the rising cost to produce more housing. I can’t imagine that zoning changes alone will be enough anymore, unless the cost to build falls dramatically by further steps taken to remove the high taxes levied on new builds.
Even if all of this is taken into account, I think we all still have to wonder if real demand-sided measures are still needed like property tax hikes and the removal of federal housing incentives (i.e. TFHSA, principal residence deduction, etc).
It’s going to be quite a ride.
Dropping but core measures are stubbornly above target
Contributors to the inflation rate
Re the secondary suite changes. Do you think areas controlled by Islands Trust would be having that change just as other areas in the province? Thinking of areas like Broadmead too where there is a covenant against it, but that’s a bit different.
Small delay, new post tomorrow.
Dad, I apologize…I didn’t get what you meant.
There is a huge surplus of rental units that most can’t ever have would have been much more appropriate.
Should have just shut the ferries down in the year 2000.
Perhaps I interpreted silence as disagreement.
Yeah, that’s where we part ways, for sure. I don’t want to help or encourage more people to move here.
I don’t recall ever not agreeing with it. I just don’t think it changes the conclusion of building more housing to make things better
…ok?
Even at 1,000,000 immigrants a year, the supply is effectively infinite.
https://househuntvictoria.ca/2023/06/19/the-impact-of-months-of-inventory/#comment-103262
That is very cold…sleep well tonight.
Nine-tenths of this response, Leo, is stuff that I’ve been saying here for a while now. Glad you’re getting on board.
If that was true, they wouldn’t be asking for references. They would rent to anyone with a pulse.
There are brand new, really nice looking rental units everywhere screaming for tenants. I couldn’t rent one because I have been a homeowner for 20+ years and have no references. There is NO shortage of rental units.
What about the people finishing up the 7000 rentals currently under construction? By the time work is actually required a majority of them would have completed their current work, trade packages are typically staggered.
If you started 2,000 units today. You would need to import another 5,000 workers that will need rentals or a home to buy.
It has been written many times…“The market can remain irrational longer than you can remain solvent”.
There’s definitely an aspect of induced demand. Let’s say we magicked an extra 50,000 condos into existence overnight. In the short term condo prices and rents would collapse as supply overwhelms demand. In the medium term a ton of people would move here to take advantage of the cheaper prices and those prices would increase again as the supply is absorbed. All things equal the prices and rents should still be lower than if the 50k units didn’t exist. But if Victoria is the only city with magically appearing condos, then it’s like scooping a cup of water out of a bathtub. It will flatten out again, but the equilibrium height of the water in the tub won’t be much lower than before.
But demand in terms of people isn’t infinite, so it’s not like it’s a zero sum game where you can build forever and people just keep coming. It does mean that the reforms need to be as broad as possible. Province-wide at least, if not country wide. Certainly there are no possible set of reforms that Victoria can do alone to solve the housing shortage, however it doesn’t actually change the objective, just like Victoria can’t do a damn thing about climate change or ocean pollution but the sensible action is still to reduce emissions and not dump garbage in the ocean.
Another factor, probably the biggest one for the next 2 years, is the pressure faced by lenders: higher capital buffer requirements, strict adherence to LTV (including HELOCs), Loan/Debt-to-Income (LTI & TDS), etc. Considering the current stress test rates (already at 7-8%), the demand shock from these will be much bigger.
Maybe British Columbia should pass a law that no one over the age of 60 can relocate to the province, from anywhere. That would reduce demand and take pressure off the health care system. Most people that age are probably retired and won’t be helping the worker shortage either.
Starts are 2 and a half times higher this year than a decade ago, and have been steady at that rate for a few years. We’re currently building 5 times more than we were in 2013, and about 40% more than when the pandemic started. Every time we seem to hit a peak it has been exceeded. It does seem silly that twice as many sfh are being built as row units.
Costs are high for pets as private equity firms such as Vet Strategy and Boston-based Berkshire Partners (not Buffett) have been acquiring veterinary practices across Canada. Similar to what happened in the Funeral business in Canada. There are not many independent Vets anymore. They follow corporate policy and increase their billings through upselling on procedures and pet insurance.
The assumption seems to be that we need to build enough homes for population growth. And so this is illustrated by the hotdog example, where we need to make enough hotdogs for the extra people that have arrived.
I think it’s the other way around. If we build more, then more people will come and population growth will be higher. This isn’t true for every city, but Victoria’s growth is entirely from out-of-towners moving here. If we (moderately) overbuilt and 2,000 units were vacant, more out-of-towners would move here to fill the vacant homes. There would be a limit of course , but right now I think there’s more households that would come to Victoria than the new builds we are adding, and that’s limiting population growth.
Supply side, hard to increase building rate by a whole lot. We can redirect some capacity from rebuilding single family to small multifamily (*plexes and townhouses) if we make building the multifamily the easier path. If the rate of building remains high we very slowly increase capacity of the construction sector over many years. But in general I wouldn’t expect the rate to increase a lot, or quickly. More realistic is if we keep it high instead of dropping when the next recession hits. If we just didn’t have a building bust we could double completions. Would need to quite drastically de-risk the process of building housing which is a big reason that we get busts right now.
On the demand side, I do expect drop in demand through some kind of combo of poor affordability driving down the growth rate and recession hitting employment also attracting people elsewhere.
Just a guess, but I do think situation for rental vacancy and inventory will be better not worse 3 years from now.
I was more so asking, at what point do you think that supply will outstrip supply? How many units per year do we need to be builiding?
Yes, but devil’s in the details. Easy to create policy that is undermined by local gov’t, so will be interesting to see the final version.
Haven’t they already published these?
https://news.gov.bc.ca/files/Homes_For_People.pdf
Includes:
This fall, we will introduce legislation that will apply to many areas of the province and will allow up to 4 units on a traditional single-family detached lot (or 3 depending on the size/type of lot) with additional density permitted in areas well-served by transit.
Starting later this year, legislation will be introduced to make secondary suites allowed in every community across the province.
Through the Housing Supply Act, we are working with our municipal partners to speed up housing developments and increase supply in the fastest
growing communities and places with the greatest need. This makes sure the right type of housing is built in the right communities. This legislation, brought in the Fall of 2022, will enable us to set targets and support engagement with fast-growing and larger municipalities to hit and exceed those targets
And for homelessness:
https://news.gov.bc.ca/files/BelongingStrategy.pdf
Can be, especially if you take them in for emergency care after hours. I’ve had to do it before, and felt scammed once. Another time they probably saved my dog’s life, for less money than the scammy visit.
Good call! Never actually thought about that one before!
That would be true for your typical seasonality, lets see if it holds this year. When did we get to peak inventory last year? I thought it was Sep or Oct?
Meeting with the provincial housing minister… says changes to land use coming this fall will be the biggest in BCs history.
Let’s see
100% agreed but I’ve had really good experiences with Jeff from the company below (for what it is, a joke). Has saved me a lot of money with various grants/filled out paperwork on my behalf/etc.
EnerTech Solutions Ltd.
http://www.enertech.solutions
Vets are such a scam oftentimes. 3 times now our cat was quite sick. 3 times they pushed expensive scans or procedures that did absolutely nothing and 3 times the cure was some steroids for $28 (diff conditions but end effect was the same)
Your hot dog example is brilliant, fyi. Use that.
The whole process is a bit of a joke IMO they charge you quite a bit to generate a report that is mostly templated and doesn’t say anything you don’t already know.
We used Method and we’re generally happy with them but I don’t know if there’s better ones out there
That is my read as well.
Problem is summer is here and new listings drop off. We might get to 2,500 but can’t see 3,000.
Cat needs surgery or pay rent to landlord. What do you think tenant will opt for?
Yeah all depends on the balance between supply and demand. Each completion is one household that’s able to move in and not compete for the existing stock of homes, but if we have just as many people moving here as units being built then we experience that as maintaining the status quo rather than improving it (in terms of higher rental vacancy or higher MOI for condos). The counterfactual is that the completions prevented the situation from deteriorating more, but of course people don’t tend to think in counterfactuals.
thats part of the reason why housing interventions are difficult. Many people will say “Look we [built more / taxed vacancies / restricted foreign buyers / declared housing a human right / etc] and prices still went up so clearly that wasn’t the issue”, but that’s not considering what the situation would have been without that intervention. Construction tends to be boom bust and the risk we are running right now is hitting the bust instead of catching up during a period when demand may drop (usually does when the economy sours)
Part of the issue other than process times is government trying to capture land values. Happening in Vancouver right now where council approved rezoning and charged the developer CACs based on the calculated land lift with the goal of capturing most of it. Problem is interest rates are up, building costs are up so now the projects don’t work anymore.
Hey Leo,
In the last calendar year we’ve had 3440 units completed in Victoria(according to statscan). Where does that go? I get that a bunch of these are rentals, but they don’t seem to be having an effect on the rental market really. We’ve had 4619 starts in that time, so it’s not like things have slowed down. At what point does this start making a difference?
I’ve always put no pets. In addition to potential damage there is also odor which can be hard to get rid off.
Does anyone have a recommendation for a home energy audit company? TIA
It is likely due to re-lists of unsold inventory. These re-list sellers are insisting on early 2022 prices in the current market and not getting offers. In other words, most sales are happening in the “new” lists and not much is selling in the re-lists, causing an accumulation of inventory.
I believe the rate of growth of inventory is slower this year compared to last year. Marko, your 3k inventory prediction is not completely written off yet lol.
Leo, I think you said last June was the 20 year low in sales, what would this June be if we end up at around 700?
Increasing building costs are inline with increasing de-building costs.
…
Homebuyers and homeowners struggle with ‘obscenely’ high building costs
https://www.theglobeandmail.com/investing/personal-finance/article-canada-building-costs-homeowners/?rel=premium
PDF: https://docdro.id/hVzyYcb
It’s interesting that listings are down, sales are up and inventory is still growing.
Month to date market activity
Sales: 566 (up 13% this time last year)
New lists: 1060 (down 7%)
Inventory: 2362 (up 15%)
Looks like we had 133 in Greater Victoria, which is the lowest May since 2015. We do have 7212 units under construction though, which is lightyears ahead of the number from 2015 (1480 units)
Been a while since I’ve been there, but at renewal couldn’t you just shorten up the amortization to get the monthly payment higher to whatever you want in order to pay down more principal?
I’m looking for cat stories. Our awesome tenants are likely leaving Vic for work so we’ll be putting our suite up for rent again. We’ve always advertised “no pets” but we allowed a cat with our first tenant as they were honest about it in their first message and it worked out great. But does advertising as “cat friendly” open us up to a a lot more screening? Anything to be aware of from your experience? Just browsing the ISO ads and there seem to be a lot of decent (at first glance) tenants with a cat in tow. What’s the most damage a long term cat can cause? Suite has laminate boards no carpet. Thanks
In some respects our housing market and overall economy resemble a pyramid scheme. So long as new participants keep coming in everything escalates. The only way to end this madness is to restrict demand, otherwise some people will be left in the dust. I bet 500,000 new Canadians have already arrived this year. Reducing demand would also reduce inflation. Duh.
I think the Real Estate market is holding up brilliantly in spite of all the predictions of major crashes.
In Europe lots of chargers at highway rest stops. I pulled up to one a few months ago when I was there and it literally had a 12 step process to start charging. Tesla supercharger you just grab the cable, the port automatically opens, and you plug in. Done.
I don’t think Tesla is even that sophisticated, just that everyone else is so complicated. Like my 8-year-old Tesla has HomeLink and it would automatically open my garage door and automatically close it. On the all other cars you have to push buttons for HomeLink. Navi too…Tesla just made it sooo sooo simple. I tried a few of my friends car apps for non-Tesla’s and wow they are bad. Don’t understand why Ford can’t just hire the app people Tesla used and came out with something decent. Just today my clients asked me if my Tesla was running AC during a showing as they could hear the heatpump…yup, maintains 20.5 c interior temp even when parked inbetween showings. Same with winter.
When the broker set up our mortgage the prepayment allowed doubling payments and a 10% lump sum every year. He set the initial payments higher so that we had flexibility to double them from there or drop them back down. Very flexible
Haha busy weekend.
Technically zero time since I can make it there and back without charging in our first gen Leaf (not a lot of buffer though so I don’t like to do that). To get that buffer I’d have to stop about 5 minutes but I charged about 10-15 min since the charger is free, the coffee is free, and I had time to kill between games.
There’s a reason the automakers are all jumping on the Tesla supercharger bandwagon though. Had to help out two people who had no idea how to operate the chargers. Not very intuitive.
I don’t think they have squished inflation at all. When we renew in early 2026…We expect 8% 5 year fixed.
Still haven’t heard from Leo, he either got hit by a foul ball or is stranded at a charging station.
BIS is sounding a lil out of touch I’m thinking central banks have been pretty aggressive in raising rates to squish inflation
When I say 12% extra payment every 2 weeks…That means our bi-weekly payment at 1.68% 5 year fixed is $445.62 they allowed us to apply an extra payment of $85 every 2 weeks.
Absolutely, When we renewed at 1.68% 5 year fixed we were like wtf…This is free money, how much can we pay? Bi-weekly payments with an extra payment of 12% every 2 weeks…That’s all they would allow, but that is huge.
A little good news: central banks are getting serious again on the inflation battle.
From: https://www.reuters.com/markets/bis-warns-world-economy-critical-juncture-inflation-fight-2023-06-25/
Meaning, not enough has been done and a recession in the near term is not the worry if it happens and fighting inflation is more important for long term fiscal stability.
So, get ready for larger rate increases over a shorter period of time because dragging it out causes more difficulties in the long run.
Out of that $2 per litre of gas how much goes to Federal, Provincial, Municipal taxes?
The next 60 days will be crucial for central banks and variable-rate mortgage borrowers
https://www.theglobeandmail.com/investing/personal-finance/household-finances/article-central-banks-variable-rate-mortgages/
PDF: https://docdro.id/Xew02vn
If a bank realizes that someone is getting in financial trouble, one of the first things they’ll do is reduce your credit cards, limits, etc… Then work on the mortgage, at least that’s what happened to a friend of mine years ago.
Thanks REAddict. I asked that question because I do not know the finer points of mortgage renewal rules, and thought it relevant to future price changes.
• Zero housing starts in CoV in May.
• No missing middle applications received by the city since streamlined approval began in March.
Housing drives Victoria council agenda, but takeup on ‘missing middle’ projects slow
https://www.timescolonist.com/local-news/housing-drives-victoria-council-agenda-but-takeup-on-missing-middle-projects-slow-7192845
The new Tesla Service Centre is just finishing up and will be open shortly (right by Home Depot in Langford). Having that on the South Island will only increase Tesla ownership, IMO.
Latest figures are 18.1% of all new light-duty vehicles sold in B.C. are EVs. My guess would be that, in Victoria, it’s probably closer to a quarter.
https://news.gov.bc.ca/releases/2023EMLI0025-000481
You don’t as far as I have experienced need to qualify to renew with the same lender. They make you an offer or offers on mortgage type/ length and you see your future payments and choose. But I could see many not being able to afford it. Particularly if the amortization is brought back in line.
Leo- How long did it take to charge?
Just wait till the battery spontaneously explodes.
That’s the thing I don’t get with all the Ford Broncos I see. Not only is it like 50-60k to purchase depending on trim but it is bad on gas and gas is $2/L, plus maintenance, etc.
Offtopic: Kid’s softball tournament this weekend. 500+km of driving back and forth to Duncan several times. Cost: $5 in the Leaf. Granted I dropped by a couple free chargers. Normally would be $10.
My current interest rate for my 5 year fixed is 1.68% but that’s not normal, that ‘s once in a lifetime.
6-7% 5 year fixed…that’s pretty normal.
Sidekick, well you lucked out on mortgage rates. Welcome to the long term average.
I’ve had mortgages for 20 years now, and I don’t think I ever hit 5% until this last 6 months.
I agree, however 6-7% interest on a mortgage balance that is >6x income is new I believe.
Nope. The vast majority of my transactions are repeat clients so automatically aren’t first time buyers.
I don’t advertise, I don’t do open house (I’ve done one this year and hoping that is the only one), I simply don’t go out looking for business. The first time buyers I pick up are a smaller part of my business usually referrals from repeat clients or they find me on Reddit or YouTube.
6-7% interest on a 5 year fixed is normalized interest rates. This is nothing new.
I think arrow means fixed VRM”s with a 90 year amortization.
That must be a very small group of people.
Is that your niche? I think I recall you mentioning first time buyer clients many times.
There doesn’t have to be lots of people to buy them. There just has to be enough people to buy them at the low level of listings.
My personal thoughts on this matter
i/ Banks/government will do whatever they can not to push people into foreclosure/distress as that doesn’t benefit the banks. I wouldn’t be shocked if foreclosures increased if the government came up with some temporary interest only measure.
ii/ I’ve mentioned it a number of times, but the value of cars in subdivision I would think would be most leveraged (Kettle Creek, Happy Valley, West Hills, Royal Bay) is quite shocking to me. It has been a few years in Canada since you could even buy entry level cars (Toyota Yaris, Honda Fit, etc.) as simply very poor market for these cars in Canada (which I interpret as Canadian have lots of disposal income so they buy expensive cars). My gut feel is people will feel the pain but switching from a Ford Bronco to a Mazda3 Hatch frees up a lot of room for mortgage interest. This isn’t limited to cars, a lot of these homes I go into have like 3 or 4 TVs, who knows how many subscriptions to who knows what, etc.
iii/ Who posted the other day on HHV average BC Government salary increase this year around 7.5%? That isn’t insignificant but Leo maybe can comment on mortgage affordability and these wage increase numbers.
iv/ 1/2 million immigrants per year.
I think next 6 to 24 months who knows how things play out but my best guess is within 24 months we are back to housing crisis chaos.
Will wait for Monday for final figures but sales have been pretty good this week which means at 5% +/- interest rates there are still plenty of people out there that can support the 1.3m in a decent neighorhood.
Right now I am working with lots of first time buyers in the 800k to 1000k range. I even have two sets of buyers that are capped at $1 million because they don’t have 20% (borrowing power is not limitation even at 5% mortgage rates, the downpayment is). Not saying by any means this is the norm but as one realtor out of 1637 I have a number of people that qualify upwards of a million as first time buyers. There is defintively a decent absolute number depsite the percentage of the population being very small. If you had told me two years ago that interest rates would be 5% today I would have predicted much much lower prices, but such is not the case.
Lots of people can afford them that’s why a semi updated one is 1.3m in a decent neighborhood. If no one can afford them then prices will come down.
I guess the reviews people left on Amazon in 2005 regarding his early 2000 books are fake, common. It is well document he has been predicting a real estate crash in Canada since approximately 2001.
You didn’t respond to the Youtube interviews from 13-14-15 years ago where Garth is mocking Vancouver real estate prices, before a 250% run up. Imagine listening to his non-sense rhetoric. You would have missed out on a highly leveraged 250% tax free run up while providing secure shelter for your family.
Right, the Harper government rescued the market. Now it is the extension of amortization rates rescuing the market.
Thing is, if he was intelligent, he would build in government internvetion into his analysis. The whole “yea he would have been right” if it wasn’t for XYZ over and over again is a lame excuse imo.
Fact is if you had listen to Garth at any point since 2001 you would be totally screwed, maybe expect Jan to May 2022.
I stand by the prediction that,* When these folks come up to renewal, and amortizations are reset to 25 years, payments could explode – many may not even qualify to renew*.
More discussion about GT than about the effects of future mortgage reset costs, is a confusing result of my question
Thank you again Leo & Dad for the reasoned answer to my question.
Huge numbers of people missed out on the opportunities of a lifetime.
We don’t need to take a deep breath…we made the right move when he advised against making that move.
Have you no sense of irony? Take a deep breath…
The quote you gave indicates that he was talking about the recovery from the Toronto bust of the 1990’s. “Could it turn into a bubble” is a long way from “there is a bubble”. He was right that the recovery was fueled by the low interest rates (for the time) subsequent to the dot-com bust. Nobody was calling a bubble in 2001. Give it up.
Ironically it was the US that saw a major bust. Canada escaped such a bust mainly for two reasons, the first that the price runup did not approach the US, except for Toronto and Vancouver, and the second the measures taken by the BoC and the Harper government to rescue the market, which I mentioned previously. But before these measures took effect, Toronto and Vancouver did see significant declines in less than a year.
As a result of these measures that boosted prices in Canada while US prices continued to decline, Canadian RE became more expensive than US RE, which persists to this day.
Max I have very little attachment to our flat and will probably move it along next year change is nice
I don’t follow Garth but I don’t have any problem with him or anybody else expressing whatever predictions they want to But ya bad track record lol
I’m 50 my Wife is 48, the kids are almost out the gate…and the two of us talk about this all the time. Selling the house would be very emotional on both of us, at the same time it could be a new beginning for both of us…we still love each other very much, no divorce.
After 20 + years of weed whacking and mowing that lawn every 3 days then raising the 2 kids…we could both use a change.
Do we want to continue to maintain this asset… or just pass the torch to someone who does?
Are there any others out there thinking but not yet moving in fear of the unknown?
The thing with owning a detached… we are also priced out because no one can afford to buy them. I’m talking 1/4 acre + lot with average 2500 sq/ft SFD . So in my opinion, if you want to unload, now is the time to do it before they just become too top heavy.
Sell the detached, buy a concrete skybox in vicwest…Live easy. And no I’m not trying to sell skybox’s in vicwest.
Funny way to characterize it. I’d say anytime anyone is quoting him or calling him a “Lord” they’d better be prepared to support the statements themselves.
Unaffordability is not a conundrum, it’s the result of uncontrolled population growth.
I just don’t understand how people aren’t smart enough to spend 30 minutes on YouTube to watch Garth’s interviews from 13-14-15 years ago….they are hilarious -> https://youtu.be/YO2c4rzcuSc?t=445
It is so well documents how insanely bad his predictions have been. The issue I have with him is he is so confident about his predictions. There are interviews with him laughing when people suggest prices could stay flat/go up (15 years ago).
Vancouver And Toronto Are Never Going To Be “Affordable,” So Now What?
https://storeys.com/toronto-vancouver-never-affordable/
He has been publishing books since the 1980s I believe? Quick google search shows early 2000 book talking about real estate bubble
The Little Book of Real Estate Wisdom
Garth Turner
Key Porter Books, 2002
“In his important new book, best-selling author and financial guru Garth Turner provides buyers and sellers with important insights into this vibrant market, that’s being fuelled by cheap money, rising investor confidence and a surprising economic recovery. How long will the boom last, and could it turn into a bubble, with disastrous consequences?”
“When properties are selected for audit, property owners are required to provide specific documentation that pertains to the declaration made. Documents provided must be relevant to the reference year under audit the city’s compliance analyst was specifically looking for.
… proof of identity that was valid for at least six months in 2021, and says it only needs proof for one tenant, not all of them.
Bureaucracies are usually difficult to navigate, but I’m thinking some parts of this story are missing.
Singing his song? The song is 15 years long and counting.
When I mentioned Lord Garth’s name I suspected not many here would be singing his song, but I never expected it to hit such a nerve, sheesh.
A high end kitchen upgrade alone is 100k + these days. Water fall granite, fridges you can ask Siri what to do , lighting everywhere.
Vancouver landlord ‘pleads for common sense’ after being hit with a $69,000 empty homes tax bill
https://vancouversun.com/news/local-news/vancouver-landlord-pleads-for-common-sense-hit-with-empty-homes-tax-bill
In 2008 all the excavated condo developments ready to be built out turned into duck ponds for years.
We all thought “this is it” so we were all trading squirrel recipes.
I could sell my house, have a whack of tax free cash, go buy a bunch of high end camping gear and go live in the bush for the rest of my life.
I think I’ll just stay where I am and ride out the storm…It’s kind of cozy here.
Just don’t get too debt heavy in these times. You don’t need that new kitchen and baths right now…wait.
Some of us need to un-clutch our pearls – Garth is the Jeremy Clarkson of our fetid little investment world, not Gregory Martel.
“There is no such thing as bad publicity” is a truism because it’s true and Garth has a product to sell which, like that of all his competitors, is now outdated: everything he and they have on offer can be accomplished by buying VBAL monthly and never looking at your balance until you are 60.
He remains vastly entertaining.
Let those pearls dangle.
Unless I missed something, his first book “Greater Fool” came out in March 2008 and in fact a crash in Canada did begin shortly thereafter, followed by the financial crisis in the fall. The decline was turned around by actions of the BoC and the Harper government. His prediction was still wrong in the long term of course, but not unfounded at the time.
I don’t find it credible that Garth or anyone else was predicting a crash around the turn of the century, since the Toronto area had recently hit the bottom of a massive bust.
I do hold him accountable for this. We have laws against deceptive marketing and it is a fine line between free speech and being a swindler. Being wrong for 20 years and profiting off of those who don’t have good critical thinking is not okay in my view.
I made a YouTube video regarding Garth’s predictions in 2012. One day I am driving down the highway going past VGH and I see call display on the dash “Garth Turner.” I am like wtf. Anyway I answer and it was not a pleasant conversation. He threatened legal action if I didn’t take down the video so I took down the video.
I don’t blame Garth for the non-sense he publishes; he is catering to an audience that can’t critically think for themselves and his profits of that. It is what it is.
When did his first book about a real estate crash in Canada come out? Like 2001 or something when you could buy a home in Oak Bay for $250,000. lol
When you are trying to profit from misinformation and disinformation it is not “being picked on” to have this brought to light. It is, imo, a necessary part of free speech and of potential benefit to the gullible.
I think the banks are more concerned with the commercial real estate market than residential, at least in the U.S. Discussions on BNN yesterday focused on how bad that market is, for example, 32% of San Francisco commercial space is vacant. Any stats on what the commercial/residential ratio is? They were talking about people walking away from some properties. Residential is probably the least of their concerns, people have to live somewhere, commercial can sit empty for years. Something to watch for.
I don’t know enough about this, but wondering if OSFI can actually mandate the banks to let’s say force under-water amortizations to increase monthly payments somewhat, say certainly not all the way at once right now but in a phased-in way over the next couple of years? Even a phased-in approach that gets them say half-way there over the next 2 years might be sufficient or in any event better than just waiting for renewals that might turn out to be totally unaffordable if the wing-and-a-prayer approach of significant rate reductions doesn’t really come to pass, or doesn’t come to pass as much as people seem to expect? Especially if people are just sort of assuming it will all be fine and then buy new cars….
Well BC had a chance to go HST (federal+provincial VAT). Remember how that turned out.
You are right. GST is a VAT. PST is not. In BC for private sales they actually up the PST to 12% to compensate for the lack of GST on a used car sold privately.
This is a total money grab for the province and I am sure is kept in place dur to lobbying by dealerships.
Everyone is picking on Garth, He is just trying to sell what he sells.
In 2008, which I think was around the time when his blog was started.
West Hills (Langford) was hoarded up and shut down for a long time.
House after house after house…boarded up.
What was supposed to happen in 2008 didn’t…They let It slide.
Next time…I don’t think they can.
Things can go very bad very quickly.
Expect the unexpected.
I could be mistaken here, but I’m pretty sure you only pay PST on secondhand cars in BC, not GST (if they’re sold privately).
If it was truely a value added tax there would be no tax for selling secondhand cars between individuals. There was no value added to the car from when it was originally purchased to when it is sold if it was sold for a lower price. It actually acts as an anti-competitive tax in this scenario, since if a dealer buys it they can deduct the GST, so they have a competitive advantage of buying it through a trade-in versus the seller selling it direct.
Maybe, but I hear the righties also enjoy government control, especially when it comes to a woman’s body.
I personally prefer the centrist approach to government, fwiw. Populists just talk a lot and never get anything useful done.
True, but it would spur economic activities that would be beneficial to everyone.
Tax increase energy, transportation, food, and consumption costs, so it would hurt the middle class/poor so in away it is an inflation.
It’s not the same amount of money, if it’s just a tax cut. A tax cut along with an equal reduction in government spending would not be inflationary however.
You can have a productive and competitive economy with high taxes. Finland is among the highest taxed countries in the world. Not that I think the high taxes are responsible for high productivity.
Also tax cuts do not necessarily improve business competitiveness, e.g. value added taxes (GST) are designed not to affect competitiveness.
That’s like my #1 thing I’ve learned in 15 years is to be a heck of a lot more humble about any kind of predictions. They’re nearly always wrong and you only get slightly better with more knowledge. Similar to other markets I guess
Perhaps, the spend happy socialist love being control by the government, hence they want more tax and more frivolous spending.
Why would a tax cut increase inflation when it is exactly the same amount of money available on the market, be it spending by the populace or by the government?
Tax cut encourage economic activities that are beneficial to everyone, and tax drive business out of Canada that hurt the middle class and cause hardship on the poor.
https://www.worldbank.org/en/events/2022/09/14/taxation-in-times-of-high-inflation
https://www.cdhowe.org/expert-op-eds/taxes-can-amplify-pain-inflation-globe-and-mail-op-ed
Also a bull-shitter with a thin skin.
Criticize Leo’s interpretation on HHV and he will engage you with facts. Criticize Garth’s interpretation on greaterfool and you’ll either get a snarky comment or more often your comment will disappear.
Well James, when you through someone a life preserver, they are going to take it. By doing so they can put off the inevitable rather than change their spending habits. My sister-in-law extended her mortgage and then bought a new car.
“Extend and pretend” is the name they’re giving for it. Pretty catchy.
Yep once I figured that out it’s about the time I stopped reading.
15 years ago I went to see Garth speak in Victoria and read a couple of his books. Read the blog regularly and there is no doubt he’s a good, consistent, and entertaining writer.
The message is basically don’t invest in real estate because it’s about to crash, invest more in the markets in diversified funds, find a good advisor.
At one point he said if you don’t have an advisor email him for recommendations. I did way back then and he said he didn’t know anyone on the west coast but he could recommend his own firm. That’s when it clicked for me.
Nothing wrong with the basic advice of keeping your investments diversified. Not necessarily a smart decision to go all in on real estate even if that’s been a good play for a long time. Problem is 99% of the messaging is about the real estate crash which didn’t materialize, and of course Garth himself does have a bunch of real estate and always has, so it’s certainly not something he actually believes.
Thanks for answering my question, Dad & Leo
In a nut-shell, Greaterfool is a shill for his investment firm -i am not a supporter, and I have only once headed his advice, when he said that if someone wants a primary residence and can afford one, buy it now. I did in March.
His comment section makes this place (even Frank) look very accepting of others.
Ask yourself if it’s smart to read and take heed of a person whose analysis has been so poor over the years that even his supporters admit he’s like a broken clock.
Absolutely. Also an example of someone with no ethics imo. How many people following Garth over the years sold or failed to purchase a home and are now priced out or lost out on significant appreciation? He makes his living from hyperbole based on selected facts supporting his base proposition, not a reasoned assessment of all the relevant facts. Reminds me of Trump.
My opinion is that capital gain beyond one million of the principal residence should be taxable. The number of one million could increase with the inflation rate year by year.
https://househuntvictoria.ca/2023/06/19/the-impact-of-months-of-inventory/#comment-103048
Guess QT missed the Liz Truss fiasco…
If the original principal was $500,000 amortized over 30 years and the interest rate was 1.5%, the monthly payment would be ~$1725. Let’s say at the end of the term the remaining principal plus deferred interest is $480,000, and the mortgage is renewed at 3.9%. To get back to the original amortization schedule of 30 years (i.e., 25 remaining), the monthly payment would now increase to ~$2475.
If you bought a house in 2021 near the peak of the market at max GDS when rates were rock bottom, then you might be in some trouble at renewal. Otherwise, a substantial payment increase is in the cards, but my bet is that most folks will manage, especially after five years of wage increases…
Everyone is a bull-shitter, but Garth is just next level. The guy is a charlatan.
It works by forcing borrowers to return to their original amortization and upping their payments dramatically (or coming up with a big lump sum).
If you look at the Bank of Canada modelling, they expect borrowers with fixed payment variables to face large payment increases in 2023/2024 and very large payment increases in 2025/2026 (green bars)
As far as I know they are not. I believe insured can go back to the original amortization (so if they started at 25 you can go back to 25 when you renew 5 years in) and same for uninsured (if you started at 30 you can go back to 30 at renewal). I am not aware of options for 30+ year mortgages though I’m sure there’s a few unique lenders that offer stuff like this, but not in volume and not at prime rates.
First quarter 2023:
BC: 89.25%
AB: 3.91%
ON/QC: 3.76%
Other provinces: 2.03%
Outside Canada: 1.05%
Note: This information is based on data supplied by member REALTORS® who reported the unconditional sales of their listings during the reporting period.
The answers supplied respond to the question: “Where is the buyer currently residing?”. This data cannot be used to deduce the nationality of the buyer.
I’m pretty sure you can get a 30 year mortgage if you have over 20% down.
OK, but it is still unclear to me whether the banks are currently allowed to renew for a period of more than 25 years. Is the Minister of Finance even allowed to change that time frame for renewals?
I mean, you look at any news site that discusses mortgages in Canada and they’ve been telling you a similar thing for months.
Sure his track record of calling a housing readjustment is a bit of a broken record, but his view that “By encouraging the banks to push out loan lengths instead of asking borrowers to pay more as rates rise, a huge gamble is created. When these folks come up to renewal, and amortizations are reset to 25 years, payments could explode – unless rates take a huge tumble next year. In fact, many may not even qualify to renew.” has me wondering how a mortgage gets renewed if it has been running negative amortization for a few years, what with a stress test, and all..
Can someone please explain to me how this would work?
Using the broken clock analogy, Garth is the broken digital clock. Annoying red lights flashing but will not tell you the time correctly.
“Funds raised through school taxes on property go to the provincial Consolidated Revenue Fund; board of education funding no longer has any direct connection to those tax revenues.”
Patriotz, explain then why it says my local school district? I work at a school in administration I am well aware of how it works. Funding is per student present per day in whatever school totaled with all private and public schools within a district to create a budget, which the BC government collects on behalf of said school district via property taxes in that particular municiipality, ie for me either Victoria, which it is, or Saanich depending on my home’s location, and which is then parsed out to individual schools. They then also have grants and so on…
Any idea what percentage of buyers are out of province in this strong market?
The Canadian dollar has been a bit stronger lately. It’s a balancing act, the government doesn’t want it to go too low, then again it doesn’t want it to go too high. 75 cents could be a sweet spot, I don’t think we’ll see much change in the BOC rate. Lots of currencies around the world are tanking, like Turkey, and their interest rates soaring.
I do agree that government spending has to be reined in, but doubt that will happen with the Abbott and Costello act we’ve got in Ottawa.
Doesn’t work that way. The provincial government collects the school tax and allocates funding to schools on a formula based on enrollment, not local tax collected.
Tax cuts are inflationary because they give people more money to spend. Tax cuts in the US in the 1960’s, together with the Vietnam War, were the major factors behind the taking off of inflation which lasted through the 1970’s and early 1980’s. The oil crisis of the 1970’s helped it along.
They do deduct the lost income, because it’s the rent received (i.e. rent controlled) that goes on the rental income schedule for income tax, not the market rent.
Of course the schedule itself doesn’t have a calculation for market rent versus actual rent, but mathematically that’s what happens.
Why would the Bank of England rates has anything to do with Bank of Canada rates?
What affect us much more is the government of Canada money printing to blowing it on ESG, unnecessary international funding, many social programs. And, expecting inflation to come down when the government tax everything to the wazoo that greatly contribute to the inflation.
If the government truly serious with lowering inflation, then it would make more sense to cut tax, stay within budget, and cut wasteful spending. And, to keep the economy humming along, it would make perfect sense to uncuff business by cut red tape, lower corporate tax, and stop catering to ESG/woke policies.
Caveat, the only thing “non-local/municipal” I see in relation to my tax bill is BC Transit and BC assessment.
In addition to municipal taxes, Saanich collects funds for:
BC Government (School Districts)
Capital Regional District
Capital Regional Hospital District
BC Assessment
BC Transit
Municipal Finance Authority
I don’t consider those a BC tax, part of the tax goes to fund those two provincial agencies, but they also operate at the municipal level, as in for our Victoria/Saanich transit system and our local hospitals. As for School District, well again it goes to the one where I live. The CRD is what Saanich is part of, which again is where I live. Maybe it’s splitting hairs, but it seems to be pretty clear.
I wonder if there is a disconnect in pricing properties over two million.
Barrister, about 3% of the house sales in Victoria’s core went over 2 million so far this month.
And about 34% of the current house listings are priced over $2,000,000 in the core.
Victoria’s housing market is really top heavy.
I wonder if the free market puritans on here would also support abolishing rent control.
Do you calculate based on national, provincial, regional, municipal or neighbourhood market prices? Does condition of the individual property matter? Does it supersede an existing lease? If market rates drop, then does renter get claim a refund? It gets nice and foolish rather quickly, but governments love their taxes. It would definitely be an excuse to hire more chubby government working types to create inefficient obstructive policies to sort it out.
You can call it what you want; some people pay substantially less than market rate, at the expense of someone else.
The question stands, should it be a taxable benefit?
Should the landlord be able to deduct the lost income?
Should the market-rate tenants, who are actually paying above what market-rate would be in a free market, qualify for a deduction?
It is absolutely a system of rent control and commonly referred to by opponents of rent control as a subsidy.
How many sales this month of over two million. Seems like a lot of listings with few sales.
Or a full 1% hike. black swan.
Mostly from the bond market and where the market rates are going for debt. For the BoC to decrease or maintain it’s rate as it stands, it will likely need do a paper issue (quantitative easing/ bond buys). Since the one consistent signal has been that there is no stomach to subsidize debt through further QE, the BoC rate will likely need to chase market debt rates. If BoC doesn’t, it will have a tough time selling bonds on the market. That would also likely lead to a weakening of the Cdn dollar, and since we import a lot of what we buy, the result of that is increasing inflation. Hence, the likely need to raise in July to match market rates. So, ya, call it a guess…
I think you have a different definition of rent control subsidy then most most folks. I was going with rent controlled social housing and people receiving a welfare subsidy to assist with housing cost. The RTA limits on rent increases isn’t either or by any definition viewed as a subsidy or welfare benefit. lol..
Lots of people, essentially every renter who hasn’t moved recently, is in a rent-controlled apartment. The provincial limits on rent increases to keep rents below market rate are in effect a subsidy.
There is no income threshold involved.
Mon to Wed we are 6% more sales entered this week than last. So right now on track for over 150.
That is my take on the vacancy tax stories that come up once in a while. While it’s quite possible that people are being screwed by an inflexible and unreasonable bureaucracy, the stories also generally don’t make an ounce of sense given the details that are reported.
Even your own office space in your principle residence can prove to be a nightmare.
Its not meant to be a business.
Any prediction on sales this week? over or under 150?
No, because it’s not compensation for a job. That’s what a taxable benefit is.
The world is upside down, of course no one knows anything.
Never understood why people do this unless they absolutely had to in order to make the mortgage payments. You buy a house so you can enjoy living in a house (aka privacy)….
No one knows anything
He is questioning what UK interest rates have to do with Victoria housing costs. I expect the answer to be something like blah blah blah more motivation for BoC to raise rates in July to keep pace with everyone else.
I think if anything those with rental properties that are in the money but cashflow negative will be more motivated to sell. Make $100k and stop bleeding money every month sounds pretty enticing.
My accountant told me years ago it is not a good idea to have a rental suite in your principle residence and listed many reasons why.
Have you ever heard of cash for keys? My Mother in-law had to hire a lawyer and still had to pay the tenant big money to get them out.
Think twice about this rental suite “pipe dream” in your principle residence.
I think it’s just a guess.
My family would have to start giving up some actual substantial items. By no means any real hardship, but certainly the next level after discretionary spending.
For the average new owner with an average mortgage, I don’t think they’ve got 50K extra income to burn.
QT: Interest rates for mortgages have a lot to do with housing costs. Not sure what you are questioning?
One Turkish lira is worth 5 cents Canadian and falling. The currency falls faster than the interest rate they are paying. At least our currency is holding up. Surprisingly.
Does it have anything to do with Victoria housing?
Türkiye with a 6.5% rate hike today… crazy.
50bps on July 12 would be something. I’ve read, since the bullish 1.1% retail sales number, there’s a 72% chance of a hike, but assume that would be skewed to 25 bps. Where did you see 50bps?
https://www.reuters.com/markets/currencies/rate-hike-bets-help-lift-cad-9-month-high-2023-06-21/#:~:text=Money%20markets%20see%20a%2072,from%2064%25%20before%20the%20data.
on point, adjective: Having a direct application to the case or topic under consideration.
Professing an imminent market reset for a decade was becoming tiresome, until this fall when there was a ~20% reset.
In a nut-shell, a shill for his investment firm.
“Still read that guy?”
Daily. Slick prose, deft irony, and reliably on-point.
Looking at my rapidly extending mute list on HHV this is uncommon and treasured.
A broken clock is right twice a day, and his day may be here soon.
Holy shit, people still read that guy?
I know that Lord Garth does not sing a song that is pleasing to most HHVers, but this quote from his post today is chilling:
“Ottawa’s Code of Mortgage Conduct, launched March 28th, may be setting Canada’s housing market up for the shock of a generation. By encouraging the banks to push out loan lengths instead of asking borrowers to pay more as rates rise, a huge gamble is created. When these folks come up to renewal, and amortizations are reset to 25 years, payments could explode – unless rates take a huge tumble next year. In fact, many may not even qualify to renew.”
https://www.greaterfool.ca/2023/06/22/the-inevitable-6/
That really doesn’t sound good.
Wonder where the non-bank mortgages are at.
True, my bad I thought you were directly referring to impact on RE. Leo, how are sales and listings looking so far this week?
Probably doesn’t matter if it is or is not. People receiving that subsidy are likely not at an income threshold where it would be taxed if it was added to their taxable income.
Well, the real estate market is only a small portion of reasoning to make the rate decisions. It just recieves a disportionate impact of it.
Should the subsidy received by people in rent-controlled apartments be considered a taxable benefit?
@Umm…really I agree with your POV that capital gains on houses, and houses with suites could become a tax nightmare. I think it would be easy enough though to tax gains on the sale of your primary residence over a certain % of the original value or something like that without it becoming a beauracratic nightmare and adding another 150 people at the CRA to manage it.
I think homeowners who add or rent out suites in their primary residence are adding to the housing stock immediately and it should be encouraged. I don’t want to incentivize unsafe dwellings of-course, as I’ve seen some dingy and dirty places being called “suites” that really aren’t fit for it. In my area, of the 10 houses nearest to me, 8 have suites.
I’ve been claiming 50% of my dwelling as rentable area and I’m hoping there won’t be some additional capital gains when I sell the property…..
Unnecessary, market had already turned before the last rate hike.
Victoria example tax bill. 65% municipal. 11% regional, 24% provincial. You mileage may vary depending on HOG and “additional school tax” on high value homes
Look at your tax bill, or that of a friend or family member if you don’t own, and you will easily disprove that assertion.
A 50 point BoC bump in July is becoming more and more baked in now.
Max I think you’re thinking of property transfer taxes. They go to the province. Property taxes go 100% to your municipality.
Bank of England bumps half a point to 5%. I suspect that we might be looking at more rate increases as well before the end of this year.
Yes, and claim a capital loss if we don’t end up with a net profit after all expenses.
Another advantage of having a property management company handle a property. Wouldn’t water usage prove occupancy? The city has no access to income tax records, failure to report income would not be a reason for an audit.
This seems like an odd story to me. If the landlord had 6 tenants, 2 of them being family members, how would it not be easy to prove that it was occupied for at least 6 months. I am guessing the landlord was not declaring the rent as income. It sounds like the landlord was needing to produce documents from the tenants showing they lived there. It don’t think I ever needed documents from my tenants showing they were living on my property and getting those kind of documents retroactively from your tenants would not always be straightforward.
The journalist on this article could have dug a bit deeper to give a better explanation of what happened.
Still it sounds like it could be a lot of hassle for a landlord if they get audited under this empty home tax system. I guess the employees running this program need to show why they are getting paid somehow.
My son and his Girlfriend are trying to rent a 1 bed apartment in Langford for $2050 per month.
They are 19 years old. Resume, T-4, platinum credit score…no deal.
There are rental units available everywhere in the west shore, but they are very expensive, and you need solid references.
Property taxes mostly go to the Province, not the Municipality.
Taxing anything else is beyond stupid.
Exception on ones principle residence at the sale of that residence should remain the way it has always been.
Or… we get to write off Interest, maintenance, and anything else we can find to write off…every year, forever.
Tax principle residence if you want. We should be able to write off all interest payments and maintenance costs every year.
Deal.
Not exactly. Government contributes about about 29% of Community Non-Profits funding which make up about 37% of all non-profit employees. And the non-profits that receive 50% of their funding or more from government are hospitals, universities, colleges and school boards. Seems kind of legit to me.
https://www.imaginecanada.ca/sites/default/files/Datasheet-BC-2022.pdf#:~:text=The%20nonprofit%20sector%20employs%20331%2C000%20people%20in%20British,are%20women%2C%20with%20community%20nonprofits%20employing%2090%2C000%20people.5
How about just figuring out how to lower taxes to start with and stop expanding government. Three hundred and thirty five thousand people in BC work for non profits (except their salaries profit them) and mostly that is funded by government. They dont even show up on government payrolls. People seem to love coming up with new taxes, usually ones that dont impact them.
Capital gains are federal taxes. Property taxes go for municipal services based on municipal budgets. And an annual tax increase is hard on retired people and others on fixed incomes and tight budget. Capital gains come from asset proceeds upon sale and are only based on the increase in the asset value so there are proceeds to pay a tax at that time.
Bank of Canada reasoning to raise rates included the fact that house prices were accelerating again
One of the potential downsides of taxing capital gains on principal residence is that it would disincentive people moving to a more suitable dwelling. For example once kids move out some people choose downsizing to a smaller dwelling. Potentially freeing up a SFH for a young family looking for the extra space. Taxing the capital gains could end up causing people to stay in their houses longer, reducing supply.
A more efficient tax is increasing property taxes.
But the discussion was specifically around measures that could encourage the creation of secondary suites. Mom and pop are the target. Your policy response is too broad.
Doesn’t really seem like it would be very difficult to clarify that a secondary suite in an owner occupied house is subject to the capital gains exemption. The program already exists. Or, for example, creating a tax credit that could be claimed for providing a secondary suite as a long term rental.
A minority of people hold taxable investments and they are highly skewed towards the wealthy. Consider how few people are maxed out in both their RRSPs and TFSAs.
Those who do hold taxable investments don’t need any help, and I speak as one of them. They are already getting the 50% inclusion as it is.
Or just keep it really simple and up the capital gains exemption limit across the board and have it as both annual and lifetime amounts instead of just a lifetime limit. Not just helping mom and pop with a basement suit but those with investments they are cashing out for retirement as well. Then it’s done without cumbersome incompetence of bureaucracy that turns into trying chase solutions as a pandering one off policy that has un-intended consequences that they then have to follow up with other bound to fail micro focused solutions.
Means-testing isn’t that complicated. And anyway, I think the discussion was about tax policies to encourage/not punish the creation of secondary suites, like excluding the suite portion of the home from capital gains. Seems reasonable to me, especially in a housing crisis, and very easy to administer.
If you really mean anyone, the answer is yes.
https://househuntvictoria.ca/2016/10/07/do-you-have-to-pay-capital-gains-tax-on-your-suite/
Has anyone had to pay capital gains on the suite portion of their house, after selling the house?
In my case, having to pay CG on the suite would remove all incentive from renting it as the taxes would nearly wipe out all revenue (we rent it at below market rates to extended family).
Thought this was interesting.
Ambulances will soon be autonomous, you’ll just have to learn to do CPR on yourself.
Help you all actually, lol imagine that 😉
I believe the idea that your primary residence is not an investment and that includes other carrying costs such as interest and annualized property taxes (that pay for services) I guess if you want to tax it, it will need to bring in other complexities, such as: since it is taxable like an investment, you can now write off yours costs associated to it like the interest paid and maintenance. Oh, don’t forget, if sells at a loss instead of an appreciation, you would be able to write that loss down against taxes as well.
Well, because at that point it’s an investment for a business purpose. That’s the line of logic, and not on who deserves to be taxed on the view of what overall wealth they either have or not. If they over complicate taxes to split hairs too much, it just stops functioning with any efficiency. So, what would be the line for someone renting a suite to be or not be taxed? If they already have a lot of money, more than one suite, the value of the house and etc…? It just quickly becomes unmanageable from a tax policy perspective.
Ideally, look a eliminating home ownership subsidies and let the true cost of ownership take affect. Start cutting home owner tax credits, tax deferrals, mortgage insurance subsidies, and any renovation tax credits. Other than buying votes from the 65% of hosers that own homes, it really makes no sense to give money to people that are asset rich additional money to make that asset worth more or to stimulate prices and demand by adding money to purchase side via subsidies.
Because Fire and Ambulances run themselves?
What do you even do?
Lol don’t forget the wages and benefits for all those government union workers
Why does the government tax my income?
To provide services like health care, education, fire, sewage, roads… the list goes on and on. Why should your house appreciation be exempt?
Those extra 12 units would have changed everything. Now the project is crap.
@James Soper. I’m not sure capital gains on primary homes should be taxed, but I’m also not sure it shouldn’t. Why should the government get a piece of my appreciation? I’m all for higher taxes to fund affordable housing and social programs, especially on the ultra-rich (1%). But should the middle-class lackey who barely squeaks by get their capital gains on primary residence taxed as well? Should there be some sort of limit?
I already get taxed on my income, all of my goods and services, used cars that I buy, and my rental income from my SFH basement suite.
I think secondary houses should be taxed on capital gains. Oh wait, they are!
Why should any of them have tax free capital gains?
I just hope every condo project has at least one parking space for each unit plus a reasonable number of guest parking spaces.
Agreed!
Exactly. Why should someone in the Uplands on a 20,000 square foot lot with two people in their mansion have tax-free capital gains of more than a million, while the middle income family who has a suite they rent out be penalized? Backwards tax and municipal planning policy in a housing crisis.
The fastest and cheapest way to get more housing is to incentivize SFH owners to create suites or duplexes at their own cost. After that I’d be focusing on purpose built coops and public rental housing built with public money on public lands with a long-term underlying lease.
A relatively affordable Esquimalt listing. I would guess a floating home presents some interesting maintenance and insurance issues.
https://www.realtor.ca/real-estate/25623627/27-453-head-st-esquimalt-old-esquimalt
That’s dedication to use your free time like so.
4 hours and counting into a Saanich public hearing that was 100% unnecessary (staff recommended direct approval) for an OCP compliant project on Shelbourne.
The project initially went to staff in 2020 and over 3 years was bargained down from 107 homes to 95. The family sized townhouses were cut from the project to increase green space. Didn’t do a damn thing for community support of course they showed up in droves to oppose it.
In the Netherlands most rental housing stock is created through housing corporations. These are non-profits originally setup to provide housing for the working class. They have access to cheaper funding since the are backstopped by the government. Some of their stock becomes available to purchase after x number of years. I think Netherlands implemented a ban to not allow this stock to be bought up by investors.
Lucky- I’m sure existing big box stores would not have the appropriate foundation to accommodate multi level apartments. Unfortunately this wasn’t thought of years ago, but years ago the housing crisis did not exist. Let’s create the problem first, then travel around the world to find a solution. Having apartments in conjunction with a big box store could provide housing for their employees which would decrease traffic and save energy. The other tenants would not have to travel far to get their necessities decreasing the need for large, polluting Amazon vans delivering items one at a time. As for zoning, that’s where the politicians come in.
Houses with suites do something that purpose-built housing can’t: respond quickly to demand.
A home owner with an unused basement could have a suite ready to rent in a fraction of the time it takes for new purpose-built housing.
Increasing security of tenancy makes it less attractive to would-be landlords, however.
+1, I’ve never understood why SFHs with suite take so much heat (i.e., they should pay capital gains on the suite %, etc.), but someone with a 6,000 sq/ft home on a 27,000 sq/ft lot in the Uplands is just fine and they get a free pass because they don’t have a suite.
This is true- in home suite rentals are insecure rentals.. But an insecure suite rental is better than no suite. A house with a suite provides shelter for two households, and the same house with no suite provides shelter for only one.
House owners with suites are helping to solve the housing crisis by providing a “missing middle” affordable suite. Without having to tear down a house and rebuild with luxury unaffordable “gentrified” units .
As I’ve mentioned in other posts, there are simple, no cost things the government could do to make all rentals more secure, such as increasing the landlord notice to occupy from two months to six months. The landlords with in-home suites should also get a break on their property tax and rental income tax , since they are helping the housing crisis by increasing the occupied density of their house.
Thanks for the graph Leo, and the mute function. Can we get a disintegrating ray next?
Patriotz, I don’t understand why a tenant that is taking on a higher risk of renting a condominium over that of a purpose built apartment would necessitate a change in the definition of investor?
So in my opinion if someone buys a condominium for rental purposes then they are an investor. If the person is renting out part of the home they live in, as a mortgage helper, then I would make a distinction and consider them passive investors. Although this is a bit of a grey area because the property owner is giving up a portion of their fee simple rights by granting a leasehold interest to the tenant.
The difference between the two being that the active investor is purchasing a property solely on its income producing potential. The passive investor is buying the property because it’s pretty. Although many people are buying a house today and they need that rental income to make their mortgage payments. Others might have a different motive to rent out part of their home because they are lonely or need mad money for the Casino.
An investor is a person that puts money into property with the expectation of achieving a profit. I am going to go with that definition.
Well, that didn’t take long.
“the B.C. government has announced it will invest $253 million across 10 Burnaby developments that will bring around 1,500 new affordable rental homes to the city…The City of Burnaby is providing land for at least four of the projects…He noted Burnaby is one of the fastest growing cities in B.C., making the demand for affordable housing in the city among the highest in the province. Burnaby has the third highest rents in the country, and the second highest when it comes to apartments and condos…Four of the projects (790 units) are currently in development, 205 units will begin construction by the end of this year, and 390 units are currently under construction and expected to be complete by 2026.”
https://biv.com/article/2023/06/province-announces-253m-almost-1500-rental-homes-burnaby
The vast majority of renters would prefer to be home owners because they recognize the major disadvantages of being a renter in Canada and the huge advantages of being an owner.
No argument from me on building housing above underutilized land on-top of stores and parking lots. It’s a good idea that has been done elsewhere and seems like smart land use policy. Of course, you’d need to overcome zoning issues, and I wonder what modifications are required for existing structures to support/accommodate buildings on-top in terms of services, seismic considerations, drainage, etc. Tuscany Village on McKenzie would be a scaled-back version of this idea I think.
As noted a few threads back, many of those “investors” are actually owner-occupiers of SFH with suites, or duplexes. These should be distinguished from pure investors, who don’t live in the property.
Really the policy issue is that investor ownership of individually titled dwellings does not provide secure tenure. From this viewpoint, it’s inferior to both owner-occupancy and purpose built rentals.
doubt it given where it’s coming from
Lots of good comments on the Blog today.
Too big to fail YOLO!
Hmm, hiding higher risk heavily indebted borrowers within high quality portfolios, where and when did that happen before?… Awesome. We can sell the debt that no one wants if people think it’s the top grade stuff. What could go wrong?
I wonder what percentage of people prefer to simply rent and have no desire to own. No property taxes, minimal insurance, no repairs, bank your money, invest in quality stocks. Not for me but it has some advantages. The solution might be more affordable rental units. My solution would be to build 10-20 storey apartments above the big box stores, uses no land. The government could put this plan into effect on all new big box store projects. They absorb an enormous amount of land for their giant parking lots. Unfortunately, this idea makes too much sense.
Sorry, address is 1003-760 Johnson.
Wonder if this person was an investor.
They purchased a 1 bedroom condo at the Juliet on 8 Apr 2022 for $589K and are now trying to sell
for $579K. Originally asking $598,800. It comes with parking and maybe furnished.
Nice bright unit that can be put in the air b&b rental pool.
I don’t know if anyone knows what the ratio of home owners to renters should be. Personally, when it comes to condos, I think the ratio of investors is much higher than 21%. Much higher but probably less than 50%.
So when you build a 100 unit high rise you would target 50 percent of those sales to go to investors and aim to get 60 to 70 percent of the units pre-sold before construction starts. In that way investors create new housing.
But if investors are buying pre-existing units, they are not creating anything new and not adding to the housing / rental stock. The same when they go to sell. There is your zero sum game.
But when an investor in a new complex sells then that unit may go to a home owner who most likely was a renter. This is shadow inventory which isn’t counted when you hear things like Canada needs 3.5 million new units. If condo investors in new buildings built over the last decade switched to net sellers that would change the marketplace. In the short term this would be bad for tenants as they would be displaced and most likely rents would increase. But over the long term the vacancy rate would begin to increase as more renters became home owners.
https://www.msn.com/en-ca/money/topstories/cibc-under-remediation-from-osfi-over-mortgage-portfolio-the-globe-and-mail/ar-AA1cNPF0?ocid=msedgntp&cvid=04ab0d74a5d748b1b3dd4d767a24d7c4&ei=23
Looks like CIBC was caught circumventing some banking rules on mortgages. Likely not the only bank.
With homeownership rate of 61% in Victoria, that means about 39% are rented and owned by “investors”. (I’m using the term “investors” in the broadest sense, as the owner of any home that is being rented out). So if we want to maintain that 39% rental stock, we need 39% of the new builds and resales to go to investors.
This seems obvious, yet people get tied up in knots when they see that 21% of resales are going to investors, and consider this too high and part of the “crisis”. So they come up with nutty, extreme ideas like “ investors should be more restricted from purchasing existing units“
Meanwhile, the 21% of resales bought by investors is just one variable of many that need to add up to 39% of housing stock being rented. Other obvious variables are investor selling, non-MLS new builds going straight to investors etc. It seems no one measures those other variables, and so they don’t have a clue as to the total investor buying and selling going on. Other than looking at the once every five years Census homeownership rate, which has fallen a little to 66.5% in Canada, but still close to all-time highs (69% in 2011). I expect that this small drop is due to the mix of new builds being skewed towards rentals (condos and purpose rentals ) instead of detached houses. This is a good thing, because lower income people can afford to rent, and we need these affordable rental units.
Depends. Yes fewer rentals but if someone buys the house instead then there’s also one household that no longer needs a rental.
In the paper they discover it had a distributional impact on renters. Higher income renters were able to buy in while lower income renters potentially suffered due to paying higher rents. Worth noting that the impact of rising rents was the weakest finding in the paper, so it’s even possible that nothing changed at all (same rents same prices) from the investor ban. That’s why I have no strong position on whether investor restrictions should be looser or stricter.
Unless we’re adding units, changing the ownership rate within the housing stock is just rearranging the deck chairs on the Titanic. Really it’s a question of what is the ideal ownership rate? Should we be striving for 50%? 70%? 90%? We can probably clearly argue why we don’t want an ownership rate of 1% or 99%, but beyond the extremes it’s a lot fuzzier
I’m not up to date on the tax laws regarding selling your condominiums and then re-investing the proceeds to buy or build an apartment building. From what I recall, you would still have to pay capital gains tax on the sale of the condominiums. If that is still the case, it might be an idea to change that requirement to encourage more investment in rental buildings.
If you are at the point that you now have too many individual units to manage in different parts of the city. Then having a six suite apartment building would be a welcome relief in your time as well as lowering your monthly costs. When you own six separate units you are paying more property taxes as well as higher combined strata fees than an apartment building. A couple of hundred bucks a month on each condo goes to a reserve fund. You don’t get that money back when you sell. Apartment buildings don’t require a reserve fund or a costly Reserve Fund Analysis / Depreciation report every few years either. When the roof or elevator needs replacing, then you go to the bank and re-finance the property and expense the cost.
If the government made it easier for investors to get out from under the burden and tax implications of owning multiple units so that they can invest in buying or building a purpose-built rental, I think that would be good way to encourage more purpose built rentals.
Hopefully Eby returns from Singapore and Japan with some tried & true housing ideas, and implements them here:.
“They [Japan’s Daito Trust Corporation] have a very interesting business model where, if you [i.e. Federal, Provincial, or Indigenous government] own land, they partner with you, build rental housing for you, and then lease out that building from you, providing you with fixed payments, and they operate the building for 30 years,”
https://biv.com/article/2023/06/rob-shaw-ebys-trade-mission-aims-find-partners-alignment-bc-businesses-and-policies
Or,
“Singapore’s success in developing public housing in high-density areas….characterizes the Singapore housing model as “municipal socialism,” in contrast to the city state’s approach on other fronts…everyone who is a (citizen) would be a homeowner, buying housing from the government, which is the principal landowner…As a result, nine out of 10 citizens of Singapore own a dwelling. Nearly all are apartments, ranging from run-of-the-mill to elegant. Most are leased for 99 years from the government. Another 20 per cent of housing is exchanged on the private market.
https://vancouversun.com/news/vaughn-palmer-eby-lines-up-housing-education-in-singapore
My opinion, is that there should be no new restrictions placed on purpose built rental buildings of 5 units and more. But there should be restrictions placed on the number of individual units that an investor can hold. The government could do this by eliminating the the capital gains exemption on 5 or more individual units. The gains on five or more residential unit would be fully taxable. Without that exemption then there is little to no economic reason to buy the fifth unit.
If you want to be a big time investor then you should be buying apartment buildings or investing in REITs. The idea is to encourage investment so that more housing is built but also discourage hoarding of single family housing and condominiums.
Investors are very important to the health of a real estate market. Historically investors have had a stabilizing effect on prices. But I don’t recall a time in the past when so few people have owned so much real estate.
There is no harm to the market if you own one, two or three rental condos. But when you own a half dozen and more of a limited supply of what is a basic need for shelter? Mmmmmmmmmmmmm, I don’t think so.
That sounds like a good plan to lower the cost for owner-occupiers, but if put into play wouldn’t it disadvantage renters by diminishing the number of rental units available?
Hard to see a hard correction in prices without some catalyst. Are we thinking that those variable mortgages that have not resulted as of yet in larger payments due to extended amortization periods and non principal repayments could be such a catalyst at some unknown point? Outside of that or a massive round of layoffs due to recession I just don’t see prices coming down on the island. Owners just don’t have incentive to sell and take an L if prices decrease. They’d rather hold on until better economic conditions.
Some people argue that investors should be more restricted from purchasing existing units. For example the regulators could require 40% down from investors to give owner occupiers a leg up.
I don’t personally have strong feelings either way on it. Nothing wrong with tilting the field in favour of owner-occupiers, but it certainly won’t do anything for the root of the problem (and as you say if not done carefully could have a negative effect on supply).
How, other than through investors, are rental units created?
Assuming provincial vacant-property taxes are effective, are there any arguments against investment purchases that are not based on a prejudice against a socioeconomic class of people called “investors”?
Here ya go:
Can’t imagine what shape we’d be in without the OSFI stress test. That turned out to be an incredible policy success
If one is speculating then sure, if one is trying to time the purchase of a primary residence then timing is not recommended.
“The Office of the Superintendent of Financial Institutions (OSFI), which regulates Canada’s biggest lenders, announced Tuesday it would raise the domestic stability buffer to 3.5 per cent, up from 3.0 per cent…Tuesday’s decision marks the second consecutive increase to the key buffer, which also rose by 50 basis points at OSFI’s December 2022 announcement.”
They call it a a “rainy-day fund” and I see this as the calm before the storm; the RE bears may turn out to be correct in waiting.
(or not, only the Ouija Board knows for sure.)
I suspect that we will continue to have a strong and stable market. Hard to tell what external shocks may bring.
Pop quiz frank, how is months of inventory calculated?
Leo- Could you impose “volume (number) of sales “ on the “inventory in Victoria” graph? Thanks. I would like to see the correlation.