"This Is Going To Blow Sky High" - Observations On Canada's Housing Market

Tyler Durden's picture

For months we've been warning about real estate bubbles re-emerging in various markets around the world from Canada to Australia (see "There Are 66,719 Empty Mansions In Vancouver" and "Vancouver Home Sales Crash 40%, As Toronto Home Prices Soar 22%").  And while facts and figures clearly indicate that certain markets are bubbling over courtesy of all the same mistakes that caused the 'great recession' in 2008, nothing helps to confirm the truly obscene nature of a real estate bubble quite like attending a good ole-fashioned, get-rich-quick real estate expo. As such, below are the musings of one financial market observer who recently attended the Canadian Real Estate Wealth Expo as a joke but walked away convinced the system is about "to blow sky high."

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Originally Authored By Tim Bergin of On Beyond Investing

Originally, I thought this would be a bit of a joke.  There were billboards in all the Toronto subway cars advertising the Canadian Real Estate Wealth Expo - learn how to become a millionaire.  I thought this was so ridiculous, it may be fun.  What better way to experience the top of the housing market than watching Tony Robbins and Pitbull along with a bunch of US real estate professionals explain how Toronto real estate is the path to riches.

Prices were originally $150 per ticket, but I was able to buy for $50.  While it deeply bothers me that I paid $50 to these shameless (amoral) self-promoters, I thought it would be worth it to witness, in person, the top of the housing market.

I had thought, there can’t be that many people stupid enough to attend this, but I was very wrong - 15,000 people were there!  I was blown away.  Bubbles are largely psychological.  This crowd was tangible proof of that.  15k people in one spot listening to Americans explain why real estate in Toronto is an exceptional investment.  The whole experience was horrifying.  The crowd was very well-dressed, middle- to upper-middle class (from appearances), and super excited to hear how much money could be made if you just buy real estate (most of them clearly already owned).

The first real segment of the expo was a panel of Canadian developers and real estate agents giving their views on the market.  It actually started off a touch bearish, which surprised me.  Two of the panelists were saying that prices are exceptionally high and no market goes up forever.  With that slight bit of caution thrown out there, it became a real estate FOMO-building talk.

There are, apparently, two very important things to know when dealing with real estate.  First, you have to face your fear; this fear is to be ignored and then you should ‘just do it’ and 'buy now'.  The next step is find what you can afford and then buy it.  Ignore all ‘non-doers’, don’t overanalyze or focus on the numbers, just fucking buy.  To allay fears the speakers are actually quite clever as they shift between a long to short term focus when it suits.  For example, now is a great time to buy because short-term the market is on fire. If, however, markets cool then you just hold because it always goes up long-term - and you are a savvy long-term buyer, aren’t you?  By showing no scenario where you can lose I can see how this pitch works on the susceptible.

The second important factor in real estate is financing.  Not everyone has money, so what can they do?  The answers were shocking.  Be ‘creative’ was the first response.  Pool your money, borrow from friends and family, own just 5% of a house, get the money however you can and just do it - remember, it only goes up.  Other financing suggestions were get cozy with a lender and they will ‘bend the rules’ for you!  The fact that the biggest condo developer in Canada (Brad Lamb) said lenders will bend (but not break, apparently) rules to get you financing in front of 15k people with most people smiling and nodding was shocking.

So there you go - when it comes to Toronto real estate, just do it (using borrowed money any way you can get it).

The booths outside of the presentation hall were just as troublesome.  Plenty of “high double-digit monthly yields”, retire early with real estate, “everyone needs a place to live - buy apartments” type messages.  Almost all of these pitches were second lien lending.  Most offered yields in the 8 to 10% range.  The presentations all suggested that you can borrow money, if you don’t have it, at 4% and then buy these investments at 10% - easy money.

The apartment pitch booth was like most other pitches - it revolved around stable cash flows + mortgage paydown by renter + equity appreciation = profit.  (Now that all sounds great but owning a condo at current prices in Toronto is a negatively carrying asset, so where does this cash flow come from?)  Further, investing in apartment funds is even better if you borrow the money to do so.  The pitch goes on to explain that levering a 30% return makes you more money than not levering...

The Paramount Equity pitch was also interesting and stated in all caps “HIGH DOUBLE-DIGIT RETURNS ON YOUR CASH, RRSP”.  This product pays monthly, is a second lien mortgage, with a one year term and LTV <85%.  Paramount uses clever language that states they cover the cost of defaults.  By that they mean they pay some of the fees, not the default risk itself.

There was a space to pick up business cards.  I got quite a few from real estate investors.  I plan on emailing them all to learn just how bad their pitch/product is.  I want to learn more about how these second lien investor pools are sourced and just how bad this is going to be.

Also, perhaps there will be an opportunity to meet a bunch of distressed sellers, before they even know it themselves…

Nowhere in any of this was there ever a mention of risk, the dangers of leverage, how terrible negative equity can be, how that can trap you, etc.

The amount of shadow leverage in this system is crazy.  The terms on these second lien loans is 1yr.  What happens when all of these loans are called?  Even lenders with first positions will see clients sell when these loans become due and there is no money to pay them.

This is going to blow sky high.

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TradingTroll's picture

If foreign/Chinese capital is non-existent in the Canadian real estate market then explain Anbang Life dropping $1bn on a few Vancouver office towers or the same company buying Retirement Concepts, a Canadian retirement community operator.

One investor, two deals, $2bn

Pitz you are a shill.

ebear's picture

"Pitz you are a shill."

I think he's MDB in mufti.

Anopheles's picture

Peaked in 2013?  You clearly have your head up your ass.

 Reality, peak is tomorrow. Or the day after if the prices keep increasing.

U4 eee aaa's picture

It's like 2007 in the US all over again

The Real Tony's picture

It's a hell of a lot worst... First the Chinks created the housing ponzi in Canada then the non-Chinese races pulled a "Chinky see, Chinky do". If you look at the city of China everything the Chinks touch turns to a ponzi. Every Chink buys at the same time and every Chink sells at the same time. Canadians have yet to see the every Chink sells at the same time scenario but soon will and real estate values in Canada will plummet much worst than anything America saw.

Houses Depreciate's picture

The declines are just getting started here in the US.

jimbrown's picture

Canadian and other foreign buyers other then Chinese makes the majority of buyers in Vancouver.

U.N anti sprawling policies has put huge pressure on development causing shortages.

Low interest rates will continue otherwise the world implodes

central banks can continue to print for several more years, in turn most of that capital will end up in real estate.

more immigration, low supply higher prices.

Canada is unicorn land, everyone wants to come here.

Europe is a mess, more rich will leave to come to Canada, in turn more pressure on limited supply translating to higher prices.

more money printing equals higher prices for real estate...etc etc.

prices continue to climb in Toronto and areas near it despite tighter mortgage rules, plenty of private money to feed mortgage industry in the absense of better safer investments.

lots of parents will huge savings helping their kids buy a matrimonial home, in turn more bidding on limited supply...etc. etc...

the list goes on and on....while the doomers have been calling a bust for 10 years, all pissed off twirling silver coins between their fingers seemingly going mad, lmao.....lots of stocks pumpers are pissed too, like the one that wrote this bias article, who by the way puts food on the table with stocks selling and not real estate sales.........lmao.......

 

 

 

 

 

pitz's picture

There's no shortage of properties available in Vancouver or Toronto.  This is all about a financial mania.  Renting is actually remarkably affordable in both cities and real vacancy rates are relatively high indicating ample physical supply. 

Bay of Pigs's picture

Financial mania? Is that another way of calling it a bubble or ponzi?

pitz's picture

Bubble and Ponzi, absolutely. 

Xena fobe's picture

Hope they move back home when they all sell at the same time.

Justin Case's picture

"everything the Chinks touch turns to a ponzi"

Funny, immediately BitCoin came to mind. But you can never lose on that b/c of block gang technology. A sure deal up to $20k/coin or sumptin. Like real estate, they ain't makin any moar land, I recall, or sumptin like dat.

nashville2's picture

Relatives were looking at $499k 1400 sq condo in Ancaster (50 mi west). 22 bids; $720 hammer. The city of Hamilton, of which Ancaster is a suburb, has no roads, sewers or transit; 250 city owned uninhabitable dumps and the highest property taxes in Canada. It is also frantically attempting to house a few thousand Syrians none of whom have any intention of putting even $1 of the $40k arrival bonus into shelter costs. Like '08  half of Ontario lives on property liened line of credit. 2% interest hike and it is all over not to mention the encumbered for life property taxes which are going to be the only thing the politicos can get their mitts on.

Justin Case's picture

I live in Mississauga and a stone throw from my townhouse they built semi-detached 3 level homes. When the sales office was here it was a farmer growing grain there. The houses were going for $600K. As soon as the houses were finished the For Sale signs were popping up, So this is 2 yrs. later. I check on-line the listings and the asking price was $980K and took 2 whole weeks to sell. In Toronto the average is a million now.

I bought my townhouse next to those semi's for $180K in 2000, which was 3 yrs. gross salary at that time. Now homes are like car leases, mortgage is the rent b/c an average Joe and Jane six pac will never pay it off in their life time.

Houses Depreciate's picture

So Canada will be first before the US? The wheels are already coming of the US housing bubble.

U4 eee aaa's picture

It is more like Canada is catching up the the US from 2007

Houses Depreciate's picture

Given the fact US prices are higher than Canadas, they got a whole lot of catching up to do....... Better yet.... prices have a long way to fall.

Justin Case's picture

See what is going on in the Hamptons and Florida condo market.

Zer0head's picture

 Market in mid to late stages of a blow off

government intervention will hit in very early April in Ontario likely a severe speculation tax. Market anectdotal is 25% foreign money. Thre is no supply in rental or for sale. no supply.

Pieces of shit in central Toronto on postage stamp eg 25 feet by 70 feet lots no parking $1.5 million multiple offers

Repeat there is nothing for fucking sale or for rent and when government intervenes if the Vancouver situation is an indicator Supply will dry up totally.  Toronto's construction economy will stop - a downward spiral of a clusterfuck is on the horizon

 

I have been saying this since 2010 but this time we think it's going to blow

 

U4 eee aaa's picture

and the Ontar-i-owe government is about to max out the credit card with the boomers ready to take up pitchforks because there is nothing left to steal from their kids

The Real Tony's picture

The whole problem could be solved by putting at tax on ALL the Chinese (not just the foreign ones) since they created the entire housing ponzi. No other race of people pay too much for a house. The Chinese have now given all other foreigners a bad name.

Winston Churchill's picture

Two tier pricing like the Channel Islands dp.One price for locals, three times the price for foreignors as a tax.

pitz's picture

Chinese participation in Canada's RE marketplace is minimal.  In terms of propensity to speculate and to buy on credit, south Asians are dramatically worse than "Chinese"-Canadians.  Most of the big speculators in Vancouver/Toronto are Indo-Canadian, attracted to housing speculation because they don't have great prospects in the traditional employment market.  And it provides employment for their extended families.  Holding 20-30 houses per extended family under heavy amounts of credit is not uncommon if they've been buying since the mid-late 1990s after the big wipe-out in the early-mid 1990s.

ebear's picture

"Most of the big speculators in Vancouver/Toronto are Indo-Canadian, attracted to housing speculation because they don't have great prospects in the traditional employment market."

LOL!  You're killin' me here man!

https://www.youtube.com/watch?v=POibDj4xajY

I work with these guys FFS.  They outright own the dump and container trade and most of the line-haul work as well.   They're doing just fine. Nice homes too, which they build themselves - another trade they're heavily involved in, not to mention modern farming.  Best farms in BC are Punjabi owned. 

 

directaction's picture

Quick Poll:

<--- This is the peak of the housing bubble. Do not buy. 

<--- it's a great time to buy. I voted for Hillary. 

OCnStiggs's picture

Message to our Canuck friends up north: Been there, done that. Sell your stuff to a foreigner (Chinese or whatever) and wait a year and then buy it back after the market craters. That is what we did when Japan came buying. Sold out and waited. Worked awesome.

pitz's picture

Foreigners aren't buying in Canada.  Just other Canadians.

ebear's picture

Give it a rest.  I live on Vancouver's west side and I'm surrounded by newly arrived Chinese.  In the last two years, four new homes were built on our block alone, all of them purchased by new arrivals.

Take a walk down 3 Road these days and you'll think you're in Shenzen.  Incidentally, Mandarin has replaced Cantonese in Vancouver as the language of Chinese business.  Bet you didn't know that.

 

Singelguy's picture

That is what I did in Toronto in 1990. Saw the market had gone up at insane levels for 3 years. Cashed out in the fall of 1990 and it crashed in 1991 following the S&L debacle in the USA. Bought up property in Florida from the Resolution Trust. Sold all of it in 2006. Should have held for another year but better safe than slaughtered. Now I see the same dynamic again. Another crash is coming probably before the end of 2018.

armageddon addahere's picture

Just a few days ago I noticed the large number of get rich quick real estate books in Chapters, now this. Haven't seen this kind of thing since the 'Nothing Down' 90s. It's a sign RE is getting toppy but don't expect the crash for a few more years. It will get worse than you can imagine before it blows up.

williambanzai7's picture

They don't call it the Looney for nuttin

Undecided's picture

Average price in the suburbs is 1.2 mill now lol.....

Brazen Heist's picture

Don't forget Sydney, Australia is also in that price range.

That's what happens when the only game in town is housing speculation.

The Real Tony's picture

And suburbs like Burlington (one million dollar for a the average house) are about a 3 to 3 and a half hour drive to work and about a 4 hour drive home. In other words you could work another job for that 7 to 7 and a half hours and get paid instead of driving and burning up gas.

Justin Case's picture

That stretch of the QEW by the Ford plant sucks the big one. I worked with a Guy who drove from Barrie to 401 and Mississauga Road everyday. 120km each way to work. He said houses were cheaper there. I laughed, b/c he hasn't figured out the cost of driving and lost time at the end of the week. It's at least half a work week, 20 hrs. behind the wheel. Then he has a diesel VW and a $3000.00 injector pump went. 

Toronto Kid's picture

QEW is now a no-go for commuter times of the day. Go Train or forget it.

Derfman's picture

As they say: "You don't get rich doing what everyone else is doing"

Sledge-hammer's picture
Sledge-hammer (not verified) Mar 20, 2017 4:34 PM

Canada is a beautiful country.  The only problem it has is too many Canucks.  

quax's picture

Then you will be happy to learn that almost 50% of the GTA inhabitants are immigrants.

Sledge-hammer's picture
Sledge-hammer (not verified) quax Mar 20, 2017 8:31 PM

I must have hit a nerve.  I do not know what GTA is but, I actually wanted to add to my previous comment.  Canada has too many Canucks and Chinucks.  Better.

Chet Ricco's picture

Grand Theft Auto of course.

quax's picture

Sorry pal, as far as ZH rudeness and depravity goes, this is at best a 3 out 10. After all your comment didn't even involve gas chambers and some such. 

chickadee's picture

The man in charge of the Bank of Canada, Stephen Poloz, is so obsessed with playing currency wars that he has mortally wounded the Canadian Economy in the process. Real Estate is the largest sector of the Canadian economy; wrecking it with central banking policy is probably his most stupid idea.

Justin Case's picture

Polozo works for Canada Inc. The Bank of Canada has been hi-jacked by the privateer banksters. COMER is in court fighting for the Canadian Gov't ownership of the Bank. The bank charter was never amended to allow the BoC to charge the CDN gov't and it's provinces interest on monies borrowed from the BoC.

The CDN Media don't print anything at all about COMER and the lawsuit.

jimbrown's picture

note: typical average sized detached house in toronto was about $23,000.00 in early 70's

Canada's housing market still has good up swing and price stability.

* Canada is 2nd most resource rich nation in the world.

* on going  inflation reduces purchasing power of money but that means it will cost that many more dollars to buy real estate or any other hard asset.

* Steady influx of rich BRIC nations residents immigrating to Canada will ensure that more housing will be needed in turn this will continue to cause shortages and a bidding up of the prices.

*Canadas housing market will also remain stable due to its global personal safe haven rating statis and general soundness of Canadian value system, infrastructure.and continued spending on infustructure and in turn more inflation in turn continued higher prices for assets.

* Historically, Canada has been safe haven for elite gold, relatively very peaceful, well engineered society equals more predictability of human behaviours and attitude paterns amounts to contributing to more stability.

* united nations policy restricting urban sprawl continues to put pressure on supply while demand remains steady.

* central banks have capacity to pump up the market for a few more years, translates to low interest loans, mortgages, in addition plenty of private sector money will continue to feed mortgage industry.

* parents of adult children getting married have good savings, assiting their children in purchasing first house.

* sizable inheritance capital continues to flow to recipients of capital in turn ends up in real estate due to poor safe investments options other then real estate, precious metals....

in conclusion the writer of this article is bias, they eat from the premiums, service fees etc. of the stock market industry thus would rather see capital go towards area of economy that puts food on their table and that is acceptable yet not realistic at all, they have been singing the housing collapse song for many years now, good doomage yet its a premature warning, we will see housing market in Toronto and north of there continue to climb for at least 1 year perhaps 2 1/2 or more, since it is highly possible that central banks can continue to print for 3 years we can then see housing continuing to go up as most of that money will end up in real estate....

Houses Depreciate's picture

In the meantime prices are falling fast.

jimbrown's picture

i moved north of toronto 1 hour, prices here have increased over 25 % in 1 1/2 years, and continues to go up while there is very very little supply, the new houses going up have huge taxes as they are new and subject to 80k tax above and beyond previously occupied older houses....sorry but no, prices are going up.......