Toronto

CIBC: Over 44% of Toronto Condo Investors Don’t Get Enough Rent To Cover The Mortgage

CIBC - Over 44% of Toronto Condo Investors Don’t Get Enough Rent To Cover The Mortgage

A lot of Toronto condo investors are subsidizing their tenants rent as of 2017. CIBC Economics crunched some numbers on Greater Toronto condo investors. They found a number of condo investors that took possession in 2017, are paying more on the mortgage than the rent collected. Despite the risky sounding approach, the speculative play is paying off so far.

Negative Carry

If you know what negative carry is, feel free to skip this section. For those that don’t, negative carry is when it costs more to hold an asset than you receive in return payments. If, for example, someone has a mortgage payment of $1,000/month, and only collects $900/month in rent, they have negative carry. They lose $100/month, to maintain the asset. No, people don’t do this because they’re terrible investors, they do it when they’re speculating.

People buy assets with negative carry, because they’re speculating on capital appreciation. In the above example, if the condo was bought for $300,000, and is sold 2 years later for $350,000, the owner would have paid $2,400 to subsidize the tenant. However, they would have made $50,000 in capital appreciation for a profit of $47,600, less expenses. Someone with negative carry is typically betting on a quick climb in the near term, so they can sell back to market.

Source: CIBC Economics. Better Dwelling.

Almost 56% of Condo Investors Have A Positive

Over half of condo investors that took possession of their condos in 2017, are cash flow positive. According to CIBC economics, 55.7% of GTA condo investors take home more money every month. The average cash flow positive investor takes home $380 per month. Pretty sweet considering they likely bought two years ago at pre-construction prices. This means they lost a little rent, but benefitted from the two years of capital appreciation.

Source: CIBC Economics. Better Dwelling.

Over 44% of Greater Toronto Condo Investors Are Negative Carry

The rest of those investors are negative carry, which is a pretty big number. 44.3% of investors that took possession of a condo in 2017, have negative cash flow. In fact, a whopping 34.5% of investors with negative carry, subsidize their tenants by over $1,000 per month. These investors haven’t lost money, since the capital appreciation is most likely larger than the loss on carry. This assumes the property will be able to be liquidated with gains in tact. Continuing to carry at a loss implies the owner is speculating on future price gains.

Source: CIBC Economics. Better Dwelling.

Cash flow positive or negative, most investors made a substantial gain on condos. The report notes the only headwinds that could impact that are record levels of supply, that will hit until 2021. The bank also notes that a rate rise of 200 to 300 bps, or a severe recession would also cause investors to abandon ship. A rate rise would imply the economy is doing really well. A severe recession would imply the economy is doing really bad. Basically, anything but middle of the road performance can cause investors to move on.

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104 Comments

  • Reply
    Bluetheimpala 2 weeks ago

    And again a bank suggest the ONLY thing to derail housing is massive rate increase or a bad recession? Sure. Until the fall when carrying costs are up half a point and asset values are down. I don’t know many investors who will watch their profits get eroded month over month. And excess supply in 2021? BD has tracked the completes and there will be a ton of inventory this year and next… Basically when a bank issues a statement that I do the opposite. Time will tell. Tick tock.

    • Reply
      Sammy 2 weeks ago

      Banks make 50% of their revenue through mortgages. Of course the mortgage market is going to always be fine in their opinion. Otherwise they’re betting they’ll have to fire scores of people.

      I don’t think there’s going to be a doomsday crash, but B-20 means there has to be fewer buyers that qualify at the normal rates. As these completions come to market, many of these people won’t be able to get a mortgage, since they’ll have to qualify closer to the date. Less buyers means less bank revenue.

      • Reply
        Lessdanadalla 2 weeks ago

        Are you aware that major banks are selling CDO’s like crazy?

        • Reply
          xelan 2 weeks ago

          Can you give an example of exactly which CDOs and which banks? I haven’t found any market for CDOs in Canada. Do they even exist here?

    • Reply
      vnm 2 weeks ago

      And how time flies! Hard to believe but it’s already been more than a decade since the last U.S.
      recession, and investment managers are increasingly seeing the next credit cycle correction on the horizon.
      As they say, when the U.S. sneezes, Canada catches a cold.

      • Reply
        Alistair McLaughlin 2 weeks ago

        It could be even worse than that. The US doesn’t even have to sneeze. Canada can suffer malaise all on its own while the US continues to boom. I saw it happen from 1993 to 1997. The US economy boomed, while Canada remained mired in stagnating growth and high unemployment. The tech boom was a 7 year deal in the US. Here in Canada, we got 3 years if we were lucky. US growth doesn’t always translate well north of the border.

        Conversely, we skated on the GFC that took down the US in 2008-09. But we’ll be paying for that shortly. Our Minksey moment is coming.

  • Reply
    Yulia 2 weeks ago

    Like with all investments, the majority of people won’t be able to sell to realize most of their profits. Early investors will have made a ton, those that are late to the trend will be providing the exit for those that are going to make money.

    If everyone knew the perfect time to buy and sell, everyone would be rich. In this case, we’re going to see many people hold and see the money they made disappear as prices regress to the mean line.

  • Reply
    BTFD 2 weeks ago

    Memories of Bitcoin at $19k right here. People at $12k felt like Ray Dalio, lectured those that didn’t hold any that they had no idea how money works. Market crashes lower everyday, and they’re still “hodling.” Many of these people will not be able to exit the market, and IFRS-9 will force their sale.

  • Reply
    Alistair McLaughlin 2 weeks ago

    Mass participation by the middle class in the “investment” property market was one of the hallmarks of the US bubble. Not surprising we’re seeing it here.

    Owning multiple income properties used to be something your rich auntie did. Now it’s your annoying and heretofore underachieving brother-in-law. The difference is that your rich auntie already had capital, and needed a place to invest it. Your brother-in-law had no capital, so he borrowed against his house to buy an “investment condo”. As soon as he had equity in that, he borrowed against it to buy another. When prices correct, Auntie will be grouchy, but still rich. Brother-in-law will be bankrupt. Your sister will leave him and she and the kids will be moving in with you.

    • Reply
      Trader Jim 2 weeks ago

      Great point. Those with capital, are better positioned to ride out downturns. They’re less likely to lose money on these types of transactions, even if the market crashes. Those without, will have to make desperate moves in order to keep things going.

      I’m particularly worried about LTVs of properties being HELOC’d to buy investment properties. If you HELOC’d at peak last year on that detached, and prices continue to slide, you might be forced to top up to maintain good standing for the LTV at renewal. This likely means you’ll be forced to sell that investment property at whatever price it’s going for.

    • Reply
      Mmr 2 weeks ago

      Your explanation is accurate. And investment in condo don’t make any sense anymore since 2016….if you have money you just have to wait until price comes down. I think next year we might start to see price correction for condos.

    • Reply
      vnm 2 weeks ago

      So true! My neighbour has bought several houses on the block. I get the feeling he may be able to weather the storm, but he had to get his in-laws to guarantee the mortgages. I’m worried I’m going to have to move to get away from the inevitable screaming and stray dish throwing.

  • Reply
    Grizzly Guys 2 weeks ago

    https://www.movesmartly.com/articles/gta-house-prices-falling-furthest-where-investors-once-dominated

    In this same article they point out how areas with larger % of investors are currently the ones taking the biggest hit. In regards to SFH. Richmond Hill, Vaughn, Newmarket for example………. Not one of these areas recorder more than 22% of sales to investors leading up to 2016…………

    The article then starts the usually RE spin…… have to know which neighbourhood yada yada, and property type your buying yada yada…. condos still strong yada yada…….

    Condo investment is at 44% and this is for units that were possessed in 2017…….. Sold in 2013-2014………. It has just gotten worse since then.

    My new advice for those thinking about buying a condo………

    Just go buy some construction materials instead. If you keep them dry it will be in better shape than that condo 10 years from now and it will hold up way more of its value.

    • Reply
      Alistair McLaughlin 2 weeks ago

      The 56% who are cash flow positive must be taken with a grain of salt. According to the description of the survey, they counted only mortgage payments and condo fees in the expense category. So 56% of condo investors are covering their mortgages + condo fees.

      Now throw in property taxes, insurance, and interior maintenance. That 56% could easily be 75%.

      • Reply
        Alistair McLaughlin 2 weeks ago

        Oops. Said that backwards. That 56% who are “cash flow positive” could easily be 25%.

        • Reply
          Grizzly Guys 2 weeks ago

          Yup. I didn’t read their actual report but I am curious what the terms of those investor mortgages are? Variable or fixed? and what is the average rate? I assume the investor looking to flip is not going to lock into a 5 yr fixed.

          They point it out for those who signed contracts up to last year and will be taking possession by 2021. Any indication of how many more would be negative if rates increase by X or Y?

          • Alistair McLaughlin 2 weeks ago

            One shocking stat was that 34% were paying more than 6% interest, while 16% were paying more than 9%. These are not prime borrowers we’re talking about. And if you’re not prime, you’re sub-prime. Something we’re repeatedly told doesn’t exist up here.

          • Grizzly Guys 2 weeks ago

            Yikes! I wonder how many of those are tied to the alt/community lending. Someone else who has taken out a HELOC at 4%. Lend to you at 9%+. Once you refinance you switch it all over to a normal mortgage at the bank because you will have had enough appreciation to get the bank to take on the entire value of the loan…….. what could go wrong!

      • Reply
        Willy 2 weeks ago

        And property management as well.

    • Reply
      vnm 2 weeks ago

      Too funny! A somewhat irrelevant sidenote, in terms of construction materials I’d recommend
      Yurt material. People scoff, but the classic brick and mortar wall has an R-value of less than 2, compared to a newfab Yurt cloth R-valuel of 10. A Yurt you can just roll up and move in a shopping cart.

      The article says “While the GTA’s housing market overall is looking relatively balanced today …”
      Relative to what … stocks in 1929?

    • Reply
      Bluetheimpala 2 weeks ago

      Rofl… Nice Grizz

  • Reply
    Michelle 2 weeks ago

    I wonder if this so called “positive carry” statistic is related to condo landlords using their property as a short term rental??? I hypothesize that after June 1st when Toronto’s new short term rental by-laws come into place the number of “negative carry” investors will increase dramatically.

    – Short Term Rentals will be restricted to primary residences only (there are over 20,000+ short term rental units in the Toronto market currently)
    – No secondary Suites are permitted for short term rentals
    – All units must be registered with the city and will be audited periodically $50 fee
    – Maximum of 180 nights per year
    – Fines for violating Toronto’s rules can be upwards of $100,000

    This is only the tip of the iceberg and we will likely not see much reporting on Toronto’s new bylaw until people truly understand the gravity of these changes.

    • Reply
      vnm 2 weeks ago

      Just so. I think the estimate is that between a third and a half of the 20,000 short term rentals will no longer qualify.
      And there is no way people will be able to AirBnB on the sly … neighbours will be lining up to report them. If you’ve never run aground of one, by-law enforcement officers can make U.S. border guards look like Walmart greeters.
      7 or 8 thousand may not be a lot GTA-wide, but it’s heavily concentrated in downtown areas.
      And right, it hasn’t been widely reported. Even many AirBnB operators aren’t aware of it, or taking it seriously. It’s not going to be like basement apartments which the city purposefully overlooks.

    • Reply
      Bluetheimpala 2 weeks ago

      Yikes! Summer could be a blood bath totally missed this… Many thanks

  • Reply
    gear74 2 weeks ago

    Condo location is very important. Lot’s of people want to live Downtown Toronto but there are not enough condos to satisfy demand as for now. If investors purchased their condos in 2015 or even beginning 2017 they should be fine financially as they paid 20 percent downpayment and the rents in Downtown Toronto are very high. Cannot talk for all the locations but Downtown Toronto condo investors should be fine. Don’t forget also every year around 80000 immigrants coming to Toronto they all got to live somewhere. Of course not all of them will move to Downtown but at least half of those they are skilled professionals with pretty strong financial background and houses/condos to sell within short timeframe.

    • Reply
      Bluetheimpala 2 weeks ago

      Oh God… You just took a wrong turn into a bad favela my friend… I would walk some of this back or you’re just gonna get run up on pretty bad. If you are naive ok but if you are a troll this won’t end well. I am in a great mood so no unpacking of this drivel but put your money where your mouth is and buy a couple condos… To infinity and beyond. Tick tock.

      • Reply
        gear74 2 weeks ago

        Purchased 2 of them already. One 200000 up, another one 150000 up. Great locations, 7 minutes walk to Financial core.

        • Reply
          Alistair McLaughlin 2 weeks ago

          Then you’re insolvent, you just don’t know it yet.

          • Tommy 2 weeks ago

            How is he insolvent? I bought an investment condo in the beginning of 2015. It’s up $200k. I could easily sell right now to realize that gain. But I’m going to hold since I’m cashflow positive and intent to keep the unit indefinitely.

        • Reply
          Grizzly Gus 2 weeks ago

          If you jump of the balcony you can get to the core in 10 seconds!

        • Reply
          Bluetheimpala 2 weeks ago

          Then you need to max out the HELOC, maybe even borrow some family money and re-up son…to infinity and beyond.

        • Reply
          Mmr 2 weeks ago

          Well if you buy those two condo before 2015 or even early 2016 I won’t be surprised it’s up by 200k and 150k. It went up lot. Regarding downtown core condo i agree you can get premium on rent. And if you buy three years ago it certainly will cover mortgage, interest and preoperty tax as long as you put 20 percent down.

        • Reply
          carlton 2 weeks ago

          Shit ! there is more out there? This crash is gonna be HUGE!

        • Reply
          NJ 2 weeks ago

          sell & GTFO

    • Reply
      Alistair McLaughlin 2 weeks ago

      Crunch the numbers to get an idea of what some of these “investors” are facing. You won’t be so positive. As we saw last April, the market can turn on a dime. Are all those speculators really so astute that they will time their exit exactly right? And if they do, the buyers they sell to will be in the exact same position they are in now. In other words, head for high ground (not a high rise, actual high ground). A tsunami is coming.

      • Reply
        gear74 2 weeks ago

        Boy you are real Bear! I don’t know about houses but condos in Downtown Toronto will do well. Watch and see where the prices in this good location is going. With Canadian dollar so cheap Downtown Toronto condos are actually a bargain even now compared to some other big cities in the world. And yes I understand that Toronto is still far from a world class city but as long as immigration booming nothing will change.

        • Reply
          Bluetheimpala 2 weeks ago

          Yuppers… Please continue this narrative. Sprinkle in something about tech jobs and US instability and you’ve got a winner. I think you are missing the point about what is about to happen. Money has dried up both domestic and most foreign. The only thing propping up the market are B20 preapproval some boomer money and FOMO. Time will tell but come back and we’ ll see what the dilly is in 6 months. BD4L

          • Totally Nuts 2 weeks ago

            Blue – I had been thinking about B20 pre-approval carrying over into 2017, as most banks will lock in rates for 120 days. Is that what you think is happening? If so, prices might start to fall off as of May. Is that technically permitted under B20?

        • Reply
          vnm 2 weeks ago

          I guess it’s too late for you, but what doesn’t seem to be sinking in is that the
          numbers dancing like sugar plums through your head are based on delusion and misinformation, and contradicted by current data.
          In fact net immigration to Toronto is not booming, it’s been declining for several years and more so in the 416 area than in 905.
          And compared to other cities in the world Toronto is ranked #1 on the international bubble chart.
          One might recommend you do a bit of research to straighten out your thinking, but in your case you’ll just get more and more depressed with no way to turn back the clock.

        • Reply
          Mmr 2 weeks ago

          Again it depeds when you bought it. Market is peak now so no one can make money if they bought now or last year and can’t cover expenses from rent. But if you bought three years ago you still make really good return as long you we assume condo price don’t make very deep correction but time will tell. My point is condo price will either go down or remain stable but there is no way it will go up further just not going to happen.

        • Reply
          Alistair McLaughlin 2 weeks ago

          Well, good luck to you. If I were you, I’d be selling and harvesting the profits, even if it meant swallowing one hell of a tax hit. The GTA condo market is looking exactly like the detached market of last spring. These things can turn on a dime with no warning. One minute you’re rocking with Pit Bull and Tony Robbins, the next you’re quoted in the Toronto Star saying “Who could have seen this coming?”

  • Reply
    ASTERIX1 2 weeks ago

    The % in cash flow negativity is probably much higher.

    These stats did not add the cost of insurance, property tax and other expenses.

    These “heard investors” should sell ASAP. Condo market has hit it’s top, reality check is next.

  • Reply
    DyingInside 2 weeks ago

    Looking deeper into the CIBC/Urbanation report, there 27% of investors are negative cash even principal payment is excluded. This means interest payment are not fully cover by rent as well.

    https://www.urbanation.ca/sites/default/files/Urbanation-CIBC%20Condo%20Investor%20Report.pdf

    In Minsky theory, the “ponzi phase” is characterize by investments with cash flow not able to cover principal nor interest payment. The investment needs to continually increase in value in order to be sustainable. Of course, we all know how it ends with anything related to “Ponzi”.

    On pg 4, there were info on pre-sale price, cap rates, down payment used. The average pre-sale condo price was ~$375,000. Assuming pre-sale condo takes delivery two years later and the report was for 2017 taking delivery, that average pre-sale price is in 2015.

    Even with $375,000 prices from 2015, and funding with the current $2000 rent, there is already 27% of investors not fully covering interest payment only.

    With the current condo prices, I wonder what is % of investors not covering interest only.
    Anybody have a idea?

  • Reply
    Alistair McLaughlin 2 weeks ago

    I just did some calculations. If an “average” condo was purchased at $375K with 20% down, and the borrower is paying 9% interest (16% of them are according to the study), that results in a mortgage payment of about $6200 per month.

    Now throw in condo fees, property taxes, insurance, and incidentals. That place rents for what? Maybe $2600 if you’re lucky? So where is the other $4000 per month coming from? Since you can’t borrow at less than 9%, you aren’t exactly Mr. Moneybags are you? How the hell are you even carrying it???!!!

    • Reply
      Bluejay 2 weeks ago

      If a price is $375,000, down payment is $75,000 (20%), and mortgage is for 25 years, then monthly payments at 9% interest rate will be just over $2,500, not about $6,200. I am assuming you meant ‘about $2,600’.

      • Reply
        Alistair McLaughlin 2 weeks ago

        You’re right. I totally effed something up plugging it into the mortgage calculator.

      • Reply
        Tommy 2 weeks ago

        Correct. Also, most of these folks would have chosen 30 year amortization so the mortgage payment would be closer to $2400.

  • Reply
    xelan 2 weeks ago

    Hey fellow bears, if anyone is financially betting against the housing market could you please contact me and shed some light how exactly you are doing it. My email is alex.ontario (at) gmail.com. Thanks!
    Alex

    • Reply
      Alistair McLaughlin 2 weeks ago

      Buy put options on Canadian lenders. That’s the only way I know how. Remember, with options, if they expire out of the money, you lose 100% of what you put in. However, unlike leveraged products such as futures or CFDs, you can never lose more than you put in. Good luck.

    • Reply
      Grizzly Guys 2 weeks ago

      Haven’t acted on any of these yet, and am not sure that I will. Cashing out on my property to avoid loss is different than profiting from everyone else’s. Have to decide soon though. What i have been looking into is the following. I will also say that I make my own investments, and am not a professional on this. As AM pointed out, if you are going to short you can potentially get squeezed and lose a lot more than intended. Requires the timing to align with when shit actually hits the fan……….. it is a speculative play. Put options offer less reward but your potential losses are fixed.

      REITS – Don’t see commercial doing well during a recession
      Lenders – the more involved in RE the better. The more they are publicly saying RE prices have hit their bottom the better or try to cheer on the industry the better
      Construction related – material suppliers, public builders,
      Canadian dollar – should fall in relation to other currencies

    • Reply
      Bluetheimpala 2 weeks ago

      I am quite risk adverse but I am seriously considering a short position. I am no trader so I will most likely NOT go ahead but rather buy in the trough and hold for a decade.

      • Reply
        Grizzly Guys 2 weeks ago

        Thats more of what I am thinking. Keep your powder dry to buy a bunch of things at a real discount.

        I honestly believe heavily in the long term fundamentals of Canada and do think that Toronto will be one of the most desirable places to live one day. Resources per capita, fresh water reserves and the rule of law could lead to an actual flood of everyone wanting to live here if over population, drought, global warming etc all continue along the same trend.

        • Reply
          Moller 2 weeks ago

          Griz,

          I don’t think you understand what happens in a “crash” (as you so often claim). In a housing market crash, you won’t be able to buy real estate at a “discount”.

          A housing market crash will cause a sudden economic downturn. Credit will dry up, so banks won’t lend you any money. To save the too-big-to-fail banks from failure, the government will enact a bail-in. The bail-in, as LazyGardener so kindly pointed out in another thread, will “convert depositors’ money into the bank shares.”
          (source: http://business.financialpost.com/news/fp-street/new-bail-in-regime-for-canadian-banks-will-ease-burden-on-taxpayer-in-case-of-crisis)

          CDIC only covers deposits of up to a maximum of $100,000, which will most likely not be readily available at a moments notice during a crash.

          So where will the money come from? Let me guess, under your mattress?

          Therefore, there probably won’t be a crash to begin with because buyers (like yourself) will just rush in and take advantage of the situation on a slight housing market downturn, and lift the market once again.

      • Reply
        Bluetheimpala 2 weeks ago

        To clarify:short the banks. They are due for a slap and I see community lending come to the forefront as this plays out with more people exposed for a lot more than we thought. Whether the banks have these on their books is debatable but bankruptcies and defaults hit the big 6 regardless as we run a banking oligopoly.

    • Reply
      MH 2 weeks ago

      I considered buying puts on Canadian banks countless times over the last year but could not convince myself to proceed. It looks like the option trading volume in Canada is rather thin so your actual profit may end up being not that great even if your bet is right. I am not an expert in option trading though… not even close. What I know is that low liquidity = high risk. BTW, that’s the lesson RE specuvestors are beginning to learn now.

      Not sure if there is a better way.

    • Reply
      DyingInside 2 weeks ago

      Yes, as Alistair and other have pointed out, buying put options is one way to go at it.
      Taking a short position on the stock is another.
      Finding a short real estate private fund, and other indirectly related investment.
      Just remember, timing is a big element to some of these.

      Note on tax, CRA may consider the profit from those transactions as regular income.
      i.e. the profit gained is not from hedging an existing position.
      If you are betting against any assets, then you are probably not hedging an existing position.

      • Reply
        xelan 2 weeks ago

        Thanks everyone for your comments.
        Grizzly, just want to mention that if RE correction will happen stock market will tank way before the bottom of RE prices reached. Major RE declines take 5-10 years to play out so you will have plenty of time to reallocate your funds.
        MH, liquidity can be a problem with short positions but I don’t see how it can be a problem with PUT options since as soon as you have it you have a right to execute at any time before expiration.
        DyingInside, I don’t mind sharing my gains with CRA but thanks for the tip.
        I have the general knowledge and idea but what I’m missing is small details which comes with experience like: Is it better to buy PUT with long expiration right away or do a short expiration one and roll it over until you are correct. Do I need to have extra funds to execute my PUT option because technically I have to purchase stock before executing it which requires additional capital. Should I use current price as a strike price or go with a lower one if I’m targeting 30% correction. Anyway, hopefully I will be able to hear from one of you guys who already made those bets and know all the details.

        • Reply
          DyingInside 2 weeks ago

          Xelan, when you mean to execute your put options, do you mean “exercise” the option?

          For longer or short expiration, it depends on the current option market and what you want to risk/bet on. I recommend reading up on option risks (i.e. option greeks). Forgive me if you already know.

          Just be careful when using options, there are a couple of risks besides being long or short on the underlying asset.

          • xelan 2 weeks ago

            Yes, you are correct with terminology. I opened my trading account just last Friday and only had a chance to study Options this weekend so it’s still kind of rocket science for me. However I think I understand the basic concept for PUT options – you buy 2 years PUT for $2500 at a current strike price which is the maximum amount of money you can loose if option expires.
            However if the stock drops within those 2 years here is the potential return:
            Stock price remains the same or grows: -$2500 (loss)
            10% drop in stock price : $2200 profit – $2500 (cost of PUT) = -$300 (loss)
            20% drop in stock price: $4400 profit – $2500 = $1900 (profit) 76% ROI
            30% drop in stock price: $6600 profit – $2500 = $4100 (profit) 164% ROI
            etc.
            Those are the actual numbers from trading platform for one of the stocks.
            Is it more difficult than that? What are the additional risks you are talking about?

        • Reply
          LazyGardener 2 weeks ago

          As an options trader (Tastytrade style, 40-50 trades a month for the last 13 months on ThinkorSwim via TD DI), I advise you against BUYING a put option on major Canadian banks. Buying options is usually a costly mistake because they have expirations and thus the option premiums lose their value over time (theta decay). Buying options makes sense only when the IV (implied volatility) is very low and you expect the IV to expand over time due to market uncertainty.

          Well, the market is already very volatile and IV is very high across the board. So you should consider SELLING premiums instead by selling call options out of the money on the banks. Looking at the options chain, TD (TD Canada) and CM (CIBC) are the only Canadian banks listed on US exchange with okay liquidity and 90% IV percentile.

          So, for example, if you were to short today .30 delta out of the money on TD by selling May 57.5 call and buying 60 call ,which is $250 wide call spread, you can collect $42 (commission incl.) with the risk of $203 – that is, 20.1% maximum return on your risk.

          I don’t trade options on TSX because the market is too small, so I don’t know how liquid the Canadian bank options are on the exchange. The bid-ask spread on TD is okay at about 10 to 15 cents wide. I’m not shorting Canadian banks at the moment because the reward is too small for the same risk compared to other tech stocks like QQQ, TSLA, INTC, etc., but when there is any significant credit crisis event in the Canadian market, I’m sure there’ll be opportunities to short.

          • xelan 2 weeks ago

            LazyGardener,
            Thank you for your advice, especially since you are experienced trader.
            That’s what I thought, that I should try to enter when volatility is low’ish.
            Unfortunately I know nothing about QQQ, TSLA etc so I don’t want to deal with something I don’t know, however I can see major problems with Canadian RE market which may potentially lead to downturn that’s why I only interested in betting on that event.
            My only question to you: when everyone realize we have a credit crisis in Canada won’t it be reflected right away on all costs reducing your yield to 0?
            My understanding that you can only make money if you are lucky or if you are “ahead of everyone” which means you should buy stock nobody is buying now or make bets which go against the market?
            I’m not planning to do a daily trading, I’m planning to make one bet with long expiration (1 or 2 years). If this bet will lose it’s not going to be the end of the world for me.

          • LazyGardener 2 weeks ago

            In that case, you can buy calendar put spread (short front month and long back month at the same strike price). For example, you can short May put 52.5 on TD and long Dec put 52.5 at the same time anticipating the IV will explode beyond the current level. If the short May put expires worthless, you get to keep the premium you had collected when you entered the calendar spread and keep shorting the next front month to finance your back month long put, so that you reduce your cost basis as you approach the December expiration.

          • Xelan 2 weeks ago

            That’s an interesting idea, I haven’t heard about calendar spreads yet, only vertical ones.
            I’ve got the overall idea and it sounds great since I should collect money back while I’m wrong with my long PUT until it becomes obvious that bear market started and then I can stop shorting PUTs and only leave my long PUT in place.
            However let’s follow your example with short May PUT and long December PUT.
            Let’s imagine I have this setup and NAFTA is cancelled in April which causes my stock to go down by 5-10%. My short PUT will definitely get me into trouble and I’m not sure if I want to exercise my long PUT because it’s not the event I was waiting for. What should I do in this case?
            I don’t think I’m comfortable at the moment with any advanced Option strategies but I will keep studying and will definitely consider this strategy.
            Thanks a lot for your valuable advice.

          • Alistair McLaughlin 2 weeks ago

            Problem with selling options is you need to be covered. If you want to sell puts, you need to be covered with an equivalent short position. If you want to sell calls, you need to be covered with the equivalent stock position. Otherwise you’re selling naked options, which most trading accounts won’t even consider. Harvesting premiums by selling covered options is an income strategy, and it can be a good one. But it is not a strategy to speculate on a major market move.

          • Alistair McLaughlin 2 weeks ago

            I should add, by “selling” options, I mean specifically writing puts and/or calls. In other words, opening an options position. I didn’t mean selling options contracts you’ve already purchased in order to close your position. That distinction will be obvious to an experienced trader but might have been unclear to someone less familiar with options.

            You can buy puts and calls and sell them again without every touching the underlying stock or having to cover your position. That’s the attraction of buying them as a speculative instrument. But speculative they are. Don’t buy options contracts unless it is money you can afford to lose. All of it.

          • LazyGardener 2 weeks ago

            Alistair,
            The strategies I’ve described above are spreads (vertical and calendar) which involve buying and selling puts at different strikes, so it’s not as capital intensive as the naked puts you mentioned. I’ve never sold naked puts or calls as they’re not risk defined and are not sustainable for long-term options trading. Please see the link below for more details on the vertical spreads.

            https://www.tastytrade.com/tt/learn/vertical-spread

          • LazyGardener 2 weeks ago

            Xelan, if the May short put goes in the money as you described, you would roll it to the next month and collect more credit, if the options are liquid enough. That is, you would buy back your May short put to close it, then sell June short put to open at the same strike for more credit, continuing to lower your overall cost of the December long put. If you’re unable to roll when the stock price declines like you said, you simply close your position for profit (buying your short May put and selling your long Dec put) and redeploy your position in the next month.

            One caveat is, if there is not enough volume of options being traded for the security, you may not be able to roll the short put option. That is, if the bid-ask spread is too wide because there’s only a small volume of options traded, you may have to buy back at a much higher price and sell to open at a much lower price, thereby incurring a loss trade. This is the reason I don’t recommend trading illiquid options especially if you intend to roll your options every month for income.

            As I trade options for income, I roll my positions very often sometimes everyday especially when the IV is very high like these days. If you’re going to make a directional bet, you must understand how to manage your positions by rolling when they’re challenged.

            https://www.tastytrade.com/tt/learn/rolling

          • xelan 2 weeks ago

            Thanks a lot everyone!

  • Reply
    vnm 2 weeks ago

    This was few years ago … some guy in the U.S. went to his bank and tried to transfer money to
    a Nigerian scammer. The bank warned him he was being duped and refused to release the funds.
    So he came up to Toronto, and transferred the money through a Canadian bank — with no questions asked.
    Later, when he finally realized he’d been had, he tried to sue both banks claiming they hadn’t sufficiently warned or protected him.
    An extreme example perhaps, but it shows how stubborn and delusional people can be no matter what anybody says, and despite overwhelming evidence.
    And how quickly they turn around and cry foul when things don’t work out!

  • Reply
    Bob 2 weeks ago

    How is any of this ‘news’? When RE prices get this much higher than incomes, there is no mathematical way that rents can cover carrying costs. And these are the condos that were pre-purchased years ago, at much lower prices. Is there a condo being sold today that can be carried with rent? Certainly not anywhere in Vancouver.

    • Reply
      Bluetheimpala 2 weeks ago

      Ding ding ding… Fundamentals matter. Tick tock.

    • Reply
      Moller 2 weeks ago

      A proverbial “housing bubble” can sustain itself for a very long time. Look at places like Hong Kong and Shanghai.

      Toronto and Vancouver are becoming world class cities. Deal with it.

      • Reply
        Mmr 2 weeks ago

        World class city my ass. More like both cities full of third world immigrants. And also these two city has lower house hold income then Ottawa Calgary or even Edmonton. Get your facts right.

      • Reply
        xelan 2 weeks ago

        I’ll just leave it here:
        https://www.scribd.com/doc/314505251/Toronto-Housing-Bubble-1988?campaign=SkimbitLtd&ad_group=2927X594702Xb497a75dbd44817eba599aeb867f1deb&keyword=660149026&source=hp_affiliate&medium=affiliate

        Article from 1988 Toronto Star.
        Search for keyword “world class”, “land is in short supply” and other keywords imposed to you by media and real estate industry.
        Everyone knows what happened in 1989.

      • Reply
        vnm 2 weeks ago

        Sounds like you just woke up from a 30 year coma. That’s what they said in the late 80s just before the crash. I’d say get your facts straight, but you haven’t provided any.

        • Reply
          Moller 2 weeks ago

          The fact is Canadian housing bears have been crying “housing bubble” since the Great Recession. Government policies such as the B20 stress test, vacant homes tax, gradual increase rate hikes, and what have you, will not cause a sudden crash – the housing market will slowly adjust. A slowdown is possible, but it will be short-lived as more buyers rush in and take advantage of the situation. You underestimate the love millennials have for real estate.

          A crash in the housing market will only happen if there is a sudden downturn in the Canadian economy, which I don’t see happening. The US & Canadian economies are growing. Did you read Statistic Canada’s Labour Force report released last week? Unemployment rate is at a record low.

          • Moller 2 weeks ago

            *interest rate hikes

          • Grizzly Guys 2 weeks ago

            Yes yes yes…… other than the trades the millennial’s all have student debt and contract work…….. but wait that doesnt matter…… Their rich boomer parents will just lend to them….. They have so much equity in their homes!

            See how simple it is…… A boomer who is worried about their falling retirement nest egg, can save the value of their home by simply lending money to their kids!

          • AJ 2 weeks ago

            You have to understand that RE market is based on liquidity. We are at the “tightening” phase of credit cycle. So even if all the millenials in the world want to buy Canadian RE, the availability of credit ultimately determines prices.
            And BTW, the next recession is going to the mother of all recessions, so please wait and watch the carnage unfold

          • AJ 2 weeks ago

            The StatsCan report for March showed a net gain of 32K FT jobs out of which 20K were “Self Employed”. Retail sales are at the lowest they have been in the past 10 years. Canada will be in a recession latest by Q2 2019 if not earlier.

          • Xelan 2 weeks ago

            Moller,
            Here is the unemployment graph for US for the last 60 years with recessions marked on it:
            https://www.bls.gov/spotlight/2012/recession/images/cps_unemp_1948.png
            Here are some observations:
            1) Record low unemployment always registered after recession
            2) Unemployment is rarely flat it either decreases further or increases significantly due to recession

            So if history teaches us something is that record low unemployment is actually one of the warning signs of the upcoming recession.
            Here we are.. in the record low unemployment.

          • Xelan 2 weeks ago

            Sorry, I meant record low unemployment registered before every recession, not after.

          • Alistair McLaughlin 2 weeks ago

            Private debt in Canada is currently at 213% of GDP. That’s exactly where private debt in Japan was in 1990. You know what happened in Japan that year. Their property market never recovered.

          • Alistair McLaughlin 2 weeks ago

            My bad. It was 213% in 2016. By the end of 2017, Canada’s private debt (household + corporate) was 218% of GDP. But yah, the housing market won’t correct. Cuz bears have been wrong for 10 years, and that means you’re safe. Keep buying those houses. In fact, you need to step up your buying. It’s all up from here.

          • Moller 2 weeks ago

            Alistair McLaughlin,

            Canada’s private debt to GDP ratio surpassed that of the US in 2016, when the bears were calling for a crash. Canada also surpassed Japan in 1990 (as you have noted) and look where the market is now. Canada will just keep setting new records yet again.

            Real estate prices will continue its trend upwards until the mentality (towards real estate and particularly land as the most successful investment) changes. I don’t see this change occurring anytime soon.

            A crash simply won’t happen because the Canadian government won’t let it happen as it will bring down the entire economy. The Bank of Canada will just reduce interest rates as soon as there is a slight economic downturn, which will then further increase the flow of credit towards real estate. This has happened time after time.

            The message is buy real estate only when you can afford it. Rent otherwise.

          • LazyGardener 2 weeks ago

            Have you checked BoC’s balance sheet? I’m curious if their BS is healthy enough to increase their leverage higher than it already is. Last time I checked, IMF is the only institution that has a clean BS to bail out central banks in the next financial crisis. Mind you, the current corporate, government debts let alone consumer debt, are grossly larger than those of 2008.

          • LazyGardener 2 weeks ago

            Also, the Canadian government passed the bill to allow major banks to convert their long-term debt into equity should the banks experience severe liquidity crisis.

            I also read another article that mentioned the banks may be forced to convert depositors’ money into the bank shares, which is a reason I maintain only 2-3 months worth of spending money in my chequing account.

            “Beginning in 2018, all unsecured long-term senior debt issued by Canada’s largest banks — those that are deemed systemically important domestically — will be convertible into equity should a bank need to be “resolved” or unwound, according to David Beattie, a senior vice-president in the financial institutions group at Moody’s Investors Service.”

            http://business.financialpost.com/news/fp-street/new-bail-in-regime-for-canadian-banks-will-ease-burden-on-taxpayer-in-case-of-crisis

          • Alistair McLaughlin 2 weeks ago

            Moller, you are assuming the Canadian government – or any government – has the ability to stop a crash. You are also assuming that market psychology is slow to change. Both assumptions will prove to be wrong. Even the mighty US government and Federal Reserve could not prevent the US market from tanking. Canada, by contrast, does not have unlimited capacity to print its way out of trouble. The loonie is no global reserve currency. We can’t simply export our inflation like the US did for the past decade.

            Market psychology, while stubborn in its momentum in any given direction, can turn on a time once it does start to change.

          • Moller 2 weeks ago

            Alistair,

            I do agree with you that market psychology can “turn on a [d]ime once it does start to change”. But I can’t see what will trigger the sudden change in direction towards real estate.

            A housing market crash will cause an economic downturn. But it doesn’t work quite the same way in the other direction – an economic downturn will not cause a housing market crash, it has the opposite effect (ie. cause the market to shift towards safer investments such as real estate).

            Could there be minor housing market correction? Yes.
            The market may also stagnate. But crash? No.

  • Reply
    xelan 2 weeks ago

    The only question I have in my mind after reading this article is: “If things are so out of hands in GTA condo market what’s going on in Vancouver when salaries are pretty much the same but condos are 50% more expensive?” Very little coverage on this topic in the media.

  • Reply
    Functioning Brain 2 weeks ago

    who is behind the G&M pay wall?

    https://www.theglobeandmail.com/business/article-that-sound-you-hear-this-week-will-be-the-thud-of-canadian-home-sales/

    summarize this for me pls.

    those fuckers can legit NOT make up their minds.
    Rebounding, thudding, pink, blue….for fuck’s sake

    • Reply
      carlton 2 weeks ago

      Globe and mail articles are as useful as piles of dog shit! Avoid them at all cost, the most misleading paper in north america! , Most of the real estate articles are payed for.

      • Reply
        Functioning Brain 2 weeks ago

        I know I know, but what does it say? lol

        • Reply
          vnm 2 weeks ago

          That sound you hear this week will be the thud of Canadian home sales.

          We’ve already seen reports from several local real estate boards, notably those in Toronto and Vancouver, so we know Friday’s national look from the Canadian Real Estate Association won’t be pretty.

          This comes amid new mortgage qualification rules from the Office of the Superintendent of Financial Institutions, the commercial bank regulator, which added to measures from the Ontario and B.C. governments to cool the housing and debt markets.

          Benjamin Reitzes, Canadian rates and macro strategist at BMO Nesbitt Burns, expects Friday’s report to show home sales across the country tumbled 17 per cent in March from a year earlier, or “a bit worse than the prior month.”

          As The Globe and Mail’s Janet McFarland and Brent Jang report, Toronto and Vancouver readings have already highlighted hefty declines, though Toronto prices are stabilizing.

          “The broader market continues to adjust to stricter mortgage regulations, with Toronto cooling sharply amid a 40-per-cent plunge in activity,” Mr. Reitzes said.

          “While the same can be said of B.C., Vancouver, Fraser Valley, Victoria and the surrounding regions also had to deal with an increased foreign-buyers tax that was introduced as part of the B.C. budget,” he added.

          “There were steep declines in Calgary, Windsor and London, as well, while Ottawa was one of the few bright spots with sales up double digits (thank you, higher federal government spending).”

          Mr. Reitzes also expects the report, the third of three on the housing sector this week, to show average prices down 5 per cent from a year earlier, but the MLS home price index, considered a better measure, up 6 per cent.

          Don’t read too much into that last number because it would still mark the slowest pace in almost three years.

          • Functioning Brain 2 weeks ago

            Thank you VNM their hypocrisy and flip flopping is fucking hilarious!

  • Reply
    MH 2 weeks ago

    I am sure it’s a pure coincidence: Cracks ‘Starting to Show’ in Canadian Credit Quality, RBC Says.

    “The roll rate — the percentage of credit card users who “roll” from early stage delinquencies to 60-89 day delinquencies — reached the highest since 2008 for one credit card program…”

    https://www.bloomberg.com/news/articles/2018-04-09/cracks-starting-to-show-in-canadian-credit-quality-rbc-says-jfsmzpqs

  • Reply
    troll_appreciator 1 week ago

    Just wanted to jump in and say that this is by far the best comment section on the internet I’ve ever seen. What’s great is when perma-bull trolls come in and then all the perma-bear trolls destroy them. I have no actual opinion on the state of the real estate market, but I absolutely love hilarious trolling

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