Time for your weekly cheat sheet on this week’s top stories.
Canadian Real Estate
CMHC: Vancouver Has The Most Indebted Households In Canada, Toronto Not Far Behind
Vancouver, Toronto, and Victoria are the country’s most indebted cities. Vancouver led the pack with a debt to income ratio (DTI) of 242% in Q2 2018. To put that another way, households in the city owe $2.42 for every $1 in disposable income they earn. Toronto came in second with a DTI of 208%, up from 189% just three years ago. Victoria came in third with a DTI of 189%, the same level it was three years ago. To contrast, the national average is 171%, which makes Canada the most indebted country in the OECD.
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Teranet-National Bank: Only 3 Small Canadian Real Estate Markets See Prices Rise
Canadian real estate prices fell 0.28% in November, from the month before. The monthly decline isn’t normally a big deal, but it is this month. A monthly decline has only occurred 4 times in the past 20 years.
That doesn’t seem like a lot, but it helps us to understand this year’s annual price change. Analysts from National Bank noted that last year this time, prices made an abrupt and fast decline. When comparing this year to last, the November decline was smaller, making it look like price gains were accelerating. In actually, prices are still down from peak.
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It Costs A Whole Lot More To Use A Variable Rate Mortgage In Canada
The cost of using a variable rate mortgage in Canada is rising quickly. The Bank of Canada estimates the typical rate reached 2.72% on December 6, up 25.52% from last year. The increase doesn’t just mean new borrowers will have to pay more. It also means existing borrowers on a variable rate are contributing a lot less to principal. Moving the goal post is always fun.
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Toronto Real Estate
Toronto Detached Real Estate Sales: Worst November Since The Great Recession
Toronto detached prices are flat, but sales fell to Great Recession levels. TREB reported the typical detached home price hit $910,100 in November, down 0.28% from last year. The number of detached homes sold fell to 2,665, down 14.2% compared to last year. The decline in sales makes it the worst November for detached sales since 2008.
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Over 82% Of Toronto’s Household Debt Is Tied To Residential Real Estate
Toronto is the country’s second most indebted city, and it’s due mostly to real estate. The debt to income ratio reached 208.08% in Q2 2018, up 10.2% over the past 3 years. The mortgage DTI is 145.2%, and HELOC DTI were 24.6%. That’s 169.8 out of 208 points related tied to real estate. That makes the region extremely vulnerable to interest rate hikes.
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Vancouver Real Estate
Vancouver Detached Real Estate Prices Drop The Most Since The Great Recession
Greater Vancouver’s detached home prices fell the most since the Great Recession. The benchmark price of a detached home fell to $1,500,100 in November, down 6.5% from last year. The decline was accompanied by just 516 sales in the month, down 38.6% from last year. The price drop is the largest seen since July 2009.
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Vancouver’s Household Debt Is A Whopping 86% Residential Real Estate
Vancouver is the country’s most indebted city, and it’s due almost entirely to real estate debt. The DTI for the city’s households reached 242.11% in Q2 2018, up 7.1% over the past 3 years. The mortgage DTI alone is 176.9%, with HELOC DTI representing another 30.9%. That’s 207.8 out of 242.11 points, related to housing.
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I’m reading BD at my dining room table drinking my Maxell house instant coffee(I can’t afford Starbucks) and I’m writing with a Blackberry phone. Yep, me and wife are saving like crazy. It’s very expensive to live in Vancouver
Conversely, I’m reading BD in my solarium, saving nearly $100k per year renting my $6 million dollar home versus owning the same place, without any downside risks, drinking a $20/pound micro-roast.
Toronto’s expensive, but if you’re smart enough to do the math, you can get people that are dumber than you to subsidize your lifestyle. Then invest the rest.
There’s USD savings accounts that pay more than the cap rate on the vast majority of properties in Canada. The difference is people at the bank selling you a mortgage at 4%, while you make 1.5% less expenses, won’t tell you that. Because, well, that’s how they make half their revenue.
Gag me with a spoon.
This is precisely the cancerous attitude that has landed us in this situation. Luckily it’s been my experience that those who talk about money ie ‘$6M’ dollar house are 9 times out of 10 not telling the truth. People with real money don’t talk about it. In the future add #blessed to enhance your believability.
That escalated quickly.
I drink Maxwell instant coffee. Wayyyyy better than Starbucks. Mix it up with some ice it goes down nice! There’s nothing wrong with saving my friend. Discipline is a talent in itself.
You are correct, but JV is writing about sacrificing for his personal goal while NumUp actually uses the phrase ‘dumber than you’ to couch his particular brand of genius. And I’m sorry but my BS detector came on fast. It’s that type of alleged BS that causes well intentioned people to second guess themselves.
NumUp refers to a $6m abode. Is that the one he’s renting it the one he sold? You can’t have the cake and eat it too, even if he’s renting back from his purchaser, that solarium is not his. And where does one stow $6m with ‘no down side risk’, especially if you’re in US accounts. He needs 60 different Canadian accounts each holding not more than $100K to have no downside risk. To suggest that’s easy is ridiculous.
I commend JV and wish him well. It’s not easy, anyone who says it is has a hidden agenda.
Correction. JV’s “sacrifice” sounds like he’s planting an all-renters are poor agenda, not discussing his struggles. NumUp doesn’t actually use “dumber than you.”
They’re both pushing an agenda, but so are you from your interpretation. Both are technically wrong, and both technically right. Owning isn’t always right, and renting isn’t always right. Someone who actively does the numbers, will know which one is right and which one is wrong. I have yet to see a market in Canada right now, where cap rates less maintenance, insurance, and appreciation, exceed the cost of financing.
Further, I don’t see anything about them storing $6M in checking accounts. Typically Americans would establish a CD ladder for extremely no risk, insured slips. I’m guessing if they did the math on renting, they’re also doing the math on secured vs low risk deposits. In which case, less than half would be in secured deposits. That would be a typical CD ladder. Wealthy people have different banking needs from the average person. Most people would consider it “excessive” to setup 12 accounts, but that’s why wealthy people pay money managers.
FYI, Regarding 60 accounts with $100k, that’s just not true. In Ontario, DICO insures accounts for up to $250K at member institutions. In the US, it’s $250k everywhere, and any US bank with DIF is insured above the $250k mark to a limit they haven’t had to question people about. Ever wonder why Boston is the second largest VC hub in the world?
Correction. NumUp actually says ‘dumber than you’ and JV is drinking Maxwell House as he and his wife ‘save like crazy’ – that is an expressed sacrifice. As such, its not reasonable to expect that JV has a wealth manager working out where to stow his cool $xM. NumUps agenda is to assert his superiority. No matter how you slice it, JV doesn’t deserve the belittlement. The behavior left unchecked makes the world a lousy place to be.
It helps if you re-read the whole sentence.
“you can get people that are dumber than you to subsidize your lifestyle”
This is how we capitalism. If someone if willing to go negative yield on the assumption of appreciation after a 30% rise, they’re dumber than you. You know what kind of portfolio beta this person is putting in, especially in contrast to the renter?
One person who really does understand the difference between renting and owning is the former GS banker that heads the CMHC. He’s renting now. That should be a hint that the guy that’s in charge of mortgage funding, thinks taking out a mortgage isn’t the best financial move he can make.
Dumber that ‘you’. He could have said dumber than ‘me’ and I would have taken no issue with the rest of the unnecessary bravado.
I’m pretty sure the tenant banker is not walking around telling people how much money he has, it’s just bad form.
I sold in Q4 2016 and agree that renting is the way to go for the next year or so.
Tom read the comment again – carefully this time. Numbers Up is renting a 6mil home and is saying he is smart because he did NOT buy the 6mil home and therefore has disposable income and is able to invest in more lucrative markets.
Not owning = no risk
Then it’s not his solarium. And its not his $6M place. He’s renting from someone who actually owns it. His swagger is also indicative of an arm-chair quarterback. Everything has risk.
I hope for his sake that I’m wrong, and that JV knows that if you super-heat the cup of water in the microwave and add the Maxwell House after (stand back) it develops a crema that is second to none. That’s what I did as I saved for my house and my kids education.
Nothing is easy. It’s what you make of it. Numbers Up doesn’t have to belittle people.
Tom – okay now you’re just being deliberately obtuse. Maxwell house is the worse coffee ever, only people who have no taste buds left drink that reheated mud.
give it a shot. it’s actually not too bad. stand back though, the reaction to the coffee is very impressive 🙂
Wayyyyy better than what Nescafe will have you believe is coffee! However I will take Kirkland Signature from Costco anyday. Hmmmm time for another cup!
The current US Fed rate as of Dec 13 is %2.19 with a rate hike very likely in the late Dec. meeting.
Historically the average Fed rate is about 6% going back to 1960.. The Fed has stated that rates will return to normal levels..What are normal level..The stress test is 2% higher than mortgage rates for a good reason.. Rates will continue to rise for another 2%…As CDN rates have to keep in t ouch with US rates as our current account is closely tide to the US dollar..all of our trade account are pd in US dollars. The CDN dollar is a very thinly traded currency and is very reactive ..