Housing Bust 2016

Leveraging, renting vs owning, making an investment or buying a home?
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snowback96
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Re: Housing Bust 2016

Post by snowback96 »

SkaSka wrote:
patriot1 wrote:
AltaRed wrote:Snowback, I think the only thing that can 'help' the market is to put a firm grip and penalties on speculators.
Ontario tried a speculation tax on property, and the market ‘collapsed overnight’

It's not that governments are unaware of solutions, they are afraid the solutions might actually work.
Again, it's all about perverse incentive structures.

In this case, the job of a politician is to get re-elected first and serve the people second. If one is incentivized to get re-elected as the primary motive, there is zero incentive to piss off the people who are going to vote you in. If you do and try to be a hero, you're fired and no longer have a job as a politician (with all the sweet, sweet benefits that come along with that gig).
I guess that's my point about the Boomer-Politician Axis (BPA) not having the courage to fix the situation despite the obvious powers to do so. To add insult to injury, the younger generation will be asked to eventually bail out the system when it eventually collapses under its own weight.
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Re: Housing Bust 2016

Post by Flaccidsteele »

snowback96 wrote:I guess that's my point about the Boomer-Politician Axis (BPA) not having the courage to fix the situation despite the obvious powers to do so. To add insult to injury, the younger generation will be asked to eventually bail out the system when it eventually collapses under its own weight.
That's how our voting system works. And that's how the results will always be.

Not sure what you're suggesting as a fix. There weren't any specifics in your posts. Just ranting?
Last edited by Flaccidsteele on 17 Sep 2016 02:17, edited 1 time in total.
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Re: Housing Bust 2016

Post by deaddog »

snowback96 wrote:
The Feds could fix most of this in a heartbeat (if they had some courage). Kill the capital gains exemption, institute mandatory co-insurance for CMHC, and crack down on speculation and fraud. PROBLEM SOLVED. You don't even have to particularly target foreign buyers because the combination of a capital gains tax (which would have 25% withholding for non-residents) and the speculation/fraud crackdown would take care of it.
I don't think this will help. It is a problem of supply and demand and as long as the demand out paces the supply prices will continue to rise.

Adding additional taxes for foreign buyers or a special levy for vacant homes won't help the problem. If you have an unbalanced market you will have speculators.

What exactly is the fed going to fix? If you eliminate the capital gains and make it harder to get a mortgage you might cause the supply to out pace demand, prices will decrease, who wants to buy a house in a falling market? The minute you have 2 buyers looking at the same house prices will rise and the same people that can't afford a house now, will be outbid.

SUPPLY AND DEMAND!!!
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Re: Housing Bust 2016

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Flaccidsteele wrote:Not sure what you're suggesting as a fix. There weren't any specifics in your posts. Just ranting?
I thought my following suggestions were quite specific:
Kill the capital gains exemption, institute mandatory co-insurance for CMHC, and crack down on speculation and fraud.
Please tell us why killing the capital gains exemption, CMHC co-insurance and a fraud crackdown will not help the situation.

It seems to me that killing the capital gains exemption puts housing on par with other investments. Or do you not believe that a level playing field is a good thing?

It also seems to me that CMHC co-insurance will mean the banks have to sharpen their pencils and do some proper risk assessment (which will obviously reduce mortgages for marginal buyers) and lower demand. Why should banks not have to put some skin in the game? Link risk & reward for the banks. Or do you not believe in a market economy?

And how is cracking down on fraud not a good idea? Or do you not believe in the rule of law?

You might like the situation just the way it is (and many do), but your suggestion that I'm just ranting with no specifics is wrong and unhelpful. Next time address the specific suggestions. Thank you.
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Re: Housing Bust 2016

Post by AltaRed »

If a principal residence was subject to cap gains, then expenses would need to be tax deductible. Even that great cheerleader of the free market to our south provides for a number of exemptions because CG can be deferred for a long time. At the same time, the system incentivizes Americans to keep their houses highly leveraged to get the mortgage interest deduction. Re-financing is par for the course down south, but less so here, albeit Cdn homeowners seem to be loading up on non-deductible HELOCs in recent years. I don't think that is going to work out nearly as well as Snowback suggests.

There will also always be a way for lenders to lay off loan (mortgage) risk to counterparties even if they have to pay for it. Indeed, they already do so by paying premiums to CMHC or Genworth and perhaps those entities are much better to provide our lender insurance than the US type entities which had to be bailed out (Fannie Mae, Freddie Mac, AIG). Those counterparties simply need to do a better job of putting the sharp pencils to their customers than just collecting the premiums and maybe that is where regulator pressure needs to be applied.

I will continue to say that where action needs to be taken is with respect to flips, and the like, to get speculation out of the market. A critical component of society should not be subject to the obscene greed that comes with the type of speculation we are seeing in hot markets. All other aspects of the market are subject to supply and demand....and literally based on the ability to pay. That simply is not going to change as long as home dwellers continue to favour home ownership over renting.

Added: I don't konw how much fraud is going on, but I suspect it is at the margin in most places. I agree that whatever fraud has been allowed to permeate the market needs to be flushed out, but I am not so sure this will make a lot of difference in supply/pricing.

Provincial/municipal development/permitting issues do not really impact the housing market as much as one thinks. Indeed, regulators have been dragging their feet on many things that should be in primary residences, but are not. The most significant I can think of today is a real need for sprinkler systems in houses but builders push back because it will add a few thousand to the house.

Land use is a critical factor. I have been involved in land use bylaws for about 10 years, initially in Calgary and now in the Okanagan and municipalities are generally being as lax as they can (certain irritants aside). I don't know how they can be more relaxed without decreasing quality of life in our urban areas. What may not make sense today does make a lot of sense 20-40 years down the road when urban growth puts strain on quality of life, e.g. infrastructure, commercial and industrial development siting next to residential areas, etc. What Canadians need to wake up more to is to accept multi-purpose residential housing, i.e mixed with light commercial/retail and stop insisting on their own personal outdoor space with environmentally unacceptable lawns and the white picket fence. My involvement the last 10 years has been to foster denser urban growth for affordability while at the same time preserving and creating usable public spaces, aka Mayor Nenshi's model. It is often the potential *new* homeowner that has resisted the need for change.

Edit: Revised last sentence to indicate that much of the resistance to more efficiency and effectiveness comes from the potential new homeowner with their idealistic views of what a 'home' is or should be.
Last edited by AltaRed on 17 Sep 2016 13:00, edited 1 time in total.
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Re: Housing Bust 2016

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deaddog wrote:It is a problem of supply and demand and as long as the demand out paces the supply prices will continue to rise.
But first you have to understand what supply and demand actually are in the RE market. Demand is how many units households are willing to buy at a given price. If you take money out of the pockets of buyers - by stricter loan qualifications, higher interest rates, higher mortgage insurance fees, an end to buyer subsidies, higher property transfer taxes - you decrease demand. If you take away the potential for future profits by increasing capital gains taxation, you also decrease demand.

Likewise supply is how many units owners are willing to sell at a given price. If you disincent investors and empty nesters from hanging on to properties, you increase supply.

Note that all of these factors are independent of the total number of dwellings and total number of households. That is what so many people don't understand.
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Re: Housing Bust 2016

Post by deaddog »

patriot1 wrote:
deaddog wrote:It is a problem of supply and demand and as long as the demand out paces the supply prices will continue to rise.
But first you have to understand what supply and demand actually are in the RE market. Demand is how many units households are willing to buy at a given price. If you take money out of the pockets of buyers - by stricter loan qualifications, higher interest rates, higher mortgage insurance fees, an end to buyer subsidies, higher property transfer taxes - you decrease demand. If you take away the potential for future profits by increasing capital gains taxation, you also decrease demand.

Likewise supply is how many units owners are willing to sell at a given price. If you disincent investors and empty nesters from hanging on to properties, you increase supply.

Note that all of these factors are independent of the total number of dwellings and total number of households. That is what so many people don't understand.
How do you factor in that people have to have a place to live? There is a limited number of rental units available. Landlords won't buy/build if they can't make a profit. Speculators are playing the system and taking advantage of the fact that supply/demand is out of balance. Single family neighborhoods are being replaced by multi-residence high rises and still the price continues to rise.

People want to live in desirable locations and those that can afford it will continue to keep demand up.
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Re: Housing Bust 2016

Post by Just a Guy »

Surprised no one is concerned that 1/3 of BC's provincial budget relies on income generated by the transfer tax from property. In fact, it's more revenue than the amount generated by the five biggest resource sectors combined.

What happens if they actually get control of the market?
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Re: Housing Bust 2016

Post by Flaccidsteele »

snowback96 wrote:Kill the capital gains exemption...
If homeowners aren't selling in the face of tax-free capital gains, how would this help? How about extending the time before one is eligible for the capital gains exemption?
...institute mandatory co-insurance for CMHC
What does this look like and how does it help? It just seems like another iterative layer of insurance?
snowback96 wrote:...and crack down on speculation and fraud.
How would you define "speculation"? Buying any asset is speculative isn't it?

How would you define "fraud" outside of what government agencies are doing now?
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Re: Housing Bust 2016

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Flaccidsteele wrote: How would you define "speculation"? Buying any asset is speculative isn't it?
No. Speculation is buying an asset in expectation of making a positive return from capital gains, rather than income. That is, the owner is expecting to make money from the next owner, not the output of the asset.
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Re: Housing Bust 2016

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deaddog wrote:How do you factor in that people have to have a place to live?
People have always needed a place to live. Canada's cities have grown from villages to multi millions and have not had bubbles most of the time. Bubbles are caused by financial and taxation factors, not population factors.

During every bubble the claim is made that new construction is not keeping up with population. In fact the opposite is almost always true - new construction is outpacing population. It's during price declines that construction does not keep up with population. This is Australia, but it's typical of any bubble market.

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Re: Housing Bust 2016

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Until recently, there has never been a time in history when everyone expected to own a house, much less feel entitled to own a house.

Then you throw on the idea that everyone should own a nice, spacious home in a good neighbourhood, at least one car, get a university education, earn a living wage no matter what the job (will there be fries with that?), full pay when you get laid off and be able to retire at 55...and wonder why it doesn't work.

Sorry people, reality has a nasty way of making itself felt in he long run.
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Re: Housing Bust 2016

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Just a Guy wrote:Surprised no one is concerned that 1/3 of BC's provincial budget relies on income generated by the transfer tax from property. In fact, it's more revenue than the amount generated by the five biggest resource sectors combined.
Oh, that has been loud and clear amongst us here in the Bring Cash province. Terrible conflict of interest by letting the Vancouver scene continue as long as it has. Me thinks the Libs were at least a year late putting some headwind into this matter and the current turmoil will cost them something in next Spring's election. We will find out soon enough when campaigning starts in the new year.
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Re: Housing Bust 2016

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patriot1 wrote:
Flaccidsteele wrote: How would you define "speculation"? Buying any asset is speculative isn't it?
No. Speculation is buying an asset in expectation of making a positive return from capital gains, rather than income. That is, the owner is expecting to make money from the next owner, not the output of the asset.
Great definition! :thumbsup:
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Re: Housing Bust 2016

Post by Flaccidsteele »

patriot1 wrote:Speculation is buying an asset in expectation of making a positive return from capital gains, rather than income. That is, the owner is expecting to make money from the next owner, not the output of the asset.
This seems to imply that all investments in stock that don't pay a dividend is speculative? Do all companies in an equity index pay dividends? What fraction of equity index funds are speculative?

It also seems to imply that as long as an investor, cash flows from rental real estate, buys the stock of a business that pays a dividend, buys a bond, without any regard for price, it isn't speculative.

On the surface that doesn't seem to make sense?

Perhaps your definition needs a bit of tweaking?
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Re: Housing Bust 2016

Post by bolt »

I did not read this 22p thread. However, I recall reading that the USA has had 2 large housing bubbles that subsequently burst badly, along with many other fluctuations. One was in the early 1900s [1930s-iirc] ), and the other we all remember less than a decade ago. I'm sure we'd all recognize housing markets risks are akin to other markets, move glacially, fluctuate, is cyclical and can become systemic. Additionally, USA REITs have had 15 plus yr's of 10%ish returns, thats unsustainable imo. USA might be in for a down turn also. I did not verify those figures, again more Bloomberg, Money, WSJ, or whatever reading, so consider it as such.
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Re: Housing Bust 2016

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Flaccidsteele wrote:
patriot1 wrote:Speculation is buying an asset in expectation of making a positive return from capital gains, rather than income. That is, the owner is expecting to make money from the next owner, not the output of the asset.
This seems to imply that all investments in stock that don't pay a dividend is speculative? Do all companies in an equity index pay dividends? What fraction of equity index funds are speculative?

It also seems to imply that as long as an investor, cash flows from rental real estate, buys the stock of a business that pays a dividend, buys a bond, without any regard for price, it isn't speculative.

On the surface that doesn't seem to make sense?

Perhaps your definition needs a bit of tweaking?
Flaccidsteele,

Perhaps you could spend less time nit-picking on the comments of others and focus on adding some value to this discussion. You asked for a definition of "speculation" and patriot1 gave you a pretty good one. Notice that his definition is not too different from a dictionary version http://www.merriam-webster.com/dictionary/speculation:

- activity in which someone buys and sells things (such as stocks or pieces of property) in the hope of making a large profit but with the risk of a large loss

There is no reference here to lower risk, small payments like dividends. For the most part dividends are known within reason (i.e. lower risk) and are not likely (by themselves) lead to a "large profit" or "large loss". On the other hand, capital gains/losses can and often do meet that definition.

I have no idea what to make of your index fund dividend gymnastics. Very random and not very helpful to the conversation IMHO.

Do you have a better definition of speculation that you can share?
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Re: Housing Bust 2016

Post by Flaccidsteele »

snowback96 wrote:Perhaps you could spend less time nit-picking on the comments of others and focus on adding some value to this discussion.
I'm just asking questions to seek clarification. I'm not sure why you're critical of them? I never criticized your well thought out ranting? You believe your dead-end rant offered more value?
snowback96 wrote:You asked for a definition of "speculation" and patriot1 gave you a pretty good one.
He did give one. I was asking questions to see if I understood his definition.
snowback96 wrote:Notice that his definition is not too different from a dictionary version http://www.merriam-webster.com/dictionary/speculation:

- activity in which someone buys and sells things (such as stocks or pieces of property) in the hope of making a large profit but with the risk of a large loss
Actually from my perspective the two definitions are quite different.

The definition you provided from merriam-webster required "hope of making a large profit" and "risk of a large loss" as the two main components of the definition.
patriot1 wrote:Speculation is buying an asset in expectation of making a positive return from capital gains, rather than income. That is, the owner is expecting to make money from the next owner, not the output of the asset.
Those are two completely different definitions. The first concerns itself with "hope" of a "large profit". The second focuses on "capital gains, rather than income". The first concerns itself with "risk of a large loss". The second doesn't mention risk at all and focuses on making money "from the next owner".

How did you come to the conclusion that the two definitions were similar?
snowback96 wrote:There is no reference here to lower risk, small payments like dividends.
Actually, the merriam-webster explicitly mentions "risk of a large loss". How did you determine that there was no reference?
snowback96 wrote:I have no idea what to make of your index fund dividend gymnastics. Very random and not very helpful to the conversation IMHO.
Again, I never criticized your seemingly well thought out rant, so I'm unsure why you've decided to do so with my post? You believe your dead-end rant is more helpful?
snowback96 wrote:Do you have a better definition of speculation that you can share?
Sure. I had shared it in the form of a question, but can remove the question.

Buying any asset is speculative.
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Re: Housing Bust 2016

Post by FI40 »

Any thoughts on the latest announcement from the Finance Minister?

http://www.theglobeandmail.com/news/nat ... e32206297/
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Re: Housing Bust 2016

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FI40 wrote:Any thoughts on the latest announcement from the Finance Minister?
Looks to me they have concluded that significant price declines in Vancouver and Toronto are inevitable and they have decided better sooner and smaller than later and bigger. Vancouver will see the bigger crash but it's not nearly as important electorally and Christy Clark has conveniently taken the first move and will face the voters much sooner.

I really can't form any other conclusion from a policy that will have the same impact as increasing rates by 2%.That will take a massive amount of buyers out of the market at current prices, which means current prices will be unsustainable.
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Re: Housing Bust 2016

Post by AltaRed »

Remember the proposal is only for those who are not Canadian residents residing in Canada. That will obviously capture mostly scumbags who are using Canada as a convenient way to 'wash' money, but unless there are exemptions (in the fine print), that could also catch ex-pats who have rented their home out will working elsewhere for X years.

Most ex-pats who intend to return home never declare a gap in occupancy provided of course they aren't claiming CCA, mortgage interest, etc. type deductions along the way.
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Re: Housing Bust 2016

Post by Flaccidsteele »

Ross Kay has an interesting take:
“Like terrorist attacks were used to compromise the privacy and independence of Canadian citizens, it appears the Foreign Buyer myth will be used to compromise the privacy and independence of Canadian citizens even further. The suggestion that homeowners selling or buying their personal residence will be a required to report it on income tax forms sounds innocent, but it’s anything but. Twenty years from now as pressure is put on funding government pensions, having a record of net wealth tied up in the family home could place unexpected challenges upon those looking to retire.

“Anyone who believes today’s suggestion that Canadians are now required to give the government the details on selling the family home is not thinking. The government is using the illegal actions of NON-Canadians as an excuse to monitor Canadians’ retirement finances – not something this country should stand for.”
Who knows if it's all tin foil or not. It wouldn't surprise me. I guess time will tell. Either way, Canadians typically just take whatever the government shoves in their mouth anyway.

According to Garth Turner here are the "facts":
Taxpayers must report the sale of the family home if you’re claiming an exemption from capital gains tax (in the past that exemption was automatic). ‘Basic information’ about the property will be required on the tax form – yet to be determined. If you don’t comply, no exemption.

The CRA will have authority at assess you for capital gains tax on real estate that is not reported on the tax return for the year in which it is sold.

Ottawa will work with provincial governments (which maintain land registry operations) to ensure that all residential real estate transactions are recorded and taxed as required.

The tax return, starting next April, will require details on the date a property was acquired, the proceeds of disposition and a description of the property. To qualify for a capital gains tax exemption, you must complete and file a separate Schedule. The full exemption may not be granted, depending on the details provided.

If you sell your home but forget to include this information on your return, the CRA will not allow the proceeds to be tax-free. In that case you must ask the CRA to amend the return. This amendment will be granted “in certain circumstances” but may also come with a penalty equal to the lesser of $8,000 or $100 per month from the sale date to the request date.

If you have a suite in your home, then sell it, the selling price must be split and reported. Part of it will qualify to the tax exemption and part will not. In markets with elephantine gains in home prices, this could be quite the bombshell.
Here is the link to the CRA site for such things.
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Re: Housing Bust 2016

Post by Insomniac »

Many houses in Greater Victoria have suites built in. Realtors have been marketing these home with "mortgage helpers" for years. Some of the suites so big that they are 1/2 of the house. I have seen new houses with a suite plus an illegal suite; basically a triplex. So now, when the owners sell their homes they will only get the primary residence exemption on the part of the house they occupy. This seems like a big hit for these people.

Some municipalities have been encouraging owners to build suites (even "garden" suites) to help cure the housing shortage. I think that this measure will discourage owners from doing this.
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Re: Housing Bust 2016

Post by gobsmack »

It seems to me like it will be difficult for them to enforce the capital gains tax changes. They would have to be able to cross-reference land registry transactions against tax and immigration records. I was under the impression that fraudsters were getting away without paying taxes precisely because this was a very difficult exercise for the CRA. It does not look like the announced changes will make the task any easier so I don't see how they can be effective.
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Re: Housing Bust 2016

Post by kcowan »

gobsmack wrote:It does not look like the announced changes will make the task any easier so I don't see how they can be effective.
I had to complete the calculation when I sold the family cottage in 2000. I was amazed at how loose the process was. We had used the $150k shelter before it expired in 1992. After completing to calculation, we were exempt and instructed to not send in the paperwork.

The issue of illegal rental suites has been ignored for years. The advice to avoid claiming CCA on the rental income seemed to be seemed to be advice aimed at encouraging tax evasion. I am willing to bet that declaring the income was commonly ignored too.

A friend has run a successful B&B for 25 years and, on advice from his accountant, has just shut down the business for 2 years prior to selling the house as his PR for north of $4 million. This is his second property owned in Vancouver.
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