‘A decade ago 40% of all purchasers in the States were first-timers. Today is it 27%. In Canada the number exceeds 50%, and is rising.’

Josh sells real estate in urban Toronto. “Fourteen years now,” he says, “since I was 21. And in all that time, there’s been only one really crappy time – six years ago now.” …
Josh’s clients are mostly people his age – the sub-40 set. The average deal is around $800,000, he says, “but one in four, I’d say, range from one-two to one-four.” Of those spending more than a million, Josh figures the average mortgage is about 80% – taking into consideration CMHC insurance is no longer available for seven-figure deals.
“Used to be that a million-dollar mortgage was a big deal,” he adds. “Now I see them all the time.”
By the way, to carry $1,000,000 today with a variable-rate mortgage at just under prime is about $4,500 a month. With insurance and property tax, it’s a little over $5,000. The land transfer tax in Toronto on a $1.2 million so-so house needing serious renos in the north end is $40,200. So to close on that with 20% down would require cash of about $290,000, and then a million in financing. …
No wonder RBC came out with that report last week. The bank found people between 35 and 44 have far more debt than their parents did at the same age – and more leverage than any other group in society. Mortgage rates today may be 3% instead of the 14% they were in 1993, but the amount of debt has ballooned so dramatically that monthly payments eat up far more of disposable income.
As a result, people in this age group are more dependent on real estate than any in the past. Almost 100% of the increase in net worth for Josh’s cohort has come from housing appreciation, since they’re saving and investing virtually nothing outside of their walls.
While real estate augments, they win. When it declines, they’re screwed. …
[And] it’s worth understanding what happens to people like Josh’s clients once they have seen a disaster. In the US these days the appetite for house-buying is sinking with regularity among the young. A decade ago 40% of all purchasers in the States were first-timers. Today is it 27%. In Canada the number exceeds 50%, and is rising.
So either the American kids are wusses and might suffer, or the kids here are naïve and could implode.

– from Generations, by Garth Turner, greaterfool.ca, 10 Aug 2014

Our bubble is national, and will end as all bubbles do, with implosion.
Vancouver has the biggest bubble and the least non-RE support; it will suffer the most.
As one recent online article succinctly stated: “You can’t taper a Ponzi scheme”.
– vreaa

22 responses to “‘A decade ago 40% of all purchasers in the States were first-timers. Today is it 27%. In Canada the number exceeds 50%, and is rising.’

  1. This recent announcement from Fair Isaac confirms that standards in the US are reverting back to pre 2008 levels. http://finance.yahoo.com/news/fico-credit-score-better-debtors-183053850.html

    While previous participants in the US RE “ponzi” may be hesitant now (or maybe just stuck in long term leases with Blackstone), doors are once again opening for those that probably should not be playing in the first place. Sure, a ponzi can’t be tapered, but TPTB can do everything and anything in their power to draw in as many new suckers as possible. If the RE market in Cda shows any sign whatsoever at flat lining (or heaven forbid declining), you can bet the boys and girls out east will be ready at the drop of a hat to relax the mortgage rules. The persistent chatter of possible rate hikes out the BOC is getting tiresome. It ain’t happening any time soon.

    In regards to the numbers mentioned above, I don’t get how average Joe’s out there can even get into the game at these price levels. Firstly, where on earth are 30-somethings coming up with the $300k for a DP given that the average Cdn is unable to save this much by retirement? Other than the bank of “mom and pop” who either have to sacrifice some of their retirement or go into debt themselves (or they’ve somehow tricked the lenders and have in fact borrowed the dp too), you’ve got me stumped. With a mortgage pmt of $4500, you’re likely looking at close to $6000/mo minimum (after tax) once prop taxes, insurance, utilities, maintenance and so forth are factored in. You then add to that the cost of a couple of cars, fuel, groceries and the like and the monthly tab balloons to $7500+ or significantly more if homeowners have children (and/or mom and dad need the dp repaid at some point in the future). I don’t know about you, but I see many average families (who aren’t earning anywhere near the req’d $150-200k) living in homes in this price range. Are they all living on borrowed time hoping for a big, tax free capital gain on their RE? What happens if the hour glass runs dry before some wealthy asian investor lands on their doorstep with a briefcase full of cash willing to pay double or triple what they paid? What am I missing here?

  2. “I don’t get how average Joe’s out there can even get into the game at these price levels. ”

    Its probably not the average joe’s getting into the game, at least with 1.2M homes and 20% down. You’re right, for a 1M mortgage you need reasonably high incomes, so assume that the people buying houses are in that 150-200K household income range, and probably DINK’s to boot. The only other explanation is that the banks are lending to people that simply cannot afford it, which doesn’t make any sense.

    For this group of people (early to mid-30’s, DINK, 150-200K household income), saving 300K by that time should not be that difficult, if you have a reasonably regimented saving plan.

    • I’m not arguing with the fact some people make this sort of cash and have ample savings for the DP, but most don’t (certainly not enough to account for the record sales volumes being witnessed year after year). IMHO, something doesn’t add up. I could probably list off dozens of examples of households making far less than this with high 6 figure or even 7 figure debt loads. How they will ever pay this off in their lifetimes is beyond me. The big issue is with the lenders who are not only under a lot of pressure to fit square pegs into round holes (ie. massaging data to make mortgage applications “work”), they also don’t care one way or the other if you really can’t afford the home in the first place. Remember, they are salespeople first and foremost and their duty is to close as many deals as they can. To me this makes perfect sense.

      • Real Estate Tsunami

        Agree, things don’t add up.
        The Elephant has now been in the room for many years and still people pretend not to see it.

      • @ RET: it’s not a matter of pretending. everyone knows it’s there. I think many believe they can stay nimble, continue to make some quick cash along the way and hop off the train before the SHTF. stock market is no different.

      • You are talking about “most people” or “average joes”, but the author specifically said that only 1 in 4 of his clients are buying 1.2MM homes with 20% down. I assume the other 3 are doing something less costly and within their particular means.

        Things don’t add up because we don’t have the complete picture. People get money from parents, inheritances, lottery winnings. They have equity from previous homes (that have run up in the last 10 years) that they use for their new homes. All kinds of reasons for people with modest incomes to be in larger homes.

        As for debt loads – what is the benefit to the bank for lending where the monthly payment exceeds income required to pay the debt? Banks will lend based on what people can afford to pay back. It could be that you are not as in tune with your friend’s incomes and debt loads as you think you are.

      • Nuxfan,
        “lottery winnings”.
        Good one.

      • @nuxfan: as I said, the bank of mom and pop. As for the banks, they can do as they wish. The tax payer will be holding the bag again (as they did in 2008 with their backdoor bailout via cmhc) if things turn south. Given this, it is completely understandable that they continue on doing everything in their power to keep the bubble inflated. There is no other option. There is no exit plan.

      • Agree with nuxfan, I’m guessing banks generally don’t enjoy servicing borrowers who are close to missing payments, unless the spreads are larger.

        I expect banks have some decent data on how homes are financed, and I’m sure it’s a fascinating dataset. Alas mere mortals cannot see them but I do know returns are better elsewhere. “The only winning move is not to play.”

      • Just because people can “afford” to make payments to the bank does not in any way mean that we are not in a massive housing bubble, or that household debt levels are not unsustainably high.

      • I think many have a completely distorted view on what the definition of “affordable” is. on the flipside, the survey conducted by the fraser institute lays it out in black and white suggesting things are not exactly hunky dory for those heading into retirement (esp those living in BC)

    • I just visited Statscan.

      In 2012, there were just shy of 3 million Canadian households making more than 100K/year, or 11.3% of the population.

      Of that group, only 1.13 million households made over 150K/year — 4.4% of the population.

      Now wages aren’t wealth, and there will be some rich criminals out there, but still – none of this makes any sense to me.

      Yet I’m getting pessimistic that it’s supposed to make sense. People are acting as tho’ we’re moving back to a time of land-holding aristocracy and general serfdom. Maybe we are.

      • UBCghettodweller

        > People are acting as tho’ we’re moving back to a time of land-holding aristocracy and general serfdom. Maybe we are.

        Maybe in a select few large urban centers. Such as system has been in place in Europe for hundreds of years already.

  3. Real Estate Tsunami

    Phoned the Toronto RE Board.
    They have no record of a Josh being licensed to practise the art of RE selling in their jurisdiction.

  4. First time homeowners?
    Most have a home, just not in Canada. 🙂

  5. “I’m seeing million dollar mortgages” isn’t any way to go through life.

  6. Joe Mainlander

    Recent Southeby’s report claimed 2500 homes sold last year in Greater Van over $1 mil. Checking REBGV stats, there were 28,500 home sales in Greater Van last year. That means over 90% of sales are for homes under $1 mil.

    Not too many folks buying those +$1 mil homes. The market is driven by the 90% who buy under a mil.

  7. In Richmond, there are 860 SFHs listed.
    Only 240 are below 1 million.
    Which is below 30%.
    Therefore, the market is driven by > 1 million segment.

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