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Canada had a massive housing crash in 1990. Housing pricing dropped in Toronto by 30% on average (less in the core, up to 50% in the suburbs). Home owners wer

by refurb 3y ago

Canada had a massive housing crash in 1990. Housing pricing dropped in Toronto by 30% on average (less in the core, up to 50% in the suburbs). Home owners were screaming for relief. If you bought in 1989, you didn’t break even accounting for inflation until 2005 or later. The last decade has been Groundhog Day compared to the 80’s. Complaints of limited supply, people saying “these prices are the new normal”, people taking on more and more debt. To me the most obvious indicator of a bubble is the disconnect between wages and home prices. Toronto has almost the same home prices as San Francisco yet: 1) wages are lower, 2) taxes are higher and 3) mortgages can’t be fixed for 30 years. Fundamentally it just doesn’t make sense. Sure immigration can drive demand, but the affordability issue remains. What’s driving it is speculation - people think they’ll make a lot of money so they take bigger and bigger risks - fraudulent mortgages, “interest rates have to come down” mentality, “the government will never let housing prices drop” mentality, private mortgages that let borrowers leverage up way beyond government standards. I have no idea when it will correct but I’m confident that they will - they always do.

randomdata 3y ago
> wages are lower That may be true, but houses aren't that expensive. If you're, say, Austin Matthews making $13MM per year in Toronto, you can still buy a lot of houses. That capacity is not diminished by some tech mogul in SF making $130MM per year. The question is, as always, will something better come along? Indeed, housing is the purchase of last resort. Give people something better to buy and they will! People in Canada especially are happy to buy real estate like mad at this juncture because, frankly, what else is there to buy? Canada doesn't offer much else. You're not going to work to make $13MM just to hold an IOU forevermore. People making $13MM want to collect on what they've created and have something to show for it. The US housing market crashed back in 2006 because tech started showing promise ("Web 2.0", mobile shortly thereafter) and the money left housing to buy into the newfangled tech. It's not clear what Canada's equivalent will be. Granted, it's banking heavily on skilled immigrants to come up with something, so there is possibility of yield. Time will tell.
- SV_BubbleTime 3y ago
  > The US housing market crashed back in 2006 because tech started showing promise ("Web 2.0", mobile shortly thereafter) and the money left housing to buy into the newfangled tech. This is definitely the first time I’ve read this. Do you have more info on that?
  - disgruntledphd2 3y ago
    > This is definitely the first time I’ve read this. Do you have more info on that? This would be a particularly unique explanation for the bursting of property bubbles all over the world (like, does this also explain the Irish property bubble crashing?).
    - 6510 3y ago
      If you can have a something for nothing investment market it will always get in the way of actually doing something useful.
- refurb 3y ago
  > If you're, say, Austin Matthews making $13MM per year in Toronto, you can still buy a lot of houses. If you look at the statistics, the houses in Canada aren't being bought up by rich people, they are being bought by middle and upper-middle class Canadians. Even the "investors" tend to be individuals buying one housing unit as an "investment". > The US housing market crashed back in 2006 because tech started showing promise That's wildly revisionist and doesn't really make sense. "Tech started to show promise" so you're saying that people stopped by homes? How many middle class Americans (who make the majority of home owners) shifted their investments from housing to speculative tech stocks? I think you overestimate the penetration of tech into the middle class - most people I knew hadn't even heard of AirBnB until 5+ years after they become "hot" in Silicon Valley.
  - randomdata 3y ago
    > the houses in Canada aren't being bought up by rich people, they are being bought by middle and upper-middle class Canadians. Sales don't happen in a vacuum. The middle and upper-middle have to pay that much because second in line is willing to pay almost as much. Matthews could make an offer of $999,999 on every house for sale in Toronto. He may not get any of them in the end, but in doing so he forces you to pay at least $1,000,000 if you want one. After all, if you were the only interested party you could just throw a couple of bucks out there and eventually some seller will have to give in. Landowners will not hold a property only worth a couple of bucks in perpetuity. If nothing else, property taxes will eventually compel them to unload it. It's other interested buyers that push you to pay more. > "Tech started to show promise" so you're saying that people stopped by homes? Sure. Again, not a vacuum. To stick with the hypothetical for the sake of illustration, let's say Matthews was making such offers but now is enthralled by some AI startup in Montreal instead. By removing those $999,999 offers from the equation, that gives more room for you to come in at a lower price.
chgs 3y ago
People comparing income multiples in the 80s with today aren’t factoring the increased number of two income families, or even more. In london there are many houses which in the 80s had one income, maybe one and a part time which today have 4 or 5 incomes in a HMO. Meanwhile empty housing is at very low levels and barely makes a dent (about 1%) When you have 4 professional adults sharing a 3 bedroom house, there’s a supply shortage.
- refurb 3y ago
  > People comparing income multiples in the 80s with today aren’t factoring the increased number of two income families, or even more. Two income families were common by the eighties. Women's participation in the workforce was >50% by 1980 and has only increased to 60%. https://ourworldindata.org/female-labor-supply https://ourworldindata.org/female-labor-supply
  - acdha 3y ago
    What’s the income like, though? The further back you go, the more women were held back on hours or career advancement, while many traditionally male occupations had more opportunities & security. The World Bank figures that site uses include anyone who is “economically active” so a household in 1980 with a full-time father and a mother working part time at much lower wages still count as a two-income family the same as a dual-lawyer couple in 2020. The more interesting figure for me is the pay disparity halving over that period, which sounds like a lot of women moving from lower skill/hour jobs to better paying ones.

by refurb 3y ago

randomdata 3y ago

> wages are lower That may be true, but houses aren't that expensive. If you're, say, Austin Matthews making $13MM per year in Toronto, you can still buy a lot of houses. That capacity is not diminished by some tech mogul in SF making $130MM per year. The question is, as always, will something better come along? Indeed, housing is the purchase of last resort. Give people something better to buy and they will! People in Canada especially are happy to buy real estate like mad at this juncture because, frankly, what else is there to buy? Canada doesn't offer much else. You're not going to work to make $13MM just to hold an IOU forevermore. People making $13MM want to collect on what they've created and have something to show for it. The US housing market crashed back in 2006 because tech started showing promise ("Web 2.0", mobile shortly thereafter) and the money left housing to buy into the newfangled tech. It's not clear what Canada's equivalent will be. Granted, it's banking heavily on skilled immigrants to come up with something, so there is possibility of yield. Time will tell.

SV_BubbleTime 3y ago
> The US housing market crashed back in 2006 because tech started showing promise ("Web 2.0", mobile shortly thereafter) and the money left housing to buy into the newfangled tech. This is definitely the first time I’ve read this. Do you have more info on that?
- disgruntledphd2 3y ago
  > This is definitely the first time I’ve read this. Do you have more info on that? This would be a particularly unique explanation for the bursting of property bubbles all over the world (like, does this also explain the Irish property bubble crashing?).
  - 6510 3y ago
    If you can have a something for nothing investment market it will always get in the way of actually doing something useful.
refurb 3y ago
> If you're, say, Austin Matthews making $13MM per year in Toronto, you can still buy a lot of houses. If you look at the statistics, the houses in Canada aren't being bought up by rich people, they are being bought by middle and upper-middle class Canadians. Even the "investors" tend to be individuals buying one housing unit as an "investment". > The US housing market crashed back in 2006 because tech started showing promise That's wildly revisionist and doesn't really make sense. "Tech started to show promise" so you're saying that people stopped by homes? How many middle class Americans (who make the majority of home owners) shifted their investments from housing to speculative tech stocks? I think you overestimate the penetration of tech into the middle class - most people I knew hadn't even heard of AirBnB until 5+ years after they become "hot" in Silicon Valley.
- randomdata 3y ago
  > the houses in Canada aren't being bought up by rich people, they are being bought by middle and upper-middle class Canadians. Sales don't happen in a vacuum. The middle and upper-middle have to pay that much because second in line is willing to pay almost as much. Matthews could make an offer of $999,999 on every house for sale in Toronto. He may not get any of them in the end, but in doing so he forces you to pay at least $1,000,000 if you want one. After all, if you were the only interested party you could just throw a couple of bucks out there and eventually some seller will have to give in. Landowners will not hold a property only worth a couple of bucks in perpetuity. If nothing else, property taxes will eventually compel them to unload it. It's other interested buyers that push you to pay more. > "Tech started to show promise" so you're saying that people stopped by homes? Sure. Again, not a vacuum. To stick with the hypothetical for the sake of illustration, let's say Matthews was making such offers but now is enthralled by some AI startup in Montreal instead. By removing those $999,999 offers from the equation, that gives more room for you to come in at a lower price.

chgs 3y ago

People comparing income multiples in the 80s with today aren’t factoring the increased number of two income families, or even more. In london there are many houses which in the 80s had one income, maybe one and a part time which today have 4 or 5 incomes in a HMO. Meanwhile empty housing is at very low levels and barely makes a dent (about 1%) When you have 4 professional adults sharing a 3 bedroom house, there’s a supply shortage.

refurb 3y ago
> People comparing income multiples in the 80s with today aren’t factoring the increased number of two income families, or even more. Two income families were common by the eighties. Women's participation in the workforce was >50% by 1980 and has only increased to 60%. https://ourworldindata.org/female-labor-supply https://ourworldindata.org/female-labor-supply
- acdha 3y ago
  What’s the income like, though? The further back you go, the more women were held back on hours or career advancement, while many traditionally male occupations had more opportunities & security. The World Bank figures that site uses include anyone who is “economically active” so a household in 1980 with a full-time father and a mother working part time at much lower wages still count as a two-income family the same as a dual-lawyer couple in 2020. The more interesting figure for me is the pay disparity halving over that period, which sounds like a lot of women moving from lower skill/hour jobs to better paying ones.