COVER STORY

LOW OIL AND EVEN LOWER IN­TER­EST RATES FUEL OUR LIVELI­EST DE­BATE EVER

Richmond Hill Post - - Richmond Hill Post -

Low oil prices and in­ter­est rates paved

the way for this year’s real es­tate round­table to be our liveli­est de­bate ever

Ron John­son: Wel­come, ev­ery­one, to the eighth an­nual Post City Mag­a­zines Real Es­tate Round­table with our new part­ners for this event, 680News. I’m Ron John­son, edi­tor of Post City Mag­a­zines. I, along with Mike Ep­pel, se­nior busi­ness edi­tor at 680News, will be co-mod­er­at­ing this year’s dis­cus­sion. Mike, why don’t you fire off the first ques­tion.

Mike Ep­pel: Over the past cou­ple of months, there have been some eco­nomic re­ports out re­gard­ing the Toronto hous­ing mar­ket. Specif­i­cally, one be­ing, I think it was, from Deutsche Bank, say­ing the mar­ket is 50 or 60 per cent over­val­ued or some­thing of that na­ture. The Bank of Canada it­self said that the mar­ket was over­val­ued by 30 per cent in the worst-case sce­nario. So a sim­ple ques­tion: Are we over­val­ued, bal­anced or un­der­val­ued in the GTA?

Sherry Cooper: The short an­swer is, I think, bal­anced, but I think you have to seg­ment it. It’s more than just one amor­phous hous­ing mar­ket. I think the sin­gle-fam­ily home mar­ket in Canada in gen­eral and Toronto specif­i­cally is in some sec­tors a seller’s mar­ket. Any­thing less than, pick a num­ber — $1.5 mil­lion, I don’t know, $1 mil­lion — they’re still com­pet­i­tive sit­u­a­tions. Let’s face it. With land use re­stric­tions, there’s just a limited sup­ply of sin­gle-fam­ily homes, and with the traf­fic prob­lems, peo­ple are less will­ing to move way, way, way far out, and many young fam­i­lies are very anx­ious to have their own home and to have a de­tached home. So there is ex­cess de­mand. Paul Mik­las: See, it’s funny, when you sit there and you say it’s 30 per cent above the mar­ket.… Ron John­son: That’s what the Bank of Canada was talk­ing about. Paul Mik­las: I’m sorry. When I hear the Bank of Canada make a state­ment like that, I fig­ure they must be talk­ing about some­thing like a Van­cou­ver or a Cal­gary. When you come to Toronto, we’re ac­tu­ally ex­plod­ing in some ways.

In Rich­mond Hill, for ex­am­ple, you take a site at Les­lie and Ma­jor Mackenzie. A 35/50-foot prod­uct, a prod­uct in­tro­duced on 35foot wide lots, 2,400 square feet, sell­ing at $1.1 mil­lion. You’ve got on a 50-foot lot, a house that’s roughly around 3,600 square feet sell­ing at $1.6 mil­lion, $1.7 mil­lion. On a site of 72 units, you have peo­ple lined up for a week wait­ing to get in there, and they lit­er­ally sell out in one day. Barry Co­hen: I’m some­where be­tween bal­anced and un­der­val­ued just from a per­spec­tive of sheer de­mand. De­mand is go­ing to out­strip sup­ply this year, and the spring mar­ket cer­tainly will be heated. It’s al­ready heated now. You’ll still see mul­ti­ple of­fers and what­not. It won’t be new. Brad Lamb: The mea­sure, al­ways the mea­sure for the condo mar­ket, for the small condo mar­ket, has been rent re­place­ment ver­sus own­ing. Can you buy an apart­ment for the same or as much money per month as it costs to rent? In­ter­est­ingly, right now, the cost of rent­ing is higher than the cost of own­ing.

Mike Ep­pel: Karen, you wanted to chime in? Karen St­intz: Yeah. I think that there are [two] things that make the Toronto mar­ket at­trac­tive, and as long as we can pro­tect them, we’ll al­ways keep the mar­ket at­trac­tive. One is that we have very

open im­mi­gra­tion, so we will re­main a des­ti­na­tion that peo­ple choose to come to, and as long as our pop­u­la­tion grows, we will al­ways have more de­mand than sup­ply, which will help keep that in­vest­ment solid. I think the other thing that works in our favour is that the schools in the area, in Toronto, are ex­cel­lent schools, and when you look at the ar­eas where the real es­tate is strong, it’s be­cause peo­ple can ac­tu­ally send their kids to those schools and not have to send their kids to pri­vate schools.

Elise Kalles: There’s not that much com­ing out, even in the price range we’re work­ing in. There just isn’t. And when it’s priced real­is­ti­cally, it sells.

Garth Turner: A cou­ple of points. Ob­vi­ously, a lot has been said al­ready. Just to Karen’s point and oth­ers about living in your house for less than you can rent and so on, peo­ple never as­cribe a value to the eq­uity in their home, ever. It’s just money that’s parked there. They never re­ally think about what that money could earn if it were not sit­ting in a home. It’s a bit of a dis­torted ar­gu­ment, but it’s one that’s used uni­ver­sally, ubiq­ui­tously in the real es­tate mar­ket.

So what’s hap­pened so far in the last half an hour here has been the usual ... boos­t­er­ism ses­sion of ev­ery­thing about real es­tate is per­fect and great and bal­anced, de­mand will go on for­ever, and real es­tate will con­tinue to have th­ese huge value in­creases. All of that is some­what true. Real es­tate is lo­cal, ob­vi­ously, and ev­ery mar­ket and ev­ery neigh­bor­hood is dif­fer­ent. It’s a les­son that peo­ple in Cal­gary have been learn­ing pretty fun­da­men­tally in the last month or so as we’ve seen list­ings go up by 120 per cent and sales go down by 30 per cent. So you get vari­a­tions in a mar­ket­place, and I saw Sherry, you, had some com­ments the other day in the press about that, which I thought were fine.

We never talk about what can hap­pen with a one-as­set strat­egy. And again, back to my ex­am­ple with Cal­gary, where you have a one­as­set strat­egy that peo­ple have had, and then, all of a sud­den, they are in deep trou­ble. So we never talk about that, and it’s all go­ing to be sun­shine, ponies, lol­lipops and the rest of it from here to for­ever. I don’t think that’s the case.

Brad Lamb: What I don’t fathom about what you’re say­ing is why does some­one … if you buy a house and you can af­ford the house and you’re rais­ing your fam­ily and that’s where all your money is, so what? If you don’t sell your house, you never lose any money.

What you seem to fail to un­der­stand is that, if you look at the his­tory of the start of the very first economies, there are al­ways mo­ments of ex­u­ber­ance and mo­ments of de­pres­sions and re­ces­sions. That’s a cy­cle. Be­lieve me. No one here be­lieves that we’re on an end­less ride of lol­lipops and what­ever else you said. No one here be­lieves that. Ev­ery­one here fully un­der­stands that, at some point in the fu­ture, there’s go­ing to be a re­ces­sion. It could be dev­as­tat­ing. Who knows? We all un­der­stand that.

Garth Turner: I know, but I think you’re tak­ing an ex­treme here be­cause it’s not a

mat­ter of living and wait­ing for a rock to fall on your head.

Brad Lamb: Hold on. Just let me say this. Since 2008 or 2009, for six, al­most seven years, you’ve been say­ing the same thing and you’ve been wrong. For seven-tenths of a decade, you’ve been living un­der a rock, afraid the world’s go­ing to end.

Garth Turner: Not at all.

Brad Lamb: But it hasn’t.

Garth Turner: Not at all.

Brad Lamb: What have you done? Have you built any­thing? Have you taken any risk in the last seven years?

Garth Turner: I man­age $500 mil­lion of peo­ple’s money. I have a busi­ness that’s based on risk. Just like you, I take risk ev­ery day, OK? Peo­ple give me $500 mil­lion to man­age. I have to do a good job at it. So, I coun­sel peo­ple on try­ing to have di­ver­si­fi­ca­tion in their life and not hav­ing a one-as­set strat­egy. I don’t want to see peo­ple with all their net worth in the stock mar­ket. I don’t even want to see it in a bal­anced port­fo­lio. Every­body has got to have a house, a place to live. No prob­lem. But what re­ally both­ers me is this one strat­egy, one strat­egy over and over again.

Brad Lamb: No one is ad­vo­cat­ing that.

Garth Turner: Yeah, ac­tu­ally, that’s what I’ve heard right around the ta­ble — is ba­si­cally there’s no bet­ter in­vest­ment. You might as well have all your eggs in one bas­ket.

Sherry Cooper: I didn’t say that. No, no, no­body’s say­ing that. Ron John­son: Let’s talk about eco­nomic prin­ci­ples, the big­ger pic­ture, oil prices. How could that im­pact on the lo­cal mar­ket?

Garth Turner: What’s called the fire sec­tor,

right, Sherry? — fi­nance, in­sur­ance and real es­tate — is ba­si­cally, what? 22 to 23 per cent of the econ­omy now?

Sherry Cooper: Huge, but it’s not that big.

Garth Turner: So I’m a lit­tle con­cerned about us build­ing a condo econ­omy in Canada. It’s con­cern­ing be­cause a lot of that is, of course, non-ex­portable. You can’t load up a con­tainer-load full of con­dos and send them around the world, right? So this is a do­mes­tic econ­omy that we’re build­ing here, and it’s —

Sherry Cooper: But we’re im­port­ing cap­i­tal dramatical­ly be­cause of the at­trac­tive­ness of our real es­tate mar­ket.

Garth Turner: Im­port­ing cap­i­tal dramatical­ly? I haven’t seen that quan­ti­fied.

Sherry Cooper: You don’t think for­eign monies com­ing in to buy —

Garth Turner: I haven’t seen any quan­tifi­ca­tion on that.

Sherry Cooper: Well, we can’t quan­tify it be­cause we can’t re­port the data. But we know it’s hap­pen­ing.

Garth Turner: I look at this all the time. I have this stupid blog, and it has about seven mil­lion vis­its a year. A lot of that’s from hot spots like Van­cou­ver where there’s this meme, this view per­pe­trated by the real es­tate in­dus­try that most of the sales there are hap­pen­ing to the off­shore money. So we con­tin­u­ously try to quan­tify that, and the best num­bers we’ve got­ten is maybe 6.5 per cent of sales in the Lower Main­land of Van­cou­ver are to for­eign buy­ers. The only real es­tate board I’ve re­ally seen num­bers pub­lished that are good, hard num­bers are Vic­to­ria, which is one of the more ex­pen­sive real es­tate mar­kets in Canada. It’s 1.64 per cent of the buy­ers last year were for­eign.

Sherry Cooper: Garth, they’re not al­lowed to

re­port. pri­va­cyget­ting Real­torsa laws han­dle pre­vent can’ton it. Stats re­port Canadathe data. from The

Garth­does re­port Turner: that, Ac­tu­ally,and it does like pub­lish.I said, that board

Sherry… to what Cooper:you were OK, say­in­glet’s backin termsup a min­u­teof the econ­omy.

Bradthat be­cause Lamb: what Sorry. youI just don’t want re­al­izeto dealis that with a lot ofof this this money money is — com­ing­well, maybe from you China,do — and a I lot canin theirtell you name. that they’re not buy­ing real es­tate

Sherry Cooper: Right.

Bradof landed Lamb: Cana­di­ans.They’re buy­ing it in the name

Sherry Cooper: Right.

Brad Lamb: So you may think you’re sell­ing a con­do­minium to a guy that lives in Van­cou­ver, but, in fact, it’s his di­as­pora of fam­ily in China that are buy­ing it. They’re do­ing it with farm­land in Saskatchew­an, too.… So those stats aren’t cor­rect. They’re not even close to cor­rect.

Garth Turner: Well, when you can prove any of what you just said, I’m all ears.

Brad Lamb: Come to my of­fice. I can show you hun­dreds and hun­dreds and hun­dreds of th­ese sit­u­a­tions, not just from China. It hap­pens ev­ery day. Sorry, con­tinue.

Sherry Cooper: I just wanted to say, let’s look at the fun­da­men­tals. Cal­gary has al­ways been a boom/bust mar­ket. In Al­berta, in gen­eral, his­tor­i­cally, and now some­what in New­found­land, be­cause of off­shore drilling, the re­source sec­tor (and en­ergy in par­tic­u­lar and oil specif­i­cally) is sub­ject to huge swings in prices. Ron John­son: And have the prob­lems out west in­ad­ver­tently pumped up the Toronto mar­ket be­cause mort­gage rates are com­ing down?

Garth Turner: I be­lieve that’s true, and I think that, when we saw the very mod­est re­duc­tion by the Bank of Canada, we saw a dis­pro­por­tion­ate in­flux of buy­ers in Van­cou­ver and Toronto, for sure.

Sherry Cooper: Well, but the bank has been ... and the banks only cut rates. The banks only cut rates by 15 ba­sis points.

Garth Turner: Yeah, I know. It was very mod­est, and ac­tu­ally, no mort­gages, no longterm mort­gage rates went down for a while, and they’ve gone down more modestly. But it’s more of a psy­cho­log­i­cal thing. I’ve said be­fore the real es­tate mar­ket is in­cred­i­bly im­pacted by emo­tional de­ci­sion mak­ing rather than ra­tio­nal and eco­nomic fac­tors, and that’s al­ways been the case.

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