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You Just Missed Your Chance to Get Rich on Toronto Real Estate · Trumponomics

• 0:00
  Speaker 1: So I hear Toronto has been a good place to
• 0:02
  Speaker 1: buy a house? Have I heard that correctly? You're not wrong, Dan,
• 0:06
  Speaker 1: Toronto home prices jumped about in the twelve months through March,
• 0:10
  Speaker 1: and that's the best performing major real estate market in
• 0:12
  Speaker 1: the world. Excellent. Where do I sign up? Not so fast?
• 0:16
  Speaker 1: It looks like the party may actually be coming to
• 0:19
  Speaker 1: an end. Welcome to Benchmark. I'm Chris Fournier, an editor
• 0:32
  Speaker 1: with Bloomberg and I covered the Canadian economy and I'm
• 0:35
  Speaker 1: catching me Triva. I cover the housing market for Bloomberg
• 0:38
  Speaker 1: News based here in Toronto. Our mission today explained to
• 0:41
  Speaker 1: my boss Dan Moss, how and why Toronto's property market
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  Speaker 1: got so red hot in the first place, why it's
• 0:47
  Speaker 1: one of the main Canadian economic drivers, and why it's
• 0:50
  Speaker 1: showing signs of cooling off. Finally, and here I was
• 0:53
  Speaker 1: ready to give up on New York and move north,
• 0:55
  Speaker 1: and you're telling me stop White is this is why
• 0:59
  Speaker 1: Canada's Central inc raised interest rates. That was definitely part
• 1:02
  Speaker 1: of it. The Central Bank did raise rates this week.
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  Speaker 1: It was the first time in seven years. Wow, that
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  Speaker 1: really can't be good for Toronto housing. This is a
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  Speaker 1: good time to bring in Phil Soaper. He's Canada's the
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  Speaker 1: residential real estate guy and he's joining us from Toronto.
• 1:17
  Speaker 1: He's a head of a real page. It's Canada's largest brokerage,
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  Speaker 1: part of Brookfield Real Estate Services. He speaks regularly to
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  Speaker 1: many of his firm sixteen thousand brokers. You can kind
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  Speaker 1: of saying he had his ear took around. Hi. Hi,
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  Speaker 1: Great to be here, Kenny, Phil, will you glued to
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  Speaker 1: the TV watching Central Bank Governor Stephen Pouloza's press conference?
• 1:37
  Speaker 1: How bad was it for you? It was completely expected
• 1:42
  Speaker 1: in economic terms, it might have been the most to
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  Speaker 1: do about nothing that I've seen in some time. I
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  Speaker 1: believe some ninety percent of US UH series forecasters in
• 1:55
  Speaker 1: the country had built it into our models already, so
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  Speaker 1: we expected it and the governor delivered. From your point
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  Speaker 1: of view, Phil, what is the effect going to be
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  Speaker 1: on Toronto housing market? Do you see it offering a
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  Speaker 1: big slowdown or is it going to be just a
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  Speaker 1: blip any increase in the cost of housing. Is it's
• 2:18
  Speaker 1: going to act as a drag somewhat of a drag,
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  Speaker 1: So people don't buy homes based on their sticker price.
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  Speaker 1: We report homes based on their sticker price that the
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  Speaker 1: asking price of the selling price, but they really they
• 2:31
  Speaker 1: buy them based on monthly payments and an increase in
• 2:36
  Speaker 1: the cost of money bumps that up. We gotta remember
• 2:39
  Speaker 1: we're talking about twenty five basis points here off an
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  Speaker 1: emergency low monetary policy level of point five, so we're
• 2:48
  Speaker 1: really moving off life support into just very very low
• 2:53
  Speaker 1: interest rates. The other thing, and I maybe a bit
• 2:55
  Speaker 1: of a contrarian here, I believe there might be a
• 3:02
  Speaker 1: silver lining and consumer confidence that people that look at
• 3:07
  Speaker 1: it from a technical standpoint, including my own staff, may
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  Speaker 1: not see. We have seen forecasts for interest rate bumps
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  Speaker 1: in each of the last four years, if you looked
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  Speaker 1: at any of the major Canadian banks or ourselves, when
• 3:22
  Speaker 1: we predict what's happening during the year, in each of
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  Speaker 1: the last four years, we said and in the fourth
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  Speaker 1: quarter interest rates to rise or the second half. People Canadians,
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  Speaker 1: consumers have been wondering why this anticipated event has not happened,
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  Speaker 1: and they have been told that it's because we're catering
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  Speaker 1: on the brink of recession, or oil prices are going
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  Speaker 1: to take down the Canadian economy, or one or another
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  Speaker 1: doomsday scenario, and they believe perhaps that the governor of
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  Speaker 1: the Bank Canada has inside knowledge that they don't have,
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  Speaker 1: and it's been waning on them. And this this move off,
• 4:02
  Speaker 1: as I called them earlier, emergency low interest rates to
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  Speaker 1: something just very very low. I believe for many people
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  Speaker 1: will come as a relief. And Philly, you said, basis points,
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  Speaker 1: isn't that much which integrant scheme of things? It's not.
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  Speaker 1: But what about all the other moves that the government,
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  Speaker 1: the regulator, even the province here in Ontario have made
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  Speaker 1: recently and conjoined with the increase. Are you concerned that
• 4:27
  Speaker 1: it might slow the market down too much? Well, it's
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  Speaker 1: a good question, and you're right. All of these things
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  Speaker 1: are additive. But I group the major influences to the
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  Speaker 1: Canadian or any real estate market for that matter, around
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  Speaker 1: the world into two two major buckets, and then there's
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  Speaker 1: the minor things. The major buckets are affordability and the economy.
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  Speaker 1: The minor things are government intervention, the flow of foreign
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  Speaker 1: capital into markets. These can can be tweaks to the
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  Speaker 1: housing market overall, but they can't trump the base affordability
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  Speaker 1: question or uh the strength of the underlying economy and
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  Speaker 1: employment figures. Let's take a step back here, How did
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  Speaker 1: Canada get to be so hot? Did Brooklyn just reach
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  Speaker 1: over the border or is there something unique going on here?
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  Speaker 1: It's it is a good question. And and certainly in
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  Speaker 1: two thousand and sixteen and seventeen, the rate of home
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  Speaker 1: price appreciation in two of our cities, and it has
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  Speaker 1: been constrained to Vancouver in Toronto. The rest of the market,
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  Speaker 1: if we can talk about, if you'd like, very very
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  Speaker 1: different trajectory, has been rising at a rate faster than
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  Speaker 1: other major cities in the world. You know, similar rates
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  Speaker 1: of increase in Sydney and Melbourne, but but well above
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  Speaker 1: what you find in Europe and the United States. Still though,
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  Speaker 1: if you place Toronto and Vancouver on a list of
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  Speaker 1: global cities and compare the cost of accommodation of housing
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  Speaker 1: two incomes, we're in the bottom quartile. So in a way,
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  Speaker 1: you know, in in Toronto, for example, where home prices
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  Speaker 1: are the medium home prices, it's just over eight hundred
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  Speaker 1: thousand dollars in the latest Roller Page house price composite.
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  Speaker 1: In US dollar terms, that's about six hundred thousand dollars,
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  Speaker 1: and it's it's much cheaper than you'd find in London,
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  Speaker 1: New York, San Francisco, Shanghai, Mumbai. It's relatively affordable housing
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  Speaker 1: and there is a lot to be optimistic about In Canada.
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  Speaker 1: We've moved into the first place among the O E
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  Speaker 1: c D countries in the world that developed economies in
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  Speaker 1: terms of population growth, inching past Australia. We don't seem
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  Speaker 1: to have the same kind of challenges that America is
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  Speaker 1: dealing right now on a social and immigration basis, and
• 7:01
  Speaker 1: it's a very important part of our economic growth future
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  Speaker 1: and by extension to housing. So there are reasons why
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  Speaker 1: our two biggest cities have been attractive as a place
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  Speaker 1: to live, and part of it, particularly in Toronto's cases,
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  Speaker 1: in relative terms, it's not that expensive. Now. When you
• 7:22
  Speaker 1: mentioned Toronto, Vancouver, Sydney and Melbourne in one breath, it
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  Speaker 1: makes me want to ask about foreign buying. But we're
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  Speaker 1: going to come back to that in a second after
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  Speaker 1: this break. Phil you mentioned Sydney, Melbourne, Vancouver, Toronto. In
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  Speaker 1: Sydney and Melbourne, the increase in house prices has been
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  Speaker 1: largely attributable to purchases by foreigners, specifically folks of Chinese
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  Speaker 1: and Indian descent. It's even become a political issue can
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  Speaker 1: you talk about that, is that having any ramifications on
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  Speaker 1: the political front, huge ramifications In a way, you could
• 8:03
  Speaker 1: even draw some lines between the debate over foreign investment
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  Speaker 1: in our housing markets to the defeat of the provincial
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  Speaker 1: government in British Columbia. It's certainly the way the file
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  Speaker 1: was handled didn't didn't hurt the fact that the government
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  Speaker 1: fell the first time that the Liberal party in in
• 8:23
  Speaker 1: that province hasn't occupied the government buildings for well sixteen years.
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  Speaker 1: I think so very very much a political issue in
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  Speaker 1: absolute terms, though as I said earlier, it's it's it's
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  Speaker 1: a relative minor part of what's mathematically driving the market forward.
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  Speaker 1: In both the Vancouver, Greater Vancouver and Greater Toronto markets,
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  Speaker 1: the number of transactions attributable to foreign investors falls somewhere
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  Speaker 1: around five. The concentration gets much higher in certain sub
• 9:02
  Speaker 1: communities broad neighborhoods. For example, in Richmond, British Columbia, before
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  Speaker 1: the government made their moves to introduce new taxes on
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  Speaker 1: foreign investment in housing, the concentration was eighteen percent eight
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  Speaker 1: percent of the transactions. It's not as great an issue
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  Speaker 1: in Toronto, the most densely or the highest market share
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  Speaker 1: for for transactions was interestingly enough, another Richmond Richmond Hill, Ontario,
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  Speaker 1: and there in its neighboring community at Markham, the concentration
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  Speaker 1: or market share that went to foreign investors was nine percent,
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  Speaker 1: or about half the rate that we saw in Vancouver.
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  Speaker 1: So was it a political issue? Absolutely? Is it behind
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  Speaker 1: the rapid escalation in home prices that we saw in
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  Speaker 1: two thousand and fifteen sixteen in Vancouver or sixteen seventeen
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  Speaker 1: in Toronto. I think it's only part of the question,
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  Speaker 1: and a small part. We've had groups including the I
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  Speaker 1: m F and the World Bank, the O E c
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  Speaker 1: D I believe also, and even our own bank ac
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  Speaker 1: Canada here saying that the you know, the escalation and
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  Speaker 1: home prices in markets like Toronto and Vancouver represents a
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  Speaker 1: real risk to financial stability. Um do you agree with
• 10:23
  Speaker 1: that assessment? I do, actually, And if we went back
• 10:28
  Speaker 1: to the first quarter, in the conversation I have with Cadio,
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  Speaker 1: I referred to the Toronto market as the least healthy
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  Speaker 1: market in Canada. Remember, Vancouver has already been in a
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  Speaker 1: market correction for a full year now, so it's while
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  Speaker 1: not old news, it's it's certainly two thousand and sixteen news.
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  Speaker 1: But Toronto in the first half of the year, home
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  Speaker 1: prices were irrational. There was no underlying linked to economic
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  Speaker 1: and fundamentals and in particular the rise in in population
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  Speaker 1: and incomes. So the fact that we are now on
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  Speaker 1: well it's underway. We have a correction underway in Toronto,
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  Speaker 1: and that there is these other elements so we've talked
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  Speaker 1: about on the call, a bump in the cost of money, UM,
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  Speaker 1: taxes on foreign investments, and and stricter regulations around getting
• 11:27
  Speaker 1: mortgage insurance. These things will all help a market that
• 11:31
  Speaker 1: was unhealthy. And I believe if if if you look
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  Speaker 1: at our forecast for the full year two thousand and seventeen,
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  Speaker 1: you'll see a significant drop in the rate of appreciation
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  Speaker 1: by year end. And is just dying to ask a
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  Speaker 1: question about Warren Buffett, I am thank you. Um. What
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  Speaker 1: does Warren Buffett see in Canada? It makes him so confident,
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  Speaker 1: you think, Phil that he invested in Home Capital Group,
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  Speaker 1: which is with was once Canada's largest alternative lender. Demographically
• 12:04
  Speaker 1: the fastest growing advanced economy in the world, so we're
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  Speaker 1: going to have more people that can buy homes. We
• 12:10
  Speaker 1: have a very stable financial system, with with very low
• 12:17
  Speaker 1: default rate on mortgages, lower than they were before the
• 12:20
  Speaker 1: financial crisis. The the amount of equity Canadians have in
• 12:24
  Speaker 1: their homes is at an all time high around on average,
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  Speaker 1: there's a lot to like about Canada and by extension,
• 12:34
  Speaker 1: the Canadian housing market. So I'm trying to decide, phil
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  Speaker 1: as I listened to you, whether I've missed out or not.
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  Speaker 1: In other words, if we're talking about it on this
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  Speaker 1: show and it's making national headlines, has the trend already happened?
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  Speaker 1: If I was looking for a city to invest in
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  Speaker 1: for capital appreciation right now in the country of Canada,
• 12:59
  Speaker 1: it wouldn't Toronto. The reason that so many people are
• 13:04
  Speaker 1: buying homes in Toronto is because it's where people are
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  Speaker 1: moving to work. It is on an economic upswing of
• 13:17
  Speaker 1: well really quite amazing proportions and spreading to other cities
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  Speaker 1: in southern Ontario are largest province, So they're buying homes
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  Speaker 1: because they need a place to live. As an investor,
• 13:30
  Speaker 1: the two best cities to throw your money on the
• 13:34
  Speaker 1: table in hope for medium term gains would be Montreal
• 13:40
  Speaker 1: and Calgary. Both have just begun an expansionary cycle and
• 13:45
  Speaker 1: they're dramatically more affordable than Vancouver or Toronto. Half Montreal
• 13:53
  Speaker 1: and Calgary prices are half what they are in uh Toronto,
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  Speaker 1: and Calgary was recently right the fifth most liberabal city
• 14:02
  Speaker 1: in the world, Toronto for Vancouver third. So these Calgary,
• 14:08
  Speaker 1: is that a great deal? And we're seeing twice the
• 14:12
  Speaker 1: price appreciation we had last years, So this is a
• 14:14
  Speaker 1: bounce back from the most recent oil crisis. Doesn't sound
• 14:18
  Speaker 1: like I can afford to be your next door neighbor
• 14:20
  Speaker 1: anytime soon, but we appreciate you joining us. So I'm
• 14:31
  Speaker 1: still trying to figure out have I missed out or
• 14:35
  Speaker 1: can I still get in? No? I mean I think
• 14:38
  Speaker 1: if anything, from this conversation, we've learned that you could
• 14:40
  Speaker 1: still have a shot. We've got interest rates going up,
• 14:44
  Speaker 1: We've got regulations coming into force. It means that a
• 14:47
  Speaker 1: lot of people are reading on the sidelines to see
• 14:49
  Speaker 1: what happens next. Prices are cooling off, so it could
• 14:52
  Speaker 1: be a good chance for you to jump in. And
• 14:54
  Speaker 1: what about you, Chris, how about a domestic move that
• 14:57
  Speaker 1: kind of This decision this week to lift interest rates
• 15:01
  Speaker 1: is a positive sign that the Canadian economy is is
• 15:04
  Speaker 1: really doing well and it's something that we've been seeing
• 15:08
  Speaker 1: in data from you know, from the job's reports and
• 15:11
  Speaker 1: uh and GDP reports, and so the bank move is
• 15:15
  Speaker 1: kind of the last piece of that development. And the
• 15:19
  Speaker 1: Bank was very clear today about the fact that, yes,
• 15:23
  Speaker 1: the higher interest rates may make it more difficult for
• 15:25
  Speaker 1: some for some people who are trying to buy a home.
• 15:28
  Speaker 1: At the same time, it's a reflection of the fact
• 15:29
  Speaker 1: that the economy is doing better. So it's kind of
• 15:32
  Speaker 1: balanced up by the by the fact that you'll have
• 15:35
  Speaker 1: stronger jobs growth than people will be able to afford
• 15:37
  Speaker 1: theoretically the higher rates. And I'm still trying to figure
• 15:40
  Speaker 1: out what this means for the United States and the
• 15:44
  Speaker 1: rest of the world. I find myself wondering given interest
• 15:48
  Speaker 1: rates are still relatively speaking quite close to historical those
• 15:53
  Speaker 1: stocks are relatively speaking close to historical highs. Maybe there's
• 15:59
  Speaker 1: just this global chase for yield an asset appreciation, and
• 16:04
  Speaker 1: maybe that's all this is. That means they're probably going
• 16:07
  Speaker 1: to see a lot more foreign investors in Canada and
• 16:09
  Speaker 1: particularly in Vancouver and Toronto. Benchmark will be back next
• 16:15
  Speaker 1: week and until then you can find us on the
• 16:17
  Speaker 1: Bloomberg terminal Bloomberg dot com our Bloomberg app, as well
• 16:22
  Speaker 1: as on Apple Podcasts, pocket Cast, and Stitcher. While you're there,
• 16:27
  Speaker 1: take a minute to rate and review the show so
• 16:29
  Speaker 1: more listeners can find us and do let us know
• 16:32
  Speaker 1: what you thought of the show, even if you can't
• 16:34
  Speaker 1: afford Toronto anymore. You can follow me on Twitter at
• 16:38
  Speaker 1: Moss Underscore, Echo, Chris at, Carter at, Katia d m I,
• 16:46
  Speaker 1: and our guest phil Is at Bill Soper on Twitter,
• 16:51
  Speaker 1: Facebook and LinkedIn. Benchmark is produced by Sarah Patterson. Head
• 16:56
  Speaker 1: of Bloomberg podcast is Alec McCabe. Drum Roll came back
• 17:00
  Speaker 1: from his honeymoon in the Great Nation of Canada. Thanks
• 17:04
  Speaker 1: for listening. We'll see you next time and I'm going
• 17:06
  Speaker 1: to talk real estate with Alec