Real Estate

"This Is Going To Blow Sky High" - Observations On Canada's Housing Market

  • Last Updated:
  • Mar 24th, 2017 8:43 am
[OP]
Jr. Member
May 18, 2015
138 posts
159 upvotes
Thornhill, ON

"This Is Going To Blow Sky High" - Observations On Canada's Housing Market

Originally, I thought this would be a bit of a joke. There were billboards in all the Toronto subway cars advertising the Canadian Real Estate Wealth Expo - learn how to become a millionaire. I thought this was so ridiculous, it may be fun. What better way to experience the top of the housing market than watching Tony Robbins and Pitbull along with a bunch of US real estate professionals explain how Toronto real estate is the path to riches.

Prices were originally $150 per ticket, but I was able to buy for $50. While it deeply bothers me that I paid $50 to these shameless (amoral) self-promoters, I thought it would be worth it to witness, in person, the top of the housing market.

I had thought, there can’t be that many people stupid enough to attend this, but I was very wrong - 15,000 people were there! I was blown away. Bubbles are largely psychological. This crowd was tangible proof of that. 15k people in one spot listening to Americans explain why real estate in Toronto is an exceptional investment. The whole experience was horrifying. The crowd was very well-dressed, middle- to upper-middle class (from appearances), and super excited to hear how much money could be made if you just buy real estate (most of them clearly already owned).

The first real segment of the expo was a panel of Canadian developers and real estate agents giving their views on the market. It actually started off a touch bearish, which surprised me. Two of the panelists were saying that prices are exceptionally high and no market goes up forever. With that slight bit of caution thrown out there, it became a real estate FOMO-building talk.

There are, apparently, two very important things to know when dealing with real estate. First, you have to face your fear; this fear is to be ignored and then you should ‘just do it’ and 'buy now'. The next step is find what you can afford and then buy it. Ignore all ‘non-doers’, don’t overanalyze or focus on the numbers, just f*cking buy. To allay fears the speakers are actually quite clever as they shift between a long to short term focus when it suits. For example, now is a great time to buy because short-term the market is on fire. If, however, markets cool then you just hold because it always goes up long-term - and you are a savvy long-term buyer, aren’t you? By showing no scenario where you can lose I can see how this pitch works on the susceptible.

The second important factor in real estate is financing. Not everyone has money, so what can they do? The answers were shocking. Be ‘creative’ was the first response. Pool your money, borrow from friends and family, own just 5% of a house, get the money however you can and just do it - remember, it only goes up. Other financing suggestions were get cozy with a lender and they will ‘bend the rules’ for you! The fact that the biggest condo developer in Canada (Brad Lamb) said lenders will bend (but not break, apparently) rules to get you financing in front of 15k people with most people smiling and nodding was shocking.

So there you go - when it comes to Toronto real estate, just do it (using borrowed money any way you can get it).

The booths outside of the presentation hall were just as troublesome. Plenty of “high double-digit monthly yields”, retire early with real estate, “everyone needs a place to live - buy apartments” type messages. Almost all of these pitches were second lien lending. Most offered yields in the 8 to 10% range. The presentations all suggested that you can borrow money, if you don’t have it, at 4% and then buy these investments at 10% - easy money.

The apartment pitch booth was like most other pitches - it revolved around stable cash flows + mortgage paydown by renter + equity appreciation = profit. (Now that all sounds great but owning a condo at current prices in Toronto is a negatively carrying asset, so where does this cash flow come from?) Further, investing in apartment funds is even better if you borrow the money to do so. The pitch goes on to explain that levering a 30% return makes you more money than not levering...

The Paramount Equity pitch was also interesting and stated in all caps “HIGH DOUBLE-DIGIT RETURNS ON YOUR CASH, RRSP”. This product pays monthly, is a second lien mortgage, with a one year term and LTV <85%. Paramount uses clever language that states they cover the cost of defaults. By that they mean they pay some of the fees, not the default risk itself.

There was a space to pick up business cards. I got quite a few from real estate investors. I plan on emailing them all to learn just how bad their pitch/product is. I want to learn more about how these second lien investor pools are sourced and just how bad this is going to be.

Also, perhaps there will be an opportunity to meet a bunch of distressed sellers, before they even know it themselves…

Nowhere in any of this was there ever a mention of risk, the dangers of leverage, how terrible negative equity can be, how that can trap you, etc.

The amount of shadow leverage in this system is crazy. The terms on these second lien loans is 1yr. What happens when all of these loans are called? Even lenders with first positions will see clients sell when these loans become due and there is no money to pay them.

This is going to blow sky high.
http://www.zerohedge.com/news/2017-03-2 ... -dont-have

Related:

76 replies
Deal Addict
May 31, 2007
3413 posts
395 upvotes
WOW that is really scary. Funny I saw Tony Robbins, Never spoke to him. Nor did I want to.. (I didn't go to the event)

$150 ticket X 15,000 people =$2.25 million for a lame speaking engagement? + all the fees from vendors.

Anyone want to start another expo and sell tickets with me, before this thing blows up?
Deal Addict
Feb 9, 2009
3017 posts
764 upvotes
Jungle wrote:
Mar 20th, 2017 9:22 pm
WOW that is really scary. Funny I saw Tony Robbins, Never spoke to him. Nor did I want to.. (I didn't go to the event)

$150 ticket X 15,000 people =$2.25 million for a lame speaking engagement? + all the fees from vendors.

Anyone want to start another expo and sell tickets with me, before this thing blows up?
Most of the tickets were sold at $50.

But still nice money for a day of suckers who are plowing in at the end of the bubble.
Jr. Member
Feb 23, 2009
144 posts
103 upvotes
Oshawa
More of the exact same things that were happening in 1990.
These guys make their money selling the event and are selling their "services" to you. Needless middle men.
One thing that is always true...When it comes to real estate and the stock market, once you constantly read headlines in the news and all your friends/co-workers are talking about it...it's close to being over.
Deal Addict
May 31, 2007
3413 posts
395 upvotes
Sanyo wrote:
Mar 20th, 2017 9:30 pm
Most of the tickets were sold at $50.

But still nice money for a day of suckers who are plowing in at the end of the bubble.
I guess in a capitalist world you take advantage of anything. Two Americans just made suckers out of 15,000 sheep. It's actually sad.
Deal Addict
May 31, 2007
3413 posts
395 upvotes
pkrash wrote:
Mar 20th, 2017 9:32 pm
More of the exact same things that were happening in 1990.
These guys make their money selling the event and are selling their "services" to you. Needless middle men.
One thing that is always true...When it comes to real estate and the stock market, once you constantly read headlines in the news and all your friends/co-workers are talking about it...it's close to being over.
Yes I have strangers talk to me last night about the housing market now. There first question is, what the hell is going on? A great concern and everyone has noticed now/involved or trying to pile on.
Deal Fanatic
Dec 27, 2013
5403 posts
1428 upvotes
Toronto
more of the same.... yawn.
Member
User avatar
Dec 13, 2016
241 posts
182 upvotes
I admit I read zero hedge from time to time, but this is the same zerohedge who claimed several years ago that inflation in Canada is sky high while posting pictures with price tags from a supermarket in Nunavut.

I don't say this lightly because I very much dislike whiny liberals, but zero hedge is fake news.
Newbie
May 26, 2008
43 posts
30 upvotes
BiegeToyota wrote:
Mar 20th, 2017 10:21 pm
I admit I read zero hedge from time to time, but this is the same zerohedge who claimed several years ago that inflation in Canada is sky high while posting pictures with price tags from a supermarket in Nunavut.

I don't say this lightly because I very much dislike whiny liberals, but zero hedge is fake news.
The original article is not by zerohedge. It's from a Canadian trader.


https://onbeyondinvesting.com/blogs/blo ... nt-have-to
Deal Fanatic
User avatar
Mar 31, 2008
8755 posts
905 upvotes
Toronto
pkrash wrote:
Mar 20th, 2017 9:32 pm
More of the exact same things that were happening in 1990.
These guys make their money selling the event and are selling their "services" to you. Needless middle men.
One thing that is always true...When it comes to real estate and the stock market, once you constantly read headlines in the news and all your friends/co-workers are talking about it...it's close to being over.
I remember when I just graduated university at the tail end of the 02/early 03 recession. Wasn't doing much. A fellwo grad and I saw one of those real estate infomercials that used to be prevalent everywhere. Especially the US. So went to one of those real estate seminars (they were US based though) at the Crown Plaza at Eglinton and DVP. The days when lending standards were utterly easy and the credit bubble was just taking off.

Their advice was basically borrow any money you can. Credit cards, friends, etc., it doesn't matter for the down. All you needed was 5%. And they would tell you the secrets of being able to buy that house. Which now I bet was get as many co-signers (the didn't cross check who was backing the mortgage as much), 'fudge' income figures., etc. We just laughed at it and said it was a ludicrous, and that's too risky. Especially since any recovery is fragile.

Boy, if only we had listened. The question is, is this really 'IT'? Or will it continue? And will there be regret for not maxing out now?
Member
User avatar
Dec 13, 2016
241 posts
182 upvotes
nickelplate wrote:
Mar 20th, 2017 10:45 pm
The original article is not by zerohedge. It's from a Canadian trader.


https://onbeyondinvesting.com/blogs/blo ... nt-have-to
Who cares. They cherry pick all their articles.

Why aren't they posting about overpriced real estate in Moscow? How's the average salary over there comparing to price of real estate? How many people immigrate there every year? Why can the average Russian peasant sell his property and buy the same or better in Canada?
Deal Addict
User avatar
Dec 27, 2009
2529 posts
795 upvotes
Ottawa, ON
BiegeToyota wrote:
Mar 21st, 2017 12:02 am
Who cares. They cherry pick all their articles.

Why aren't they posting about overpriced real estate in Moscow? How's the average salary over there comparing to price of real estate? How many people immigrate there every year? Why can the average Russian peasant sell his property and buy the same or better in Canada?
Why would anyone here give a shit about overpriced real estate in Moscow? It is VERY overpriced right here in our own country.
Deal Addict
Jan 16, 2009
3332 posts
1029 upvotes
Toronto
Sanyo wrote:
Mar 20th, 2017 9:30 pm
Most of the tickets were sold at $50.

But still nice money for a day of suckers who are plowing in at the end of the bubble.
damn. 50*10000=half million by just talking about how to be rich for couple of hours.

That make our 9 to 5 jobs look like jokes.
Newbie
Mar 6, 2017
17 posts
12 upvotes
Toronto, ON
Well, see for yourselves...
http://torontolife.com/real-estate/thin ... ng-market/

This made my day:
What’s the most useful thing you learned at the expo?
“Don’t take advice from non-doers and keep only positive people around you. I’m going to look into getting a spiritual mediator.”

What’s the future of Toronto’s real estate?
“I think it’s going to go even more sky-high.”


I think more of them may need a "spiritual mediatior" soon...
Newbie
May 26, 2008
43 posts
30 upvotes
18, investor from Burlington

What’s the most useful thing you learned at the expo?
“I learned that every opportunity that you don’t take is an opportunity missed. It’s all about turning opportunities into possibilities.”

What’s the future of Toronto’s real estate?
“I think it’s positive that there are many foreign investors with a lot of capital, so I think the market will continue to exponentially increase.”
That person will go places. (sarcasm alert)
× < >
Rotate image Save Cancel

Top