Cause of rocketing house prices in SW Ontario

You will get a million different answers, and to be fair there are many different variables.

I think the biggest and simplest factor is simply that a lot more Canadian dollars exist now than ever before. Each dollar is worth a lot less today.

This will disprortionately impact desirable assets.

The new rules. Anything under $1m saw a huge run up.

A combination of:
- lose monetary and fiscal policies -- more money available and want to to be invested in real estate (chasing yields, protection from inflation and debasing of money)
- Covid changing habits -- mass migration from city core to the outer areas (WFH, shutdowns) resulting in large increases outside of GTA
- immigration policy -- increasing local demand
- world is more chaotic and dangerous and the general perception of Canada's comparative political stability -- increasing foreign investor demand
- FOMO and bubble psychology -- large price appreciation drives attention, people like to chase what has done well recently, often creating bubbles (you saw this back in 2017, and it's probably happening again)

What will happen in the future? No one really knows. However, 20% YOY price increases is not sustainable. So prices has to plateau eventually (unless we get hyperinflation, in which case nominal prices no longer matters).

Will it be a crash or a soft landing? How much further do we have to go before the peak? No one can answer those questions with certainty. My hope is that price increase will slow down into next year and plateau and we have the rest of the economy catch up to avoid a hard landing.

What will happen to downtown and suburbs? Again, no one knows for sure.
My guess is that the relative advantage of living in core areas has diminished and will not completely reverse after Covid is over. We will likely see a new normal, where there will still be a premium for downtown, but not quite as much as before.

sircheersa wrote: ↑ You will get a million different answers, and to be fair there are many different variables.

I think the biggest and simplest factor is simply that a lot more Canadian dollars exist now than ever before. Each dollar is worth a lot less today.

This will disprortionately impact desirable assets.

Thanks but do you mind expanding/clarifying your post - not sure I understand.

What do you mean by "a lot more Canadian dollars exists than ever before"? Because more people are working/earning? "Each dollar is worth a lot less" - by this do you mean the value of the CDN dollar? If yes, not sure what bearing that has. When you look at historical data doesn't seem unusually low.

Also the graph has no title so I'm not clear what it's describing - can you please clarify?

hierophant wrote: ↑ Thanks but do you mind expanding/clarifying your post - not sure I understand.

What do you mean by "a lot more Canadian dollars exists than ever before"? Because more people are working/earning? "Each dollar is worth a lot less" - by this do you mean the value of the CDN dollar? If yes, not sure what bearing that has. When you look at historical data doesn't seem unusually low.

Also the graph has no title so I'm not clear what it's describing - can you please clarify?

The graph is M1 money supply. The government can manipulate how many dollars exist through different methods.

So we go from 0.8 trillion Canadian dollars in existence to almost 1.4 trillion Canadian dollars in existence in a very short period of time.

You trade dollars for houses.

The supply of dollars increases dramatically. Suddenly you need to give more dollars to get a house because the supply of houses has not increased as much.

sircheersa wrote: ↑ The graph is M1 money supply. The government can manipulate how many dollars exist through different methods.

So we go from 0.8 trillion Canadian dollars in existence to almost 1.4 trillion Canadian dollars in existence in a very short period of time.

You trade dollars for houses.

The supply of dollars increases dramatically. Suddenly you need to give more dollars to get a house because the supply of houses has not increased as much.

Just to confirm I understand correctly, the federal government is printing more $$?

1) Low rates
2) High immigration into Toronto which
3) Has led to older population moving out of GTA. With my business i work with older people and many of them have moved to places like Shelbourne, Aurora, Wasaga Beach, Brantford, Niagara, Belleville, etc... and of course selling their high properties here they can go there and buy in cash and outbid
4) Foreign money hidden in corps
5) Money launders (which Canada does nothing about)


So...thats basically it.

hierophant wrote: ↑ Just to confirm I understand correctly, the federal government is printing more $$?

Well not literally but in a sense yes. They aren't actually printing physical money they are just manipulating how much exists through monetary policy.

Sanyo wrote: ↑
4) Foreign money hidden in corps
5) Money launders (which Canada does nothing about)


So...thats basically it.

Would you mind explaining/expanding on these a bit more please? Why isn't the government doing anything about it (i.e. how is it benefiting)?

sircheersa wrote: ↑ Well not literally but in a sense yes. They aren't actually printing physical money they are just manipulating how much exists through monetary policy.

Can you provide one example (so I research it a bit more)?

hierophant wrote: ↑ Would you mind explaining/expanding on these a bit more please? Why isn't the government doing anything about it (i.e. how is it benefiting)?



Can you provide one example (so I research it a bit more)?

You can look into the impact of interest rates on money supply, but also they just print money too.

hierophant wrote: ↑ Would you mind explaining/expanding on these a bit more please? Why isn't the government doing anything about it (i.e. how is it benefiting)?

Articles on money laundering.

https://betterdwelling.com/how-a-little ... te-prices/#_
https://financialpost.com/diane-francis ... ng-problem

This is major cause of why prices are the way they are in GTA and Vancouver compared to the rest of the country.

hierophant wrote: ↑ Would you mind explaining/expanding on these a bit more please? Why isn't the government doing anything about it (i.e. how is it benefiting)?



Can you provide one example (so I research it a bit more)?

Ok let's say that the central bank wanted to print money and give it to everyone......that's a very direct way of increasing the money supply.

Another way to do it is to purchase assets. Let's say that the central bank decided to purchase mortgage pools guaranteed by CMHC. (1) You buy a house (2) Bank X lends you $500k of its own money to do so (3) the central bank buys that mortgage from Bank X with newly issued Canadian dolalrs (4) now Bank X has $500k extra money to lend for other purposes. This has the effect of keeping interest rates low, which is important because it allows companies to pay their workers with borrowed money more easily, stops companies who have to pay floating rate debt from going bankrupt, and makes investing in new projects more attractive thus keeping the economy afloat. Unfortunately this can have the effect of boosting certain assets (so if mortgage rates go from 3% to 1.5% suddenly you can afford a house that's 20% more expensive).

There's a chart here that shows just how much the Bank of Canada bought in mortgages. What's interesting is that even after they stopped, prices continued rising.

googol wrote: ↑ Articles on money laundering.

https://betterdwelling.com/how-a-little ... te-prices/#_
https://financialpost.com/diane-francis ... ng-problem

This is major cause of why prices are the way they are in GTA and Vancouver compared to the rest of the country.

WOW!! I had no idea!! Thanks so much for pointing to these articles - they did a great job explaining how this works.

"Transparency International has ranked Canada at the bottom of the pack of all G20 countries due to its failure to meet G20 anti-money laundering commitments." This is insane - there's still no explanation as to why the government is making laws tougher...but I guess that's just reflective of lax Canadian laws in general.

I wonder if these money launders are mostly domestic or foreign?

VanByTheRiver wrote: ↑ Ok let's say that the central bank wanted to print money and give it to everyone......that's a very direct way of increasing the money supply.

Another way to do it is to purchase assets. Let's say that the central bank decided to purchase mortgage pools guaranteed by CMHC. (1) You buy a house (2) Bank X lends you $500k of its own money to do so (3) the central bank buys that mortgage from Bank X with newly issued Canadian dolalrs (4) now Bank X has $500k extra money to lend for other purposes. This has the effect of keeping interest rates low, which is important because it allows companies to pay their workers with borrowed money more easily, stops companies who have to pay floating rate debt from going bankrupt, and makes investing in new projects more attractive thus keeping the economy afloat. Unfortunately this can have the effect of boosting certain assets (so if mortgage rates go from 3% to 1.5% suddenly you can afford a house that's 20% more expensive).

There's a chart here that shows just how much the Bank of Canada bought in mortgages. What's interesting is that even after they stopped, prices continued rising.

I am definitely no economist or even CFA but it looks to me like M0 is up like 4.5x this year. Looks like the impact of this will be felt for a very long time, that cash won't sit forever.

VanByTheRiver wrote: ↑ Ok let's say that the central bank wanted to print money and give it to everyone......that's a very direct way of increasing the money supply.

Another way to do it is to purchase assets. Let's say that the central bank decided to purchase mortgage pools guaranteed by CMHC. (1) You buy a house (2) Bank X lends you $500k of its own money to do so (3) the central bank buys that mortgage from Bank X with newly issued Canadian dolalrs (4) now Bank X has $500k extra money to lend for other purposes. This has the effect of keeping interest rates low, which is important because it allows companies to pay their workers with borrowed money more easily, stops companies who have to pay floating rate debt from going bankrupt, and makes investing in new projects more attractive thus keeping the economy afloat. Unfortunately this can have the effect of boosting certain assets (so if mortgage rates go from 3% to 1.5% suddenly you can afford a house that's 20% more expensive).

There's a chart here that shows just how much the Bank of Canada bought in mortgages. What's interesting is that even after they stopped, prices continued rising.

Very helpful, thanks!

Also another factor aside from money supply is interest rates. Which actually have multiple implications other than increasing money supply.

Lower interest rates increase what people can qualify for to buy.

Lower interest rates reduce risk free rate of return, making other investments more attractive.

Lower interest rates increase the profitability of rental properties as unrecoverable cost of ownership goes down.

sircheersa wrote: ↑ Also another factor aside from money supply is interest rates. Which actually have multiple implications other than increasing money supply.

Stress test pretty much kills that. But I agree that you can buy more house today than you could have 2 years ago, just not much more.

JayLove06 wrote: ↑ Stress test pretty much kills that. But I agree that you can buy more house today than you could have 2 years ago, just not much more.

It's true that stress test kills part of it but consider that many pushing the limit will go to non stress test lenders.

Or that other debt has lower interest rates which lowers debt servicing ratios.

sircheersa wrote: ↑ It's true that stress test kills part of it but consider that many pushing the limit will go to non stress test lenders.

Or that other debt has lower interest rates which lowers debt servicing ratios.

With much higher rates.