Real Estate

Observation: GTA housing Market pretty much renders TFSA/RRSP/RESP useless

  • Last Updated:
  • Feb 23rd, 2017 11:30 am
[OP]
Penalty Box
Jan 13, 2017
456 posts
367 upvotes

Observation: GTA housing Market pretty much renders TFSA/RRSP/RESP useless

a lot of friends/coworkers are doing this:

1. fill RRSP to 25k only(for first time home buyers)
2. instead of TFSA, they will "park" the money in TFSA, and will use all of it for downpay when they are ready
3. instead of RESP, they put all the money into house downpay (and plan to take out a HELOC later @ prime+0.5% when kids are in college)

the goal is to get the biggest house possible: renters want condo, condo owners want TH/Semi, TH/Semi owners want detached, detached owners want bigger detached. everyone wants to jump from their current level to the next one up.
and get the biggest appreciation possible, when retired just sell tax free and downsize, then give their children a big downpay.

I believe this summarizes most people's strategy in GTA.
and I think all of the above makes sense, principle residence is tax free, which beats all of other form of investment at 10-20% yr/yr and 1:4 leveraged (25% down),
therefore you want the biggest house for maximum gain. and for those who bought 5-10 years ago they truly have 0 fear, even if the house price go down 20-30% for a bit they are still up a significant portion from when they bought. they could not care one bit.

the demand, and desire for housing is truly unprecedented, that explains the GTA market, just too much demand and too little supply.
29 replies
Deal Addict
Oct 21, 2014
1666 posts
2240 upvotes
Burlington, ON
Sounds like a new paradigm. If my home keeps appreciating at it's current rate it will be worth $178 million in thirty years.

That can't happen, at some point this has to end, and the sooner the better for all involved.
Deal Fanatic
User avatar
Dec 27, 2009
7607 posts
5002 upvotes
Victoria, BC
...This can't fail... (yes, that's sarcasm)
Deal Guru
Feb 9, 2009
12335 posts
11165 upvotes
This is the kind of thinking that scares me...
Member
May 5, 2013
311 posts
97 upvotes
I am so glad that only 5 % of my portfolio contain Canadian equity, this is crazy.
Banned
Feb 23, 2009
1670 posts
1495 upvotes
Oshawa
MMMPower wrote: a lot of friends/coworkers are doing this:

1. fill RRSP to 25k only(for first time home buyers)
2. instead of TFSA, they will "park" the money in TFSA, and will use all of it for downpay when they are ready
3. instead of RESP, they put all the money into house downpay (and plan to take out a HELOC later @ prime+0.5% when kids are in college)

the goal is to get the biggest house possible: renters want condo, condo owners want TH/Semi, TH/Semi owners want detached, detached owners want bigger detached. everyone wants to jump from their current level to the next one up.
and get the biggest appreciation possible, when retired just sell tax free and downsize, then give their children a big downpay.

I believe this summarizes most people's strategy in GTA.
and I think all of the above makes sense, principle residence is tax free, which beats all of other form of investment at 10-20% yr/yr and 1:4 leveraged (25% down),
therefore you want the biggest house for maximum gain. and for those who bought 5-10 years ago they truly have 0 fear, even if the house price go down 20-30% for a bit they are still up a significant portion from when they bought. they could not care one bit.

the demand, and desire for housing is truly unprecedented, that explains the GTA market, just too much demand and too little supply.
#1 Makes sense sort of...but you have to replace it at some point or pay tax. Of course you are making no investment in retirement. The GTA market is not guaranteed.
#2 Works but is limited in value.
#3 Does not make sense as you get a free 20% into the RESP from CESG and it grows tax free. The kid grows RSP room. That's guaranteed. The GTA market is not.
You may not be old enough, but ask all the people who were burnt in the late 80's boom/bust how long it took them to recover...if they still had a house to recover.
Deal Addict
Jul 3, 2007
3924 posts
4323 upvotes
Toronto
OP is pretty much bang on in terms of the actual psychology of the buyers in this market. People really do take a big chug of the RE kool aid and believe prices will appreciate 10% annually, with not one drop, ever. Not one flatline on the chart either, just up up up. Also you constantly hear how special Toronto is , compared to London, Tokyo, Paris, etc. (Which all have proper subways btw)

Its quite amusing....

Sometimes you really do have to sit back for a second and just think of the detached prices and let the absurdity sink in, Toronto $2 million+, Richmond Hill $1.5 million+ Markham $1.5 million + , Stoufville $1 million+,

Bradford , yes that place where cows roam the streets, is now hitting $700k - $800k+

The most undesirable neighbourhoods of scarborough are $800k + ...ugly, shitty , crappy looking hoods ...

Never mind this stat...

"The median total annual family income of the Toronto region is estimated at $72,830"

double that to $144000 and that still only gets you an $864,000 mortgage with max qualifying on 30 year am ....so basically any new buyers with a family have zero chance at a detached
anywhere near the 416 / 905 hot zones....nevermind the $250k - $350k you'll need for DP and closing costs lol....

Does this sound sustainable??...
Last edited by joepipe on Feb 21st, 2017 9:49 pm, edited 1 time in total.
Banned
Dec 5, 2015
2038 posts
429 upvotes
Concord, ON
joepipe wrote: OP is pretty much bang on in terms of the actual psychology of the buyers in this market. People really do take a big chug of the RE kool aid and believe prices will appreciate 10% annually, with not one drop, ever. Not one flatline on the chart either, just up up up. Also you constantly hear how special Toronto is , compared to London, Tokyo, Paris, etc. (Which all have proper subways btw)

Its quite amusing....

Sometimes you really do have to sit back for a second and just think of the detached prices and let the absurdity sink in, Toronto $2 million+, Richmond Hill $1.5 million+ Markham $1.5 million + , Stoufville $1 million+,

Bradford , yes that place where cows roam the streets, is now hitting $700k - $800k+

The most undesirable neighbourhoods of scarborough are $800k + ...ugly, shitty , crappy looking hoods ...

It really is laughable,....
No different than those who invest in stock market ... Stock returns are even crazier than housing over last little while
Last edited by GrandePike on Feb 21st, 2017 9:53 pm, edited 1 time in total.
Newbie
Nov 5, 2016
32 posts
3 upvotes
Gungnir wrote: Sounds like a new paradigm. If my home keeps appreciating at it's current rate it will be worth $178 million in thirty years.

That can't happen, at some point this has to end, and the sooner the better for all involved.
That can happen...At that time, the minimum wage should be around 350$/hour :D
[OP]
Penalty Box
Jan 13, 2017
456 posts
367 upvotes
RESP: some said don't even bother, maybe in 15 years everything will be so automated young kids won't have jobs, there will be universal benefits for all. or free tuition for all (already happening for some students).

regarding the 80s crash, most of my friends think it will not happen again, the new immigrants these days came loaded unlike the 80s. these days first thing they buy stepping off the plane is to buy a detached new house and a couple X6M.
if price tanks they will just buy like no tomorrow using money from overseas. the world has changed a lot from the 80s, there are always someone with money ready to buy.


pkrash wrote: #1 Makes sense sort of...but you have to replace it at some point or pay tax. Of course you are making no investment in retirement. The GTA market is not guaranteed.
#2 Works but is limited in value.
#3 Does not make sense as you get a free 20% into the RESP from CESG and it grows tax free. The kid grows RSP room. That's guaranteed. The GTA market is not.
You may not be old enough, but ask all the people who were burnt in the late 80's boom/bust how long it took them to recover...if they still had a house to recover.
[OP]
Penalty Box
Jan 13, 2017
456 posts
367 upvotes
I think those who bought 5-10 years ago really do not care if it is sustainable.
like they said even if it drops 25%, they already 2x, 3x their investments from 10 years ago(think those people who bought in Aurora/Newmarket even as recent as 3-4 years ago), no big deal for a few years it drops 25%.

ask yourself this question: can you buy the same house today, using prices from 15 years ago, 20 years ago? the answer is clearly no. so 20 years later in 2037 you cannot buy the same house using today's price. that is pretty much a given.

to them whether this 20% yr/yr is sustainable is irrelevant. in 15-20 years houses will be worth way more than the prices today and during that 20 years they get to enjoy life in the biggest property they can afford.

joepipe wrote: OP is pretty much bang on in terms of the actual psychology of the buyers in this market. People really do take a big chug of the RE kool aid and believe prices will appreciate 10% annually, with not one drop, ever. Not one flatline on the chart either, just up up up. Also you constantly hear how special Toronto is , compared to London, Tokyo, Paris, etc. (Which all have proper subways btw)

Its quite amusing....

Sometimes you really do have to sit back for a second and just think of the detached prices and let the absurdity sink in, Toronto $2 million+, Richmond Hill $1.5 million+ Markham $1.5 million + , Stoufville $1 million+,

Bradford , yes that place where cows roam the streets, is now hitting $700k - $800k+

The most undesirable neighbourhoods of scarborough are $800k + ...ugly, shitty , crappy looking hoods ...

Never mind this stat...

"The median total annual family income of the Toronto region is estimated at $72,830"

double that to $144000 and that still only gets you an $864,000 mortgage with max qualifying on 30 year am ....so basically any new buyers with a family have zero chance at a detached
anywhere near the 416 / 905 hot zones....nevermind the $250k - $350k you'll need for DP and closing costs lol....

Does this sound sustainable??...
Banned
Feb 23, 2009
1670 posts
1495 upvotes
Oshawa
MMMPower wrote: RESP: some said don't even bother, maybe in 15 years everything will be so automated young kids won't have jobs, there will be universal benefits for all. or free tuition for all (already happening for some students).

regarding the 80s crash, most of my friends think it will not happen again, the new immigrants these days came loaded unlike the 80s. these days first thing they buy stepping off the plane is to buy a detached new house and a couple X6M.
if price tanks they will just buy like no tomorrow using money from overseas. the world has changed a lot from the 80s, there are always someone with money ready to buy.
This thinking is exactly why a piece of crap is selling for over $1mil in an overcrowded city with more and more shootings each day.
Deal Guru
Feb 9, 2009
12335 posts
11165 upvotes
MMMPower wrote: I think those who bought 5-10 years ago really do not care if it is sustainable.
like they said even if it drops 25%, they already 2x, 3x their investments from 10 years ago(think those people who bought in Aurora/Newmarket even as recent as 3-4 years ago), no big deal for a few years it drops 25%.

ask yourself this question: can you buy the same house today, using prices from 15 years ago, 20 years ago? the answer is clearly no. so 20 years later in 2037 you cannot buy the same house using today's price. that is pretty much a given.

to them whether this 20% yr/yr is sustainable is irrelevant. in 15-20 years houses will be worth way more than the prices today and during that 20 years they get to enjoy life in the biggest property they can afford.
Thats if they keep onto their job during the time... you have to hope no recession or interest rate hikes for this to be sustainable... you may barely break even after the carnage in 15-20 years. Sure if you bought 15 years ago it wont matter, its the highly leveraged today.
Deal Fanatic
Nov 24, 2013
6241 posts
2987 upvotes
Kingston, ON
Gungnir wrote: Sounds like a new paradigm. If my home keeps appreciating at it's current rate it will be worth $178 million in thirty years.

That can't happen, at some point this has to end, and the sooner the better for all involved.
This comes to mind,

Image
Last edited by Mike15 on Feb 22nd, 2017 7:21 am, edited 1 time in total.
Deal Addict
Oct 21, 2014
1666 posts
2240 upvotes
Burlington, ON
MMMPower wrote: RESP: some said don't even bother, maybe in 15 years everything will be so automated young kids won't have jobs, there will be universal benefits for all. or free tuition for all (already happening for some students).
Higher education is not pursued for the sole purpose of getting a job, it teaches you how to question, think critically and fully forms your intelligence. I'd be dead broke without it, not withstanding the job my degree did in part help my obtain. I benefited most from the critical thinking skills I'd learned there and I'm grateful every day for what my parents did to help me get my degree. I am going to make very sure my kids have the same.

If you have any inclination to become wealthy, remember that all wealth is generated through commerce and industry. Your home will provide you shelter, which is obviously a basic necessity, but it will never provide more than that. It can't provide cashflow unless you rent it (turn it in to a business), and it can't "grow". The price of housing can only increase as people are able to take on more debt due to low interest rates or raise capital by other means. If you look at a successful businesses, it increases revenue over time and grows it's profitability. This is why productive assets always do better over long time periods. Businesses grow. Houses don't, so I'd continue with investing in the RESP if you have kids.

Housing is a very expensive consumer good, of which the price is expanding due to a perception that demand is overwhelming supply. Fear is clearly driving the market now and nothing good comes of decisions that are made during times of mass panic. I would remind you that we don't have a good idea of supply vs demand, as we don't know how many homes have been bought for speculative purposes in the GTA, we have only anecdotes. When things go bad, those speculators will dump their assets with the same panic they acquired them. Look to Vancouver to see what happens the world runs out of greater fools.
Deal Addict
Jul 3, 2007
3924 posts
4323 upvotes
Toronto
Incomes up about 20% and prices up about 150% in the last 5 years. Thats not a good ratio , basically unsustainable. This market is all about foreign money, 40-1 leverage on insured mortgages and massive speculation based buying.

This market is now a commodity more than actual housing . Not good . Might as well list Toronto RE on the TSX under the ticker symbol FLIP ..... lol



Sanyo wrote: Thats if they keep onto their job during the time... you have to hope no recession or interest rate hikes for this to be sustainable... you may barely break even after the carnage in 15-20 years. Sure if you bought 15 years ago it wont matter, its the highly leveraged today.
Deal Guru
Dec 11, 2008
10415 posts
1734 upvotes
Had a friend move up to Elgin Mills and Bathurst for a detached home for $1.5M

Mortgage is $800k.

2 kids under 3 and both work. I assume 200k gross family income. Insane.
Newbie
Nov 5, 2016
32 posts
3 upvotes
joepipe wrote:
This market is now a commodity more than actual housing . Not good . Might as well list Toronto RE on the TSX under the ticker symbol FLIP ..... lol
lol...People nowsaday enjoy to travel through screen and satisfy with their houses' appreciation lol. What they need for a happy life is a big house with 20% increase every year and a high speed internet lol
Deal Addict
Jul 6, 2005
4136 posts
1680 upvotes
Toronto
speedyforme wrote: Had a friend move up to Elgin Mills and Bathurst for a detached home for $1.5M

Mortgage is $800k.

2 kids under 3 and both work. I assume 200k gross family income. Insane.
Out of curiosity, how old is said friend and their spouse?

$800k mortgage with $200k/year family income is technically doable. But adding childcare costs for 2 kids when both parents are working is killer... Ask me how I know.

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