L’impasse pour les acheteurs dans les marchés de l’habitation de Toronto et de Vancouver force les propriétaires de maisons qui souhaitent acheter une propriété de valeur supérieure à faire des rénovations ou à déménager en banlieue. Beata Caranci, économiste en chef, Groupe Banque TD, évalue les répercussions de l’impasse pour les acheteurs et de l’augmentation de la population sur le marché immobilier et l’économie.
Print Transcript
Welcome to Money Talk.
I'm Kim Parlee.
Thank you so much for joining us tonight.
If you live in Toronto or Vancouver and you own a home and you're looking to trade up, you may well be faced with this situation.
Here's what's going on.
You've bought and lived a first home for a number of years and the value your home has appreciated.
In some cases, by quite a bit.
So you're doing well, right?
Well yes and no, because the house that you now want to move into has also gone up.
And in many cases, by a lot more.
So chances are, financially, you are now faced with two options-- stay and renovate, or move into a house that's maybe just modestly better than the one you're living in right now.
This dilemma is what my guest calls buyer gridlock.
Beata Caranci is Chief Economist at TD Bank Group.
And she's here to look at the implication of that.
Did I explain that properly?
You did.
OK.
I would just stress that, as a reminder, that it's about existing homeowners trying to trade up.
Right.
Because a lot of times, we focus on people trying to get into the market.
And there's absolute reduced affordability there.
Yes.
But not just for them.
Also for people who've bought an entry level house who's trying to trade up at the same time.
So it's happening in two segments of the market.
Why did you do this report?
I mean, you know you've got lots of things you look at constantly.
I know you're deluged with data.
Why was it that the plight of the current homeowner is something you focused on?
Yeah.
I think it's mainly when you look at supply to the amount of sales to listings in the market, a lot of people say, oh, this is a great time to be selling your house.
But sellers are also buyers.
And so you have to look at both sides of the equation.
And so when you hear buyers complaining about, I'm selling a house and having trouble buying a house, then it became an instance where let's go take a look at what kind of supply is on the market, what kind of listings are on the market, and who could afford what segment on the market.
And it became very clear when I did that that this market is really starting to get less affordable for a number of people, even people who've seen the value of their homes rise and are trying to trade up.
Which is fascinating, because everyone thinks, your house has gone up.
Good for you.
Now you get to buy something bigger.
And that's just not the case, which is what you're saying.
Let's take a look at this one chart you have in the report.
This is the Toronto and Vancouver markets.
And this is the number of listings, I think, we're looking at.
Tell me what we're looking at when we look at this chart and why it's important.
So this is the sales to listings ratio that I was saying.
And you can see that it's becoming quite elevated, which tells you there's a lot of people who are looking to buy a home, which is great, because if you're a seller, you can find a dancing partner real fast in this type of market.
But at the same time, that now puts you into the market of having to go out and buy.
And you're going to get into bidding wars as a result of it, because there's a lot of dance partners out there.
So this is the effect that we're saying that if you just look at it simply, you'll say great.
A lot of demand in this market.
No problem selling your house.
But eventually if you're going to be a buyer, you're going to be in that same situation yourself.
And then if we take a look at this, in terms of just another way to look at this affordability, what you're talking about is the condo, sorry, the detached home ratio as compared to apartments or condos.
And this is fascinating.
Vancouver's off the charts on this one.
So let's take a look at this.
Tell me why this one matters and why you focused on this.
So this is an interesting chart.
So I know it's playoff season right now, and we're heading towards the Stanley Cup.
But at the same time, when you're an economist, you never want a graph to look like a hockey stick.
You don't want it to be flat and then have this real tail come up at the end of it.
And that's exactly what the Vancouver market's looking like.
And what that's telling us is that the price differential between detached homes and condos is now more than three times.
So you sell your condo and it's three times more to get into the detached market.
In the Toronto market, it's over two times more.
So it's doable.
But you have to take on a lot more debt than you would have had to historically to make that step up.
And this helps explain why we're seeing so much leverage in the market.
And it's across all age cohorts.
It's not just people in their 40s and 50s that are doing the trade-up.
We're seeing it in every segment, because at the entry level if you sell your condo, you're going to have to take on a lot more debt.
And your debt service ratio goes up as a result of it.
And your savings go down as a result of it.
Which really brings-- and I'm going to ask the control room, you're noticing a little inside baseball here to skip ahead to the fourth graph here, because I want to take a look at the renovation spending.
Because what happens then, of course, is people go, great.
Yeah, I'm not getting much more for that huge price I'm going to trade up for so I'm going to renovate.
And people are finding more value there, and that's what's happening with the renovations spending.
It's skyrocketed.
Yeah.
And again, once again you can see how much it's differed from historical relationships there.
And this is specific to the people in the detached markets.
So like you mentioned off the top, you have people who are trying to get into the condo side into the detached market.
And they have a huge leap to make.
People in the detached market look out into the market and say, there's not a whole lot of listings unless I'm willing to pay a million or more, especially in the case of Toronto.
And in Vancouver, two million or more, in terms of where the large amount of supply is.
So I'll spend $400 on a reno.
Exactly.
Yeah.
And so this is what's happening.
But what that does is you take what was an entry level home.
You've now converted it-- a second storey, adding an extension on it-- and now it actually becomes a trade-up house.
So there's nowhere for those condo buyers to go.
Exactly.
Or someone getting into the market for the very first time.
I love that, my favorite part of your report and she writes through it.
And she's got here, and I quote, "boo hoo." Would say a millennial trying to get in the housing market for the first time.
So I get it.
You're showing the mechanics of this.
But really what this comes down to at the end of the day is that these millennials, or anyone who's in a condo trying to get to a house, it just becomes harder and harder and harder.
And there's a trickle down effect, right?
So ultimately, where the supply is coming online is predominantly in the condo segment.
And so millennial, their choices are getting reduced to the condo segment as an affordable option.
So the diversity of stock out there is narrowing as we go forward.
What are the implications of that?
So this happens.
It is happening.
It doesn't look like the trend's changing any time soon.
What are the economic implications of having people say, your only choice is a condo?
Well, you can buy a condo and that's fine until you decide it's not appropriate for your lifestyle.
Because you have a family, it expands, and you may not find it's suitable in terms of square footage.
At which stage, you're going to have to make the choice to either rent a house or you would buy a house and take on more debt.
There is nothing in itself wrong with renting.
It does require you to have a higher degree of financial literacy, because now instead of using your housing as your store of value and forced savings through the mortgage, and having that equity when you get older to sell and go off and do something else with it, downsize, you don't have that.
You have to manage a larger stock of financial money.
And so you better be aware of the volatility in the financial markets.
Your rate of return in the bond market these days is really poor, so you may have to take on more risk by going in the stock market.
So the degree of financial literacy goes up as a result.
If I was to paraphrase, and you need to understand that I’m a blunt here here, so people who have had wealth generate from housing have just been lucky, not necessarily savvy.
And if people want to build wealth in the future, they're going to have to be savvy.
They're going to actually have to understand how the mechanics of all this work.
OK.
So barring any kind of any massive changes in the market, if we take this trend 10 years out, 20 years out, what does this mean for Toronto and Vancouver?
I mean, is there kind of a broader economic implication or is it more just look to New York and see what's happening there?
And this is what we're seeing.
So we're already seeing that the implications play out.
We're seeing a push out to the suburbs.
And likewise, we're seeing prices rise there at almost the same rate of what you're seeing in Toronto.
So double digit gains starting to happen out there.
You're seeing a density build up.
So that's what I was saying in the paper is you go up and you go out-- up into the sky into the towers and out into the suburbs.
And this is what we've seen in places like London and New York.
Toronto condos, as a stock of the total housing out there, is at about 40%.
And if you go towards London and other places like Vancouver, it's upwards of 50%.
In New York, it's upwards of 60%.
So there's still room to grow on the condo side.
But those condominiums need to be built with more family friendly accommodations in mind.
Well you hear of it in New York.
Obviously for years, people buy a place, and then they knock out the wall, they buy the one next door.
And suddenly, they've got the whole floor.
So you're going to hear a lot more of that probably in Toronto as well.
I think to make it more-- it's one thing to have it affordable, but it has to be livable at the same time.
One thing we did not touch on, which you do highlight in the report, is we were talking about the domestic side of what's driving this housing market.
There's foreign investment.
Obviously, people become much more interested in trying to find data to support actually how much is out there.
What do you see in terms of foreign investment in the housing market?
Is that going to get broader, deeper?
What's happening?
Well there's no question that there's foreign investment happening in terms of lifting up those prices and sales in the Toronto and Vancouver markets.
It looks like it's more prevalent in the Vancouver market.
And the way we know that is if you look at the correlation between Vancouver's sales and foreign flows into deposits and currencies into Canada, it's one of those hockey stick graphs.
They're both like way up.
And so that tells us that a lot of the influence happening in the Vancouver market is happening through the foreign sales segment.
And it also makes sense, because a lot of the sales activity is well over the one million mark.
The median price is 1.4 million.
That segment of the market is usually what we call inelastic to movement in prices, meaning it's more generated by wealth.
People really don't care what the price is, because they're wealthy and they'll move their money into it.
As opposed to income, where it's more sensitive to the movement in the price.
So what are we seeing in terms of the Canadian dollar?
Because I think one thing, of course, when you put your money and you're moving it from China, as an example, and moving it to Canada, you want stability where you're going.
So if the Canadian dollar's moving up and down-- it's been really high, has moved down, coming back up.
How does that affect, or does it affect, the decision to come into Canada?
It's certainly making it more affordable.
So while we're feeling the effect of these rising prices, relative to someone from China or from the US, these home prices have a discount of about 20% or 30% relative to their currencies.
So it allows for some of that foreign influence to come in and take advantage of these prices, because they're getting the currency influence.
And so what we think is in the last couple of years, it's had a fairly big impact.
Again, a large part of it coming through the Vancouver market.
It's very hard to follow the bouncing ball on this, because there's not good data.
So it's the understanding that the Toronto market's a little bit more evenly dispersed in terms of price gains mostly happening at the 600,000 and up level.
That might be more of an influence of domestic investors versus foreign.
Interesting.
Beata, thanks so much.
Beata Caranci, Chief Economist with TD Bank Group, joining me here in studio.
I'm Kim Parlee.
Thank you so much for joining us tonight.
If you live in Toronto or Vancouver and you own a home and you're looking to trade up, you may well be faced with this situation.
Here's what's going on.
You've bought and lived a first home for a number of years and the value your home has appreciated.
In some cases, by quite a bit.
So you're doing well, right?
Well yes and no, because the house that you now want to move into has also gone up.
And in many cases, by a lot more.
So chances are, financially, you are now faced with two options-- stay and renovate, or move into a house that's maybe just modestly better than the one you're living in right now.
This dilemma is what my guest calls buyer gridlock.
Beata Caranci is Chief Economist at TD Bank Group.
And she's here to look at the implication of that.
Did I explain that properly?
You did.
OK.
I would just stress that, as a reminder, that it's about existing homeowners trying to trade up.
Right.
Because a lot of times, we focus on people trying to get into the market.
And there's absolute reduced affordability there.
Yes.
But not just for them.
Also for people who've bought an entry level house who's trying to trade up at the same time.
So it's happening in two segments of the market.
Why did you do this report?
I mean, you know you've got lots of things you look at constantly.
I know you're deluged with data.
Why was it that the plight of the current homeowner is something you focused on?
Yeah.
I think it's mainly when you look at supply to the amount of sales to listings in the market, a lot of people say, oh, this is a great time to be selling your house.
But sellers are also buyers.
And so you have to look at both sides of the equation.
And so when you hear buyers complaining about, I'm selling a house and having trouble buying a house, then it became an instance where let's go take a look at what kind of supply is on the market, what kind of listings are on the market, and who could afford what segment on the market.
And it became very clear when I did that that this market is really starting to get less affordable for a number of people, even people who've seen the value of their homes rise and are trying to trade up.
Which is fascinating, because everyone thinks, your house has gone up.
Good for you.
Now you get to buy something bigger.
And that's just not the case, which is what you're saying.
Let's take a look at this one chart you have in the report.
This is the Toronto and Vancouver markets.
And this is the number of listings, I think, we're looking at.
Tell me what we're looking at when we look at this chart and why it's important.
So this is the sales to listings ratio that I was saying.
And you can see that it's becoming quite elevated, which tells you there's a lot of people who are looking to buy a home, which is great, because if you're a seller, you can find a dancing partner real fast in this type of market.
But at the same time, that now puts you into the market of having to go out and buy.
And you're going to get into bidding wars as a result of it, because there's a lot of dance partners out there.
So this is the effect that we're saying that if you just look at it simply, you'll say great.
A lot of demand in this market.
No problem selling your house.
But eventually if you're going to be a buyer, you're going to be in that same situation yourself.
And then if we take a look at this, in terms of just another way to look at this affordability, what you're talking about is the condo, sorry, the detached home ratio as compared to apartments or condos.
And this is fascinating.
Vancouver's off the charts on this one.
So let's take a look at this.
Tell me why this one matters and why you focused on this.
So this is an interesting chart.
So I know it's playoff season right now, and we're heading towards the Stanley Cup.
But at the same time, when you're an economist, you never want a graph to look like a hockey stick.
You don't want it to be flat and then have this real tail come up at the end of it.
And that's exactly what the Vancouver market's looking like.
And what that's telling us is that the price differential between detached homes and condos is now more than three times.
So you sell your condo and it's three times more to get into the detached market.
In the Toronto market, it's over two times more.
So it's doable.
But you have to take on a lot more debt than you would have had to historically to make that step up.
And this helps explain why we're seeing so much leverage in the market.
And it's across all age cohorts.
It's not just people in their 40s and 50s that are doing the trade-up.
We're seeing it in every segment, because at the entry level if you sell your condo, you're going to have to take on a lot more debt.
And your debt service ratio goes up as a result of it.
And your savings go down as a result of it.
Which really brings-- and I'm going to ask the control room, you're noticing a little inside baseball here to skip ahead to the fourth graph here, because I want to take a look at the renovation spending.
Because what happens then, of course, is people go, great.
Yeah, I'm not getting much more for that huge price I'm going to trade up for so I'm going to renovate.
And people are finding more value there, and that's what's happening with the renovations spending.
It's skyrocketed.
Yeah.
And again, once again you can see how much it's differed from historical relationships there.
And this is specific to the people in the detached markets.
So like you mentioned off the top, you have people who are trying to get into the condo side into the detached market.
And they have a huge leap to make.
People in the detached market look out into the market and say, there's not a whole lot of listings unless I'm willing to pay a million or more, especially in the case of Toronto.
And in Vancouver, two million or more, in terms of where the large amount of supply is.
So I'll spend $400 on a reno.
Exactly.
Yeah.
And so this is what's happening.
But what that does is you take what was an entry level home.
You've now converted it-- a second storey, adding an extension on it-- and now it actually becomes a trade-up house.
So there's nowhere for those condo buyers to go.
Exactly.
Or someone getting into the market for the very first time.
I love that, my favorite part of your report and she writes through it.
And she's got here, and I quote, "boo hoo." Would say a millennial trying to get in the housing market for the first time.
So I get it.
You're showing the mechanics of this.
But really what this comes down to at the end of the day is that these millennials, or anyone who's in a condo trying to get to a house, it just becomes harder and harder and harder.
And there's a trickle down effect, right?
So ultimately, where the supply is coming online is predominantly in the condo segment.
And so millennial, their choices are getting reduced to the condo segment as an affordable option.
So the diversity of stock out there is narrowing as we go forward.
What are the implications of that?
So this happens.
It is happening.
It doesn't look like the trend's changing any time soon.
What are the economic implications of having people say, your only choice is a condo?
Well, you can buy a condo and that's fine until you decide it's not appropriate for your lifestyle.
Because you have a family, it expands, and you may not find it's suitable in terms of square footage.
At which stage, you're going to have to make the choice to either rent a house or you would buy a house and take on more debt.
There is nothing in itself wrong with renting.
It does require you to have a higher degree of financial literacy, because now instead of using your housing as your store of value and forced savings through the mortgage, and having that equity when you get older to sell and go off and do something else with it, downsize, you don't have that.
You have to manage a larger stock of financial money.
And so you better be aware of the volatility in the financial markets.
Your rate of return in the bond market these days is really poor, so you may have to take on more risk by going in the stock market.
So the degree of financial literacy goes up as a result.
If I was to paraphrase, and you need to understand that I’m a blunt here here, so people who have had wealth generate from housing have just been lucky, not necessarily savvy.
And if people want to build wealth in the future, they're going to have to be savvy.
They're going to actually have to understand how the mechanics of all this work.
OK.
So barring any kind of any massive changes in the market, if we take this trend 10 years out, 20 years out, what does this mean for Toronto and Vancouver?
I mean, is there kind of a broader economic implication or is it more just look to New York and see what's happening there?
And this is what we're seeing.
So we're already seeing that the implications play out.
We're seeing a push out to the suburbs.
And likewise, we're seeing prices rise there at almost the same rate of what you're seeing in Toronto.
So double digit gains starting to happen out there.
You're seeing a density build up.
So that's what I was saying in the paper is you go up and you go out-- up into the sky into the towers and out into the suburbs.
And this is what we've seen in places like London and New York.
Toronto condos, as a stock of the total housing out there, is at about 40%.
And if you go towards London and other places like Vancouver, it's upwards of 50%.
In New York, it's upwards of 60%.
So there's still room to grow on the condo side.
But those condominiums need to be built with more family friendly accommodations in mind.
Well you hear of it in New York.
Obviously for years, people buy a place, and then they knock out the wall, they buy the one next door.
And suddenly, they've got the whole floor.
So you're going to hear a lot more of that probably in Toronto as well.
I think to make it more-- it's one thing to have it affordable, but it has to be livable at the same time.
One thing we did not touch on, which you do highlight in the report, is we were talking about the domestic side of what's driving this housing market.
There's foreign investment.
Obviously, people become much more interested in trying to find data to support actually how much is out there.
What do you see in terms of foreign investment in the housing market?
Is that going to get broader, deeper?
What's happening?
Well there's no question that there's foreign investment happening in terms of lifting up those prices and sales in the Toronto and Vancouver markets.
It looks like it's more prevalent in the Vancouver market.
And the way we know that is if you look at the correlation between Vancouver's sales and foreign flows into deposits and currencies into Canada, it's one of those hockey stick graphs.
They're both like way up.
And so that tells us that a lot of the influence happening in the Vancouver market is happening through the foreign sales segment.
And it also makes sense, because a lot of the sales activity is well over the one million mark.
The median price is 1.4 million.
That segment of the market is usually what we call inelastic to movement in prices, meaning it's more generated by wealth.
People really don't care what the price is, because they're wealthy and they'll move their money into it.
As opposed to income, where it's more sensitive to the movement in the price.
So what are we seeing in terms of the Canadian dollar?
Because I think one thing, of course, when you put your money and you're moving it from China, as an example, and moving it to Canada, you want stability where you're going.
So if the Canadian dollar's moving up and down-- it's been really high, has moved down, coming back up.
How does that affect, or does it affect, the decision to come into Canada?
It's certainly making it more affordable.
So while we're feeling the effect of these rising prices, relative to someone from China or from the US, these home prices have a discount of about 20% or 30% relative to their currencies.
So it allows for some of that foreign influence to come in and take advantage of these prices, because they're getting the currency influence.
And so what we think is in the last couple of years, it's had a fairly big impact.
Again, a large part of it coming through the Vancouver market.
It's very hard to follow the bouncing ball on this, because there's not good data.
So it's the understanding that the Toronto market's a little bit more evenly dispersed in terms of price gains mostly happening at the 600,000 and up level.
That might be more of an influence of domestic investors versus foreign.
Interesting.
Beata, thanks so much.
Beata Caranci, Chief Economist with TD Bank Group, joining me here in studio.
