Toronto’s Real Estate: Debt Worries

Today is September 14, 2016 and for most of the day Canada’s business news network has been “texting” on screen that foreign buyers have started buying Toronto luxury properties to avoid the 15% tax on foreign purchases of Vancouver, B.C. real estate. And some are even getting mortgages without proof of income. I remember some time ago before the 15% B.C. surcharge, a California based investment adviser referred to Vancouver as Van Kong because he believed that many from Hong Kong were laundering money in Vancouver real estate purchases.

Today December 10, 2014 I saw Canada’s central banker worrying about the price of Canada’s real estate as he answered questions from similarly concerned journalists. This topic, ever rising real estate prices, which most real people would consider an example of author Brendon Brown’s “asset price inflation” has been a concern for most of the period of the “great recession” while oil prices and the Canadian dollar declined then went up again in 2012 with Canada’s dollar falling today to just above 87 cents  to the American greenback, Canadians have kept fretting over whether or not real estate prices might represent an asset bubble that will soon burst as did real estate values in the United States way back in 2007/2008. But so far about 6 years since Canada’s real estate worry became public, prices just keep getting higher while Canada’s central bank keeps warning Canadians about their increasing debt to income ratio, and financial experts keep worrying about deflation: the reason, I gather, for interest rates being kept low. Now everyone used to believe that there was a direct connection between mortgage financing and real estate prices: when rates are low real estate prices rise; when mortgage rates rise real estate prices stabilize and in some cases might decline. So with Canada’s central bankers’ concerns about household debt I am surprised that Canada’s current central banker, the person in charge of raising or not raising interest rates should appear so helpless while stating that housing prices could be 10 to 30% over priced.  And neither he nor anyone concerned about real estate say who is buying all this expensively priced and horrendously taxed property. Could it be that those able to afford prices close to one million Canadian dollars for semi detached homes on old Toronto streets, that a factory worker could once afford, do not have Canadian citizenship, since it is difficult to imagine how old or new Canadians could afford such homes today if it’s true that half of Toronto’s population survives near poverty. And in these recent months those with greenbacks to spend might purchase one of these highly priced homes at a 10 to 12 % exchange rate discount.