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(Article and picture courtesy betterdwelling.com)

A Canadian official in charge of housing policy confirmed the current market is not an accident. Instead, it’s a conscious decision where the government picked the winners and losers. TVO aired an interview with MP Adam Vaughan yesterday, discussing housing policy. In the interview, Vaughan, who helps oversee the CMHC, said price drops are not an option. The minister also said the market doesn’t work for locals, but is great for foreign investors. He also implied the strategy they might use to fix the market is one they were warned against. It was some interview. Here are the key market takeaways.

Canada Will Not Let Home Prices Drop By 10%

The government refuses to let prices drop, and will support inefficiencies. When Vaughan was asked if he would allow home prices to fall 10%, he tried to explain how hard it would be on homeowners.

When discussing a price drop, the minister said “I can understand why that is seen as a positive thing for people who are trying to get into the market, but hands up if you’d like to see 10 percent of the equity in your home suddenly disappear overnight.” 

He then implied Canadian homes are financial instruments, not necessarily for housing. “We know that Canadians rely on homeownership to secure their place in the economy now. But also as they retire we have to be very careful that whatever steps we take to protect the investments Canadians have made in their homes at the same time.” 

Canadian Real Estate Developments Vulnerable If Prices Drop

The minister was asked why a 10% drop would matter with prices rising “30 to 40 percent” over the past year. Apparently, without last year’s absurd gains, people would be underwater. “you know it’s a situation where you don’t want people to be underwater with their mortgages.”

He adds this is really an issue to save the real estate development industry in Canada. “You don’t people who’ve made deposits on properties suddenly find themselves underwater if they close the deal. Because they’ll start walking away from projects and that collapse will have impacts on the development industry so you’ve got to be very careful about this.” 

Vaughan is a minister in the Greater Toronto region, which recently experienced this. When the “foreign buyer mini-bubble” popped in 2017, rapid price growth abruptly turned. Some projects and homes were left with appraisals undervalue. This left buyers scrambling for even more cash, or risk losing their deposit. 

Canada Is “Not Great” For Locals, But Safe For Foreign Investment

Canada doesn’t think it has a foreign investment problem, because they see it as a good thing. While discussing sprawl, Vaughan made an unprompted jump to foreign investment. He said, “we have a very good system for foreign investment creating a lot of new housing in Canada as we have immigrants as we grow the population.”

A few seconds later, he admits the market is safe for foreign investment, but not so much for locals. “… we are a very safe market for foreign investment but we’re not a great market for Canadians looking to make choices around housing and so we’ve got to make a number of decisions that address the 2 sides of this coin.” 

I know what you’re thinking — what foreign investment? They said that died down years ago. It’s likely a reference to new home pre-sales and permanent residents that are buying. Some argue new home pre-sale assignments are faster funded when foreign investors are involved. This is faster than waiting for your broke-ass to put together a downpayment. Non-resident investors then try to sell it before occupancy, avoiding a tax hit. As a bonus, they aren’t usually recorded as a non-resident buyer anywhere.

As for immigrants, Canada has long been a great place to live — just not a place to earn income. SCMP found more than 40% of millionaire migrants exit the country soon after arriving, but their family remains. These are commonly known as “astronaut families, and it’s been around in Canada for a while. It’s common in developing countries, with underdeveloped job markets. While these households are technically local, their money is “foreign” in source. Hence foreign investment, but not non-resident buying. 

Canada May Do What It Was Warned Not To With Real Estate

Canada was warned by everyone, from the IMF to big banks, not to give first-time buyers incentives. The general consensus is by helping first-time homebuyers, the government will extend inefficiencies. By doing so, they’ll create a large gap for inequality in the near term and city failure long-term. So what are they going to do? It appears exactly what they were warned against doing.

The minister said, “we need to dampen the inflation, and build those bridges to homeownership.” In other words, they want to slow price growth — not have it reverse in any capacity. The only way left to “build those bridges” would be credit extension or wage inflation. Extending credit to home buyers is literally what they were warned against. The kind of wage inflation needed, would result in higher rates and lower budgets — crushing home prices anyway.

The takeaway from the interview, to put it bluntly, is Canada’s housing crisis is far from an accident. The government has a firm belief they are in charge of home prices and will prevent them from falling. If they truly believe they can be in control of prices, that indicates the 40% increase in prices was no accident. It was intentional, as was the fallout to younger generations. 

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(Article and photo courtesy betterdwelling.com)

Canadian real estate prices are the most overvalued in the G7, measured against rents. IMF data shows Canada’s house price-to-rent ratio in Q2 2020 was the highest of any G7 country. The indicator is commonly used by analysts and economists to determine stretched valuations. Home prices across the G7 have grown faster than rents on average. In Canada however, they grew nearly twice as fast as the average, over just a few years.

House Price-To-Rent Ratio

The house price-to-rent (PTR) ratio is the ratio of home prices to annualized rent. It’s often used as a benchmark to figure out if it’s cheaper to rent or own. More important, analysts often use it to figure out if homes are overvalued for a market. 

Rental costs are closely tied to wages, with growth limited to what local incomes can support. You can’t easily charge a whole country 20% more rent, if wages are only growing at 2-3%. Home prices however, reflect how much credit the marginal buyer is able to consume. If home prices rise much more than rent, it’s often due to easy credit conditions — not fundamentals.

The IMF uses an indexed approach for tracking the change. They set 2015 as the base year with a value of 100. If the index rises, it means house prices increased faster than rents. If the gap between home prices and rent increases, the index value rises. If the gap between the two closes, the index value falls.

It’s worth stressing once again, the base year of 2015 is set at 100. It gives the impression that 2015 had the correct price ratio, but doesn’t really mean that. Inefficiencies may have started way before that date, and persist to this day. However, we’re going to be mostly talking about how much things have changed since that year.

Canadian Home Prices Grew 28% Faster Than Rent

The Canadian PTR is the highest of any of the G7 countries, with prices rising much faster than rents. Canada comes in at 128.0 for its latest period, which is Q2 2020. This means the gap between home prices and rents grew 28% since 2015. Also worth mentioning, the data is for Q2 2020. Home prices really took off after that quarter, especially in small cities and towns. The disconnect is most likely much larger at this point.

G7 House Price-To-Rent Ratio

US residential real estate is experiencing a similar trend, but not to the extent seen in Canada. US home prices had a PTR of 110.6 for Q2 2020. Home prices saw 10% more growth than rental prices. Canadian home prices accelerated faster than rents, at over twice the rate as the US. Canada is an outlier not just compared to the US, but also compared to other G7 countries.

The Canadian Gap Between Home Prices And Rents Increased The Fastest In The G7

The gap between Canadian home prices and rents, is the fastest growing in the G7. Germany, the second highest PTR ratio in the G7, is 2.1 points lower than Canada. The average G7 PTR ratio is 13.9 points lower than Canada. The Canadian gap grew twice as fast as the average of all G7 countries. 

The Canadian home price-to-rent ratio is the most extended of any of the G7 advanced economies. Since the latest data is Q2 2020, this ratio is also likely to have accelerated even further by now. A lot faster, considering prices are now soaring, even in small towns.

Typically a disconnect between home prices and rents is corrected. Any combination of home prices falling, or rents rising would fix it. When the gap is this big though, it’s hard for rent prices to close the gap by much. If it made a big jump in any reasonable amount of time, it would create inflationary pressures for wages. Wages accelerating to handle rising living expenses is an economy’s death sentence.

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(Article courtesy architecturaldigest.com, Photo: Stoffer Photography Interiors)

Get our expert tips for decorating small spaces in your home or apartment. Learn how to decorate in style without creating clutter!  By Elizabeth Stamp

Decorating small spaces can feel like an impossible puzzle. You want to fit as much in as possible, but the room mustn't feel cramped. You want it to be filled with personality, but it can't look chaotic and cluttered. But it's possible to have a small space that's as stylish (or perhaps even more so) as their sprawling counterparts. Whether you’re starting out in a studio apartment or choosing to live a more minimalist existence, you don’t need to sacrifice style. We’ve gathered our favorite ideas for decorating small spaces to help you tackle your own petite dwelling.

Keep the Floor Clear

You need space for the essentials, but even the most perfectly decorated small room doesn’t work if you can’t walk in it. Try floating pieces, such as shelves and nightstands, to keep the ground clear of obstacles and create space for extra storage beneath if needed. Opt for sconces and wall lights rather than floor lamps.

Go for Folding Pieces

You may need a desk and a dining table, but do you really need them 24-7? Consider installing furnishings that can fold up when not in use. You’ll free up floor space and avoid the stacks of mail and work that inevitably pile up on these surfaces. If you have a one-wall kitchen, folding doors can conceal clutter when not in use.

Focus on Lighting

Small spaces can often end up feeling dark due to small or nonexistent windows. Make up for the lack of natural light by adding plenty of light sources in every room, from the kitchen to the bedroom. Combine striking ceiling fixtures—either a pretty pendant or elegant flush mount, depending on your ceiling height—with sconces or table lamps for a cozy and bright atmosphere.

Mirrors Are Your Friend

If you’re not blessed with an abundance of natural light, mirrors can help you make the most of what you do have by reflecting it around the room. Mirrors can also help make the space feel bigger, giving the illusion of a few more square feet. Consider lining a wall with a large mirror or creating a gallery wall of different sizes and shapes.

Choose the Right Rug

A rug is the one item you definitely don’t want to skimp on, size-wise. A tiny rug will make the room feel equally small. Pick a floor covering that’s large enough so most of the furniture will sit on it, or go wall-to-wall.

Don’t Be Afraid to Go Bold

Having a small space doesn’t mean it has to be a white box. You can still go bold with color and embrace the size of your apartment. A darker shade of paint on the walls and ceiling can make the space feel like a jewel box.

Keep It Cohesive

There are only so many things to look at in a small space, so make sure they all fit. Stick to a limited color palette, whether it’s light and airy or dark and dramatic. Looking at items with an editor’s eye will help make sure pieces really belong and keep the space from becoming cluttered.

Find Pieces that Earn Their Place

Make the most of your space by finding furnishings that also boast storage. Opt for a bed with built-in drawers or benches and ottomans with space to hide away extra blankets or sweaters. In a small space, every piece needs to pull its weight: A daybed can serve as both a sofa and a guest bed.

Let Pieces Breathe

Nothing screams "I don’t have enough room" quite like furniture pressed up against the wall and tucked so tightly together that it’s practically stacked. Pull furnishings away from the wall if you can and make sure there’s space between pieces. (You may have to get rid of anything that isn’t used on a daily basis, like side tables or accent chairs.)

Play With Scale

There’s no need to use pint-size furniture and decor in a small space. The key is choosing a few statement pieces that will really draw the eye. You can use regular-size furniture and large-scale art; you’ll just need to use fewer pieces in the room overall.

Click Here for the full article.

(Photo and article courtesy bobvila.com)

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