Podcast 17: Are We Near The Bottom Of The Real Estate Market? With Michael Ng

Let’s talk about the current state of the market, and try to answer the big question: are we near the bottom of the market?

I’ve been in the real estate business and in the real estate market as an owner for almost two decades. I've seen a lot of ups and downs, and I want to share with you my thoughts on whether or not we're near the bottom. So let’s talk though it.

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Transcript:

all right guys welcome to another edition of Broadview table talks with my co-host Michael ing I'm kennethium and we are talking today about what do you want to talk about today we're talking about uh are we at the bottom of the market it seems like a lot of people are asking that question these days I don't know do you well let's be honest I don't know I you know a lot of conversations we have it's with buyers and sellers who are worried about making a move because they're thinking that something is going to happen and it seems like they're waiting for the dust to settle with all the Becca Canada rate changes and everything right um before they they actually decide on doing something right you know and the conversation that we have a lot for buyers and sellers who are aiming to be buyers because they have to move into their next home is that they want to wait and see uh if we're at the bottom of the market yet yeah so that's a hard question to ask um are we at the bottom because nobody actually knows no you know what I mean not at all and the bank account had just released the rate hike uh announcements a couple days ago and as you know as you may know everyone knows they also signaled that they're going to continue these increases until they hit their target and core Target inflation of two to three percent three percent being at the end of 23 2023 and 2 Target ideally being in 2024 yep so if anything that means that they're going to continue to being like tightening up their fiscal policy meaning that they're going to continue to raise rates until we hit that Target yeah which is a scary time scary time so I mean they're saying that it's ideal too so we don't even know if inflation will respond the way they want them to right but I think certainly that you know with these rate tightening Cycles I I feel it anyway that uh it's certainly slowed down the market I mean yeah the market sales number of sales in September have dropped by 40 something percent yeah that's that's a lot so you're basically taking away half the market so I think that definitely is taking effect and it's going to take a few months for it to really show up in in the real estate market yeah but certainly it's costing a lot more to to pay for I mean my own mortgage has gone up quite a bit I'm on a variable payment and I have a couple that are static variable and some that are flexible that are floating variables that float with the rates too right so it's like double the rate like double the cost no more yeah so I I think it does have the wealth effect the intended effect of bringing down prices in terms of General spending in the economy yeah for sure I know I'm a little more hesitant to buy things now personally yeah um so are we at the bottom I don't know I don't know I think there's probably it's hard to say my gut feels is that there's still a bit more room to go down just because the bank account is still going to continue raising the rates yeah the Federal Reserve the U.S is still going to continue the rates and we model ourselves after the Canadian U.S banking system so to me that shows that there will be however how much more can it go down like I I personally don't think by much right because we're there's a bunch of support lines right now so we have the number of immigrations coming into Canada immigrants come in Canada uh you know we're our our population is definitely aging there's not enough productive people in the workforce to be able to support the Social Security that we have now so what are they gonna do they get import workers yeah right they're retiring and going away yeah it's 430 000 this year and scheduling up to like 500 000 half a million in 2025 like we're going to continue to go up for the next foreseeable future um I think it was Ontario uh expects to have 1.5 million people increased over the next 10 years yeah there's 150 people 150 000 people per year yeah and we only have capacity to build 100 000 homes so every year we're in a deficit of 50 000. their goal is also to have 1.5 million extra homes built by you know 10 years from now to meet that demand to meet that demand yeah they're going to do it though the most they've ever done was 100 000. I mean we've only hit 100 000 a long time ago and we haven't been able to hit that Benchmark again year over year because of Kobe because of the flag constraints okay so immigration is one bottom support line having a floor stopping from the the price is hitting like a floor basically right there's also lack of listings because a lot of sellers that I've talked to anyway they don't want to sell because they think it's a bad time to sell yeah so they're not putting the market and if you're a buyer right now looking out there there's not much inventory well good inventory that you're looking for well new listings down what 30 to 50 uh year over year correct correct before every housing type sellers aren't selling yeah sellers aren't selling so they're holding out and I think it's like a fight between buyers and sellers right now right buyers want lower prices but sellers aren't willing to sell because it's too low and they're just like it's not moving it right so that's interesting because it looks like there's downward pressure on their on affordability as well because now it looks like everyone's moving away from detached to semi-detached to town homes and they're moving further down towards Kono Apartments which prices are still climbing for those housing types because it's affordable yeah the bottom end price really does make a difference exactly so in in a way also making it unaffordable for others as well because it's driving it up correct correct yeah um okay so the third thing the third support line I would say for prices to stabilize is really the cost of things aren't coming down anytime soon no no no maybe they are but with inflation uh fighting and stuff like that right like you know materials and labor that's it doesn't seem to be shrinking there's no like to be clear when they're talking about fighting inflation it's not talking about bringing prices back down yeah it's just talking about slowing down the increase the rate of increase the rate of increases right so um I don't think labor is going to get any cheaper I don't think prices and materials are going to get any cheaper no and maybe with the construction starts slowing down like Builders aren't building as much anymore right because it's kind of Uncertain time they'd rather just sit on their line and hold off and wait then the construction trade will have more availability more capacity which in theory will bring down the prices because you know there's more available labor so I think in that aspect it may balance out a little bit Yeah but ultimately land is not getting any cheaper yeah land owners are just gonna you know they've already waited like 20 years well land scarce right yeah it's scarce I think it scares resource in Canada anyway even though there's so much abundance of it it's just the buildable areas because of the green belt in Ontario and the water and Vancouver you know I mean like there's so much constraints on why we can't just constantly build yeah out or up you know there's only so much in a lot of NIMBYism and infrastructure can't support it people out of school that's a different podcast right so I think those three things give big support and why prices aren't gonna like there's gonna be a floor for prices you know on the other side is that buyer affordability is shrinking because the cost of borrowing cost of capital is a lot higher and most people buy with mortgages in today's day and age you know back in their parents age maybe they bought something out right in cash yeah yeah now it's not possible right because prices have gone up so much they went from 25-year amortizations to third year amortizations right and remember at some point it was like 35 years now it's back down to 30 Max right so um and then CMA she's done some 50-year amortizations really recently for uh multi-unit buildings across the buildings so anyway the point is that I just don't see that the bottom is really necessarily I I wouldn't say there's much more room to be at the bottom certainly we're not at the bottom but we only have a limited window to be at the bottom and I think the the chance of it going any lower is probably a lot lower than the chance of it going back up that makes sense so sure it might go down another 10 or so maybe who knows right but the chances of it turning around at some point I don't know when that window is yeah maybe sometime next year maybe sometimes a year after in 2024 I don't know but like we're very close to the bottom it feels like it especially with the fight on Reflections we have right now yeah like the sellers are very hesitant to lower prices there's always it's always faster to raise prices and it's always a lot slower to lower prices and we're talking about a rate of change here so it doesn't seem like things are changing very much anymore it seems like there were a lot more uh quick changes in the earlier markets especially during the spring fall and fall of 2022 but it seems like you know sellers are holding out now and buyers are feeling that as well because you know you still have multiple offers for quite a few decent homes right and I guess at some point those sellers gonna have to sell though right so yeah I'm curious to think why you say that prices go up faster than they go down well sellers don't want to lose out sellers sellers have anything whether it's a good or whether it's a home they don't want to lose out on the value that they perceive that their their item is so they're resistant to lowering the prices and they want to keep the prices higher so in other words prices are sticky because sellers don't want to take a hit on the loss yeah they don't want to so they're willing to hold off and and not sell yeah or rent it out yeah or whatever it might be right at least carry the place and not take that haircut if they don't have to yeah because yeah you're right it's hard to buy a house and why sell it when you already have the financing in place and everything's good to go yeah they already have a home right right so you don't have to worry about it you're right prices are sticky they probably won't come down as fast you're right about that and that's a little more anyway um what I am concerned about is the renewal rates so if these interest rates stay too high for so long like in theory if you think about it everybody's typically on a five-year mortgage right so if you're looking at every year one in five ought to renew like in theory just a macro level big picture so it's 20 of people should be renewing every year yeah and if from you know five years ago you got a mortgage now it's time for Renewal and your rates all of a sudden from you know 2.5 now to like five and a half six and a half percent yeah that's a big difference you know that's a big difference three times your interest costs which is pretty much half of the mortgage has gone up by three times which means like if you just do simple math it's your payments have gone up by a month uh 1.5 times yeah that's like approximate obviously don't quote me on that but like every situation is different but I'm just saying like that's a big affordability Gap yeah that people aren't gonna so those are people that are gonna be forced to sell yeah you know but thankfully they have enough equity built up that maybe they should refinance at a different level a higher like a slightly higher level yeah they can if they can qualify for it take some Equity out and then basically weather the storm that way right you know like I just I don't know I just don't see that we're gonna have a significant crash like most people in Reddit are saying yeah you know or on the online forums because it's still real estate it's still tangible it's still an asset that you can use it's not like a piece of art sitting on the wall it's discretionary you don't really need to have it's not like crypto well yeah exactly right I mean it's like it's a place that people can live in whether it's the purchase or living in it not renting it out to somebody that's gonna live in it or a combination of both for sure or you know so I just don't see a downside if you're holding real estate in the long term certainly there's a lot of people are going to get hurt that can't you know have that over leverage themselves and can't make the payments they just can't catch up yeah and they have no means of that and then they're gonna you know get closer foreclosures but so far I just don't see in Canada anyway the the number of foreclosures still single digits it's still very low yeah I don't have exact numbers but I know it's low and I just I don't know I can't see it going down that much more well thankfully of our mortgage process in place and it was you know fairly hard to qualify and that certainly took care of or they gave us a buffer at least for anyone who may have foreclosed if we did not have that measuring place so that mortgage stress testing meaning that they qualify you for two percent above the code right right so that um if the rates do somehow go up quickly like I might add then you can weather the storm so right now we're qualifying for two percent above the bank prime of 5.79 right yeah 5.79 5195

right so you're looking at almost eight percent you're qualifying at eight percent yep uh so that's that's kind of crazy to me um but I guess it needs to be done you know yeah so it's not getting cheaper I don't have the answer for it I don't think anybody has asked for it and people are debating it all the time like you know there's a whole liberal versus conservative debate right now but saying that the Liberals caused it and now they're trying to fix it like they're discretion they're bad spending habits but then you know Liberals are saying what do you want us to do like what we're just gonna sit there and do nothing yeah when this pandemic hit so I mean I don't know I don't know I don't know what to do all I know is that if you have the capability to buy something maybe it's a chance to do so yeah because it's a long-term asset that your pro if you're lightweight like if you don't have much real estate in your portfolio yeah I think every portfolio needs to have a bit of asset Rich stuff well it's shifting your mindset right you'd be you switch yourself from being a buyer who's struggling to get into the market to a seller who's holding on in the market right you know you're if we are close to the bottom it just means that it's going to keep climbing up and that's when the transfer of wealth happens right right so smart people definitely would be taking advantage of this Market yeah I don't think it's a down Market I think it's more an opportunity Market of anything right oh yeah because it's um on one hand the asset prices have come down but on the other hand if you're getting a mortgage the actual cost to make those monthly payments have gone up significantly actually more than what they were at if you were to buy at a higher price then right for sure so if you didn't buy back then it's not as good time by now obviously you should buy back then even though there were higher prices yeah but like now is the next best time yeah right and we don't know when the next bus time is going to be when I spent times today right yeah because at the end day we still have enough people coming into the country to be able to support the prices whether it's resale prices or you know rentals is when they first land here they're going to rent right yeah so if you're looking to rent out all or a portion of your home then it just completely makes sense to do so yeah and and even basement apartment rentals are crazy right now I mean it's not everyone's fighting for everything that you can find I think well the biggest problem right now is Affordable rentals yeah and in the world actually there's no good solution for affordable rentals I I don't know of any and um yeah I just I don't know yeah when you factor in population growth and you're not dealing with a stagnant population then yes affordable housing is a huge issue right right because you can't go back in time and and you know when there's less people like the world is being more and more populated because we have more kids life happens you know I mean at the end of the day we're all going to want to have kids well not all of us but like a lot of us do and our politician just grows and we're living longer so we all need a place to live and you have a choice between a big city or somewhere else right you're going to pick somewhere with big city with better infrastructure better schools better jobs better et cetera et cetera Health Care all that stuff yeah so I I just I don't see you shrinking I don't know no not in the city as populous and as busy as Toronto right especially with growing businesses investment from large companies coming in it's uh it's unlikely that we're going to see any major dip that people expect so why are people buying fear 44 less people are buying yeah fear um I guess it's difficult this is expensive yeah you can have that down payment saved up and if you're renting somewhere and you don't have the opportunity to save yes it is a big problem it is but there's you know solutions to get out of that right like co-ownership right buying with a spouse or a partner or friend or relative or uh yeah anybody a partner yeah really and then there's um if you can afford to buy a freehold property that has more enough space to be able to rent out different rooms and you just take one room where you live in the basement for example have somebody offset some of the cost yeah there's were ways where you can add value to your property if you're a different level and you you know you have some Equity saved up and you can buy a house maybe I don't know um a rare audition or a accessory drawing unit like another um separate like a garden Suite or whatever right and rent that out that makes it a little more affordable and make it more valuable the property itself especially now that you know parts of Ontario are allowed to build up to three different housing uh drawings right so a lot of information from Doug Ford saying that we're now as of right allowed to or soon obviously be tabled anyway yeah soon we're going to be allowed to build two or three units without going through zoning changes as long as the footprint doesn't change right yeah that's a big thing yeah I think there's more enough upside in real estate if you look at a bigger just zoom out and look at it from a larger perspective yeah in the long run I'm talking about like a Time Horizon of 5 10 15 20 years maybe or longer yeah you can't go wrong no if you're looking at year by year sure there might be changes and you might be upset and it doesn't move as fast it's not as liquid you know there's a lot of transaction fees involved in buying and selling such a large asset because there's a lot of risk in buying and selling such a large asset such as if you say the wrong things you could be leaving money in the table right so that's a big reason why those transaction fees are so high yeah and you need some like a professional on your side like us on your side to be able to help you right so um no but essentially you do need somebody that knows what they're doing inside like every day you know this so I think if you have a long-term perspective there's any way to get in the market do it do it as like whatever you can whether you're doing with partners tenants yeah or whatever it is you can't go wrong holding real estate yeah just like anyone who snatched up us real estate in 2008 and 2009 I remember those days you buy houses you can buy condos towns are like 20 grand us yeah you can get financing on them but like 20 30 grand us if you have the cash and I wish I had more and you can Airbnb it now can you well for a lot of them yeah that's how they uh that's how they're Building Wealth right right for a couple people that we talked to when we go down to the States they bought their place during some foreclosure sale or something and then they turn it into an investment property rented it out when Airbnb became a thing or VRBO they switched over to Airbnb and vrpo and they have a solid portfolio true speaking of that I'm not a huge fan because I actually had two of these conversations this morning with other people I'm not a fan of Airbnb short-term rentals yeah first of all and condos right yes okay and and parts of Toronto like it's for certain major cities the or small towns they don't like you doing that because it just creates all this like first of all it it screws up the tourism industry like the hotel industry so they're lobbying against it to change the rules yeah yeah the communities get all messed up because there's all these transient people coming in and out of the city for sure so I don't think people like it um so they banned it in Toronto you have to have like I think you have to live there for six months of the year or something you can only rent it like a couple times a couple days in in the month or whatever so it has to be your primary residence correct something like that right there's some rules of returning it so there's that there's the wear and tear like you were saying there's a maintenance of furniture potential loss rents vacancies uh having to turn over again having to repaint the place or fix uh Furniture yeah for example or maybe you know somebody moves in and says oh I'm gonna be here for for a year or six months or whatever I don't want the mattress I want my own mattress yeah and the next person comes and says I need a mattress yeah it's like oh then what do you do where do you store this all yeah hotels are there for a reason right then the third thing is um management fees so because it's so intensive and it's like it's like a job on its own yeah you need to hire a proper manager that can manage Airbnb so close unless it's your full-time job unless it's your full-time job exactly but that's going to cost you 15 20 25 maybe 30 in some cases depending on what they provide yeah plus all these fees so it's just I don't know it's just it doesn't make sense to me with the vacancies cost and uh management costs and the wear and tear it just it doesn't make sense to do short term I'd rather take less money and have a stable tenant that is going to take care of the place and treat it like their home because it is their home well luckily we don't see two it doesn't seem like there are too many of those short-term rental places in Toronto well I mean there are a lot yeah but compared to anywhere in the states it seems like there are far more in every city there right right right it's kind of like it's kind of crazy when you look at how many there are in one specific area we recently booked tickets to Miami and literally every other house in certain areas were just airbnbs really yeah it's just why why is this the same here I'm sure you just haven't checked in Toronto but I'm sure there's definitely a lot of airbnbs here anyway the point is there's a whole bunch of strategies on how to invest into real estate and how to make it work worthwhile and I would say that the bottom line is there's an opportunity market right now and I think you're gonna be kicking yourself if you don't take action into something today because the way to the time to make money is now during turbulent times so if you can do it do it be happy to talk to you if you need to and stay tuned in the next podcast until then I will see you guys later [Music]