So real estate prices in the Toronto area have reached new levels of crazy and the finger pointing has begun.
This Financial Post article, All Canadian are paying the price for ‘conceal’ estate in Toronto and Vancouver, sort of points the finger at lobbyists, bankers and developers.
Basically, the claim is made that we’re all paying too much for property because of hot money flying into Canada.
It’s actually an interesting read and we agree with a lot of its points.
This Hamilton Spectator Article, Bidding Frenzy: Hamilton mountain home sells for $101,000 over asking price, shares how, compared to Toronto, Hamilton is still relatively inexpensive.
So an hour outside of Toronto, you can still find good property at good prices apparently.
What do you believe?
Who do you believe?
What the heck is going on?
We don’t claim to have any magic crystal ball, but we can look at big trends and make our own observations.
Let’s have some fun with Canada, China, the global economy, TREB stats and some very crude math…
Size of Canada’s Economy
Isn’t that a nice little summary? According to this, it would seem like we’re responsible for 2.39% of the global economy.
Amount of Money Flying Out of China
Can you spot the change in trend?
Up until about eighteen months ago, all the money and inflation in the world seemed to be piling up in China.
Looks like the tide has turned.
In fact, China is losing about $100,000,000,000 per month.
Let’s just repeat that … China has 100 billion dollars leaving its country a month right now … a month!
That ain’t good for many reasons, but we’re not here to argue right and wrong at the moment.
Where is this money going?
Can you imagine getting an Interac money transfer for like $10 billion from someone in China?
I think the email spam guys gotta change their messaging from, “I am the relative of a prince in Africa who wants to send you a million dollars if you just send me…..” to, “I am the relative of a banker in China who wants to send you ten million if you just…”
LOL! Get with the times email spammers!
Anyway, let’s stay focused here for a moment…
Here’s where the really crude math comes in:
If we’re responsible for 2.39% of the global economy then maybe, just maybe, 2.39% of that Chinese outflow of money is landing right onto our shores.
What’s 2.39% of $100,000,000,000?
That would $2.39 billion.
That’s quite a lot.
Size of the Toronto Real Estate Market
Now, let’s look at the size of real estate transactions in Toronto’s largest real estate board, TREB:
Remember, this is the a very crude math discussion today, but stick with us…
If you take the average price and multiply it by the number of transactions, we get a monthly real estate market of:
It’s actually pretty big.
Remember, that’s a monthly volume number for real estate in Toronto.
Now, how much of that $2.39 billion flying into Canada from China, that we concluded with very unscientific methods, is landing in Toronto?
Who knows right?
But we do know this…
Canadian Immigration by Province
From that data, it would seem that we’re getting about 36% of all Canadian immigrants landing in Ontario.
Maybe with our crude math, we can also conclude that 36% of the $2.39 billion is also landing in Ontario.
We fully realize it’s a stretch to use this as our calculation but we’ve got to assume some percentage is entering Ontario so we’ll roll with 36%. Our gut tells us Ontario gets a higher share of the money flowing into Canada but who can know for certain.
So at 36%, that would be $860,000,000 … a month … landing right here in Toronto.
$860 Million Bucks a Month Landing in the 6ix?
Could that be possible?
According to the Financial Post article above, we’re a “go to” stop for hot money here in Canada.
Maybe it’s not $860 million, maybe it’s more!
Anyway, if the real estate market in Toronto is $5.2 billion and we have $860 million new money flying in here every month looking for a home, figuratively speaking, that’s just gotta have an effect on the market.
What do you do in a market like this?
You go to Blue Mountain skiing and forget it all!
Over the next few months, we’re sure we’ll see more crazy headlines around real estate.
We think we’ll also see huge budget deficits out of Ottawa.
We may even see more talk of the need for “negative rates” in Canada.
Hot money, low rates, negative rates, immigration into Ontario, low oil prices, high real estate prices … it’s a recipe for more swings in the markets, faster, and with more volatility than we’re used to.
Heck, we own a real estate brokerage and we think it’s crazy.
But we do know this…
You can fight big monetary trends.
It’s best to be aware of them, study history, understand how money moves, and position yourself accordingly.
We like productive assets, income properties that cover their expenses, some precious metals, and some old fashioned savings in cash.
It’s a crazy world, let’s have some fun with it all.
Until next time … Your Life! Your Terms!