Saturday, January 2, 2016

Will the Housing Market Crash in Canada?

More viewer mail!

A reader writes:

I wanted to ask you what your thoughts were on the Canadian housing market. I know you wrote a piece on our housing market in your blog a while ago but have you been following it lately? I really want to sell my house and go rent. It is cheaper to rent than buy in pretty much any area of greater Toronto. Any condo development today is negative cashflow and people are snapping them up like crazy. Prices make no sense. You can rent a $700K townhouse in my area for $1600/month. People tell me that prices never go down and I tell them have you looked at the US market, Ireland, China, Spain, or Dubai? And they reply, it's different here. Oil prices have dropped and that will hurt certain markets such as, Alberta but it won't bring down prices here in Ontario. Anyway, what do you think could be a catalyst for falling prices or do you think high prices are here to stay?
Canada and Canadians are in an interesting situation.   It is cool to be Canadian, as one can take the best of both worlds.   When it suits one to be American, you can get in the car, drive down to Disney World and wallow in American culture.   When one doesn't want to be aligned with some of America's more controversial policies (or taxes) one can withdraw to the Great White North, and sit comfortably on the sidelines and criticize.  Like I said, it is the best of both worlds.  An enviable position to be in!

But what is Canada, anyway?   Lately, it seems more like a confederation of separate countries that one unified nation.  Divided by geography, language, culture and economics, it really is more like four or five different countries than one homogeneous mass.   In the east there are the maritimes, which have little in common with rest of the country.   Nova Scotia, Newfoundland, and Labrador are a different world.   And if you get a chance to go to Newfoundland, do so, during their very short season.  It is breathtaking.  Sadly, many Canadians fail to visit there.  We met folks in St. John's who never visited much of their own province!

I am not sure Newfoundland is still running on a Random Passage-like cod-based economy.   In St. John's there are a lot of oil rig service boats in the harbor, which seem to outnumber the fishing boats.  So oil might be propping up a bit of the economy there, along with mining in Labrador.

Separating them from the rest, of course, is Quebec, which has a different language and culture of its own - and huge amounts of hydroelectric power, most of which is sold to the States.  (They call electricity "hydro" up there, which is confusing to Americans.  An apartment with "hydro included" doesn't seem like a big deal to us.  Free water?  WTF?).

Quebecois detest (or at least mildly dislike) their English-speaking neighbors.  And every time we've gone there to visit, I sense a certain hostility, until they learn I am from America, and not Ontario.   At that point, they welcome me with open arms.  Or at least with less hostility.   There is a lot of history between the citizens of these two provinces, it would seem (and the "best of both worlds" effect works for Americans in Canada, to some extent, as we are not part of the local politics).

Ontario is (or was) the industrial heartland of Canada, and it is full of chemical factories, auto plants (many closed) and of course an awful lot of wheat fields.  With the exchange rate of the Canadian dollar falling, it may once again achieve industrial greatness, as the cost of doing business there might once again fall.   Toronto, of course, is one of the major cities there and famous for its use a movie backdrop, when one wants to shoot a scene in New York, but can't afford it.  But lately, few people can afford Toronto, as housing prices there have skyrocketed.

Alberta, where we went last year, is home of the oil sands project.   Like with Alaska, the provincial government has been reliant on oil revenues to supplement its tax base.   Alaskans are now facing income taxes for the first time in their lives (until now, the government paid them through oil revenues, rather than vice-versa).  Alberta is going through similar gyrations, as the oil revenues dry up.   And there is a lot of overbuilding of townhouses and condos there.   We tried to go visit an "organic farm" and restaurant in Calgary, which was world-acclaimed.  It was surrounded by acres and acres of brand-new and empty townhomes - and the owner of the farm was clearly waiting to be bought out by some developer.   What was once ten miles from the city is now the city.

British Columbia, or Vancouver as we call it, has been a boom town for a long time.   A lovely place, I am told, and I hope to visit there in 2017.  Housing is through the roof there, and the story I am told is that "Chinese people are all buying up houses" which is driving up the cost of housing there.  I am not sure if this is the same phenomenon that is taking place in the USA with "anchor babies" being born here so that wealthy Chinese families have an "out" if the Communist government decides to, well, go Communist again.  Limited land for development and an immigration boom have driven up prices.

Five different regions, five different economies, or so it would seem.   I won't talk about Saskatchewan or Manitoba only because I can't pronounce those names and no one lives there.   And the Northwest Territories, Yukon and Nunavut?  These are largely in the article circle and seriously, there are not even roads to these places.  I read a story while in Alberta, about a high school in Nunavut that burned to the ground.  They were trying to relocate the students to another school - all five of them.   They would have to travel by bush-plane to get there.

Canada looks like an impressively large country (and it is, to some extent) but the vagaries of Mercator projection make it look larger on flat maps.   I read somewhere that something like 90% of the population of Canada lives with 100 miles of the US border.   Whether this is actually true or not, it is pretty close.  Most major Canadian cities are within a couple hours drive of the US, if not far less.   This always gives me a mental picture of Canadians sitting in the cold North, warming themselves by the border, perhaps from all the global warming heat we are giving off in the States.

Speaking of global warming, maybe investing in land in Nunavut isn't such a bad idea, provided it is far above sea level.

All of these provinces or regions of Canada have one other thing in common:  Their economies are based largely on exporting raw materials to the United States.   Oil, fish, lumber, electricity - all head South to the States and generate income which props up the quasi-Socialist economy.    Manufactured goods and finished products are becoming less and less of the mix.   Crown Victorias no longer roll off the assembly line in Ontario, or Camaros from Quebec.   Some provinces have tried to stave off this trend through legislation, which may actually backfire.   In Newfoundland, they passed a law that a percentage of cod have to be processed in the province, rather than the whole fish shipped South.  Fish processing plants were closing right and left and putting people out of jobs.   But restaurateurs in New York city go to the Fulton Fish Market to buy whole fish, not flash-frozen breaded cod cakes.  Some argue the law has resulted in fewer sales and lost jobs, rather than increased employment.   It is an interesting issue, to be sure.

But in all seriousness, will there be a housing bubble in Canada?   I am not in the business of predicting the future, as my time machine is still the shop awaiting parts.   Since all the parts were made in the future, it looks like I'll have a long wait before it is repaired.

But you could analyze the situation yourself, if you look at the history of housing bubbles - in the USA and Canada (yes, despite being "different", Canada has had housing bubbles, such as the one in Toronto in the 1980's) and then applying this information to your own situation "on the ground" so to speak, in your area.   Because if you are living in Toronto, you have a far better handle on economic conditions, historical housing prices, and whatnot, than I do.

I was "on the ground" in Ft. Lauderdale when it blew up in 2007.   The entire US housing market largely collapsed in 2007-2009, although some markets, such as Ft. Lauderdale and Las Vegas, were hit harder than others, due to more rampant overbuilding.   Big cities like New York, Washington, and Los Angeles tended to recover more quickly only because housing prices didn't rise quite as much, and demand was still high to live in such places.  Still, a lot of people who bought at the peak in the big cities ended up losing their shirts.   The developer I sold my house to, in the DC area for nearly double market value ended up going bankrupt a couple of years later, only because he waited too long to start construction.

The factors that caused the housing bubbles in the US (including the one in 1989) were many.   No one factor was to "blame" but a "perfect storm" of causes all came together to cause the problem.  What were these factors?   Let's look at them one at a time, in no particular order:

1.  Funny Money Mortgages:   Probably the biggest cause of the meltdown in the USA was the prevalence of easy money.   Getting a mortgage, which used to be hard to do (and is again) was too easy.   You could literally go to the bank, tell a few lies, and they granted a mortgage.

For example, when we bought our house here on Jekyll Island, I went to Bank of America, told them how much money I made and how much I had in the bank.  They looked up the house by zip code and compared the price to prices of other homes in the area (a zip code appraisal) and then gave me the mortgage - for nearly 100% of the purchase price!   It was so easy, it was scary.

In New York, we got a mortgage from a small, family-owned bank.   They required five years of tax returns, physical proof of assets, a credit check, and a rather extensive and expensive appraisal.  All of this for a mortgage that was 1/3 of the purchase price.   It was a pain-in-the-ass, but really that is how mortgages should be, isn't it?   I mean, banks should not just be handing out money to people willy-nilly.

As a result of these kinds of lending practices, some folks started engaging in mortgage fraud which is a pretty complicated scheme (since I can't explain it in a "sound bite" most people can't figure it out).   And no, mortgage fraud wasn't something done by banks, but by groups of organized criminals, who used straw-men buyers and sellers, and accomplices in the Real Estate Industry (Mortgage brokers, appraisers, attorneys, etc.) to buy and flip houses and then take out cash while letting houses go to foreclosure in the name of some hapless straw-man buyer.   It is the "bust out" scheme on a grand scale.

In many areas, such as suburban Atlanta, mortgage fraud was the prime driver of housing price increases.   Houses were going up in value by 20-30% a year or more, for no apparent reason.   The reason was, prices were artificially inflated by the fraudsters, who had no intention of keeping these houses or actually paying these mortgages.  They bought, then sold, took the cash, and left the bank on the hook.

When prices started going so high that ordinary fixed-rate mortgages were unaffordable (because monthly payments were too high) the banks started getting really funny with money.   Variable-rate notes were touted as the answer to unaffordable prices.   But of course, if rates go up, an unaffordable house becomes even more unaffordable.   Even wackier loans were proposed - loans where you paid less than the amount due and the negative equity actually increased the balance on the loan over time.   These were the so-called "toxic mortgages" that people signed, often having generous terms for two or three years, before monthly payments skyrocketed into the thousands of dollars a month.

These loans all "reset" at about the same time, which forced a whole bunch of owners to want to sell all at once which when combined with the number of new homes flooding the market, created a panic.

2.  Greed & Refinancing:  The problem driving all of this was the amount of greed on the part of the average citizen.   Everyone, it seemed, was making money in Real Estate (I certainly did!) so why not get in on the fun?   So people who had no business investing in Real Estate started doing just that.

I bought houses at foreclosure - left over from the bubble of 1989 - and then went over there with my ladder and spackling compound and spool of wire and remodeled and fixed up the places using my own two hands.   It was hard work, but I was able to create investment properties that had a positive cash-flow (with modest rents) and positive equity.

Others - including some friends of mine - bought properties, spent a fortune hiring people to fix them up, and then left them vacant for months, even years at a time - convinced they would appreciate in value and they would sell for a killer profit later on.   In the meantime, their monthly carrying cost was slowly strangling them, financially.   By the time they were ready to sell, so were all the other half-assed investors.   And there were no buyers for overpriced properties.

Some of the smarter ones did rent their properties, but did so at a monthly loss.  Again, their theory was, the short-term losses would be made up by long-term capital gains.   But they never bothered to figure out who would pay them even more for a property that was already losing money.   As I pointed out in another posting, what the real problem was, was a shortage of fools.

Refinancing was the greed factor for Mr. & Mrs. Homeowner, who didn't have the courage to get into investing in Real Estate, but instead just wanted to "cash out" on the Real Estate they already owned - their primary residence.   And with interest rates dropping from 10% to 6%, why not re-finance and "take out cash" to pay off your car loan, your student loans, and your credit cards?    And why not do it again and again, as you rack up more and more debts?

The family home became an ATM machine - with the banks more than willing to re-finance because they made about $5000 per transaction, which was added to the balance of the loan.   The problem was, of course, that these re-finances were based on inflated property values, which may have been driven by something as simple as mortgage fraud.    So people (including myself) took a house that they paid $189,000 for, and mortgaged it for $350,000.   I was lucky in that a developer was willing to pay me $700,000 for the house before the bubble burst - and I was smart enough to take the deal.   Some of my neighbors were not.

When the shit hit the fan, many Americans found themselves owning more money on their house than it was worth.   And those who got "funny money" refinance mortgages often found themselves out on the street, when the monthly payments were too much to bear.

3.  The House as an Investment Mentality:  Which brings us to this problem - the idea that the place where you live instead of being just some thing that you own like your car or your shoes, is some great investment opportunity.    And part of this was spread by the government and the media, who called owning a home "The Great American Dream" - which it never was.   The American Dream was to be able to pull yourself up by your bootstraps, based on your abilities, talent, and hard work.   The American Dream was never about owning granite countertops.

And speaking of which, the idea of the house as showplace is closely tied to this.   Shows like "This Old House" still tout the idea of the intimidating "look at me!" gourmet kitchen where no one actually cooks.   The idea is to show off, to flout status, and to tell people how much you spent on it.

So folks thought, "Gee, let's remodel the house, get a home-equity loan to pay for it, and we'll not only have a nice kitchen we can rub the neighbor's nose in, we'll be rich!"

And that was wrong on a number of levels.   Traditionally, you get back maybe 50 cents on the dollar for every buck you put into remodeling - even kitchens and baths.   And people were ripping out brand-new kitchens back then, to put in brand-new kitchens that were slightly different (replacing white appliances with stainless, just to impress the neighbors).

It is not like trading in your car for a new one after a year (which is idiotic itself) but rather like crushing a year-old car and then going out and buying a new one.  And yes, I saw friends do this, on more than one occasion.   One friend tore out a serviceable 10-year-old kitchen and replaced it with nearly identical appliances and cabinets, to the point where I couldn't tell the difference.  "Be sure to compliment them on their new kitchen!" Mark said, otherwise, I would have made some gaff.

A kitchen, however, can last decades.   Appliances should last at least 15 years, cabinets (if they are well-made and taken care of) should last even longer.   You can "remake" a kitchen for not a lot of money with a little paint and imagination.   But many folks had to have the latest-and-greatest.  And since a housing boom was on, trying to hire carpenters meant paying top dollar for talent, which added to the cost of these remodels.

In the post 2009 era, most Americans are realizing again that a house is just a thing and only Real Estate Agents call them homes.  A home is where you live, not something that can be sold to you.  You make a home in a house, and a house is just a thing you buy - and later sell.

While owning a home can be cheaper than renting (in some markets), in terms of "investment" it is not a stellar one, in normal markets, in that over time, you basically get all your money back, without much actual gain.   Again, better than renting, (in a normal market) if you plan on staying a while.   But not some freaking pot of gold.

4.  Overbuilding:  Next to funny-money, overbuilding was the second greatest cause of the meltdown of 1989 and 2009.  The problem with a capitalist economy is that when people see there is money to be made doing something, everybody decides to jump on the bandwagon and pretty soon, too many people are doing the same thing.

In the late 1990's, builders started getting back into the housing market (after the crash of 1989, many went bankrupt, or were shy about over-extending themselves).   A few built housing developments, and were surprised to see them sell as fast as they did.   So they built more developements, and other folks got in on the deal.

For example, Mark worked for a nice man in the stone business.  He owned an old railroad siding in the Del Rey section of Alexandria.   The market started taking off, so he got the land rezoned for townhouses and started building.   The units sold for about $200,000 apiece to start.  By the time the place was finished (and about 50 townhomes built) the prices were over $400,000.   I think even he was surprised at how much money there was to be made.

People who weren't builders became builders.   Existing builders expanded their operations.   People bought old apartment buildings and turned them into condos (such as the condos we bought in Florida).  In Ft. Lauderdale, entire blocks of older hotels were leveled and new high-rises built.  Lauderdale-by-the-sea, once a sleepy town of older 1950's motels (populated largely by Canadians, ironically, in the Winter) was bulldozed almost flat, with grandiose designs for luxury homes and high-rises.

Grandiose plans that were never realized, as they started the project too late.   So many properties were being built - at such astounding prices - that the number of properties on the market far exceeded the number of qualified buyers - or even buyers who would want such places.

When two, three, or four high-rise buildings all top out at the same time, hundreds of condos flooded the market simultaneously.   The population was not enough to absorb this amount of housing stock.

Of course, everyone told themselves it would all work out.  The British or Brazilians would buy these condos.   They like vacationing in Florida, right?   Perhaps, but they might not be able to afford $800,000 for a one-bedroom condo that has a higher carrying cost that the Presidential suite at the Hilton.   When it costs more to own a shithole than it does to stay in a hotel then something is clearly wrong with your business model.

Quickly, the prices of houses and condos in South Florida became so expensive that it was far, far cheaper to rent than to buy.   A house that cost $3000 a month to own would rent for only $1500.   Many people, such as myself, wondered why owning was worthwhile.

Now to be sure, sometimes markets get ahead of themselves.  For example, our first house cost about $1800 a month to own, whereas we could have rented it for $1500.   But within a few years, the cost of ownership was less than the rental cost, so the market was ahead of itself (and we did buy during the more benign 1989 bubble).   In the 2009 bubble, rents were almost half of ownership costs, it was so ridiculous.   The market was ahead of itself - by about 50 years!

5.  Property Taxes:  When you buy a house, it is often re-assessed and within a year or so, you get a new property tax bill, usually far higher than your previous one.  In places like South Florida (or indeed, Fairfax County) the local governments went berserk with spending sprees with all this "found money" from increased property tax revenues.  Fairfax County famously spent $100,000 on a new conference room table as part of a gold-plated new "government center" - which pissed off a lot of taxpayers, to be sure.

Rather than lowering the millage rates to account for the rapid rise in property values, the local governments just raked it in and spent it.   As a result, property taxes went up dramatically, within about a year of ownership, and many folks just failed to account for this.

For investors in the Florida market, taxes could go up by 2-3 times, as investment properties were not covered by homestead laws.   Suddenly, you are paying $1000 a month in property taxes, and wondering how you are going to pay for this (sort of like Obamacare!).

Again, not one of these factors is by itself the entire cause of the meltdown, but each contributed its part.   High property taxes was one reason we sold our condos in Florida.   The folks who bought them (for nearly double what we paid) were socked even worse that we were.   And these new rates kicked in just as their funny-money mortgage payments reset!

6.  Interest Rates and Mortgage resets:  We live in an era of super-cheap mortgages, and yet some people today are still getting variable rate notes - often only a fraction cheaper than fixed-rate.   The problem is, rates will go up.  They have to, as they cannot go any lower.

In the 2000's, rates were higher, but close to historical averages.   But people realized they could buy "more home" (or just pay more for a home) if they got a mortgage with "teaser rates" of nearly nothing.  These rates "reset" after a year or two or three, which meant a $2000 a month mortgage became a $3000 a month mortgage - or more - in short order.

Real Estate Agents would tell buyers, "Well, you can always refinance, or sell!" but of course, when home values went down, refinancing was out of the question.   And fixed-rate mortgages were already unaffordable for these folks anyway.

It was all a big lie.  And in retrospect, none of these bizarre mortgages made any sense at all.

7.  Insurance Costs:   Maybe this was unique to South Florida, but in the 2000's we had a string of pretty bad hurricanes, which caused a lot of damage.   One summer, when our condos would ordinarily be empty, we made a ton of money renting out our condos to State Farm insurance adjusters who spend the summer there writing checks to people for damaged roofs and pool enclosures.

The windfall was short-lived.  The next year, our insurance rates went up - way up.   And since our properties were mortgaged, we had to have hurricane and flood insurance, neither of which was cheap.   The rate increases in some areas were more than double.   Some companies, such as State Farm, stopped writing policies near the water.   Of course, this meant less competition, so other insurance companies fell free to raise rates further.

Again, this was not a deal-killer in and of itself.   But when you are paying $6,000 a year for homeowner's insurance, it sort of cuts into how much you can spend on a mortgage, which in turn cuts the value of the property considerably.

Again, houses are sold on monthly payment - what people can afford.   If Joe Buyer can afford $2000 a month, and property taxes and insurance are $1000 a month, that leaves only $1000 left for the mortgage.  Unless mortgage rates drop dramatically, either he has to put down more as a down payment, or he pays less for the property.  It is a see-saw effect, as I noted before.

8.  Special Assessments and Condo Fees:  For condos and townhomes, condo or HOA fees were usually considered pretty trivial, historically.   But as these buildings aged, fees went up.   Developers would leave the nascent condo board with an empty bank account and a condo fee far below actual upkeep costs.  As a result, the new board would have to raise fees again and again.

For older buildings that were converted to condo, big-ticket items like re-bar and concrete repair could mean tens of thousands of dollars in special assessments per unit.   Again, maybe not a deal-killer in and of itself, but the added costs mean that less cash-flow is available to cover a mortgage, which in turn means the property is worth less overall.

* * *

So what does this all mean?  How can you tell if a bubble is forming?  How can you tell when it is here?

Well, there are some warning signs that a bubble is approaching:

In the DC market, it got so heated up that people were outbidding each other to buy homes.   Mark would do an open house on Sunday, collect three or four contracts on the spot, each with escalation clauses.   He would present the contracts on Monday, they would pick the best and sign the deal on Tuesday, and close within a couple of weeks.

In a normal market, a house might sit on the market for 3-6 months before getting an offer, and take 1-2 months to close.   Overheated markets are not hard to spot!

It also got to the point where it was cheaper to rent than own - by a large margin.  And while a lot of us thought about selling out and renting, few of us had the actual balls to do it.  Supposed we called the market wrong?   That was (and is) the conundrum for owners and buyers.

A lot of people, particularly new buyers, were facing mortgage stress in order to buy a home.   The cost of owning a home was so high, that people became house poor.   This in turn lead a lot of other people to decide to rent, instead of buying, despite the dire warnings of being priced out of the market.  Of course, those young buyers, highly leveraged to get into a house, were the ones who really got socked, when it all went horribly wrong.

It was a good time to be in the Real Estate business, and as a result  a lot of people decided to get into it.    These are the same people who got right back out, once the bubble burst.   We're talking about people changing careers to become an Agent, Mortgage Broker, Appraiser, Home Inspector, etc.  It is a sign the market is heating up, when everyone you know becomes a Real Estate Agent.

When a lot of building is going on, that is another sure sign.   By 2005, all of Fairfax County was developed.  There was not another parcel of undeveloped land to build on.    Developers, desperate for property to build on, bought in older neighborhoods, tore them down, and put up new houses.  This did, of course, increase the cost of doing business dramatically.  All of Ft. Lauderdale seemed like one big construction zone, at one time.

Amateurs got into the business.  Granted, I too, was an amateur landlord and investor.   I got in during the low point, in 1995, however.  The real amateurs got in around 2005, thinking that anything they touched would turn into gold.   When I saw clueless people buying Real Estate "because everyone is making money at it" - I got scared and got out.

And mantras repeated by people were another sign.   "Real Estate in Fairfax County will always go up in value!" I was told.   "South Florida is different!" said another (sound familiar?)   "Bubble?  There have never been bubbles in Real Estate!  At least not here!" said another - a little over a decade after the 1989 bubble burst.  "Brazilians will buy these new condos!  They have lots of money!" someone said that to me with a straight face, too.  And the granddaddy of them all:  "You'd better buy now before you are priced out of the market forever!" - once again, using fear to sell us a bad deal.  When you hear that, it is bubble-time.

And the granddaddy of them all:  "You'd better buy now before you are priced out of the market forever!" - once again, using fear to sell us a bad deal.  When you hear that, it is bubble-time.

These are all signs a bubble is forming.   But how can you tell when it is going to burst?  That gets a lot trickier.   You may see the signs - more and more people talking about it, but not doing anything about it.   You may see new developments taking a lot longer to sell off than before.   People stop trying to outbid each other, for the simple reason there is an identical house for sale next door that is also empty.

For example, in 1989, in Washington, DC, a commercial Real Estate housing bubble formed.   After it all blew up, two Attorneys who made (and lost)  a lot of money taught a course about it at my Law School.   It was pretty fascinating.   In the early 1980's, they would put up an office building (during the huge government expansion under Reagan - yes, that "small government" Reagan) and have it entirely rented out before they even turned a spadeful of dirt.   The next project would be half rented out before construction and fully rented by the time it was finished.

The next building would not be rented at all, but half rented by the time it was done, and fully rented a year later.   And so on, until one day they built a building that no one rented and they went bankrupt.   The building was sold for pennies-on-the-dollar in bankruptcy court, and the new owner slashed the rents and filled it up with tenants - from some of the earlier built buildings.   These, in turn, were now vacant, went bankrupt, and the process repeated - huge office buildings in DC toppling like dominos, each one triggering the market collapse of the next.

The problem is, if there is a bubble, when it does burst, there can be an avalanche effect as "suddenly" there are a huge number of properties for sale - a combination of overbuilt new construction, people trying to flip, mortgage reset victims trying to bail, and holdouts finally looking to cash in.

So long as there one more house on the market than there are buyers, a price competition will start.   And once prices start to drop, then more people will start to sell - in a panic.  And then prices can just fall off the face of the earth in a real hurry.

And yes, this happened in 2009, yet human economic memory it seems, is only about 18 months.

Is the bubble bursting in Canada?  Is there a bubble?   Has it already burst?   Well, it certainly sounds like a lot of the signs are there ("Canada is different!" and "Toronto never saw a Real Estate Bubble before!" being the two happy-talk tipoffs).  Read this article stating "There's no housing bubble in Toronto!" - it sounds like an eerie echo of the same arguments I heard in South Florida in 2005 (oddly enough, the author makes a pitch to sell some investment condos he is trying to unload!  Irony!)

Some are already noting that prices are starting to flatten.   Toronto is constrained by the amount of develop-able land, it seems (as is Vancouver) and maybe they can hope for a "soft landing" (another happy-talk phrase we heard in South Florida, circa 2005).

And some folks are writing articles - that don't get a lot of attention - about the issue.  When people start asking whether there is a housing bubble (or any kind of bubble) that might be a sure sign that one is on the way.   Alan Greenspan tried to warn us about "unsustainable froth" in our housing market.  We dismissed him as an idiot.

Of course, others have predicted that housing would "correct" in Canada back in 2011, and it never happened.   So they are disregarding the same warnings today.  Why the Canadian housing market didn't collapse in 2009 as the US market did, is an interesting question.   I don't think it is because Canada is somehow different or immune.  Housing crashes have occurred in the past - particularly in the 1980's.   It may have more to do with demographics and also whether their market was overheated in the first place.   Prices in Canada, in the early 2000's, didn't accelerate as rapidly, perhaps, than in the US.
So what's my advice?   I don't give advice I am not dear-freaking Abby.   I can only try to analyze things and come to my own conclusions.   I think everyone has to do this and make their own decisions.

Myself, if was to move to Toronto, I would probably rent, if the numbers provided by the reader are true.   A $700,000 townhouse would cost over $3000 a month, exclusive of taxes and insurance, and that's putting down $100,000 as a down payment!   I don't think I would spend that kind of money, if I could rent the same place for $1600 a month.  That right there tells me Real Estate is wildly overpriced in Toronto - if the numbers given by the reader are indeed correct.

But that's just me, of course.  Your mileage may vary.   Maybe a huge demographic baby-boom of millionaires or emigrants that is about to materialize in Canada, and these rich youngsters will snap up all these houses.  I don't know.

However, if our intrepid reader does sell he can be sure to get flack from his friends for "selling out" and causing real estate prices to drop.   I kid you not, people have actually tried to blame me for the Real Estate crash of 2009 because I got while the getting is good.   I never realized I wielded such economic power!

But a funny thing, you know.   Here in the States, on the "home channels" they are still running television programs about buying homes, remodeling homes, or about "buying and flipping" homes.  None of these shows are about the American Real Estate market, though.   All of these programs take place in Canada, usually Toronto.

Sort of a funny coincidence, eh?

UPDATE:  some interesting links and comments from my reader.  Looks like another "perfect storm" to me.  Oh, but wait, since they don't have the Community Reinvestment Act, they are safe!

Debt to disposable income is 165% in Canada and has been rising for years.

We don't really have funny mortgages in Canada but there is a lot of fraud going on. People are lying about their incomes to obtain mortgages. Home Capital Group (symbol:HCG), Canada's largest subprime lender, announced $2 billion in fraudulent mortgages back in the summer

As for Alberta, they are in trouble. I don't know what oil prices will do but I have a hard time believing that they go significantly higher. The US fracking industry is a game changer in my opinion. Supply is cheap and plentiful. North Dakota has 1000 wells drilled but not fracked and ready to be turned on. New record. This, in my opinion, will keep prices down going forward. This will be good for the consumer in the United States but it will hurt us in Canada.
(Having just been to North Dakota, I have to concur.  You are never out of sight of a fracking well.  If you see one ahead of you, there is one in your rear-view mirror!   Usually 2 or 3!)

The Bank of Canada has been warning us for years about debt and house prices Same as Greenspan in the US. 

Everything you say in your update post is true about Canada. People actually believe that prices will never fall and that they will be priced out of the market if they don't buy now. We have more cranes up in Toronto than any other city in North America.

People use the excuse of immigration but immigration in Ontario is actually falling if you look at the trend.

Also, in the last 2 years, bidding wars have been the norm in Canada. In the city of Toronto, you can have 30 bids on a house in one day and the house will sell for a few $100k over the asking price with no inspections.