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Comment by inversionOf | Hacker News Reader

Prices in Vancouver and Toronto are absolutely insane when one considers incomes in the region.

Vancouver has hints of insanity, but Toronto's pricing is entirely rational for the current financial reality -- more and more people, and more and more money, bidding up a fixed amount of housing. It has significant ongoing migration from around the world, so if you're a new grad who wants to live downtown, well your dollars are competing with dollars from around the globe. That's how those things are supposed to go.

The fly in the ointment is, of course, low interest rates, and minor movements would be catastrophic. Which is exactly why I think low interest rates are essentially the fundamental reality in the US and Canada -- they have been structurally stratified, and any increase would cause economic devastation that would cause the rates to drop again.

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I believe that raising interest rates would cause a pretty large fall in housing prices in cities that have large foreign ownership.

With interest rates rising, the bid for housing will drop accordingly and many of these investment properties would immediately be put on the market to extract full value from them which would cause a glut of supply. This would further cause prices to fall.

This would be a good time for someone with a huge cash downpayment (or cash outright) and the prospect of actually living in the place full time to purchase a property in these areas.

Honestly, until then it makes more sense to rent if you can't afford to pay cash outright due to maintenance fees, property taxes and so on. In NYC buying a condo with 20% down is foolish right now, for instance. Especially if interest rates do indeed begin to rise. Better off saving as much cash as possible and waiting for rates to rise which should cause plenty of investment properties that are rarely lived in to go on the market to quickly harvest the proceeds.

Toronto != Downtown Toronto. Part of the reason everyone wants to live in the core is the horrible public transit system. I used to live uptown but near the TTC - almost every weekend in the summer, we had to use shuttle buses because of track maintenance.

When I look at the GTA, prices make no sense to me. Million dollar homes in Markham, 600K townhomes in Mississauga? What incomes justify this?

I do agree with you on the "low interest rates or else" theory. Even a few points increase will cause people at the fringes to exit the market. And that has potential to topple everything over.

Many once "low paid" positions now pay reasonable well in the area -- police officers, for instance, can easily make over $100K per year. Have both adults in the house working at those sorts of income levels, and a 600K house is entirely reasonable. Add the green belt encircling the city (the normal release valve of bidding up) and prices rise.

Housing is an interesting economic phenomena because people are often willing to pay whatever is possible to pay, so if you have 100 houses in an area and a single working adult in 100 households, prices will fit the ability of a single working adult. Now get rid of inequality and have the second adult working, and prices simply explode to fill the ability to pay of both adults. And so on. It's how we run to stand still.

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