Baby, we got a bubble!?

I've been gung ho on the housing and especially the condo market in Toronto for about the last 6 years, but in the past few months I've seen some alarming trends that seriously suggest a massive bubble is being created that'll explode as soon as interest rates increase and/or the supply of condos goes through the roof in the next 17 months. The article below deals with some of the problem, but the 8% increase in home debt during a recession is also worrisome. What's your take?

http://www.movesmartly.com/2009/11/toronto-real-estate-prices-up-94-in-4-months.html#more

Sure, prices grew 10% over just a few months, but that's after a drop of 10% during the previous few months. Year-over-year, we're still about flat.

I'd be worried if prices were escalating compared to pre-recession ones.

One interesting thing I noted at the Halloween parties this year was all the bragging about buying condos has returned to the table. It had cooled somewhat over the past winter, but now everyone and their neigbhours are going on about River City=the new CP, investing in condos everywhere is the new get rich scheme, etc.

Makes me think herd mentality has taken over....just in time for another dump?

Yes, "massive" bubble. Watch for the average condo/house price in the GTA to drop to $120K/$220K in 6 months. Crying, gnashing of teeth and all of that.

Seriously, high incomes and consumer confidence are driving the market, and Toronto is going to continue to have both in spades for a long time to come.

UserNameToronto said:

Yes, "massive" bubble. Watch for the average condo/house price in the GTA to drop to $120K/$220K in 6 months. Crying, gnashing of teeth and all of that.

Seriously, high incomes and consumer confidence are driving the market, and Toronto is going to continue to have both in spades for a long time to come.

Click to expand...

http://www.yourhome.ca/homes/newsfeatures/article/719628--real-estate-fees-could-be-slashed#

Cost cuts should also help

I think there is going to be a housing bubble because people are buying what they seriously can't afford. Agents beware, you might need a backup career.
Current federal policies are opening up the door to buyers who would be better off waiting and paying off some of their debt.

jade_lee said:

http://www.yourhome.ca/homes/newsfeatures/article/719628--real-estate-fees-could-be-slashed#

Cost cuts should also help

I think there is going to be a housing bubble because people are buying what they seriously can't afford. Agents beware, you might need a backup career.
Current federal policies are opening up the door to buyers who would be better off waiting and paying off some of their debt.

Click to expand...

Who are "these people", and why are the homes they're buying unaffordable?

If you're crying out that the sky is falling, please have a compelling argument to supplement your theory.

I've moved away from the bubble theory towards stagnation for some months but I must say I'm starting to get the feeling we might have at least a bit of both. That is price declines followed by a sustained period of stagnation.

So why the change? The reason is that we keep piling on debt and the central bank is basically freaked out because they can neither raise nor lower interest rates independent of the situation in the US. Contrary to the previous poster's view, the re-inflation of prices from the spring has been made possible exclusively through an increase in household debt. Government keeps trying to make it easier, not harder to buy a house through incentive and legal changes.

Compare conditions today to the early 90's. The stock market crashed in late 89, comparable to our late 2008. However, the crap didn't really hit the fan in the real estate and development industry until 3 years later. So for us that would be hypothetically end of 2011. The good news is that debt carrying costs are lower now than they were back in 89. The bad news is that we have way more debt relative to income and we are inflating debt pushing carrying costs towards the early 90's benchmark that precipitated a crash. The frightening news is that we are doing this with interest rates at historic lows, effectively zero, so only a small move upwards in rates will push people towards debt servicing costs that would historically precipitate a crash. This is not just an issue for variable-rate mortgage holders. Fixed rate holders renewing in 2011, 2012, and 2013 will be hammered in waves if interest rates rise only marginally.

This issue is much larger than if Canada is out of recession or not in this quarter or any of the next 6 quarter. Even if employment numbers turn around and we return to full employment conditions (which we will not), it will not make a difference. Interest rates and debt levels must trend towards historic norms some way or another over the next decade. The consequence must be either price declines, price stagnation, or a combination of price stagnation and decline in unknown proportions.

UserNameToronto said:

Who are "these people", and why are the homes they're buying unaffordable?

If you're crying out that the sky is falling, please have a compelling argument to supplement your theory.

Click to expand...

These are the people who are putting 5% down and taking out 35 year mortgages....the same people AIG salivated for until the current federal government put a stop to it and bought that risk back at the beginning of this current recession. These same people are buying and hence they are the cause our very own delayed bubble.

http://www.yourhome.ca/homes/newsfeatures/article/719628--real-estate-fees-could-be-slashed#

Have a read of the above.


Words to live by: "the longer your house is on the market, the more likely it is that you will get the price you are asking"

If you have property, now is the time to sell. One of two things will happen in the coming year: prices will stagnate, or they will drop. There is absolutely no reason to expect today's momentum to sustain.

http://www.theglobeandmail.com/report-on-business/article727831.ece

Sorry this is the article I intended to post instead of the original article that discusses the fees of agents.

kettal said:

If you have property, now is the time to sell. One of two things will happen in the coming year: prices will stagnate, or they will drop. There is absolutely no reason to expect today's momentum to sustain.

Click to expand...

Maybe if you own rental or investment property, but if it's just for your own home, remember that as long as you are buying property when you are selling property it all really doesn't matter so much. When the value of your home goes down, so does everyone else's, so any money lost is usually money saved too.

kettal said:

If you have property, now is the time to sell.

Click to expand...

LOL

You don’t “trade†RE investment like stocks. Even if there is a dip next year, why sell (incurring 10% transaction fees) and then buy again (incurring another 10% in fees). Even if you time it perfectly (which is unlikely), you're still out roughly 20%. I think too many people watch CNBC now a days and dream of timing the market.

Real estate is not something you trade in and out of. It’s something you buy and hold for 30 years whilst inflation slowly works its magic reducing the “real†value of your debt.

Patience is a virtue, and a valuable investment strategy!

What happens when many of todays condo buyers start having families? There are not too many condos that can support a family (without paying a ton of money).
This is the biggest threat to the condo market, and it's building to a perfect storm (high supply, no demand)

kettal said:

If you have property, now is the time to sell. One of two things will happen in the coming year: prices will stagnate, or they will drop. There is absolutely no reason to expect today's momentum to sustain.

Click to expand...

Did you predict the the increases we've seen for the last 6 months?

makattack said:

This is the biggest threat to the condo market, and it's building to a perfect storm (high supply, no demand)

Click to expand...

That's a peach.

People have been calling for the “great Toronto condo collapse†for almost 10 years now. They have missed the entire demographic shift to city centre living, decreased family size, continued immigration growth, a preference to beat the worsening daily commute, improved city centre amenities and civic attitude, etc…

Yes, there has been a rapid increase in condo supply over the years. But this has been more then matched by fundamental condo demand.

When demand exceeds supply, prices rise.

Unless we get a fundamental shift in consumer demand for a different type of housing, its unlikely supply will exceed demand in Toronto.