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Baby, we got a bubble!?

VZ64, in my opinion the property sold for well over market value. The comparison you are trying to make doesn't apply as the sales over a million in the vicinity were for homes that sit on quieter streets, larger (more bedrooms), some more updated, deeper lots or a combination thereof. I think Eug is correct in that while this lot is not as deep it's wider (7 feet or so)in comparison to many that sold and so perhaps if it is for a quick investment turnaround the intent may be to get approval to squeeze in 3 townhouses because 2 certainly won't be cost effective. One last thing that wasn't stated in the article is that this sale actually took place last month and so new listings are trying to piggyback off that price.

Eug the backsplit is holding offers for later this week.

Well, these bungalows go for land value, so I don't think the number of bedrooms or some other house-related advantages affects the selling price much in the area. We can argue endlessly, but the fact that the median sold price is over 1m and that there is no single bungalow posting on MLS below 999K supports my argument. Let's agree to disagree :)
 
Freehold is moving upward, condo pricing not in stride and lagging at the moment.

CG,
do you have any numbers on this as I'm really interested to see what the difference is between freehold and condos? And more importantly: why do you think this is happening?
 
Well, these bungalows go for land value, so I don't think the number of bedrooms or some other house-related advantages affects the selling price much in the area. We can argue endlessly, but the fact that the median sold price is over 1m and that there is no single bungalow posting on MLS below 999K supports my argument. Let's agree to disagree :)
No single bungalow listed below $999000 in 3-block radius, but there is a $999000 backsplit one block away in a nicer location with a complete separate second suite. That makes a $1 million land value sale amount already suspect.

And yet, you're trying to argue a smaller bungalow costing 18% more is somehow appropriate for land value. That doesn't make much sense at all.
 
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Give some detail of that backsplit (MLS number?)--is it in the same area I mentioned (East of NYCC, between Sheppard and Finch)? What is the lot size? How can it be that 60ft frontage bungalow is smaller 18% than whatever you found there? Does it have 75ft frontage?
 
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Give some detail of that backsplit (MLS number?)--is it in the same area I mentioned (East of NYCC, between Sheppard and Finch)? What is the lot size? How can it be that 60ft frontage bungalow is smaller 18% than whatever you found there? Does it have 75ft frontage?
I already gave you the MLS number in the picture I provided. However, you should already know it if you've done the investigation you claim you've done as it's just around the corner from the $1.18 million dollar house.

The lot size is 53 x 115 feet. The $1.18 million one has a 60 foot width, but is supposedly shallow.

So it faces the park right? Looks like a front for a developer that's buying up the block to put up townhouses.
The $1.18 million house was bought by a Chinese student, with money from the bank of mom and dad. I highly doubt it'd be for townhouse development purposes in this context. More likely a teardown, as those are quite common with these types of purchases by Chinese, both in Vancouver and Toronto.

That said, it's quite possible that some of the other bidders were developers.
 
So it faces the park right? Looks like a front for a developer that's buying up the block to put up townhouses.


where are you getting that conclusion from?

from what i can see, the house is on the west side of the street and faces another house.
it is located in the middle of Church Aven and Logandale Road.

has there been other sales/purchases in the area that would lead you to believe a developer has been buying up the block?
 
That said, urbanation makes its money selling research to the development industry. To me, I have read the arguments and I agree with parts of it but on the balance it just sounds like an attempt to justify that there is no need to have a relationship between price and rent. To accept such a premise while it may hold for some periods of time would be to say that economics has no place in what I believe are to a degree economic decisions. We could argue that the macro picture is not reflective of the micro picture but to basically say there is no basis in any economics and try and put arguments up as posed here to justify it to me suggests that the conclusion is driving the hypothesis. It should be the other way around. Make the hypothesis and try and prove it with cohesive arguments. I find the above rationale is simply the same approach as in the OJ Simpson trial. Let's throw up racism as the issue and make this the issue instead of murder of his wife and divert the argument so that no justirfication can be produced. This is also the same approach politicians do....not answer the question but go onto an answer which suits the argument.

I think it is good that both arguments are reviewed and considered. Again, Urbanation is a very interested party to continuing price increases. If the market stops, developers don't build, they don't buy Urbanations product. We apply this to Realtors and accept that it may be difficult for them to seperate their own individual needs from the overall reality. Would not the same argument apply to urbanation. Note: that does not mean I disregard what they say. I think they put out good data...I just don't necessarily agree wtith some of their conclusions.

Interested, why would the fact that we sell data to the development industry make any difference in our conclusions and forecasts. Do you really think if my company put out a press release predicting a crash in the condo market it would actually cause anyone not to purchase. We have a tremendous reputation within the industry, but the average end-user has no idea who we are or woud even care about our conclusions. There were 28,000 new condominium sales in the Toronto CMA in 2011 and another 17,000 resale condo transactions, do you honestly think we would have an influence on 100, 1000 or 2000 of those purchases based on our findings, very doubtfull. Does a hot condo market make life easier for us, for sure, but it is not like it is making us rich. The market is so hot that we had to hire another full time employee and a part time employee to help track all the projects which has cut significantly into the any profits we have made by additional subscriptions. Not sure why it is such an issue with people that we remain bullish on the market, it has been strong for 15 straight years!

We did not say that there is no relationship between rents and pricing, it is the fact that people are ignoring the other factors and data that can, and have, caused the relationship between the two variables to change. There is no doubt that condominiums are less affordable today than they were five years ago, but there are much better indicators/data to determine that and much better indicators of when the market is heading south. We were just tired of hearing about 'rent multiples' from media sources and folks that don't track the Toronto condominium market to the detail that we do.

I speak with Toronto developers and lenders every week to discuss the market and trust me, when someone is lending $50 million dollars, they're not relying on rent multiples or articles in Maclean's magazine to determine if they should be doing so.

We have actually been accused of being too negative on several occaisons, there are a lot of potential things that could derail the Toronto market, and we discuss them quarterly in our reports.
 
^^^
Bmyers,
Thank you for your response.
I pointed out that to my understanding you make much of your revenue mainly from the develop industry. I think it would be difficult for you to write bad things about the market just as it is difficult for realtors to say the market is dropping since their livelihood depends on it. I would point out in the USA, the National Association of Realtors kept saying the problem was temporary and minor long after it was clear to everyone that this was not the case.

In your rebuttal, you point out that you have often been accused of being too negative. I was simply responding to the 1 article posted that I read. I have no reason not to believe you when you say on other occasions you have been on the other side of the argument.

It is just my personal view that the article presented appeared to have a conclusion(s) which you have indirectly acknowledged in your rebuttal. It appeared to me on reading the article that the conclusion had been predetermined/ This was a justification as you acknowledge to explain why rents and pricing were less important and to play them down. I happen to personally disagree. Hence, my conclusions.

In summary, I just found that the article did not present a cohesive rebuttal but rather chose to deal with the issue by arguing other variables and I really did not find it persuasive. I am not suggesting Urbanation set out to discuss the issues by just dismissing the price/rent ratios but this is how it came across to me. Perhaps you could explain to those of us the forum how price/rent is not relevant and address that directly.

That said, let me complement Urbanation on the job it does getting a lot of raw data. While I disagreed with this article, it should in no way be taken to suggest that I feel Urbanation does not provide a valuable service and give us information otherwise not available elsewhere.

One final point. With due respect to developers and the banks; the "experts" got it very wrong in 1989 with a massive overbuild, the largest developer in the world (Reichmann's) went bankrupt. The banks that funded them made massive loans that where not repaid. The banks in Europe have loaned massively against real estate and sovereign debt and are in financially precarious positions because of it at present. So, experts get it wrong too. By the way, I am the first to admit that I get a lot of things wrong as well. Developers build. Banks lend. That is what they both do. They will continue to do so and to expect them not to build or not to lend is unrealistic. There will continue to be correct decisions made and bad ones going forward. To suggest that just because banks loan $50 million means that they must be right is foolhardy in my personal view. Of course they don't rely on McLeans, and they don't have to worry about rent ratios to price. You know as well as I that 70% presales means their loan to the developers are safe. And the recent increase of the banks downloading mortgages on CMHC just shows they take their profit and download the risk. So this is another conclusion that I cannot agree with.
 
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^^^
Bmyers,
Thank you for your response.
I pointed out that to my understanding you make much of your revenue mainly from the develop industry. I think it would be difficult for you to write bad things about the market just as it is difficult for realtors to say the market is dropping since their livelihood depends on it. I would point out in the USA, the National Association of Realtors kept saying the problem was temporary and minor long after it was clear to everyone that this was not the case.

In your rebuttal, you point out that you have often been accused of being too negative. I was simply responding to the 1 article posted that I read. I have no reason not to believe you when you say on other occasions you have been on the other side of the argument.

It is just my personal view that the article presented appeared to have a conclusion(s) which you have indirectly acknowledged in your rebuttal. It appeared to me on reading the article that the conclusion had been predetermined/ This was a justification as you acknowledge to explain why rents and pricing were less important and to play them down. I happen to personally disagree. Hence, my conclusions.

In summary, I just found that the article did not present a cohesive rebuttal but rather chose to deal with the issue by arguing other variables and I really did not find it persuasive. I am not suggesting Urbanation set out to discuss the issues by just dismissing the price/rent ratios but this is how it came across to me. Perhaps you could explain to those of us the forum how price/rent is not relevant and address that directly.

That said, let me complement Urbanation on the job it does getting a lot of raw data. While I disagreed with this article, it should in no way be taken to suggest that I feel Urbanation does not provide a valuable service and give us information otherwise not available elsewhere.

One final point. With due respect to developers and the banks; the "experts" got it very wrong in 1989 with a massive overbuild, the largest developer in the world (Reichmann's) went bankrupt. The banks that funded them made massive loans that where not repaid. The banks in Europe have loaned massively against real estate and sovereign debt and are in financially precarious positions because of it at present. So, experts get it wrong too. By the way, I am the first to admit that I get a lot of things wrong as well. Developers build. Banks lend. That is what they both do. They will continue to do so and to expect them not to build or not to lend is unrealistic. There will continue to be correct decisions made and bad ones going forward. To suggest that just because banks loan $50 million means that they must be right is foolhardy in my personal view. Of course they don't rely on McLeans, and they don't have to worry about rent ratios to price. You know as well as I that 70% presales means their loan to the developers are safe. And the recent increase of the banks downloading mortgages on CMHC just shows they take their profit and download the risk. So this is another conclusion that I cannot agree with.

Interested, what you are infering about Urbanation and myself is a serious accusation, which I take very seriously akin to accusing me of cheating on my wife. Let me be as clear as I can on this point. I have never censored what I say or let "profit" influence my interpretation and conclusions as it relates to Urbanation research. I have lost consulting clients because I refused to "forecast" stronger sales for them in reports that they are providing lenders. I have refused to "take out" that paragraph in reports because it made the case for the developer look better.

Perhaps if the market crashed I wouldn't have to come to work at 7 am every day. I don't have a hard time speaking badly about the market if it is warranted. You can go back and look at what I was saying in Q1-2009, when I explained it was the worst quarter in ten years and there was no sign of recovery (I was wrong, it recovered quite quickly).

To infer that lenders are not intelligent or are doomed to make the same mistakes over again based on what happened 25 years ago, I very much disagree, there are significant changes in how the major banks make construction loans. It is a huge stretch to make suck a conclusion. I could say you did poorly on your math test in 1997, therefore I can no longer trust you to do math for the rest of your life.

When I speak with lenders that were active in the business in 1989 that admit to being very reckless. In the 80's a person could buy a pre-construction condominium with $500 down, and sell the contract the next day to someone else. Many of the developments went under construction with 20% presales.

There are 170 projects and 45,560 units under construction in the Toronto CMA as of Q4-2011 and 90% of those units are sold.

Lenders will not even look at a deal if it is less than 60% sold and unless you are one of the top ten developers in Toronto, they won't meet until you're 70% or 80%. Additional requirements are 15% deposits for every purchaser (which they are looking to increase to 20%). All purchasers must have mortgage pre-approvals. If the purchaser does not posess a Canadian driver's license or passport, the deal does not count. If the purchaser also bought a second unit, that second unit does not count toward the 70% to 80%. In some cases, if a purchaser cancels a deal after construction funds have been forwarded, the developer must immediately forward the lender the equivalent down payment to be added to their equity!

The lender is also requiring more equity in the deals, not just the land, whose value has been increased significantly with the condo boom.

A couple of the major banks in Canada have reached their exposure limit for high-rise apartments and have stopped lending. They are being very prudent. They have learned from their mistakes.

I'm tired of writing, if you would like to discuss further, please feel free to contact me and come to my office to discuss.
 
Bmyers,
Once again I thank you for your clarification.
Mr. Myers, I did not wish to imply the serious accusation you suggest I was making. For this I sincerely apologize to you. That however does not change my view that the 1 article as presented did not support the conclusions being drawn. Please understand however as well that when one starts suggesting that this is "akin to cheating on one's wife", not only does it remove all possibility for reasoned measured discussion going forward, but it takes a discussion of theory, hypotheses, facts and conclusions and places it in the realm of personal attacks thereby diverting the discussion totally. I am sure this is not what you mean to do and certainly not what I meant. I was simply pointing out that you have a "potential" conflict of interest. I in fact have great respect for the work that Urbanation does and continue to have it. The post you just made meets exactly the criteria of data supported with conclusions, many of which I can agree to.

I agree with what you have said about the banks lending more prudently now. That said, I am not saying that the develpers or banks did not learn from their mistakes. However, I will tell you now that there will be some/multiple developers who will be caught out in my view if/when the market inevitably changes. The banks have been downloading their risk and are not stopping if I accept your hypotheses of their own volition but rather in my view because they are running into debt ceilings of loans they can securitize through CMHC. The growth in the amount over the last year I think provides clear evidence of the Banks "downloading" their risk.
You did not address and perhaps you could counter my fear that the banks have covered themselves to a point and transferred most of the risk to the taxpayer but that if there is another major world or made in Canada event(I do not know what it might be), and the foreign investors decide that Canada is no longer the place to buy condos, these foreign investors may well choose to lose their deposits. The new codno market which is driven by these and other investors may lose deposits. Developers and Banks can chase locals but it is more difficult with foreigners.
If it is true that almost 100% of precon is driven by "investors", what percentage of them are very extended and how many will be unable to close if on completion the value of the $700 precon condo is only $550/sq.ft. as today at resale.

I appreciate we are not 1989 but the biggest factor in my view is not the prudence of developers or bankers have exhibited though this is certainly a major factor, it is rather that interest rates are at 3% instead of 13% meaning many investors will be able to hold on longer if there is a major event. Please understand Mr. Myers, my concern is not that some developers may have some losses in some condo projects or that even banks have not protected themselves. These are business decisions they make every day and of course like all of us, some will be better decisions and some not so good. It is rather for the investors and by extension the end users who are entering the market already "stretched" and their ability to absorb any shock.


Thank you again for taking the time to respond. I would happily discuss the topic further with you at your office but readily ackowledge you are far more knowledgeable on the topic and it would be boring for you though very educational for me. However, if you are treating for the coffee, then maybe in the future.

Sincerely,
Interested.
 
45,560 units under construction!

Assume they're all completed in 36 months and not a single new one is sold until then.

How on earth can Toronto absorb that much new housing inventory in 3 yrs Bmeyers? We know that GTA immigration is roughly 80000 per yr so that's 240000 new bodies in the GTA in 36 months. So one in five, including infants and elderly, have purchased a new condo for $500 per square foot? My assumptions is that we can get a temporary flood of inventory between now and then that suppresses rents and tempers new sales dramatically.

Thanks for your thoughts.
 
There are 170 projects and 45,560 units under construction in the Toronto CMA as of Q4-2011 and 90% of those units are sold.

That's nice but, we don't live in a perfect world and I'm assuming that you can totally guarantee if there were a large shift in the Toronto condo market that those units that "ARE SOLD" will actually close. Can you????
 

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