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Baby, we got a bubble!?

Heatrate, welcome to the board. There is a lot of propaganda in the housing market at present, and phrases like "doom and gloom" and "no one can predict" and "no one can time the market" are at the centre of the propaganda. Take a step back and consider how many people's livelihoods (realtors, home reno, mortgage brokers/banks, newpaper advertising, etc) depend upon the belief the prices will remain stable or increase. Now consider how many people's livelihoods would benefit from a belief that prices are due to trend down 20%.

Smart people discuss facts and fundamentals. Dumb people ridicule the opinions of smart people. It's up to you to decide which are you. http://www.youtube.com/watch?v=60CLQse27p8
 
Lots of people were bearish (and short) of crude oil at $90/barrel before it continued its bull run towards $147 in 2008 before crashing. Then when crude hit $60 lots of people were bullish (long) but it over corrected towards $28-30/barrel. Markets can remain irrational longer than you can stay solvent. You can call yourself 'smart' and discuss facts and fundamentals all day and night but asset prices are influenced by more than just economic variables. There is a lot of behaviorial economics associated with it and with real estate there is an emotional element attached to the sense of purchasing a 'home'. Whether prices correct 20% or go up another 20% before correcting towards fundamental value is besides the point. One, two, three, four, five or even ten years may go by before this happens (if it happens at all). Are you going to sit and wait? Make sound economic decisions based on your personal income level and move on with life.
 
heatrate said:
Lots of people were bearish (and short) of crude oil at $90/barrel before it continued its bull run towards $147 in 2008 before crashing. Then when crude hit $60 lots of people were bullish (long) but it over corrected towards $28-30/barrel.
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Lots of people have made correct assessment of various markets in the past, and lots of people have made incorrect assessments of various markets in the past. So what?

heatrate said:
Markets can remain irrational longer than you can stay solvent. You can call yourself 'smart' and discuss facts and fundamentals all day and night but asset prices are influenced by more than just economic variables. There is a lot of behaviorial economics associated with it and with real estate there is an emotional element attached to the sense of purchasing a 'home'.
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Agreed. A generally accepted fact, supported by extensive evidence.

heatrate said:
Whether prices correct 20% or go up another 20% before correcting towards fundamental value is besides the point. One, two, three, four, five or even ten years may go by before this happens (if it happens at all). Are you going to sit and wait? Make sound economic decisions based on your personal income level and move on with life.
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Who said anything about "sitting and waiting"? If someone can rent a home for 50-75% the cost of owning, then why not do so and redeploy your capital elsewhere?

Sound economic decisions? Well, that is sort of the whole point made by the "doom and gloomers" here on this thread. If someone has an asset diversification and net worth such that a 20% decrease in the market value of their home is not going to have a devastating effect on them, then no problem. But the thrust of this thread is that many, many people will be devastated by that. Furthermore, many people have been buying recently specifically because they believe that there is a door about to shut due to continued 5%+ real price increases in RE.
 
I must admit that I sometimes also view the doom and gloom statements as a bit overly dramatic, but that's just me.

In any case...

Royal just increased fixed rates again.

http://www.newswire.ca/en/releases/archive/April2010/26/c5701.html

Fixed Rate Mortgages

Six-month convertible 5.05 per cent (increased by 0.15 per cent)
One-year closed 3.80 per cent (increased by 0.15 per cent)
Two-year closed 4.15 per cent (increased by 0.15 per cent)
Three-year closed 4.75 per cent (increased by 0.15 per cent)
Four-year closed 5.74 per cent (increased by 0.15 per cent)
Five-year closed 6.25 per cent (increased by 0.15 per cent)
Seven-year closed 7.05 per cent (increased by 0.15 per cent)
Ten-year closed 7.20 per cent (increased by 0.15 per cent)

Special Fixed Rate Offers*
----------------------------

Four-year closed 4.59 per cent (increased by 0.15 per cent)
Five-year closed 4.85 per cent (increased by 0.15 per cent)


Given that bond yields were still increasing slightly last week, I was expecting May for a 0.15% to 0.25% hike, so I'm off by a week or three. Oh well. ;)

If the other banks follow (and I think that is almost guaranteed), that means the new qualifying rate for variable, shorter-term, and high-ratio mortgages will be 6.25% by next week.
 
heatrate said:
Anyone who continues to participate in the nonsense of trying to comment about the impending doom and gloom is simply a desperate aspiring home owner.
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Well, yeah, I'll admit it. People who can't afford a house don't care, and people who already own one don't want to hear that their properties will fall in value when interest rates rise.

It's because we're in sort of a "limbo" land of trying to decide what the most intelligent decision is that we're reading and discussing whether we're in a bubble scenario or not. Many of us are taking a wait-and-see position because of the uncertainly you indicated. Is it really that 'comical' that we're standing still and debating rather than jumping in?
 
heatrate said:
It’s interesting to read all of these "doom and gloom" commentaries.... It is pretty clear to me that most of the complainers are aspiring home owners.

Anyone who continues to participate in the nonsense of trying to comment about the impending doom and gloom is simply a desperate aspiring home owner. Put your cards on the table and reveal your true intentions.
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I'm not a desperate aspiring home owner, sold my last condo last year, own a condo to be occupied early next year and would consider myself a recent doom/gloom convertee (past 8 months). So while I stand to lose approximate $100 000 in the paper value of my downtown condo if prices correct in the 20-25% range I expect them to - back to 2007 levels or Jan-April 2009 levels, I still think that this market is unbalanced and in the end run, that's bad for me. I don't think speculation is necessarily nonsense and I do plan to use my assumptions to the betterment of my retirement by buying again in 2-3 years when the market's more fairly priced, the drop has occurred, rent has stabilized and I have even more equity to deploy.
 
I also find the term "doom and gloom" totally overused and slightly comical. Fear or disdain of discussing downside risk potential comes from insecurity. On the flip side secretly wishing to profit from the downfall of others is immature. I'm preparing for a long era of historically underpreforming capital appreciation and ever increasing property carrying costs. I hope everyone is. I'd love to aquire new property but it has to be a good deal based on historical measures of income and leveraging.
 
TrickyRicky said:
I'd love to aquire new property but it has to be a good deal based on historical measures of income and leveraging.
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I think this is a very sound approach. that said, I also believe we have to specify the time frame we are talking about. I think cap rates previously quoted are unlikely to present themselves in the next few years. the same way that people expected double digit returns throughout the 1990's and early-mid 2000's in stocks, bonds, interest bearing vehicles, and 10% cap rates, I believe we are in for a prolonged period of single digit returns and cap rates on property. (Please don't quote to me the last 8 month 60% increase in stock market as it is still off by 20% from the previous peak and I believe will actually go back down again, I just don't know to what extent).

I believe to understand the r/e market here, we need to look at other markets, for eg. Europe; older and more mature. the rents do not even begin to come close to the returns that one can get on other deployment of capital and yet people still own real estate and it keeps rising (I realize there has been a meltdown in the past 2 years) but I am talking about the overall market even prior to the meltdown. I think there is a trend to increasing r/e prices but not increasing rents in proportion overall slowly over time.

All I am saying is that over time there is a price point where the old historic measures may need to be massaged downwards and this will still be considered a good return.

Finally, I believe that a price adjustment exactly in the range that Simuls suggested in post 729 is very logical and individuals should plan bearing this as a possibility going forward. I think however a more likely adjustment will be 10-15% than the 20-25%. I have a fair exposure to r/e and hence may be this is wishful thinking on my part but a rationale study of the overall economic environment would suggest underperformance of all asset classes for the next few years just as Tricky Ricky said.
 
I am neither a home owner nor an aspiring home owner. (An aspiring land lord would be more accurate.) I am a technical analyst--I analyze stock charts for a (gasp) hedge fund! I am basing my (yes, slightly exaggerated for effect :D--attention getting is my business :)) targets on a combo of gut feeling and technical analysis--maybe I'll be wrong, but it's always fun to read the charts.... :D
 
urbandreamer said:
I am neither a home owner nor an aspiring home owner. (An aspiring land lord would be more accurate.) I am a technical analyst--I analyze stock charts for a (gasp) hedge fund! I am basing my (yes, slightly exaggerated for effect :D--attention getting is my business :)) targets on a combo of gut feeling and technical analysis--maybe I'll be wrong, but it's always fun to read the charts.... :D
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UD, what do your charts tell you about the stock markets?
I realize it is not the r/e market but if you are seeing stock price large declines, interest rate hikes, one would assume that r/e would be presumably adversely affected as well.
If you are seeing stock market declines, are they too in the neighbourhood of say 30-50% from present levels???
 
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