Eug
Senior Member
Sorry, didn't mean you. It wasn't even on this forum.
|
|
|
You are using an out of date browser. It may not display this or other websites correctly.
You should upgrade or use an alternative browser.
You should upgrade or use an alternative browser.
Baby, we got a bubble!?
- Thread starter simuls
- Start date
dlam
Active Member
Not so sure I agree with the bolded part. The government is limiting CMHC, interest rates are creeping up, OECD cam out to suggest Carney should increase interest rates. I doubt he will but he may try in 2013 despite the US keeping rates low until 2014. However, evidence is that Canadians are starting to retrench a bit so I don't think that housing will continue to climb. I do not believe that 2012 prices will be the low water point for the price adjustments when it happens. I would think more 2008 if things go very badly, and maybe 2009-2010 otherwise.
Yes, I would agree 2012 price being the low water point is wishful thinking. but to think it will fall back down to 2008 price is more than 40%
prices have been more of less +10% year-to-year for the past several years. so from 2008 to 2014, +10% compounded is about 177% of 2008 value.
2008 - 100%
2009 - 110%
2010 - 121%
2011 - 133%
2012 - 146%
2013 - 161%
2014 - 177%
I know this is highly simplified and optimistic to assume +10% going forward in 2013 and 2014, but let's just use that for argument sake.
A drop from 2014 to 2008 would be 77%, much more than the feared 40% we are talking about. will things be that bad?
edit: to add, if i was to buy today in 2012, price goes up by 21% in 2014. a drop back to 2012 (losing 21%) does hurt. but i think it is only hurting those who are looking to sell in short term. eventually, the cycle continues and prices will go back up along with inflation.
another thing to add, i dont really see the threat of interest rates creeping up. banks were just giving out 10 years 3.99% mortgage rates. banks do their homework and make their money from fixed rate mortgages more than variable rate. i have a feeling the banks have some insight that interest rates will continue to be low, or why else they would offer just low rate in long terms? in recent years (not talking about the days of 15%), when was the last time fixed rate home owners saved more than variable rate home owners? to me, fixed rate gives you peace of mind, but that's where the bank makes money off people. if i had my way, I will go for the lowest possible variable rate 1 year term, and renew it each year.
but something strange is happening which contradicts what I just mentioned above. last summer we were about to get prime -0.8% variable on 5 years (that is 2.2% today). Now variable is at prime -0.1% (2.9%). whereas the lowest possible rate today is 2.79% 3-years fixed rate. I dont understand how a fixed rate can be lower than variable rate today. something is happening and I dont know enough to understand what is going on today.
Last edited:
daveto
Active Member
Dlam, leaving aside whether one is an optomist/pessimist, bull/bear, your math and facts are wrong in several places.
1. The "10%" increases have been gross of inflation, so the true increases were 8%
2. Prices did not increase 10% from 2008 to 2009, they decreased by 10%
3. Nobody, even the most optimistic house pumpers are predicting a further 20% increase from 2012 to 2014
4. A decrease from 177% to 100% is a 43% decrease (ie 77/177=43%), not a 77% decrease
1. The "10%" increases have been gross of inflation, so the true increases were 8%
2. Prices did not increase 10% from 2008 to 2009, they decreased by 10%
3. Nobody, even the most optimistic house pumpers are predicting a further 20% increase from 2012 to 2014
4. A decrease from 177% to 100% is a 43% decrease (ie 77/177=43%), not a 77% decrease
dlam
Active Member
Dlam, leaving aside whether one is an optomist/pessimist, bull/bear, your math and facts are wrong in several places.
1. The "10%" increases have been gross of inflation, so the true increases were 8%
2. Prices did not increase 10% from 2008 to 2009, they decreased by 10%
3. Nobody, even the most optimistic house pumpers are predicting a further 20% increase from 2012 to 2014
4. A decrease from 177% to 100% is a 43% decrease (ie 77/177=43%), not a 77% decrease
yikes, a lot of mistakes in my calculations. thanks for pointing them out
but I have a problem with #4. if I bought at 2008 and sold at 2014 (forget my wrong assumptions for now), then I would say I made a profit of 77% from what I bought (not counting inflation). But on the other hand if I didn't sell and prices suddenly goes from 2014 to 2008 in one day, then you say I only lost 43%? I understand the difference here is looking relative to 2008 and 2014 price. so in actual fact, looking at 40% decrease on future price, it is actually about 70% decrease of the price you bought at.
edit: let me try again with this exercise
Year Price % +/-
2008 100
2009 90 -10%
2010 97 8%
2011 105 8%
2012 113 8%
2013 118 4%
2014 123 4%
I assume a modest increase of 4% in 2013 and 2014. could be more, could be less. just using a number to complete this exercise.
Looking at "future value in 2014"; a decrease to 2012's price is (10/123 = -8%); decrease to 2008 price is (23/123 = 18%).
So a 40% decrease from "future value in 2014" will be massive.
Last edited:
hodgkinsken
Active Member
Yes, I would agree 2012 price being the low water point is wishful thinking. but to think it will fall back down to 2008 price is more than 40%
prices have been more of less +10% year-to-year for the past several years. so from 2008 to 2014, +10% compounded is about 177% of 2008 value.
2008 - 100%
2009 - 110%
2010 - 121%
2011 - 133%
2012 - 146%
2013 - 161%
2014 - 177%
.
Just for reference the YTD price change according to Terant is 0.07% so basically flat YoY. Now thats only 2 months worth of data but the big markets are showing MoM weakness. Vancouver is down 0.58% YTD while Toronto is up 0.60%.
http://www.housepriceindex.ca/Default.aspx
Kenny
Active Member
yikes, a lot of mistakes in my calculations. thanks for pointing them out
but I have a problem with #4. if I bought at 2008 and sold at 2014 (forget my wrong assumptions for now), then I would say I made a profit of 77% from what I bought (not counting inflation). But on the other hand if I didn't sell and prices suddenly goes from 2014 to 2008 in one day, then you say I only lost 43%? I understand the difference here is looking relative to 2008 and 2014 price. so in actual fact, looking at 40% decrease on future price, it is actually about 70% decrease of the price you bought at.
If you bought a $100,000 house in 2008 and it was worth $177,000 in early 2014, but then nosedived back down to $100,000, you have actually lost $0 (forget inflation for now) overall. However, if you bought in early 2014 at $177,000 and it dropped to $100,000, then you have lost $77,000, or 43.5%.
dlam
Active Member
If you bought a $100,000 house in 2008 and it was worth $177,000 in early 2014, but then nosedived back down to $100,000, you have actually lost $0 (forget inflation for now) overall. However, if you bought in early 2014 at $177,000 and it dropped to $100,000, then you have lost $77,000, or 43.5%.
yes, okay, i know you dont "lose" anything until you sell. but it still feels like you lost something.
no where in the discussion did I say to buy in 2014, that is different from the scenario I presented.
daveto
Active Member
So a 40% decrease from "future value in 2014" will be massive.
Dlam, perhaps you're mis-stating what you are trying to calculate.
But if the "future value in 2014" is $177 (vs $100 in 2008). Then a decrease from $177 to $100 is a 43% decrease.
dlam
Active Member
Hi daveto, please look at my revised example now. I said the decrease will be massive related to the new example.
I think we are all looking at this in different perspective.
Using my old example again, If I bought at $100 in 2008, goes up to $177 in 2014, but then falls back to $100. I have "lost" nothing. To say it another way, assuming you bought in 2008, "losing" 40% on future value in 2014 back to $100 in 2008, is actually no loss at all.
So, this whole 40% decrease discussion is only a real loss if you buy in the future (ie. 2014), and you actually sell it when it goes down by 40%.
I think we are all looking at this in different perspective.
Using my old example again, If I bought at $100 in 2008, goes up to $177 in 2014, but then falls back to $100. I have "lost" nothing. To say it another way, assuming you bought in 2008, "losing" 40% on future value in 2014 back to $100 in 2008, is actually no loss at all.
So, this whole 40% decrease discussion is only a real loss if you buy in the future (ie. 2014), and you actually sell it when it goes down by 40%.
Last edited:
apom
New Member
^^^
I realize this is not the precon market but clearly investors/speculators in downtown TO must realize that if resale is going up only 2.7%/year a $550 condo today in 3 years will be only $595, $612 in year 4 and year 5 from now $628 and not the $650-800 being asked. Further, these condos usually include the parking which PRECON is doing less and less making the $650/sq.ft. closer to $700/sq.ft.
My believe is we will see at least 50% of the projects trying to launch now fail or be remarketed/redesigned.
Those buying now are clearly "late to the party".
2.7% I don't think that's representative of Toronto.
Year over year:
Our assignment purchase is up between 9.32-12.54%
Precon Jr. 1 bedroom is up around 13.71%
Larger but older 2br is up around 7%
interested
Senior Member
2.7% I don't think that's representative of Toronto.
Year over year:
Our assignment purchase is up between 9.32-12.54%
Precon Jr. 1 bedroom is up around 13.71%
Larger but older 2br is up around 7%
The 2.7% is the increase in the resale condo market in Toronto year on year according to data published.
Relating to your Precon comparison, I am not sure people are paying the developer price on assigments. So unless the project is ready, the developer virtually sold out, often the assignment price is somewhere between the purchase price and the developers current price.
My personal belief and for using the resale market increase is that if resale of what will be essentially new product in my example 5 years from now is $628 and not the anticipated increase the developers are trying to seek @650 to $800; I would suggest people will not be getting these amounts.
New product did go up the past 1, 2 and 3 years. My suggestion is Precon is hitting the wall and in fact the discounts in the form of incentives to realtors, free maintenance, free upgrades is how prices are remaining bolstered at present.
interested
Senior Member
Hi daveto, please look at my revised example now. I said the decrease will be massive related to the new example.
I think we are all looking at this in different perspective.
Using my old example again, If I bought at $100 in 2008, goes up to $177 in 2014, but then falls back to $100. I have "lost" nothing. To say it another way, assuming you bought in 2008, "losing" 40% on future value in 2014 back to $100 in 2008, is actually no loss at all.
So, this whole 40% decrease discussion is only a real loss if you buy in the future (ie. 2014), and you actually sell it when it goes down by 40%.
In regards to my post others have pointed out the error in the calculations. To confirm for you there was a drop in price from 2008 to 2009. Prices had recovered and resumed their upward march in 2010 to present though resistance is now being seen in precon. Most recently in TO the condo market average price fell from $400/sq.ft. to $396/sq.ft. in April. Now in the core prices are more than this / sq.ft. and this is an average number. Precon is much more.
For comparison to put figures in a project in which I purchased precon in 2008 at $410/sq.ft including parking/locker; assignments are going anywhere from $480-$520/sq.ft. but lets say $500/sq.ft. This would result in $90/$410 or a 22% increase over 4 years or about 5%/year compounded. Remember, there will be real estate commissions to assign and other costs.
Also, this more or less approximates the 4% in the past few years of condo price appreciation in resale.
When you are talking about 10%, this is not the condo market but rather the figure is skewed by SFH which have increased more than condos.
ISYM
New Member
I must be missing something. Are these prices changes mentioned condos or just new construction because the average resale prices for 2009 did increase over 2008 both nationally and within the GTA.
CREA
"The national residential average price was $337,410 in December, up 19 per cent year-over-year. On an annual basis, average price climbed five per cent to a record $320,333"
http://creanews.ca/2010/01/
TREB
2008 $379,347 2009 $395,460
http://www.torontorealestateboard.com/market_news/market_watch/mw0912/pdf/mw0912.pdf
CREA
"The national residential average price was $337,410 in December, up 19 per cent year-over-year. On an annual basis, average price climbed five per cent to a record $320,333"
http://creanews.ca/2010/01/
TREB
2008 $379,347 2009 $395,460
http://www.torontorealestateboard.com/market_news/market_watch/mw0912/pdf/mw0912.pdf
interested
Senior Member
I think you may be correct ISYM.
What we are recalling is that on or about mid/late summer 2008 with the market meltdown, prices did drop but largely recovered by mid summer of 2009. We might be misremembering.
However, there definitely at least in recent years has been a slowdown at least as far as condos go in price escalation vis a vis the downtown TO condo market.
What brought all this about was the suggestion of 10% compounded annually in the original example of one of the posters here.
What we are recalling is that on or about mid/late summer 2008 with the market meltdown, prices did drop but largely recovered by mid summer of 2009. We might be misremembering.
However, there definitely at least in recent years has been a slowdown at least as far as condos go in price escalation vis a vis the downtown TO condo market.
What brought all this about was the suggestion of 10% compounded annually in the original example of one of the posters here.
interested
Senior Member
From the Globe and Mail today:
http://www.theglobeandmail.com/glob...ive-with-a-not-so-free-market/article2444002/
Mispriced assets: Learning to live with a not-so-free market
TOM BRADLEY | Columnist profile
From Saturday's Globe and Mail
Published Friday, May. 25, 2012 6:18PM EDT
Last updated Friday, May. 25, 2012 8:18PM EDT
2 comments
0
0
0
0
Print
Decrease text size Increase text size
" ... ‘[T]he market’ is rapidly becoming something of an endangered species. Your mission, should you choose to accept it, is to try and identify any asset of significance that isn’t experiencing huge and artificial distortion to its price by forces that we might term ‘the monetary authorities’ and their huge and daunting printing presses."
More from Tom Bradley
Covered call ETFs: Are they for you?
Lessons learned in the wealth management trenches
A contrarian's radar says Cheez Whiz yes, China no
Video
Fears of market selloffs mount
Video
Here come the stock market fireworks
Research in Motion Chief Executive Officer Thorsten Heins speaks at the BlackBerry World event in Orlando.
Video
RIM could soon be a single-digit stock
– Tim Price, director of investment, PFP Wealth Management, London
Trust a man named Price to get to the nub of the current valuation quandary. More and more assets (be they financial or real estate) are being priced by something other than long-term valuation. The fluidity of the capital markets is being blocked, plugged and restricted by factors related to government policy and, as is always the case when governments get involved, valuation goes out the window.
Interest rates
Accommodative monetary policy in the U.S. and Europe has been made necessary by fragile, over-leveraged economies and out-of-control government deficits. Nevertheless, near-zero short-term interest rates are reaching well beyond the needy, and rippling (or should I say crashing) through every nook and cranny of the capital markets. Cheaper-than-necessary credit causes severe imbalances – excessive risk-taking, rising debt loads and chronic overbuilding. A case in point is Canada’s red-hot housing market, which is not being driven by a booming economy, but rather depression-like interest rates.
Currency
Countries have historically adjusted to changing economic conditions by turning three dials – interest rates, currency and government policy (spending, taxes, bank reserves). Part of the current distortion is that too many countries don’t have the currency dial on their dashboard and are being forced to manage with the other two.
Europe is a prime example. It operates under one currency despite its cultural and economic diversity. Countries that desperately need to retool their competitiveness, like Greece, are being forced to seek approval on austerity measures, something a free-floating currency would have taken care of unilaterally.
Countries that have pegged their currency to the U.S. dollar are forced to live with America’s monetary policy. China’s economy couldn’t be more different than the United States, but it operates with the same undervalued currency and low interest rates. Perhaps it’s not surprising that it now finds itself with an overbuilt, debt-dependent real estate market.
The hand of government
While interest rates and currencies are the two biggies, a heavier government hand is also distorting markets in other ways. Subsidies, bailouts and loan guarantees all affect the competitive balance. Also, the percentage of companies being run or controlled by government is growing as the developing countries make up a larger part of the world economy. State-owned businesses play a prominent role in the resource and banking sectors particularly. Chinese banks are public companies, but really act as a policy arm of the government.
As investors, we’ve got to be aware when assets are trading away from their long-term valuations (above or below) because of socio-political influences. It may mean being more cautious when buying a company that’s benefiting from the good graces of government policy, and conversely, being more aggressive if it’s been hammered by one-time government actions.
Opportunity
A not-so-free market is worrisome to be sure. As Mr. Price’s comment highlights, we’re in an unusual period when it’s hard to find assets that aren’t being heavily influenced (read: propped up) by monetary policy. As a result, we have to be prepared for more market shocks caused by pricing distortions, as well as the eventual return to a less stimulated environment. Governments are running out of firepower and will have to let their economies sort themselves out on their own. (And, yes, that means mortgage rates will be 6 to 7 per cent again, and utilities will lose their safety premium and trade at 12-13 times earnings).
But all is not lost. There’s money to be made by investors who aren’t locked into tracking the broad indexes and can take advantage of mispricing. There will be policy changes that lead to distress sales (this week, Barclays Bank felt obligated to sell its remaining stake in Blackrock Investments, arguably one of its best assets) and in general, a less manipulated economy will create space for profitable, well-financed companies to play a bigger role.
The best risk control measure in times like this? It’s the same one we always use – Don’t own overpriced assets.
More from Tom Bradley
Real estate as an investment? Look elsewhere
For money managers, small can be beautiful
2 comments
[I]I am reading this from the view of long term real estate in Toronto and especially the condo markets in Toronto.
This what a number of us on the forum have been saying for a long time now. Assets including TO realestate in general but the PRECON market in particular is suffering distortion of prices due to massive free credit.[/I]
http://www.theglobeandmail.com/glob...ive-with-a-not-so-free-market/article2444002/
Mispriced assets: Learning to live with a not-so-free market
TOM BRADLEY | Columnist profile
From Saturday's Globe and Mail
Published Friday, May. 25, 2012 6:18PM EDT
Last updated Friday, May. 25, 2012 8:18PM EDT
2 comments
0
0
0
0
Decrease text size Increase text size
" ... ‘[T]he market’ is rapidly becoming something of an endangered species. Your mission, should you choose to accept it, is to try and identify any asset of significance that isn’t experiencing huge and artificial distortion to its price by forces that we might term ‘the monetary authorities’ and their huge and daunting printing presses."
More from Tom Bradley
Covered call ETFs: Are they for you?
Lessons learned in the wealth management trenches
A contrarian's radar says Cheez Whiz yes, China no
Video
Fears of market selloffs mount
Video
Here come the stock market fireworks
Research in Motion Chief Executive Officer Thorsten Heins speaks at the BlackBerry World event in Orlando.
Video
RIM could soon be a single-digit stock
– Tim Price, director of investment, PFP Wealth Management, London
Trust a man named Price to get to the nub of the current valuation quandary. More and more assets (be they financial or real estate) are being priced by something other than long-term valuation. The fluidity of the capital markets is being blocked, plugged and restricted by factors related to government policy and, as is always the case when governments get involved, valuation goes out the window.
Interest rates
Accommodative monetary policy in the U.S. and Europe has been made necessary by fragile, over-leveraged economies and out-of-control government deficits. Nevertheless, near-zero short-term interest rates are reaching well beyond the needy, and rippling (or should I say crashing) through every nook and cranny of the capital markets. Cheaper-than-necessary credit causes severe imbalances – excessive risk-taking, rising debt loads and chronic overbuilding. A case in point is Canada’s red-hot housing market, which is not being driven by a booming economy, but rather depression-like interest rates.
Currency
Countries have historically adjusted to changing economic conditions by turning three dials – interest rates, currency and government policy (spending, taxes, bank reserves). Part of the current distortion is that too many countries don’t have the currency dial on their dashboard and are being forced to manage with the other two.
Europe is a prime example. It operates under one currency despite its cultural and economic diversity. Countries that desperately need to retool their competitiveness, like Greece, are being forced to seek approval on austerity measures, something a free-floating currency would have taken care of unilaterally.
Countries that have pegged their currency to the U.S. dollar are forced to live with America’s monetary policy. China’s economy couldn’t be more different than the United States, but it operates with the same undervalued currency and low interest rates. Perhaps it’s not surprising that it now finds itself with an overbuilt, debt-dependent real estate market.
The hand of government
While interest rates and currencies are the two biggies, a heavier government hand is also distorting markets in other ways. Subsidies, bailouts and loan guarantees all affect the competitive balance. Also, the percentage of companies being run or controlled by government is growing as the developing countries make up a larger part of the world economy. State-owned businesses play a prominent role in the resource and banking sectors particularly. Chinese banks are public companies, but really act as a policy arm of the government.
As investors, we’ve got to be aware when assets are trading away from their long-term valuations (above or below) because of socio-political influences. It may mean being more cautious when buying a company that’s benefiting from the good graces of government policy, and conversely, being more aggressive if it’s been hammered by one-time government actions.
Opportunity
A not-so-free market is worrisome to be sure. As Mr. Price’s comment highlights, we’re in an unusual period when it’s hard to find assets that aren’t being heavily influenced (read: propped up) by monetary policy. As a result, we have to be prepared for more market shocks caused by pricing distortions, as well as the eventual return to a less stimulated environment. Governments are running out of firepower and will have to let their economies sort themselves out on their own. (And, yes, that means mortgage rates will be 6 to 7 per cent again, and utilities will lose their safety premium and trade at 12-13 times earnings).
But all is not lost. There’s money to be made by investors who aren’t locked into tracking the broad indexes and can take advantage of mispricing. There will be policy changes that lead to distress sales (this week, Barclays Bank felt obligated to sell its remaining stake in Blackrock Investments, arguably one of its best assets) and in general, a less manipulated economy will create space for profitable, well-financed companies to play a bigger role.
The best risk control measure in times like this? It’s the same one we always use – Don’t own overpriced assets.
More from Tom Bradley
Real estate as an investment? Look elsewhere
For money managers, small can be beautiful
2 comments
[I]I am reading this from the view of long term real estate in Toronto and especially the condo markets in Toronto.
This what a number of us on the forum have been saying for a long time now. Assets including TO realestate in general but the PRECON market in particular is suffering distortion of prices due to massive free credit.[/I]
Last edited: