News   Jul 04, 2024
News Roundup for July 4, 2024
 345     1 
News   Jul 04, 2024
That View, Sundown
 397     0 
News   Jul 03, 2024
Gairloch and architects—Alliance's 1414 Bayview Topped Off
 952     0 

Baby, we got a bubble!?

interested said:
... Rents in Toronto are in fact I believe artificially low. Remember people are looking at financing at 3.5% -4% (I am talking 5 year fixed not variable mortgages)today (and the past 3 years) and saying rents are high but just 5 years ago, that was probably closer to 6 or 7% and yet rents were the same. I can tell you if allowed, landlords would have raised rates en masse much more than the 2% or so rent review allowances.
Click to expand...


i concur, rents for residential properties have stagnated in the past 10 years.
however, if you look at rent-to-income ratio then it's appropriate as incomes have stagnated also.

one of the only things that has changed in the past 10 years is the decline in Bank of Canada overnight interest rates from 5.75% to 0.25%,
from 8.50% to 0.25% in the past 15 years (since 1995),
from 16.00% to 0.25% in the past 20 years (since 1990).

the 2% rent allowance doesn't even cover the annual increases in property taxes, utilities, insurance, etc.
 
cdr108 said:
i concur, rents for residential properties have stagnated in the past 10 years.
however, if you look at rent-to-income ratio then it's appropriate as incomes have stagnated also.

one of the only things that has changed in the past 10 years is the decline in Bank of Canada overnight interest rates from 5.75% to 0.25%,
from 8.50% to 0.25% in the past 15 years (since 1995),
from 16.00% to 0.25% in the past 20 years (since 1990).

the 2% rent allowance doesn't even cover the annual increases in property taxes, utilities, insurance, etc.
Click to expand...



My point exactly. So landlords as a whole would have figured that out and rents would have gone up. Perhaps there would be more vacancy but I would bet that overall rents would be higher.

And just as now real estate at these prices makes no sense anymore to be an investor in my opinion, there will be a period of adjustment, ultimately less product will get built (after the current crop goes through) and then there will once again be more demand than supply and an increase in rents. In fact, that is exactly what happened to rental apartments. With rent review and artificially low rents, very few new apartment buildings were built over the past 20 years. I can see the same thing happening with the "investor pool of rental condos" if there is no rent increase or a significant price decrease or interest rates stay at near zero indefinately(the last clearly will not be the case).
 
Last edited:
In the Globe and Mail today,(unfortunately I can't post the research findings part of the paper from the on line version to post a link) there is a long article on why Canada's housing market will correct: (High household debt +high home prices +high unemployment+slow income growth=housing bust).

The data from the research findings draw alot of eerie similarities to 1989 the time of the last major bust. However, being the eternal optimist, I do take solice from 2 numbers in this report. Please note that I follow the Toronto market (and the condo market in downtown in particular).

Major market home prices in 1985-1989 in Toronto rose 160% vs. 77% from 2000 to 2010. So while the line above talks about home prices not adjusted for inflation from 1985 -1989 rising +99% and +121% in 2000 to 2010, I believe one has to look at local markets. National trends will probably affect all markets but to different degrtees. Calgary for the same time periods were +38% (1985-9) vs. 138% and this is worrisome. I realize Calgary has oil and may be on a secular boom but this is certainly well factored into prices.

The other positive is that interest rates in 1985-1989 were 11.8% 5 year mortgage vs. 5.8% for 2000 to 2010 and we all know it is presently 3.5% or thereabouts (I see in the paper they say lowest 5 year closed is about 3.2%). Theoretically, people can hold out much longer now since the carrying costs are so much lower than in 1989.

However mortgages in arrears are 0.18% in 1985-9 vs. 0.46% in 2000 to 2008. While still a low percentage of arrears this is worrisome.

I am wondering if others have the globe and mail and can look at the raw data on page 4 and tell me their conclusions. Note: for all the doom and gloom, Toronto with the ugly 1989 pop of the bubble went down 27% over 5 years ( and again I point out that was from a 160% price increase from 1985-9 vs. 77% over the last 10 years).

Perhaps a simple (though perhaps not accurate way to look at this would be to say that since the price increase in 1985-1989 was about double that from 2000 to 2010) extrapolating this to now would suggest that the bubble should decrease by 1/2 as much or 13.5% or back to 2008 prices as I have been putting forth. I realize this is crystal ball gazing. Any thoughts from anyone.

Go easy on me guys, please.
 
On Sundays, The Star now carries a section of news/articles prepared by The New York Times.

In today's section, on front page, there is an article titled "In Japan, deflated dreams". The article talks about that since early 1990s, the nation has been trapped in low growth and deflation...Western economists are warning of "Japanification"..US, UK, Spain, Ireland, they all are going through what Japan went through a decade ago..Japan's economy remains the same as in 1991..companies and individuals have lost equivalent of trillions of dollars in the stock market...average price of a home is same as it was in 1983..and the future looks even bleaker..one reason deflation became self-perpetuing was that it pushed companies and individuals to survive by cutting costs and selling what they already owned, instead of buying new goods or investing .. deflation destroys risk-taking that capitalist economies need in order to grow ..

There is no link to this section of The New York Times on the internet. Best way to read this full article is to either buy the paper or go to library.
 
Conclusion: a vicious loop from the currency war for Canada - interest rate will have to be kept low to against appreciation to US $ to protect export; then consumer borrowers will take advantage of the low rate; boost up debt to income level...

Carney in tougher spot if no peace in currency war


Canada in tougher spot
The Bank of Canada is hoping exports and business investment will help take the place of an expected decline in consumer spending and housing, but the trade part of that may be "wishful thinking," CIBC World Markets says.

In a report today, chief economist Avery Shenfeld noted that Bank of Canada Governor Mark Carney doesn't want to see a fresh round of consumer borrowing, given his warnings over bloated debt levels. As it was, the borrowing binge of late was "a necessary evil" to help fill the gap when trade collapsed in the recession.

Mr. Carney, said Mr. Shenfeld, can't "pick his poison," and so is in a tougher spot, given the weakened U.S. dollar and intervention in currency markets and other measures taken by some other countries.

"The G20 meetings ... are unlikely to see peace break out in the ongoing currency war," Mr. Shenfeld wrote. "If Canada is going to behave like a boy scout and eschew intervention, while others promote devaluation through quantitative easing (the U.S.), central bank intervention (China and Japan) or restraints on capital flows (Brazil and Thailand), it wil be stuck with a strong loonie that will impede an export-led expansion. Keeping interest rates tame enough to avoid a soaring C$ as the U.S. holds its rates frozen at zero could ultimately set off a renewed climb in household debt, as borrowers again take advantage of low rates."
 
KA1 said:
"Japanification"..
Click to expand...
One of the term China Media uses often in past 20 years, often quoted in the past and currently when there is a pressure from US to appreciate Chinese Yuan. What China is afraid to head to, as a result from if freeing up the exchange rate to let the market determine.
 
This is all fine guys. I concur we run those risks. The thing we should be talking about I think is: how do we the "enlightened" if we have any proof of our convictions, act to take advantage of the knowledge we deem we possess.

If we in Canada and the US are overburdened with debt, the housing market is vastly overinflated, and we will undergo Japanification, how do we insulate ourselves.

I guess the conclusions would be: 1) sell you real estate, at least your investment real estate.
2)sell your stocks. Japan's Nikkei went from 40000 to 10000.
3)Bonds- alot feel this is the next bubble since interest rates at near zero are not sustainable and will go up.
4)Gold- true it has stood the test of time in the past but since it has been decoupled from the base peg to the USD will it still. In the end, gold is only worth what someone will pay for it. So, in the end, with such a disaster, you can't eat it, cloth with it, use it or make any money from it (unless it intrisically increases in value).
5)cash- in this scenario the government backing the cash doesn't have the wear with all to make it worth the face value.
6)alternate investments? hold an array of currencies and hope that some of them fair OK. Unfortunately, I don't believe one can buy the Yuan directly abroad and in any event, would not China be at huge risk if the US and Europe deflate largely since they are mainly an export driven economy. Would not buying India's Rupee be better? More domestic consumption assuming it could survive the global tsunami around it.
7) buy a gun/land in the hinterland/have a generator and food supply to survive the "economic winter storm"
8) World War 3: to reinflate economies?

I am putting forth all sorts of scenarios. I am not saying they are reasonable, realistic or will happen.

My point is: if we truly feel there is a bubble, and postulate for a moment in Canada it will pop in the future and it may or may not go as bad as the US did: what do the forum members feel the proper exit strategy to "survive" to play another day is?
 
so Ka1 and others,
please give me your collective wisdom to my#1870 post.
I am really curious.
And if possible, specific recommendations.

It is easy (and I am guilty of it as well) to say this and everything else is bad. Let's take the next constructive step and suggest what we should do if we believe the bubble is imminent, here, or "coming soon to a theatre near you" and if so, when.
 
interested said:
so Ka1 and others,
please give me your collective wisdom to my#1870 post.
I am really curious.
And if possible, specific recommendations.

It is easy (and I am guilty of it as well) to say this and everything else is bad. Let's take the next constructive step and suggest what we should do if we believe the bubble is imminent, here, or "coming soon to a theatre near you" and if so, when.
Click to expand...

As asked for by you, I am giving my opinion, for what it is worth.

To watch the economy unfold is like standing on the deck of Titanic watching it go under the water. Not too much can be done.

My take, irrespective of various doom and gloom posts and spiritually uplifting posts of Ccondo George, is that the economy will keep on drifting downwards -- slowly and slowly. As a result, R/E prices will keep on going down at the rate of 2/3 % per year with local exceptions. For example, in the 'core' downtown, ignoring a few buildings like Murano, prices will remain firm and will go up slighly, again 2/3% per year. It is simple economics.Considering the current transportation mess, more and more people would want to move in the core downtown --internal migration within the country/GTA, seniors downsizing and a very minor portion of immigrants.

Economy is not going to take the upward march soon irrespective of whatever steps Mr. Carney and Mr. Barnkie take. It will keep on going on a downward march for a few years-- slowly, but surely.

It is the 'Psyche' or perception that has been shaken to the core.

I recall meeting a few survivors of 'Dirty Thirties' who were spendthrifts and very careful about investing in R/E or, for that matter, any other investments. During that period, economy, and the inflation, was going up at slow rate. Things changed in the Trudea era. Deficit financing, in pursuit of 'social justice' was desirable. Caution was out of the window. Unemployment insurance benefits, in the name of 'social justice' were increased sharply. You had to work only around 10 weeks to get benefits for 6 or more months. For younger'Me' generation, 'Dirty Thirties' was just a paragraph in history books. Tomorrow will always be better than today. Spend the most amount of money that you can borrow. Buy real estate -- more than 1 unit --with only 5% or even less down.This attitude has now been shaken badly.

During inflation, prices of every thing goes up. Value of hard cash gone down. During deflation, price of every thing -- with a few exceptions -- will go down. As such, value of cash, relatively speaking, will go up.

My answer is that hold on to cash. Down the road, there will be opportunities to scoop up bargains.

Too many moons ago, when I was still a spring chicken, I had read a book about 1929 crash by late Mr. John Kenneth Galbraith,a Canadian economist at Harvard University and later an advisor to President Kennedy. I would recommend his book a read. If my memory serves me right, it is stated in the book that Joseph Kennedy -- patriarch of Kennedy clan -- had made lots of money in the later years of 1929 crash by buying assets at almost throw away values.
 
KA1 said:
As asked for by you, I am giving my opinion, for what it is worth.

To watch the economy unfold is like standing on the deck of Titanic watching it go under the water. Not too much can be done.

My take, irrespective of various doom and gloom posts and spiritually uplifting posts of Ccondo George, is that the economy will keep on drifting downwards -- slowly and slowly. As a result, R/E prices will keep on going down at the rate of 2/3 % per year with local exceptions. For example, in the 'core' downtown, ignoring a few buildings like Murano, prices will remain firm and will go up slighly, again 2/3% per year. It is simple economics.Considering the current transportation mess, more and more people would want to move in the core downtown --internal migration within the country/GTA, seniors downsizing and a very minor portion of immigrants.

I agree only however if the price of gas / oil escalates significantly. I also believe alot of jobs are now and will continue into the 905 area as those with families if given the choice will choose the suburbian life over raising a family in the core in a condoEconomy is not going to take the upward march soon irrespective of whatever steps Mr. Carney and Mr. Barnkie take. It will keep on going on a downward march for a few years-- slowly, but surely.

It is the 'Psyche' or perception that has been shaken to the core.

I recall meeting a few survivors of 'Dirty Thirties' who were spendthrifts and very careful about investing in R/E or, for that matter, any other investments. During that period, economy, and the inflation, was going up at slow rate. Things changed in the Trudea era. Deficit financing, in pursuit of 'social justice' was desirable. Caution was out of the window. Unemployment insurance benefits, in the name of 'social justice' were increased sharply. You had to work only around 10 weeks to get benefits for 6 or more months. For younger'Me' generation, 'Dirty Thirties' was just a paragraph in history books. Tomorrow will always be better than today. Spend the most amount of money that you can borrow. Buy real estate -- more than 1 unit --with only 5% or even less down.This attitude has now been shaken badly.

During inflation, prices of every thing goes up. Value of hard cash gone down. During deflation, price of every thing -- with a few exceptions -- will go down. As such, value of cash, relatively speaking, will go up.

My answer is that hold on to cash. Down the road, there will be opportunities to scoop up bargains.

Agree provided there is not a more catastrophic meltdown of the economies and governments don't continue to print massive amounts of money. The currency afterall can be devalued making everything else more expensive (imports and necessities of life) leaving less left over with which to make investments.

Too many moons ago, when I was still a spring chicken, I had read a book about 1929 crash by late Mr. John Kenneth Galbraith,a Canadian economist at Harvard University and later an advisor to President Kennedy. I would recommend his book a read. If my memory serves me right, it is stated in the book that Joseph Kennedy -- patriarch of Kennedy clan -- had made lots of money in the later years of 1929 crash by buying assets at almost throw away values.
Click to expand...


[I]But one has to have enough disposable income and the intestinal fortitude to do it. Witness 1 and 1/2 years ago if you bought the stock market you have done very well. In fact, most retail investors stayed out of the market or cashed out at the wrong time. I appreciate we may have another correction coming and they may have been proven right ultimately to have cashed out, however, you get my point.[/I]
 
prediction for October......

C01 good month for sales numbers, new listings down and avg prices increases from Sept 2010 and yoy

GTA sales numbers down, new listings down, but prices up

Pulse on the market, we shall see how correct my instinct is.
 
You must log in or register to post here.

Back
Top