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Baby, we got a bubble!?

TCW said:
Consumers get message on debt, rein it in

http://www.theglobeandmail.com/repo...et-message-on-debt-rein-it-in/article1883104/
Click to expand...

Hmmm...

I think that the Globe's article title of "Consumers get message on debt, rein it in" is more than a little generous...

First, consumers have not reined in their debt. Rather, they've reined in the GROWTH in their debt, which is now growing at "only" 3% annualized.

Second, there is no evidence to support the contention that this is a voluntary act by prudent consumers, and not the result of having debt levels close to the maximum feasible limits (and higher than any point in our countries history).

In any event, I think that as the growth in debt slows, or possibly even decreases?, it will place strain on our economy which has previously relied upon this debt funded spending.

I must say, I'm not sure how this is viewed as good news? Its sort of like saying that it is cause for celebration that an 800lb man gained the least weight last month of any month in the last 15 years. The poor bastard is still 800 lbs, and that doesn't bode well for his future.
 
Teranet released its latest numbers today.

Toronto home pricing in the last two years:

2008-12 - 111.670
2009-01 - 110.130
2009-02 - 106.750
2009-03 - 104.680
2009-04 - 104.010
2009-05 - 106.050
2009-06 - 108.460
2009-07 - 110.880
2009-08 - 113.820
2009-09 - 115.540
2009-10 - 117.430
2009-11 - 118.180
2009-12 - 119.650
2010-01 - 120.440
2010-02 - 120.910
2010-03 - 120.940
2010-04 - 121.640
2010-05 - 123.030
2010-06 - 125.980
2010-07 - 127.430
2010-08 - 128.000
2010-09 - 125.980
2010-10 - 124.850
2010-11 - 124.210

*These values are indexed to June 2005, which has been given a value of 100.000.

The peak was was August 2010, with 3 straight months of price declines since then. We are currently off the peak by about 3%. It will be interesting to see what will happen with the new rules, but interest rates will remain low during the next few months. This period will include any small rush to beat the rule change, and also will include any spring sales rush.
 
Eug said:
Toronto home pricing in the last two years:

2008-12 - 111.670

*These values are indexed to June 2005, which has been given a value of 100.000.
Click to expand...

Does this mean that between June 2005 and December 2008, house prices only rose 11.6%? Between April, 2009 and August, 2010, they rose 23%?
 
Kenny said:
Does this mean that between June 2005 and December 2008, house prices only rose 11.6%? Between April, 2009 and August, 2010, they rose 23%?
Click to expand...

That is correct, noting that this index tracks only resales of the same house. ie. it compares the sale price of a unit with its prior sale price. In this way, I think it is a more accurate measure than the TREB data.

But the index was at 118 in August 2008, and then prices dropped substantially in the aftermath of the Fall 2008 crisis. So the data points you quoted provide a misleading picture. For example, June/05 to Aug/08 saw a rise of 18%, and then Aug/08 to Aug/10 saw a rise of 9%.(with a big drop in late 2008 and early 2009, and subsequent rebound in 2009/10)
 
Dave, I agree this is more accurate data and much more telling that TREB average data.
And yes it is true there was a mini correction and continued escalation which I do not feel was justified.
That said, still a rise of 24.2% in 5 years and 5 months or 64 months equates to a rise of 0.372%/month or 4.47%/year which while high is hardly
eye popping. If we take 2%/year for inflation, one would conclude that we are 13.2% ahead of where we should be.
That is quite a major correction but if we drifted down 2%/year for 3 years forward and inflation continued at 2%/year we would be price appropriate historically commencing in June 2005 by 2014.
Of course the big if here is that it assumes no major shock to the system, an in balance supply and demand, and other parameters not changing.
 
IT, therein lies the power of the word "if". )) If we look to June 2005 as a fair value, then I'd agree with you. But June 2005 values were at the high end of the scale by historical standards. I think that minus 15-20% would put us into a fair value historically.

But also, prices always swing above average on the high end, and below average on the low end. So I think it is likely that we won't just settle down to the long term average (whether indicated by June 2005 or maybe a few years earlier). But rather, we'll overcorrect on the low end in the same way that we over corrected on the high end.

Also, for the casual reader (do we have any of those anymore on this thread ))), let's remember that it is a 25% decrease which has so decimated our neighbour to the south. So this talk of a "crash" needs to be viewed in the proper context. I don't think anyone here is talking about a 40 or 50% decrease. But rather even a 10 to 15% decrease will create a lot of problems, and us bears think that a 25% decrease is a reasonable correction to the low end and would be viewed by most as a "crash".
 
:)

I just want to say I'm a casual reader. I usually drink coffee first before reading this stuff. But if I want to sleep faster, I can also read this thread without coffee in the evening. Now back to the bubble talk.... :)
 
I posted this elsewhere, but I'll summarize it for this forum too, because I think it's appropriate:

Those who got 5-year mortgages in mid-2006 with 40-year amortization are laughing. Despite all the angst - which I agree(d) with by the way - about 40-year amortizations, they lucked out and did very well for themselves.

1) In summer 2006, the going rate was about 5.25% - 5.5% for a 5-year fixed, depending on the time period and the lender.
2) The Teranet index was 105.22 in June 2006, and a little lower in the fall. The last Teranet index (Nov. 2010) was 124.21, an 18% rise in prices, and that 5-year term skipped over the mini-dip in prices.
3) Banks usually allow early renewals up to 4 months early, with no penalty. That means early renewals begin in Feb. 2011 for those with 40-year amortizations.
4) Current best 5-year fixed rates are at about 3.5%. If rates don't jump in the next month, that means those renewing can get rates of say 3.79% with their existing bank.

Given all the above, those who bought in 2006 with 40-year amortizations timed it perfectly, out of pure luck. Even if 5-year fixed rates rise somewhat in the next several months, those who bought later in the year still will be doing quite well, since it's likely they'll still be able to renew at 4% or less.
 
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I've been scouring the web, but can't find historical charts of median-multiples for Toronto. It is easy to find the Bank and Real Estate versions of affordability measures (e.g. RBC's regular reports). Can someone point me in the right direction? Is it somewhere in the UBC Saunder's data centre (didn't see it)?

this is a bit dated, but provides a very nice city-specific chart of price-income rations for the U.S.

http://www.nytimes.com/2009/04/22/business/economy/22leonhardt.html

Would love it if the Globe and Mail could do something like that...what are the chances?

UPDATE: This chart is a couple years old, but does what I was looking for --

http://bp3.blogger.com/_PiR0viQSvUQ...AQLfGDbWq5Y/s1600-h/canada_pricesvswages2.png

and here's another good source: http://runningofthebulls.typepad.co...l/2010/08/canadian-housing-bubble-update.html
 
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^^^ As has been said before, Vancouver's prices are unsustainable (even with the foreign money from China).
 
http://www.theglobeandmail.com/repo...e-hike-wont-be-a-blow-to-most/article1889230/

Not new information but puts some actual numbers on the degree of exposure of the Canadian market.
Still, while the numbers are much lower than inthe US, and they say we can absorb more, if there were a significant rise in rates, this would be a bit like a snowball gaining size as it continues to roll down the hill. That said, the present trends of increased debt needs to stop.
 
This graph from the article is so irresponsible.
http://www.theglobeandmail.com/repo...-equity-in-homes/article1889229/?from=1889230

Sure, Canadian's have more equity in their homes than the US CURRENTLY. But US prices have dropped nationwide by 25%. If you gross back up the US figures, then they had 54% equity at the peak. And our current (peak?) prices are nearly nearly 10% higher than the us at the peak, which would have seen US equity at 59%.
 
I see you point Dave.

Of course, the other issue with the US is that interest on a principal residence can be written off unlike Canada so there is an incentive in the US to take on more mortgage because you effectively pay less tax. So a higher earning American would carry a mortgage even if he did not have to to pay less tax and therefore theoretically should be in a better position to absorb a realignment of prices than say a Canadian who presumably would be trying to minimize the amount on his mortgage with whatever means possible at his/her disposal.
Of course, depending on where in the US, the price adjustments have been beyond 50% from inflated peaks in the most overheated markets of Nevada, Florida and California.
 
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