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Baby, we got a bubble!?
- Thread starter simuls
- Start date
interested
Senior Member
^^
Not in my view. Lots of incentives on cars, delays of purchases for a while and therefore the catchup now. Yes people feel better. More unrest and questions about oil and where it is going. In my view, one more shock (unrest in another country esp. if a larger oil producer) and if oil prices go up further, recovery will stall, at least if history is any reflection.
As well, I don't believe there will be an increase in real estate prices. The concensus is that the US is going into a double dip on real estate with prices expected to drop on average another 5% this year. People here will look and wonder how we can have further increased prices. I note lots of new launches offering incentives. To me that does not spell upward increase in real estate and suggests new is meeting price resistance. Let's wait until May/June after the effects of the latest government monkeying (with changing mortgage rules) and the likely pull forward of demand and see if prices and sales continue to increase.
Of course, "it may be different this time" (Roll eyes).
Not in my view. Lots of incentives on cars, delays of purchases for a while and therefore the catchup now. Yes people feel better. More unrest and questions about oil and where it is going. In my view, one more shock (unrest in another country esp. if a larger oil producer) and if oil prices go up further, recovery will stall, at least if history is any reflection.
As well, I don't believe there will be an increase in real estate prices. The concensus is that the US is going into a double dip on real estate with prices expected to drop on average another 5% this year. People here will look and wonder how we can have further increased prices. I note lots of new launches offering incentives. To me that does not spell upward increase in real estate and suggests new is meeting price resistance. Let's wait until May/June after the effects of the latest government monkeying (with changing mortgage rules) and the likely pull forward of demand and see if prices and sales continue to increase.
Of course, "it may be different this time" (Roll eyes).
redfirm
Active Member
Hi all,
long time reader ... my first contribution. Link for an excellent Vanity Fair article is attached. I hope we, Canadians, learn from other nations' recent troubles. Each r/e bubble is unique to a degree. But the common feature is always the same - r/e fundamentals and ratios get distorted, then it all lasts for a certain peiod of time and then ...
QUOTE:
Morgan Kelly is a professor of economics at University College Dublin, but he did not, until recently, view it as his business to think much about the economy under his nose. He had written a handful of highly regarded academic papers on topics (such as “The Economic Impact of the Little Ice Ageâ€) considered abstruse even by academic economists. “I only stumbled on this catastrophe by accident,†he says. “I had never been interested in the Irish economy. The Irish economy is tiny and boring.†Kelly saw house prices rising madly and heard young men in Irish finance to whom he had recently taught economics try to explain why the boom didn’t trouble them. And they troubled him. “Around the middle of 2006 all these former students of ours working for the banks started to appear on TV!†he says. “They were now all bank economists, and they were nice guys and all that. And they were all saying the same thing: ‘We’re going to have a soft landing.’ â€
The statement struck him as absurd: real-estate bubbles never end with soft landings. A bubble is inflated by nothing firmer than expectations. The moment people cease to believe that house prices will rise forever, they will notice what a terrible long-term investment real estate has become and flee the market, and the market will crash. It was in the nature of real-estate booms to end with crashes—just as it was perhaps in Morgan Kelly’s nature to assume that, if his former students were cast on Irish TV as financial experts, something was amiss.
“There is an iron law of house prices,†he wrote. “The more house prices rise relative to income and rents, the more they subsequently fall.â€
http://www.vanityfair.com/business/features/2011/03/michael-lewis-ireland-201103
long time reader ... my first contribution. Link for an excellent Vanity Fair article is attached. I hope we, Canadians, learn from other nations' recent troubles. Each r/e bubble is unique to a degree. But the common feature is always the same - r/e fundamentals and ratios get distorted, then it all lasts for a certain peiod of time and then ...
QUOTE:
Morgan Kelly is a professor of economics at University College Dublin, but he did not, until recently, view it as his business to think much about the economy under his nose. He had written a handful of highly regarded academic papers on topics (such as “The Economic Impact of the Little Ice Ageâ€) considered abstruse even by academic economists. “I only stumbled on this catastrophe by accident,†he says. “I had never been interested in the Irish economy. The Irish economy is tiny and boring.†Kelly saw house prices rising madly and heard young men in Irish finance to whom he had recently taught economics try to explain why the boom didn’t trouble them. And they troubled him. “Around the middle of 2006 all these former students of ours working for the banks started to appear on TV!†he says. “They were now all bank economists, and they were nice guys and all that. And they were all saying the same thing: ‘We’re going to have a soft landing.’ â€
The statement struck him as absurd: real-estate bubbles never end with soft landings. A bubble is inflated by nothing firmer than expectations. The moment people cease to believe that house prices will rise forever, they will notice what a terrible long-term investment real estate has become and flee the market, and the market will crash. It was in the nature of real-estate booms to end with crashes—just as it was perhaps in Morgan Kelly’s nature to assume that, if his former students were cast on Irish TV as financial experts, something was amiss.
“There is an iron law of house prices,†he wrote. “The more house prices rise relative to income and rents, the more they subsequently fall.â€
http://www.vanityfair.com/business/features/2011/03/michael-lewis-ireland-201103
interested
Senior Member
^^
Scanned the vanity fair article.
Welcome Redfirm to the site and the discussions.
There are some glarring differences. 500% price increase from 1994 to 2006. Million dollar houses renting for $833/month or 1%.
We are looking here at 1996 to present increases probably closer to approximately 150% (for TO downtown core). While too much, this is quite different.
We worry about 70% home ownership and it was 87% in Ireland.
So the "Iron law" quoted is correct I am sure but whether itwill be a 50% decline or just a 15% decline is the question. As the law states, the more house prices rise, the more they subsequently fall. So expecting the same decline as in Ireland for eg. may not be accurate.
However I do agree if prices continue to fly in the face of fundamentals; rate of return on purchase price and also price increases that exceed income growth and inflation, there will be a "reckoning".
I sincerely hope that we do not experience an Ireland style collapse as described in the article.
that would be devastating as it is for the people of Ireland.
Scanned the vanity fair article.
Welcome Redfirm to the site and the discussions.
There are some glarring differences. 500% price increase from 1994 to 2006. Million dollar houses renting for $833/month or 1%.
We are looking here at 1996 to present increases probably closer to approximately 150% (for TO downtown core). While too much, this is quite different.
We worry about 70% home ownership and it was 87% in Ireland.
So the "Iron law" quoted is correct I am sure but whether itwill be a 50% decline or just a 15% decline is the question. As the law states, the more house prices rise, the more they subsequently fall. So expecting the same decline as in Ireland for eg. may not be accurate.
However I do agree if prices continue to fly in the face of fundamentals; rate of return on purchase price and also price increases that exceed income growth and inflation, there will be a "reckoning".
I sincerely hope that we do not experience an Ireland style collapse as described in the article.
that would be devastating as it is for the people of Ireland.
redfirm
Active Member
QUOTE: "So expecting the same decline as in Ireland for eg. may not be accurate."
Agree. That's why I said up front - each bubble is unique. Percentages and ratios are different.Canada won't go bankrupt, and we won't have "the Germans" (reference to euro officials send to Ireland to guide their financial system).
But we will have many of the things mentioned in this, and many other recent articles, about various r/e bubbles. Florida bubble is not the same as the one in Seattle, or what's hapening in Detroit .... but some common denominators are there.
Some people smarter than me alrady made Canadian calculation: we are looking at 20-25% correction based on fundamentals. This can go +/- depending on some other, lets call them, "global" factors.
Agree. That's why I said up front - each bubble is unique. Percentages and ratios are different.Canada won't go bankrupt, and we won't have "the Germans" (reference to euro officials send to Ireland to guide their financial system).
But we will have many of the things mentioned in this, and many other recent articles, about various r/e bubbles. Florida bubble is not the same as the one in Seattle, or what's hapening in Detroit .... but some common denominators are there.
Some people smarter than me alrady made Canadian calculation: we are looking at 20-25% correction based on fundamentals. This can go +/- depending on some other, lets call them, "global" factors.
marsh
Active Member
Here are two recent articles from the Globe - I'll post them separately. The first one says Canadians aren't saving enough partly due to the "wealth" effect of real estate market the past few years. The second deals with China imposing new controls on home ownership to curb the bubble there. Both are disturbing in their own ways.
Canadians urged to change spendthrift ways
GRANT ROBERTSON — BANKING REPORTER
From Monday's Globe and Mail
Published Sunday, Feb. 27, 2011 7:14PM EST
Last updated Monday, Feb. 28, 2011 7:08AM EST
For the past 15 years, Canadians haven’t been saving money, in large part because there was no pressing need. Rising home prices made people feel richer, and saving for a rainy day was a low priority.
But that economic era is fast coming to an end. A new report to be released Monday shows the toll that years of passive savings is taking on the financial picture of Canadians.
Having relied overwhelmingly on their homes to build personal wealth, the report says the average Canadian consumer now socks away considerably less than their U.S. neighbours, and will have to start saving more as housing prices moderate.
The gap in savings rates between Canada and the United States now sits at an all-time high. At 4.2 per cent, Canada’s saving rate is 1.6 percentage points below the U.S., at 5.8 per cent, according to the most recent data. On average, that means Canadians are spending nearly 96 per cent of their after-tax income.
“We in Canada, and in the U.S., have jumped into this recession totally naked, unprotected,” said Benjamin Tal, deputy chief economist at Canadian Imperial Bank of Commerce.
His report, titled Back to Old-Fashioned Saving, suggests the average U.S. consumer has been jolted into saving more by the recent collapse of the U.S. real estate market. However, in Canada, where there has been no shock in the housing market, Canadian consumers have felt less compelled to change their financial ways, and begin actively saving more.
For several years, until late 2008, Canadians saved more than Americans. However, the savings rate in Canada began to fall sharply in 2009.
Though there are signs emerging throughout the banking sector that Canadians are indeed keeping up with credit card bills and are paying down personal lines of credit, savings rates remain largely flat. Only a small uptick in savings has been seen since the start of the downturn in Canada.
The savings slump also has nothing to do with demographics, the report argues, since similar trends have been spotted in all age groups. However, a shift towards active saving will have to take place as housing prices start to come down, the report argues. “While we do not foresee a major correction, the real estate boom is clearly over and even a flat housing market will strip households of their primary means of passive savings,” the report says.
“When you feel richer, you say ‘I don’t have to save.’ But when you look at the situation in which the value of your house doesn’t go up, or it actually goes down, then you feel different,” Mr. Tal said.
Since the 90s, passive savings amounted to as much as $70-billion for Canadian households, Mr. Tal estimates. However, the good news is that it doesn’t take a major shift in the economy – or to put it another way, hacking and slashing of household budgets – to shift savings rates back up again. Mr. Tal believes the pressures now being exerted on Canadian consumers will cause a natural shift towards active savings, which will result in the savings rate climbing to 6 per cent by 2015.
“When you are scared, you save money, and you spend less,” Mr. Tal said.
That increase in the savings rate is worth an additional $30-billion of savings a year, and will require trimming about $1,000 of spending annually from the average household. However, while that figure may sound small, Mr. Tal acknowledges many Canadian households will not have that flexibility, which could slow the recovery process.
Debt and the psyche of the consumer has been a topic of concern in Canada since last fall, when Bank of Canada Governor Mark Carney raised concerns about household debt levels, and their impact on the economy. In January, Finance Minister Jim Flaherty introduced new mortgage rules, such as eliminating 35-year mortgage amortizations, to reduce overborrowing by Canadians.
Last week, a professor from MIT’s Sloan School of Management suggested Canada could be in for a reckoning, and argued banks needed to play a more active role in discouraging Canadians not to borrow more than they can afford.
Derek Dunfield, a neuroscientist and visiting scholar in behavioural economics and marketing at MIT, issued a paper saying Canadians “may soon be overwhelmed” by their debt loads when interest rates increase.
Mr. Dunfield’s paper referred to the “culture of borrowing” in Canada, which presents two possible problems for the economy. If interest rates rise and housing prices drop, more people could begin to default on their mortgage and credit card payments, Mr. Dunfield said.
As well, “an equally worrying – and perhaps more likely scenario – is that interest rates go up a little – and more of people’s disposable income goes to repaying their debt, leading to a significant reduction in consumer spending.”
Since personal spending on consumer goods and services accounts for 58 per cent of Canadian gross domestic product, such a drop could lead to a made-in-Canada recession, Mr. Dunfield said
Canadians urged to change spendthrift ways
GRANT ROBERTSON — BANKING REPORTER
From Monday's Globe and Mail
Published Sunday, Feb. 27, 2011 7:14PM EST
Last updated Monday, Feb. 28, 2011 7:08AM EST
For the past 15 years, Canadians haven’t been saving money, in large part because there was no pressing need. Rising home prices made people feel richer, and saving for a rainy day was a low priority.
But that economic era is fast coming to an end. A new report to be released Monday shows the toll that years of passive savings is taking on the financial picture of Canadians.
Having relied overwhelmingly on their homes to build personal wealth, the report says the average Canadian consumer now socks away considerably less than their U.S. neighbours, and will have to start saving more as housing prices moderate.
The gap in savings rates between Canada and the United States now sits at an all-time high. At 4.2 per cent, Canada’s saving rate is 1.6 percentage points below the U.S., at 5.8 per cent, according to the most recent data. On average, that means Canadians are spending nearly 96 per cent of their after-tax income.
“We in Canada, and in the U.S., have jumped into this recession totally naked, unprotected,” said Benjamin Tal, deputy chief economist at Canadian Imperial Bank of Commerce.
His report, titled Back to Old-Fashioned Saving, suggests the average U.S. consumer has been jolted into saving more by the recent collapse of the U.S. real estate market. However, in Canada, where there has been no shock in the housing market, Canadian consumers have felt less compelled to change their financial ways, and begin actively saving more.
For several years, until late 2008, Canadians saved more than Americans. However, the savings rate in Canada began to fall sharply in 2009.
Though there are signs emerging throughout the banking sector that Canadians are indeed keeping up with credit card bills and are paying down personal lines of credit, savings rates remain largely flat. Only a small uptick in savings has been seen since the start of the downturn in Canada.
The savings slump also has nothing to do with demographics, the report argues, since similar trends have been spotted in all age groups. However, a shift towards active saving will have to take place as housing prices start to come down, the report argues. “While we do not foresee a major correction, the real estate boom is clearly over and even a flat housing market will strip households of their primary means of passive savings,” the report says.
“When you feel richer, you say ‘I don’t have to save.’ But when you look at the situation in which the value of your house doesn’t go up, or it actually goes down, then you feel different,” Mr. Tal said.
Since the 90s, passive savings amounted to as much as $70-billion for Canadian households, Mr. Tal estimates. However, the good news is that it doesn’t take a major shift in the economy – or to put it another way, hacking and slashing of household budgets – to shift savings rates back up again. Mr. Tal believes the pressures now being exerted on Canadian consumers will cause a natural shift towards active savings, which will result in the savings rate climbing to 6 per cent by 2015.
“When you are scared, you save money, and you spend less,” Mr. Tal said.
That increase in the savings rate is worth an additional $30-billion of savings a year, and will require trimming about $1,000 of spending annually from the average household. However, while that figure may sound small, Mr. Tal acknowledges many Canadian households will not have that flexibility, which could slow the recovery process.
Debt and the psyche of the consumer has been a topic of concern in Canada since last fall, when Bank of Canada Governor Mark Carney raised concerns about household debt levels, and their impact on the economy. In January, Finance Minister Jim Flaherty introduced new mortgage rules, such as eliminating 35-year mortgage amortizations, to reduce overborrowing by Canadians.
Last week, a professor from MIT’s Sloan School of Management suggested Canada could be in for a reckoning, and argued banks needed to play a more active role in discouraging Canadians not to borrow more than they can afford.
Derek Dunfield, a neuroscientist and visiting scholar in behavioural economics and marketing at MIT, issued a paper saying Canadians “may soon be overwhelmed” by their debt loads when interest rates increase.
Mr. Dunfield’s paper referred to the “culture of borrowing” in Canada, which presents two possible problems for the economy. If interest rates rise and housing prices drop, more people could begin to default on their mortgage and credit card payments, Mr. Dunfield said.
As well, “an equally worrying – and perhaps more likely scenario – is that interest rates go up a little – and more of people’s disposable income goes to repaying their debt, leading to a significant reduction in consumer spending.”
Since personal spending on consumer goods and services accounts for 58 per cent of Canadian gross domestic product, such a drop could lead to a made-in-Canada recession, Mr. Dunfield said
marsh
Active Member
Here are two recent articles from the Globe - I'll post them separately. The first one says Canadians aren't saving enough partly due to the "wealth" effect of real estate market the past few years. The second deals with China imposing new controls on home ownership to curb the bubble there. Both are disturbing in their own ways.
Canadians urged to change spendthrift ways
GRANT ROBERTSON — BANKING REPORTER
From Monday's Globe and Mail
Published Sunday, Feb. 27, 2011 7:14PM EST
Last updated Monday, Feb. 28, 2011 7:08AM EST
For the past 15 years, Canadians haven’t been saving money, in large part because there was no pressing need. Rising home prices made people feel richer, and saving for a rainy day was a low priority.
But that economic era is fast coming to an end. A new report to be released Monday shows the toll that years of passive savings is taking on the financial picture of Canadians.
Having relied overwhelmingly on their homes to build personal wealth, the report says the average Canadian consumer now socks away considerably less than their U.S. neighbours, and will have to start saving more as housing prices moderate.
The gap in savings rates between Canada and the United States now sits at an all-time high. At 4.2 per cent, Canada’s saving rate is 1.6 percentage points below the U.S., at 5.8 per cent, according to the most recent data. On average, that means Canadians are spending nearly 96 per cent of their after-tax income.
“We in Canada, and in the U.S., have jumped into this recession totally naked, unprotected,†said Benjamin Tal, deputy chief economist at Canadian Imperial Bank of Commerce.
His report, titled Back to Old-Fashioned Saving, suggests the average U.S. consumer has been jolted into saving more by the recent collapse of the U.S. real estate market. However, in Canada, where there has been no shock in the housing market, Canadian consumers have felt less compelled to change their financial ways, and begin actively saving more.
For several years, until late 2008, Canadians saved more than Americans. However, the savings rate in Canada began to fall sharply in 2009.
Though there are signs emerging throughout the banking sector that Canadians are indeed keeping up with credit card bills and are paying down personal lines of credit, savings rates remain largely flat. Only a small uptick in savings has been seen since the start of the downturn in Canada.
The savings slump also has nothing to do with demographics, the report argues, since similar trends have been spotted in all age groups. However, a shift towards active saving will have to take place as housing prices start to come down, the report argues. “While we do not foresee a major correction, the real estate boom is clearly over and even a flat housing market will strip households of their primary means of passive savings,†the report says.
“When you feel richer, you say ‘I don’t have to save.’ But when you look at the situation in which the value of your house doesn’t go up, or it actually goes down, then you feel different,†Mr. Tal said.
Since the 90s, passive savings amounted to as much as $70-billion for Canadian households, Mr. Tal estimates. However, the good news is that it doesn’t take a major shift in the economy – or to put it another way, hacking and slashing of household budgets – to shift savings rates back up again. Mr. Tal believes the pressures now being exerted on Canadian consumers will cause a natural shift towards active savings, which will result in the savings rate climbing to 6 per cent by 2015.
“When you are scared, you save money, and you spend less,†Mr. Tal said.
That increase in the savings rate is worth an additional $30-billion of savings a year, and will require trimming about $1,000 of spending annually from the average household. However, while that figure may sound small, Mr. Tal acknowledges many Canadian households will not have that flexibility, which could slow the recovery process.
Debt and the psyche of the consumer has been a topic of concern in Canada since last fall, when Bank of Canada Governor Mark Carney raised concerns about household debt levels, and their impact on the economy. In January, Finance Minister Jim Flaherty introduced new mortgage rules, such as eliminating 35-year mortgage amortizations, to reduce overborrowing by Canadians.
Last week, a professor from MIT’s Sloan School of Management suggested Canada could be in for a reckoning, and argued banks needed to play a more active role in discouraging Canadians not to borrow more than they can afford.
Derek Dunfield, a neuroscientist and visiting scholar in behavioural economics and marketing at MIT, issued a paper saying Canadians “may soon be overwhelmed†by their debt loads when interest rates increase.
Mr. Dunfield’s paper referred to the “culture of borrowing†in Canada, which presents two possible problems for the economy. If interest rates rise and housing prices drop, more people could begin to default on their mortgage and credit card payments, Mr. Dunfield said.
As well, “an equally worrying – and perhaps more likely scenario – is that interest rates go up a little – and more of people’s disposable income goes to repaying their debt, leading to a significant reduction in consumer spending.â€
Since personal spending on consumer goods and services accounts for 58 per cent of Canadian gross domestic product, such a drop could lead to a made-in-Canada recession, Mr. Dunfield said
Canadians urged to change spendthrift ways
GRANT ROBERTSON — BANKING REPORTER
From Monday's Globe and Mail
Published Sunday, Feb. 27, 2011 7:14PM EST
Last updated Monday, Feb. 28, 2011 7:08AM EST
For the past 15 years, Canadians haven’t been saving money, in large part because there was no pressing need. Rising home prices made people feel richer, and saving for a rainy day was a low priority.
But that economic era is fast coming to an end. A new report to be released Monday shows the toll that years of passive savings is taking on the financial picture of Canadians.
Having relied overwhelmingly on their homes to build personal wealth, the report says the average Canadian consumer now socks away considerably less than their U.S. neighbours, and will have to start saving more as housing prices moderate.
The gap in savings rates between Canada and the United States now sits at an all-time high. At 4.2 per cent, Canada’s saving rate is 1.6 percentage points below the U.S., at 5.8 per cent, according to the most recent data. On average, that means Canadians are spending nearly 96 per cent of their after-tax income.
“We in Canada, and in the U.S., have jumped into this recession totally naked, unprotected,†said Benjamin Tal, deputy chief economist at Canadian Imperial Bank of Commerce.
His report, titled Back to Old-Fashioned Saving, suggests the average U.S. consumer has been jolted into saving more by the recent collapse of the U.S. real estate market. However, in Canada, where there has been no shock in the housing market, Canadian consumers have felt less compelled to change their financial ways, and begin actively saving more.
For several years, until late 2008, Canadians saved more than Americans. However, the savings rate in Canada began to fall sharply in 2009.
Though there are signs emerging throughout the banking sector that Canadians are indeed keeping up with credit card bills and are paying down personal lines of credit, savings rates remain largely flat. Only a small uptick in savings has been seen since the start of the downturn in Canada.
The savings slump also has nothing to do with demographics, the report argues, since similar trends have been spotted in all age groups. However, a shift towards active saving will have to take place as housing prices start to come down, the report argues. “While we do not foresee a major correction, the real estate boom is clearly over and even a flat housing market will strip households of their primary means of passive savings,†the report says.
“When you feel richer, you say ‘I don’t have to save.’ But when you look at the situation in which the value of your house doesn’t go up, or it actually goes down, then you feel different,†Mr. Tal said.
Since the 90s, passive savings amounted to as much as $70-billion for Canadian households, Mr. Tal estimates. However, the good news is that it doesn’t take a major shift in the economy – or to put it another way, hacking and slashing of household budgets – to shift savings rates back up again. Mr. Tal believes the pressures now being exerted on Canadian consumers will cause a natural shift towards active savings, which will result in the savings rate climbing to 6 per cent by 2015.
“When you are scared, you save money, and you spend less,†Mr. Tal said.
That increase in the savings rate is worth an additional $30-billion of savings a year, and will require trimming about $1,000 of spending annually from the average household. However, while that figure may sound small, Mr. Tal acknowledges many Canadian households will not have that flexibility, which could slow the recovery process.
Debt and the psyche of the consumer has been a topic of concern in Canada since last fall, when Bank of Canada Governor Mark Carney raised concerns about household debt levels, and their impact on the economy. In January, Finance Minister Jim Flaherty introduced new mortgage rules, such as eliminating 35-year mortgage amortizations, to reduce overborrowing by Canadians.
Last week, a professor from MIT’s Sloan School of Management suggested Canada could be in for a reckoning, and argued banks needed to play a more active role in discouraging Canadians not to borrow more than they can afford.
Derek Dunfield, a neuroscientist and visiting scholar in behavioural economics and marketing at MIT, issued a paper saying Canadians “may soon be overwhelmed†by their debt loads when interest rates increase.
Mr. Dunfield’s paper referred to the “culture of borrowing†in Canada, which presents two possible problems for the economy. If interest rates rise and housing prices drop, more people could begin to default on their mortgage and credit card payments, Mr. Dunfield said.
As well, “an equally worrying – and perhaps more likely scenario – is that interest rates go up a little – and more of people’s disposable income goes to repaying their debt, leading to a significant reduction in consumer spending.â€
Since personal spending on consumer goods and services accounts for 58 per cent of Canadian gross domestic product, such a drop could lead to a made-in-Canada recession, Mr. Dunfield said
marsh
Active Member
Here's the one on China: It makes you wonder if Canada should implement something similar aimed at speculators.
China gets tough on property speculators
CAROLYNNE WHEELER
BEIJING— From Monday's Globe and Mail
Published Sunday, Feb. 27, 2011 7:05PM ESTLast updated Sunday, Feb. 27, 2011 7:36PM ESTcomments
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As a lifelong Beijinger preparing for retirement, Luan Yanju followed the lead of thousands of other Chinese investors hoping to insulate themselves against volatile stocks and low-return bank accounts: She invested her savings in property.
Ms. Luan, who until two years ago worked for German car manufacturer Mercedes, acquired clothing stalls in three Beijing markets, and a second apartment in Miyun district just north of Beijing’s city limits.
The market kiosks have paid off, their monthly rent tripling to approximately 30,000 yuan ($4,468) in the last five years, and now help to finance her daughter’s studies in Canada. The second apartment, on the other hand, has become a suburban savings account – for now, a refuge from city traffic and pollution; in future, an asset against the proverbial rainy day.
“I didn’t understand how to invest in stocks. People can’t simply follow what others do, can we? We can’t do what we don't know,” says Ms. Luan, who is in her fifties. “Now everyone wants to squeeze into Beijing. How could Beijingers think of investing outside? Rational people won’t invest in other cities, because who are you going to rent it to? Who is going to take care of it for you?”
This traditional form of investment for Chinese families is about to become much more difficult under a series of tough new government-imposed controls on the housing market.
Chinese officials have increased interest rates three times in the last four months and have ordered banks to tighten lending. Just before the Chinese New Year holiday early in February, the State Council raised the minimum down payment for purchases of second homes to 60 per cent, up from 50 per cent, and urged local governments to set price targets and cap the number of homes residents are permitted to own.
As a result, in Beijing, legally registered residents are now no longer permitted to buy more than two homes, while those without Beijing registration cannot buy property at all unless they can prove they have paid taxes there for five years.
In Shanghai, those without residency documents must pay taxes in the city for a year, and all second-time purchasers will now be subject to a new real-estate tax aimed at financing the building of affordable housing.
“We can see that the government is sending a strong message - houses should return to their basics, which is to be as a shelter by function, and not a vehicle for speculation,” said Andy Zhang, managing director of the China operations for global real estate brokers Cushman & Wakefield. “Should these measures effectively squeeze out the bubble and curb speculation, demand for investment purchase will substantially shrink. As a result, sales volume in [the] mid- to high-end residential sector will decrease substantially.”
At stake is whether speculators are driving real estate into a bubble which could collapse, deflating the Chinese economy, which has just overtaken Japan as the world’s second largest. Officials are caught in a delicate balance between trying to keep inflation down and basics like food and housing affordable for the masses, while still maintaining China’s impressive economic growth.
The World Bank has cited real estate crashes in Japan and Ireland as a warning to Chinese officials to rein in their finances. “China must carefully study the cases of Japan and Ireland, where the collapse of the real estate bubble caused a financial crisis and economic stagnation,” the World Bank’s chief economist Justin Yifu Lin told a Beijing University symposium recently.
Others put it more bluntly: “The history is pretty bleak. These things always create bubble situations and they always end badly,” said Michael Pettis, a professor of finance in Beijing University’s Guanghua School of Management, who warned the government’s efforts may help in diverting excess liquidity from real estate, but that the fundamental problem remains. “I think it’s going to be a long, slow deflation of the bubble rather than a burst – more stable, but more expensive in the long run.”
The government’s actions – and expected further regulation – have been received with reservation by the industry, which has been enjoying brisk business. The price of a new home in Beijing rose 6.8 per cent last month over the same period a year ago; remove government-subsidized housing from the calculation and the increase becomes 9.1 per cent, the highest in the country.
Properties in the new and booming Central Business District (CBD) in east Beijing, for instance, start at 50,000 yuan per square metre.
A typical three-bedroom property in CBD, considered an upscale area with many foreigners and wealthy Chinese, runs about nine million yuan ($1.34-million), or 90 times the average annual salary of a civil servant.
The average cost of a two-bedroom apartment along the more affordable Fourth Ring Road area - considered the edge of central Beijing - is three million yuan or $447,000.
“It’s very, very expensive. Only very rich people can afford to live in this area,” said Heather Liu, 36, a private real estate agent dealing in high-end properties in the city. Though she called recent price increases “unbelievable,” she said she has already seen a slowdown in sales as clients find it harder to obtain mortgages.
“I think [this policy] is not welcomed by many families,” Ms. Liu said. “But so many [are] investing in this market the prices were going crazy up. Maybe it will make prices go down a little bit.”
Special to The Globe and Mail
China gets tough on property speculators
CAROLYNNE WHEELER
BEIJING— From Monday's Globe and Mail
Published Sunday, Feb. 27, 2011 7:05PM ESTLast updated Sunday, Feb. 27, 2011 7:36PM ESTcomments
Email Tweet Print Decrease text size Increase text size
As a lifelong Beijinger preparing for retirement, Luan Yanju followed the lead of thousands of other Chinese investors hoping to insulate themselves against volatile stocks and low-return bank accounts: She invested her savings in property.
Ms. Luan, who until two years ago worked for German car manufacturer Mercedes, acquired clothing stalls in three Beijing markets, and a second apartment in Miyun district just north of Beijing’s city limits.
The market kiosks have paid off, their monthly rent tripling to approximately 30,000 yuan ($4,468) in the last five years, and now help to finance her daughter’s studies in Canada. The second apartment, on the other hand, has become a suburban savings account – for now, a refuge from city traffic and pollution; in future, an asset against the proverbial rainy day.
“I didn’t understand how to invest in stocks. People can’t simply follow what others do, can we? We can’t do what we don't know,” says Ms. Luan, who is in her fifties. “Now everyone wants to squeeze into Beijing. How could Beijingers think of investing outside? Rational people won’t invest in other cities, because who are you going to rent it to? Who is going to take care of it for you?”
This traditional form of investment for Chinese families is about to become much more difficult under a series of tough new government-imposed controls on the housing market.
Chinese officials have increased interest rates three times in the last four months and have ordered banks to tighten lending. Just before the Chinese New Year holiday early in February, the State Council raised the minimum down payment for purchases of second homes to 60 per cent, up from 50 per cent, and urged local governments to set price targets and cap the number of homes residents are permitted to own.
As a result, in Beijing, legally registered residents are now no longer permitted to buy more than two homes, while those without Beijing registration cannot buy property at all unless they can prove they have paid taxes there for five years.
In Shanghai, those without residency documents must pay taxes in the city for a year, and all second-time purchasers will now be subject to a new real-estate tax aimed at financing the building of affordable housing.
“We can see that the government is sending a strong message - houses should return to their basics, which is to be as a shelter by function, and not a vehicle for speculation,” said Andy Zhang, managing director of the China operations for global real estate brokers Cushman & Wakefield. “Should these measures effectively squeeze out the bubble and curb speculation, demand for investment purchase will substantially shrink. As a result, sales volume in [the] mid- to high-end residential sector will decrease substantially.”
At stake is whether speculators are driving real estate into a bubble which could collapse, deflating the Chinese economy, which has just overtaken Japan as the world’s second largest. Officials are caught in a delicate balance between trying to keep inflation down and basics like food and housing affordable for the masses, while still maintaining China’s impressive economic growth.
The World Bank has cited real estate crashes in Japan and Ireland as a warning to Chinese officials to rein in their finances. “China must carefully study the cases of Japan and Ireland, where the collapse of the real estate bubble caused a financial crisis and economic stagnation,” the World Bank’s chief economist Justin Yifu Lin told a Beijing University symposium recently.
Others put it more bluntly: “The history is pretty bleak. These things always create bubble situations and they always end badly,” said Michael Pettis, a professor of finance in Beijing University’s Guanghua School of Management, who warned the government’s efforts may help in diverting excess liquidity from real estate, but that the fundamental problem remains. “I think it’s going to be a long, slow deflation of the bubble rather than a burst – more stable, but more expensive in the long run.”
The government’s actions – and expected further regulation – have been received with reservation by the industry, which has been enjoying brisk business. The price of a new home in Beijing rose 6.8 per cent last month over the same period a year ago; remove government-subsidized housing from the calculation and the increase becomes 9.1 per cent, the highest in the country.
Properties in the new and booming Central Business District (CBD) in east Beijing, for instance, start at 50,000 yuan per square metre.
A typical three-bedroom property in CBD, considered an upscale area with many foreigners and wealthy Chinese, runs about nine million yuan ($1.34-million), or 90 times the average annual salary of a civil servant.
The average cost of a two-bedroom apartment along the more affordable Fourth Ring Road area - considered the edge of central Beijing - is three million yuan or $447,000.
“It’s very, very expensive. Only very rich people can afford to live in this area,” said Heather Liu, 36, a private real estate agent dealing in high-end properties in the city. Though she called recent price increases “unbelievable,” she said she has already seen a slowdown in sales as clients find it harder to obtain mortgages.
“I think [this policy] is not welcomed by many families,” Ms. Liu said. “But so many [are] investing in this market the prices were going crazy up. Maybe it will make prices go down a little bit.”
Special to The Globe and Mail
interested
Senior Member
Redfirm,
We had a small example of how quickly things can unravel in late 2008 to early 2009 when in Toronto prices dropped by about 15% over 7 months, only to recover totally (and somewhat irrationally in my view).
The reality is economists can do very nice modelling and come up with numbers which unfortunately through no fault of their own get shown to be wrong due to outside factors; for eg. geopolitical events or alternatively government medelling in the market place as you point out. As well, some large investors can swing certain markets.
Canada could go bankrupt. It is possible but highly unlikely based on our real estate market. The US could go bankrupt but would drag the whole worle into disarray with it so that won't happen either (at least I don't believe it will).
I don't take much head in those calling for a soft landing who have vested interests but it is a very real possibility. A balloon that inflates 5x over its base will pop (Ireland as we saw). Will one that is 1.5x pop. Maybe or maybe if there is no more air placed in it, it won't or leak slowly. There are examples of more minor, yes painful, but non catastrophic real estate price adjustments. Perhaps they should not be referred to as "bubbles". Hence the title of this thread.
We had a small example of how quickly things can unravel in late 2008 to early 2009 when in Toronto prices dropped by about 15% over 7 months, only to recover totally (and somewhat irrationally in my view).
The reality is economists can do very nice modelling and come up with numbers which unfortunately through no fault of their own get shown to be wrong due to outside factors; for eg. geopolitical events or alternatively government medelling in the market place as you point out. As well, some large investors can swing certain markets.
Canada could go bankrupt. It is possible but highly unlikely based on our real estate market. The US could go bankrupt but would drag the whole worle into disarray with it so that won't happen either (at least I don't believe it will).
I don't take much head in those calling for a soft landing who have vested interests but it is a very real possibility. A balloon that inflates 5x over its base will pop (Ireland as we saw). Will one that is 1.5x pop. Maybe or maybe if there is no more air placed in it, it won't or leak slowly. There are examples of more minor, yes painful, but non catastrophic real estate price adjustments. Perhaps they should not be referred to as "bubbles". Hence the title of this thread.
marsh
Active Member
Here's the one on China: It makes you wonder if Canada should implement something similar aimed at speculators.
China gets tough on property speculators
CAROLYNNE WHEELER
BEIJING— From Monday's Globe and Mail
Published Sunday, Feb. 27, 2011 7:05PM ESTLast updated Sunday, Feb. 27, 2011 7:36PM ESTcomments
Email Tweet Print Decrease text size Increase text size
As a lifelong Beijinger preparing for retirement, Luan Yanju followed the lead of thousands of other Chinese investors hoping to insulate themselves against volatile stocks and low-return bank accounts: She invested her savings in property.
Ms. Luan, who until two years ago worked for German car manufacturer Mercedes, acquired clothing stalls in three Beijing markets, and a second apartment in Miyun district just north of Beijing’s city limits.
The market kiosks have paid off, their monthly rent tripling to approximately 30,000 yuan ($4,468) in the last five years, and now help to finance her daughter’s studies in Canada. The second apartment, on the other hand, has become a suburban savings account – for now, a refuge from city traffic and pollution; in future, an asset against the proverbial rainy day.
“I didn’t understand how to invest in stocks. People can’t simply follow what others do, can we? We can’t do what we don't know,†says Ms. Luan, who is in her fifties. “Now everyone wants to squeeze into Beijing. How could Beijingers think of investing outside? Rational people won’t invest in other cities, because who are you going to rent it to? Who is going to take care of it for you?â€
This traditional form of investment for Chinese families is about to become much more difficult under a series of tough new government-imposed controls on the housing market.
Chinese officials have increased interest rates three times in the last four months and have ordered banks to tighten lending. Just before the Chinese New Year holiday early in February, the State Council raised the minimum down payment for purchases of second homes to 60 per cent, up from 50 per cent, and urged local governments to set price targets and cap the number of homes residents are permitted to own.
As a result, in Beijing, legally registered residents are now no longer permitted to buy more than two homes, while those without Beijing registration cannot buy property at all unless they can prove they have paid taxes there for five years.
In Shanghai, those without residency documents must pay taxes in the city for a year, and all second-time purchasers will now be subject to a new real-estate tax aimed at financing the building of affordable housing.
“We can see that the government is sending a strong message - houses should return to their basics, which is to be as a shelter by function, and not a vehicle for speculation,†said Andy Zhang, managing director of the China operations for global real estate brokers Cushman & Wakefield. “Should these measures effectively squeeze out the bubble and curb speculation, demand for investment purchase will substantially shrink. As a result, sales volume in [the] mid- to high-end residential sector will decrease substantially.â€
At stake is whether speculators are driving real estate into a bubble which could collapse, deflating the Chinese economy, which has just overtaken Japan as the world’s second largest. Officials are caught in a delicate balance between trying to keep inflation down and basics like food and housing affordable for the masses, while still maintaining China’s impressive economic growth.
The World Bank has cited real estate crashes in Japan and Ireland as a warning to Chinese officials to rein in their finances. “China must carefully study the cases of Japan and Ireland, where the collapse of the real estate bubble caused a financial crisis and economic stagnation,†the World Bank’s chief economist Justin Yifu Lin told a Beijing University symposium recently.
Others put it more bluntly: “The history is pretty bleak. These things always create bubble situations and they always end badly,†said Michael Pettis, a professor of finance in Beijing University’s Guanghua School of Management, who warned the government’s efforts may help in diverting excess liquidity from real estate, but that the fundamental problem remains. “I think it’s going to be a long, slow deflation of the bubble rather than a burst – more stable, but more expensive in the long run.â€
The government’s actions – and expected further regulation – have been received with reservation by the industry, which has been enjoying brisk business. The price of a new home in Beijing rose 6.8 per cent last month over the same period a year ago; remove government-subsidized housing from the calculation and the increase becomes 9.1 per cent, the highest in the country.
Properties in the new and booming Central Business District (CBD) in east Beijing, for instance, start at 50,000 yuan per square metre.
A typical three-bedroom property in CBD, considered an upscale area with many foreigners and wealthy Chinese, runs about nine million yuan ($1.34-million), or 90 times the average annual salary of a civil servant.
The average cost of a two-bedroom apartment along the more affordable Fourth Ring Road area - considered the edge of central Beijing - is three million yuan or $447,000.
“It’s very, very expensive. Only very rich people can afford to live in this area,†said Heather Liu, 36, a private real estate agent dealing in high-end properties in the city. Though she called recent price increases “unbelievable,†she said she has already seen a slowdown in sales as clients find it harder to obtain mortgages.
“I think [this policy] is not welcomed by many families,†Ms. Liu said. “But so many [are] investing in his market the prices were going crazy up. Maybe it will make prices go down a little bit.â€
Special to The Globe and Mail
China gets tough on property speculators
CAROLYNNE WHEELER
BEIJING— From Monday's Globe and Mail
Published Sunday, Feb. 27, 2011 7:05PM ESTLast updated Sunday, Feb. 27, 2011 7:36PM ESTcomments
Email Tweet Print Decrease text size Increase text size
As a lifelong Beijinger preparing for retirement, Luan Yanju followed the lead of thousands of other Chinese investors hoping to insulate themselves against volatile stocks and low-return bank accounts: She invested her savings in property.
Ms. Luan, who until two years ago worked for German car manufacturer Mercedes, acquired clothing stalls in three Beijing markets, and a second apartment in Miyun district just north of Beijing’s city limits.
The market kiosks have paid off, their monthly rent tripling to approximately 30,000 yuan ($4,468) in the last five years, and now help to finance her daughter’s studies in Canada. The second apartment, on the other hand, has become a suburban savings account – for now, a refuge from city traffic and pollution; in future, an asset against the proverbial rainy day.
“I didn’t understand how to invest in stocks. People can’t simply follow what others do, can we? We can’t do what we don't know,†says Ms. Luan, who is in her fifties. “Now everyone wants to squeeze into Beijing. How could Beijingers think of investing outside? Rational people won’t invest in other cities, because who are you going to rent it to? Who is going to take care of it for you?â€
This traditional form of investment for Chinese families is about to become much more difficult under a series of tough new government-imposed controls on the housing market.
Chinese officials have increased interest rates three times in the last four months and have ordered banks to tighten lending. Just before the Chinese New Year holiday early in February, the State Council raised the minimum down payment for purchases of second homes to 60 per cent, up from 50 per cent, and urged local governments to set price targets and cap the number of homes residents are permitted to own.
As a result, in Beijing, legally registered residents are now no longer permitted to buy more than two homes, while those without Beijing registration cannot buy property at all unless they can prove they have paid taxes there for five years.
In Shanghai, those without residency documents must pay taxes in the city for a year, and all second-time purchasers will now be subject to a new real-estate tax aimed at financing the building of affordable housing.
“We can see that the government is sending a strong message - houses should return to their basics, which is to be as a shelter by function, and not a vehicle for speculation,†said Andy Zhang, managing director of the China operations for global real estate brokers Cushman & Wakefield. “Should these measures effectively squeeze out the bubble and curb speculation, demand for investment purchase will substantially shrink. As a result, sales volume in [the] mid- to high-end residential sector will decrease substantially.â€
At stake is whether speculators are driving real estate into a bubble which could collapse, deflating the Chinese economy, which has just overtaken Japan as the world’s second largest. Officials are caught in a delicate balance between trying to keep inflation down and basics like food and housing affordable for the masses, while still maintaining China’s impressive economic growth.
The World Bank has cited real estate crashes in Japan and Ireland as a warning to Chinese officials to rein in their finances. “China must carefully study the cases of Japan and Ireland, where the collapse of the real estate bubble caused a financial crisis and economic stagnation,†the World Bank’s chief economist Justin Yifu Lin told a Beijing University symposium recently.
Others put it more bluntly: “The history is pretty bleak. These things always create bubble situations and they always end badly,†said Michael Pettis, a professor of finance in Beijing University’s Guanghua School of Management, who warned the government’s efforts may help in diverting excess liquidity from real estate, but that the fundamental problem remains. “I think it’s going to be a long, slow deflation of the bubble rather than a burst – more stable, but more expensive in the long run.â€
The government’s actions – and expected further regulation – have been received with reservation by the industry, which has been enjoying brisk business. The price of a new home in Beijing rose 6.8 per cent last month over the same period a year ago; remove government-subsidized housing from the calculation and the increase becomes 9.1 per cent, the highest in the country.
Properties in the new and booming Central Business District (CBD) in east Beijing, for instance, start at 50,000 yuan per square metre.
A typical three-bedroom property in CBD, considered an upscale area with many foreigners and wealthy Chinese, runs about nine million yuan ($1.34-million), or 90 times the average annual salary of a civil servant.
The average cost of a two-bedroom apartment along the more affordable Fourth Ring Road area - considered the edge of central Beijing - is three million yuan or $447,000.
“It’s very, very expensive. Only very rich people can afford to live in this area,†said Heather Liu, 36, a private real estate agent dealing in high-end properties in the city. Though she called recent price increases “unbelievable,†she said she has already seen a slowdown in sales as clients find it harder to obtain mortgages.
“I think [this policy] is not welcomed by many families,†Ms. Liu said. “But so many [are] investing in his market the prices were going crazy up. Maybe it will make prices go down a little bit.â€
Special to The Globe and Mail
interested
Senior Member
^^^
Marsh, I asked this question before and no one commented.
Does it seem possible that all those wealthy Chinese looking to continue to invest decide to send even more money first to Vancouver and then to Toronto.
And if so, does it mean we can look forward to much further price increases here and importing the Chinese and other investor driven bubble here.
Note here to in this example; prices aof an average 2 bedroom are 30x the salary of a "civil servant". Assuming many more are civil servants there and compare to our average family, this is still orders of magnitude beyond where we are here.
One other thing, while Prof. Pettis calls for things ending badly, once again we see a prediction of long slow deflation rather than a pop but just as painful.
Marsh, I asked this question before and no one commented.
Does it seem possible that all those wealthy Chinese looking to continue to invest decide to send even more money first to Vancouver and then to Toronto.
And if so, does it mean we can look forward to much further price increases here and importing the Chinese and other investor driven bubble here.
Note here to in this example; prices aof an average 2 bedroom are 30x the salary of a "civil servant". Assuming many more are civil servants there and compare to our average family, this is still orders of magnitude beyond where we are here.
One other thing, while Prof. Pettis calls for things ending badly, once again we see a prediction of long slow deflation rather than a pop but just as painful.
interested
Senior Member
From Jamie Johnson at Remaxcondosplus
http://www.remaxcondosplus.com/blog/ over the past few days
1. February/March Market Report 2011 - February 25, 2011 3:50 pm
SALES COMMENTARY:
January 2011 sales on the Toronto Real Estate Board were down by 13% from January a year ago. Some will interpret this as a continuing weakness in the market. Others, such as our self, would make the case that the monthly difference has been narrowing from a high of 23% last summer. We are well positioned for the spring market. The downtown condo market was off by only 2% this January versus January of 2010. While active listings on TREB are the same as last year, they are up by 45% for downtown condos. So don’t look for condos to appreciate at the same rate as detached housing in prime markets.
Looking to February, we expect the sales gap from last year to narrow further to 8%. Sales for the downtown condo market will begin to run ahead of last year. As we stated in our January Forecast, the downtown condo market consists of two components: the resale and pre-construction markets. Last year, pre-construction sales exceeded TREB sales, and as all of these new projects are built and enter the resale market, we are expecting that downtown condo sales on TREB will double in five years.
Most experts tell you that current sales are stronger than they predicted because buyers are trying to beat the forecasted rise in interest rates later this year and the tighter mortgages rules being implemented for mid-March. Not true! That’s just a guess on their part. The reality is that we have a lot of Generation X and Y buyers who want it now – not later – and they will be able to qualify even if rates move up marginally later this year. So this market will not look like 2010 with a strong first half and a weaker second half to the year!
In this Report, we looked at sales at 77 Harbour Square on Queens Quay. This is an older building that still appeals to younger people because of its amenities, upkeep, and great water views. The first unit we tracked was a 615 sf jr. one bedroom with parking and locker. The first sale was in 2000 for $175,000. The same unit sold again in 2007 for $240,000, in 2009 for $270,000 and then in 2010 for $300,000. That represents an average compounded price gain of about 5.5% per year and a current price of just under $500 per sf. The next sized unit is the most popular in the building – a 758 sf, one bedroom with balcony, parking and locker – facing west on a high floor with a water view. It sold in 2003 for $287,000 and again in January of this year for $410,000 in two days. This unit appreciated again at about 5.5 per cent and because of the higher floor, and balcony sold for $540 per sf. The final unit we looked at also sold in January of this year. It was a two bedroom with parking and locker on a high floor but no balcony and only a city view. Newly renovated, it sold for $580,000 or over $600 per sf. When you factor in inflation, prices in this, one of the most desired buildings in downtown Toronto, are only rising by 3% per year which economists will tell you are sustainable in the long term. So where is the real estate price bubble??
RENTAL COMMENTARY:
January was a busy rental period with more units than normal being leased. There were 27 bachelors, 248 one bedroom units, and 130 two bedroom units leased. Bachelors started at $1250 on average without parking to $1325 with parking. One bedroom units ranged from $1450 without parking to a high of $1650 with parking and a den on average. A den adds another $100 to $150 per month to the rent. Two bedroom units started at $1850 without parking to a high of $2200 for a den and parking. Overall, rents have moved up $25 -50 per month across all units since November.
Sincerely,
Blogging for Condos
I still think this begs the question: if 10 year old buildings aren't rising anymore by more than say 5%, how can new continue to escalate. In fact, would this not mean that precon will actually start to fall as the difference between resale and new shrinks as people don't factor in as much price appreciation going forward.
Still, I appreciate his objective comparisons though granted it may involve "selection bias".
http://www.remaxcondosplus.com/blog/ over the past few days
1. February/March Market Report 2011 - February 25, 2011 3:50 pm
SALES COMMENTARY:
January 2011 sales on the Toronto Real Estate Board were down by 13% from January a year ago. Some will interpret this as a continuing weakness in the market. Others, such as our self, would make the case that the monthly difference has been narrowing from a high of 23% last summer. We are well positioned for the spring market. The downtown condo market was off by only 2% this January versus January of 2010. While active listings on TREB are the same as last year, they are up by 45% for downtown condos. So don’t look for condos to appreciate at the same rate as detached housing in prime markets.
Looking to February, we expect the sales gap from last year to narrow further to 8%. Sales for the downtown condo market will begin to run ahead of last year. As we stated in our January Forecast, the downtown condo market consists of two components: the resale and pre-construction markets. Last year, pre-construction sales exceeded TREB sales, and as all of these new projects are built and enter the resale market, we are expecting that downtown condo sales on TREB will double in five years.
Most experts tell you that current sales are stronger than they predicted because buyers are trying to beat the forecasted rise in interest rates later this year and the tighter mortgages rules being implemented for mid-March. Not true! That’s just a guess on their part. The reality is that we have a lot of Generation X and Y buyers who want it now – not later – and they will be able to qualify even if rates move up marginally later this year. So this market will not look like 2010 with a strong first half and a weaker second half to the year!
In this Report, we looked at sales at 77 Harbour Square on Queens Quay. This is an older building that still appeals to younger people because of its amenities, upkeep, and great water views. The first unit we tracked was a 615 sf jr. one bedroom with parking and locker. The first sale was in 2000 for $175,000. The same unit sold again in 2007 for $240,000, in 2009 for $270,000 and then in 2010 for $300,000. That represents an average compounded price gain of about 5.5% per year and a current price of just under $500 per sf. The next sized unit is the most popular in the building – a 758 sf, one bedroom with balcony, parking and locker – facing west on a high floor with a water view. It sold in 2003 for $287,000 and again in January of this year for $410,000 in two days. This unit appreciated again at about 5.5 per cent and because of the higher floor, and balcony sold for $540 per sf. The final unit we looked at also sold in January of this year. It was a two bedroom with parking and locker on a high floor but no balcony and only a city view. Newly renovated, it sold for $580,000 or over $600 per sf. When you factor in inflation, prices in this, one of the most desired buildings in downtown Toronto, are only rising by 3% per year which economists will tell you are sustainable in the long term. So where is the real estate price bubble??
RENTAL COMMENTARY:
January was a busy rental period with more units than normal being leased. There were 27 bachelors, 248 one bedroom units, and 130 two bedroom units leased. Bachelors started at $1250 on average without parking to $1325 with parking. One bedroom units ranged from $1450 without parking to a high of $1650 with parking and a den on average. A den adds another $100 to $150 per month to the rent. Two bedroom units started at $1850 without parking to a high of $2200 for a den and parking. Overall, rents have moved up $25 -50 per month across all units since November.
Sincerely,
Blogging for Condos
I still think this begs the question: if 10 year old buildings aren't rising anymore by more than say 5%, how can new continue to escalate. In fact, would this not mean that precon will actually start to fall as the difference between resale and new shrinks as people don't factor in as much price appreciation going forward.
Still, I appreciate his objective comparisons though granted it may involve "selection bias".
TCW
New Member
Canada Economic Growth Rate Accelerates to 3.3% in 4th Quarter on Exports
http://www.bloomberg.com/news/2011-...lerates-to-3-3-in-4th-quarter-on-exports.html
http://www.bloomberg.com/news/2011-...lerates-to-3-3-in-4th-quarter-on-exports.html
Kenny
Active Member
When you factor in inflation, prices in this, one of the most desired buildings in downtown Toronto, are only rising by 3% per year which economists will tell you are sustainable in the long term. So where is the real estate price bubble??
There's a bubble because real estate prices have gone up 70% during those 10 years, whereas family incomes in the city have remained pretty much the same.
interested
Senior Member
There's a bubble because real estate prices have gone up 70% during those 10 years, whereas family incomes in the city have remained pretty much the same.
Kenny,
The quote posted I don't believe was by me or if it was, it is out of context. This does not represent my view for the record. I agree with your conclusion however there are bubbles and bubbles. 70% in 10 year hardly compares to 500% in Ireland in 12 or 300% in Florida from 2000-2006.
I believe if I posted this I was referring to either a longer than 10 year period or alternatively 3% which economist say is sustainable. What will happen is if house prices don't rise, more income will go towards housing and perhaps less people will buy. The whole thing may implode but even this 3% I could justify.
That said, I agree with you that 70% of 10 years is not long term sustainable but I have always maintained this position. Perhaps you could refer me to which of my posts I put this in?
Thanks.