Baby, we got a bubble!?

[Condo George]

The way I see it, overseas investors who are being priced out of Vancouver market, most likely, will turn to Toronto market causing a huge increase in prices here. That, in turn, means no sharp decrease in prices here -- as predicted by othes.

Reasonable conclusions?

Agreed.

The thing that worries me a bit moving forward is consumer spending, I dont like seeing crude above $100 along with inflationary pressure in some sectors, not liking the Canadian $ at 1.05 either, co. that export bottomline will suffer being paid in USD which may lead to other cost cutting measures.

 

[interested]

Equally possible but one has to believe that at some point the prices will simply be so high that people will stop investing.
One would assume that that will occur as soon as there is a downturn in the economy, the excess liquidity is mopped up, or if inflation truly grabs hold and savers/ i.e., those buying bonds hence setting mortgage rates decide they will no longer accept close to zero return.

 

[interested]

Agreed.

The thing that worries me a bit moving forward is consumer spending, I dont like seeing crude above $100 along with inflationary pressure in some sectors, not liking the Canadian $ at 1.05 either, co. that export bottomline will suffer being paid in USD which may lead to other cost cutting measures.

Welcome back CG.
So presumably oil prices drop because demand goes down, the economy is suffering. If not, oil stays high, relatively more expensive to buy C$ making C$ assets (Real estate) more expensive for foreigners.

Of course we know that initially consumers will not alter their behaviour with crude at these prices but if it continues for say a year at $100 or better, people will realize by next year that something has to give. Add the effect it has on food and every other transported article and it will totally cringe consumer spending. Headlines will read that, companies won't do as well, and the psyche of "investors" will change.

 

[Condo George]

Yes, but, what investments are currently out there that offer the same or better rate of return than real estate? I know I am going to hit on this one from my fans!

TSX was 15000 back before the crisis in 08 now at 14000 or negative return and some of my guys got drenched selling at 7500!
GIC well 2 percent is pretty good and you have to fight to get it.
Bonds have to go Corp to get 5 percent

Core condos, some guys have tripled their deposits...........since 07

 

[Condo George]

I have always said, the true test was back in 2008, when global real estate markets melted, worst time since 29, if we survived that while other markets worldwide lost 30 to 60 percent of their value, what will bring us down now. I remain bullish on real estate not because I sell core condos and resale homes, but because I also invest in what I sell and if there was a better more stable investment other than real estate or if I see storm clouds on the horizon, I would be getting out and moving money into another instrument. I dont read the papers and let fear hold me back from moving forward, I continue to focus on the indicators, rates, unemployment that is absorbing immigration-economy expansion, local and global investors continuing to pour $ here vs abroad and Canada being viewed as a safe place to invest, our currency is a test to that. There are 2 things that worry me somewhat as mentioned above.

 

[interested]

CG,
I know we have discussed this before. The one big thing I would add is that R/E is leveraged. We have had a 30 year decline in interest rates.
They are rock bottom and I think you would agree will go up and not down. The question is how much. Either way, leverage works against you when interest rates are going up.
So in my opinion, looking backwards instead of forwards may be risky.
Also, unfortunately as the excess liquidity does start to get removed, alot of the money floating around will not be there, thereby deflating all assets, not just real estate.
The problem I have and this is where I am not smart enough, I can't figure out where to go and be safe.
By actual commidities? Risky. Buying bonds, probably not great. Cash or gold, probably the safest but no return, however looks better than a loss.
Shorting the stock market. Can be done but risky if one is offside.
So maybe being diversified is the answer. You don't hit a home run, but you are also not devasted if you "guess" wrong.

 

[Eug]

I was thinking of divesting from the TSX when it was back to 12000. After all, 12000/7500 is a 60% return! However, I'm glad I didn't, since the TSX is now at 14000, an 85% return since Q1 2009. Wowsers.

However, that actually has me a bit more disturbed than real estate. While the real estate market IMO is overbought, at least it was a gradual thing over decades. OTOH, the stock market has gone up 85% in 2 years. Yet people are worried about real estate, but at the same time are bullish on stocks. Does not compute.

I'd actually consider low rate GICs because at least those won't fall in value.

 

[interested]

Eug, I am a GIC refugee for a large part of my portfolio. Dumb I know some will say.

However, I also always had relatively little in the stock market. What I did have was about 50% in dividend producing Bank stock (fortunately Canadian banks). I am on a drip with alot of it (dividend reinvestment program so at least stock is averaged out that is bought). I did not sell (and got killed) on the ride down but it meant my net worth in total in 2008-2009 from top to bottom went down 3-5%, which it recovered essentially and I am up now again (with stock having increased as a percentage of the total).

It is still one of the smaller parts, real estate being triple my stock holdings. However the real estate has been slowly bought over 2-3 decades, a property or 2/decade until this past decade: 4 but with 2 being sold). Again, always bought for long term with full appreciation of fundamentals to ensure they did have a return acceptable to me.

I have some bonds but went over to GIC's since I do not dare go out more than 2-4 years at the very top because I expect rate increases (have been incorrect in that I thought it would have already happened 1/2 to 1 year ago). Means I am not too smart but as I have often said, I rather talk about what I did not make rather than what I actually lost.


In such volatile times, some huge money will be made but also some large amounts will be lost. This past year, you really could not go wrong. Real estate up. Stock market as you point out: way up. Bonds somewhat stable or slightly down but if one is holding for yield to maturity, irrelevant. Gold way up. The Canadian dollar way up so if you are buying anything foreign, buying power increased (except for your actual holdings of say US stock which if unhedged would be down).

This was actually my point and knowing that I have a condo which I will take possession of next year, I will buy a GIC to guarantee 1.5- 2% but know the actual money needed will be there to close.

So, my approach is the tortice one (from the tortice and the hare). Slow and steady and hopefully with the success of the tortice at the end and winning the race, though perhaps not in record time(highest returns) but reaching the finish line and being able to retire at a reasonable level.

 

[KA1]

http://www.theglobeandmail.com/glob...-an-uncharted-road-lies-ahead/article1995946/

http://www.theglobeandmail.com/repo...s-up-the-debt-repayment-clock/article1996122/


http://www.theglobeandmail.com/repo...-inflation-problem-boils-over/article1995984/

 

[Eug]

My fuel expenses:

Natural gas: Probably hasn't changed that much. The price is similar, but I've used less this year since I didn't want to blow construction dust around the house, so I've kept the furnace off a lot of the time and heated with my wood and gas fireplaces, and some electrical heaters.
Electricity: It went up in cost in recent years, but part of that is due to "smart" metering. The other part is my electric heaters I had on this year. See above.
Gasoline: It's gone up, but I don't spend much on gasoline relative to the above two, and relative to my income. I fill up about twice a month, but each fillup is usually only about 30-35 L.

I just pulled out the actual numbers. Being the anal person I am, I keep records of all my gasoline expenses.

I spent $835 in 2010 on gas. That works out to under $70 per month, with an average price of $1.05 per litre. Assuming prices average 30 cents more per litre in 2011, that means the average per litre price would be $1.35. (Not max, but average. That would mean that prices would have to go up to $1.50 or something by the end of the year to hit that $1.35 average.)

Using 2010 as a gauge in terms of distance and gas used, that'd work out to $1074 over the course of the year, or just an extra $20 per month.

 

[KA1]

Yes, but, what investments are currently out there that offer the same or better rate of return than real estate? I know I am going to hit on this one from my fans!

Just tell them like it is, Condo George. Never mind the reaction of the tipids and investors in bonds.

 

[daveto]

Yes, but, what investments are currently out there that offer the same or better rate of return than real estate? I know I am going to hit on this one from my fans!

TSX was 15000 back before the crisis in 08 now at 14000 or negative return and some of my guys got drenched selling at 7500!
GIC well 2 percent is pretty good and you have to fight to get it.
Bonds have to go Corp to get 5 percent

Core condos, some guys have tripled their deposits...........since 07

Short term and medium term lots of people will make a lot of money in a rising market and lose a lot of money in a declining market.

Long term, residential real estate tracks the rate of inflation. A GIC investment (the wort out there) will match the long term rate of return on real estate. Not my opinion, just a fact.

 

[detroitbootybass]

http://www.theglobeandmail.com/repo...-families-most-snared-by-debt/article1994548/

 

[interested]

I just pulled out the actual numbers. Being the anal person I am, I keep records of all my gasoline expenses.

I spent $835 in 2010 on gas. That works out to under $70 per month, with an average price of $1.05 per litre. Assuming prices average 30 cents more per litre in 2011, that means the average per litre price would be $1.35. (Not max, but average. That would mean that prices would have to go up to $1.50 or something by the end of the year to hit that $1.35 average.)

Using 2010 as a gauge in terms of distance and gas used, that'd work out to $1074 over the course of the year, or just an extra $20 per month.

Eug, you drive a Prius and you don't even drive that very much. So a large increase on a relatively small number is still small dollars. Clearly your car is not a major expense. I am guessing you also use public transport or even better are fortunate enough to be able to walk or bike to work. I would suggest that most people who drive have a gas bill that is probably 4 x that, and $80/month or $960/yearmore which will be an important number in a lot of people's books. I believe I read somewhere that the average gas increase would be in the $900's and this would make sense. By the way, I simply based $70/week instead of
per month or a fill up weekly. If these numbers are right, and given the average income in Ontario is around $50-55K, that $960 is almost 2% or all of the increase that people seem to be getting. And we haven't begun to talk about other expenses.

 

[Eug]

Eug, you drive a Prius and you don't even drive that very much. So a large increase on a relatively small number is still small dollars. Clearly your car is not a major expense. I am guessing you also use public transport or even better are fortunate enough to be able to walk or bike to work. I would suggest that most people who drive have a gas bill that is probably 4 x that

I have owned the car 7 years and have averaged over 14000 km per year. In 2010, I put over 13000 km on my car, which works out to 250 km per week. (I have more than 100000 km on my car now.) My commute is 15-16 km each way. I do not take public transit to work because it would take 3 times as long (since it requires 3 different buses to complete the trip). I don't bike to work anymore either, although I did once in a while years ago when my commute was only 12 km.

If people are commuting 25 km or less each way, yet still have gas bills that are 4X mine, then perhaps they should get more fuel efficient cars, as 25 km is only 1.6X the length of my commute. (A Mississauga to downtown Toronto commute is roughly 25 km.)

If people are commuting 40 km or more each way and have gas bills that are 4X mine, then that may be more reasonable in terms of fuel efficiency, as 40 km is 2.5X the length of my commute.