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Baby, we got a bubble!?

"TREB numbers for May: New listings down 15%, active listings down 27%, days on market up 5%."

CG, why are listings so low in your opinion? Do you agree that, at some future point (trigger: increase in interest rates), we will see a sharp increase on supply side? What happens then?
 
AKS said:
Actually, he's right about the spring and fall being high prices. I've also noticed it when I looked at the historical graph. For some reason, winter and summer doesn't seem to do as well. Winter being worse than summer if memory serves.

http://imageshack.us/photo/my-images/193/avgprices.jpg/
Click to expand...

Spring and fall is generally always better than winter and summer ... nothing new there. CG was wrong, quite wrong actually, in his prediction of May 2011 sales volume.
 
We have seen quite a bit of supply come on board in the month of May, namely Parade, Festival Tower, Neptune 2 and a few others that have taken occupancy and are now allowed to assign their units. Some builders have amended their original agreement to allow for assignments that are listed on mls. What is most concerning to me is Festival Tower. Last time I checked there was 50 units for sale and under 5 reported sold on mls. I never sold the King area although most here may like it. I have my reasons which dont want to share here and they are not based on filling my wallet. I am not trying to be a bear but am somewhat concerned at the moment, I thought the spring market in the core resale would be alot stronger than what I am seeing today. Some may disagree so be it.
 
redfirm said:
"TREB numbers for May: New listings down 15%, active listings down 27%, days on market up 5%."

CG, why are listings so low in your opinion? Do you agree that, at some future point (trigger: increase in interest rates), we will see a sharp increase on supply side? What happens then?
Click to expand...

I dont think rates are headed higher, I think we are going lower.

I think listings are down because of demand driven by end user, not investor and may not be happening in the core, I maybe wrong but track new listings in C01 everyday.

Most investors buy core, not burbs unless reno and flip. May numbers may be fueled by end user thats all I am saying.
 
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The reason is the busiest moving days are May (at the end of winter people move as if possible they prefer not to move in snow) and Sept 1st because people move often before the kids start school.
In the height of summer, since it is such a short season, people are busy with their kids out of school, going to the "cottage", doing summer events on weekends.
Again it slows by November and over Christmas (or other holidays as celebrated) people are busy and houses don't show as well as in Spring and in Fall.
 
interested said:
The reason is the busiest moving days are May (at the end of winter people move as if possible they prefer not to move in snow) and Sept 1st because people move often before the kids start school.
In the height of summer, since it is such a short season, people are busy with their kids out of school, going to the "cottage", doing summer events on weekends.
Again it slows by November and over Christmas (or other holidays as celebrated) people are busy and houses don't show as well as in Spring and in Fall.
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Interested, I like and look forward to your posts.

You always have a well thought, logical and reasoned answer to every question.
 
KA1 said:
Interested, I like and look forward to your posts.

You always have a well thought, logical and reasoned answer to every question.
Click to expand...

Thanks Ka1.

Yes, I think a lot and try and come with reasoned answers. And every once in a while, it actually happens.
 
CG could you elaborate a bit more on the spring sales for C01.

Do you not think the Festival tower at $800/sq.ft. which I believe is what people seem to be asking may be a bit rich for an upper middle condo.... or is it that you feel there are problems as a whole with King West area in that the most projects seem to be in that area... or is it pricing. I appreciate you have your reasons but without being too personal is there a general point about the area that bothers you.

As well, I know you like MLS and ICE and that area; do you think perhaps the difficulty with the ongoing listings in Festival Tower is a harbinger of price resistance and we may see the same as perhaps "saturation" is beginning to set in.

Incidently, I was at Shangrila and they have yet again increased their prices (not by much) but the upward march continues. And so do sales if the sales office is to be believed especially of smaller "lower priced" residences but even the Estates despite their hefty price tag are moving albeit slower than the residences. I find this interesting because my understanding is that the last units (10-15% of the project)at the Ritz have now stalled though that may not be correct. Is this a sign of price resistance.
I know the 4S Penthouse went for $28 mill; still....
 
interested said:
Incidently, I was at Shangrila and they have yet again increased their prices (not by much) but the upward march continues. And so do sales if the sales office is to be believed especially of smaller "lower priced" residences but even the Estates despite their hefty price tag are moving albeit slower than the residences. I find this interesting because my understanding is that the last units (10-15% of the project)at the Ritz have now stalled though that may not be correct. Is this a sign of price resistance.
I know the 4S Penthouse went for $28 mill; still....
Click to expand...

What would be the incentive for a developer to sell unsold units in a building that is fully under construction, well capitalized and progressing nicely? Think about it- the entire deposit from any sale is locked in a lawyer's escort account and only accessible if that account is bonded. I suppose there is a cost to the bonding that is slightly cheaper than bank money but still I would think that a smart developer would effectively freeze sales (or hike them to the point of a freeze) once construction begins and then hope to get a big lift on completion.

The notion of buying an apartment without seeing it first still to this day puzzles me. It is most likely the biggest purchase of your life and you are committing yourself to purchase something based on a drawing. Do you rent an apartment based on a drawing? How about a car? A sofa? It is the antithesis of logic in my opinion and yet it is common practice in this city.
 
CNTower;

The developer would continue to sell units because that decreases his risk.

Also, since we acknowledge that there is a future "premium" being priced compared to present, that is to a degree a leap of faith by the buying public. Perhaps the developer believes that prices may not be as high as people are willing to accept at present and therefore passes the risk to those willing to buy today.

As well, I can understand having some units for sale as it gets to completion and hopefully getting a bigger bang for the buck because you can see it and move in "within a short period". On the other hand, if the market were to slow, the developer takes all the risk if he holds back 30% for final sale.

They used to do that by the way; sell 60%, then start construction and start selling again closer to completion and get a higher dollar. However, as you saw in late 2008 to mid 2009; prices stalled completely and then a developer not only would risk his profit but probably be in a loss situation. I believe the developer usually has to sell 75-80% to cover costs, with the last 20-25% perhaps being the profit.

By selling say 85%, they decrease their risk. As well, they want their money out so they can go onto the next project. Better to leave a bit of money on the table but complete the sales and be done with it I would think.
 
[

The notion of buying an apartment without seeing it first still to this day puzzles me. It is most likely the biggest purchase of your life and you are committing yourself to purchase something based on a drawing. Do you rent an apartment based on a drawing? How about a car? A sofa? It is the antithesis of logic in my opinion and yet it is common practice in this city.[/QUOTE]

Until now people have been rewarded for this course of action because prices have essentially gone straight since 1996 except for 2008-2009 for about 9 months. So buying early means that you took possession of a property worth more.

I would agree with your rationale of the antithesis of logic and if we have a prolonged stabilization or slump in prices, I think you may well see people saying "why buy early something I can't see" because I can make a more informed decision without any opportunity cost.

An individual can perhaps afford and hope to take the risk. The developer on the other hand sitting on say 30% inventory has a much larger risk. Sure he hits it out of the park and that is what has been happening lately, but if a number of us are right on this forum and believe that interest rates go up, price resistance or decreases occur; he can't sell the last product or takes a bath and all profits evaporate.

I think developers as a group are pretty smart and there is a reason that this is common practice.
 
i can't see developers holding back more than 15% of the inventory.
and in some cases, it's not by choice because the last ones to be sold tend to be the very expensive units (ie. LPH, PHs and larger units).

i don't know this for sure, but i recall hearing somewhere at 70% sold, everything else is pure profit.
 
cdr, that might be the case in a larger hi end project where there is a 5 year time lag. I would be suprised if most projects get that.

Using these numbers; a $250,000 - 500 sq.ft. condo would likely cost about $175000 to build all in. I don't think the builders are working with that kind of profit margins of $75000 on $175000 unit though I could be wrong.

I do know that 70% presales is common requests now by the banks and even more and I would not think they would only allow financing on projects that are already 100% break even.
 
I read that earlier today. I did not want to post it.

The point with this and other articles, people are making arguments which I think are rationale. Whether they are correct or not, time will tell. It is a bit better than: 100,000 immigrants, people don't care about investments that don't make money because the "guaranteed" appreciation will more than offset. Locals can't afford the market but so what.

I disagree with his Keysian approach of just float more money into the system. That is just distorting all fundamentals and at some point, you have to pay the piper. So while I accept QE1 and begrugingly perhaps QE2, there needs to be an exit strategy because we just go further down the road to oblivian if nothing changes. And hoping that a solution will pop up is questionable.

Interestingly, what do we do in our household Ka1. As you pointed out, we tighten our belts, spend less, don't get luxuries. It is painful but it has to happen. We have to makeup for years of excess. As we all know, nothing goes up forever.
 
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