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Baby, we got a bubble!?

That is why bubble has not yet burst in Toronto R/E and, perhaps, it will never burst?

Of course not, it's different this time.

In 1989 a Toronto SFH went down 25% over 4 years and took 12 years to recover in nominal prices. Prices in Toronto are down 40,000$ since May 2011

http://www.mississauga4sale.com/avgprices.JPG

Prices are still up year over year.
 
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That is why bubble has not yet burst in Toronto R/E and, perhaps, it will never burst?


If there's a lot of foreign investment, then the likelihood of a burst is actually greater, not lower. People who live in their homes are less likely to sell just because prices are falling. Foreign investors will drop a property very quickly if they feel that it doesn't meet their investment strategy to hold on to it.
 
If there's a lot of foreign investment, then the likelihood of a burst is actually greater, not lower. People who live in their homes are less likely to sell just because prices are falling. Foreign investors will drop a property very quickly if they feel that it doesn't meet their investment strategy to hold on to it.

Investing in Toronto R/E is a 'safe heaven' for foreign investors. They are in for a long term and not short term. They took money out from their own country because investment environment is not 'safe' there. They are less likely to disinvest at the slightest downturn.
 
Investing in Toronto R/E is a 'safe heaven' for foreign investors. They are in for a long term and not short term. They took money out from their own country because investment environment is not 'safe' there. They are less likely to disinvest at the slightest downturn.

No they may not, but a financial downturn in their own economy might require capital, in which case, they would liquidate their 'investment' property, even at a discount should it be necessary.


It's all speculative at this moment. What is not is the type of mortgages that are being purchased: Many 30 yr variable products - (and a few years ago, 40 yr ones!) This leaves no cost buffer should interest rates increase (and they will) in the next few years.

As these 5 year products come to term in a few (when interests are also expected to adjust back to normal levels), home owners will be in a bit of a shock. Also, it's inevitable that the economic harships impacting the rest of the world will eventually catch on to Canada.
 
From today on line Financial Post

http://business.financialpost.com/2...hold-debt-a-threat-for-canadian-banks-moodys/

Rising household debt a threat for Canadian banks: Moody’s

The rising trend in household loans is credit negative for the Canadian banking system, says a new report from Moody’s Investors Services, particularly for Canadian Imperial Bank of Commerce, which has relatively high Canadian consumer credit exposures.

“We are concerned that Canadian consumers are relying on low interest rates to support high debt loads,†the ratings agency said.

“The creditworthiness of Canadian banks depends on the continued financial health of the Canadian consumer. While robust growth in consumer credit has driven strong systemwide earnings year-to-date, this trend will be constrained as households reach borrowing limits at the same time the economy shows few signs of anything beyond tepid growth.â€

Last Tuesday, Statistics Canada reported that household debt as a share of personal disposable income rose to a record 150.8% at the end of June. The increase, which leaves the ratio slightly higher than in the United States where it was 148% in the first quarter of this year, is largely due to strong house price appreciation, particularly in Vancouver and Toronto.

While robust growth in consumer credit has driven strong systemwide earnings year to date, this trend will be constrained as households reach borrowing limits at the same time the economy shows few signs of anything beyond tepid growth, Moody’s said. Canadian banks will, as a result, see revenue growth diminish, as the prospect of increased provisions for credit losses looms, the rating agency said.

“Current asset quality trends are benign for the six largest Canadian banks, with a third-quarter 2011 median ratio of non-performing assets to gross loans of 1.01%, a level that remains healthy compared to global peers, Moody’s said. “However, we expect those loss trends to increase as a result of the rising household debt and a possible house price correction.â€

CIBC, is the bank most exposed to the Canadian consumer, with both the largest relative revenue and credit exposures, Moody’s said. National Bank of Canada and The Toronto-Dominion Bank are the next most exposed on the revenue front, while Bank of Nova Scotia follows CIBC in current consumer credit exposure.

“While we continue to view the strong retail franchises of these banks as supporting their current high ratings, the banks face challenges if a combination of housing price corrections, economic/employment downturn or increased interest raes materialize.â€
 
I'm still sticking with my (for fun so don't try too hard to prove how wrong I am) May 17th 2011 Market Peak prediction.
 
I'm still sticking with my (for fun so don't try too hard to prove how wrong I am) May 17th 2011 Market Peak prediction.

You could well be right.

I live in RoCP. Recently a few units changed hands at below the asking price -- unheard of 6 months ago. One particular unit was priced less than a similar unit sold for 3 months ago, for quick sale. Even that unit got sold at 98% of the asking price.
 
Investing in Toronto R/E is a 'safe heaven' for foreign investors. They are in for a long term and not short term. They took money out from their own country because investment environment is not 'safe' there. They are less likely to disinvest at the slightest downturn.

yes, but that doesn't mean they have to hold R/E vs. cash if markets turn against them.
likewise, as someone else said, if their native market suffers and they need immediate capital, you can bet they will sell here.

Chinese are notorious for gambling in R/E, so don't think they are here because it's 'safe'.
it's only because of domestic R/E investment restrictions that they are looking abroad for more return.



You could well be right.

I live in RoCP. Recently a few units changed hands at below the asking price -- unheard of 6 months ago. One particular unit was priced less than a similar unit sold for 3 months ago, for quick sale. Even that unit got sold at 98% of the asking price.

that could be true, but also explained as natural variance for seasonal changes.
R/E market valuations tend to peak in May/June and drop around December/January.
a few months data isn't significant, so hopefully we get a better picture by next year.

------


on the topic of R/E investors, Scott McGillvery (sp?) from HGTV Income Property, etc was on Marilyn Denis today.

he thinks TO and Vancouver R/E are overvalued.
he cited metrics like 3x average income being reasonable and historical. in the 2 cities above, we are WAY beyond that.

we may be okay atm because of historic low interest rates that make it 'affordable', but when rates creep up around 2012 we may feel the repercussions.
he's concerned that the further we stretch the rubber band (ie. go from the historical norm), the greater the snap-back.

BTW, he's stopped buying CDN R/E and is purchasing properties in FL.
 
ust sharing on price per sq ft........ last week I sold a 460 sq ft unit at Neo, a pretty good location , avg finishes etc, Neo is 2 yrs old, for $250,000 or $543 psf now to me this is high for Neo, we asked $244,900, I dont know about $400 to $450 guys, maybe for aged product with very high maintenance fees that will hinder value moving forward, I dont think we will see those levels for new towers.
 
ust sharing on price per sq ft........ last week I sold a 460 sq ft unit at Neo, a pretty good location , avg finishes etc, Neo is 2 yrs old, for $250,000 or $543 psf now to me this is high for Neo, we asked $244,900, I dont know about $400 to $450 guys, maybe for aged product with very high maintenance fees that will hinder value moving forward, I dont think we will see those levels for new towers.


thanks for sharing Jim12.

the price does seem abit high ... maybe some factors affected the valuation?!?
what floor was the unit on? exposure? parking / locker included?
 
Hmmmm... That's rather optimistic...

Not too far from where I live, a bungalow was torn down and a new house was built in its place, overlooking Lake Ontario. E2198181 has been listed for $2.349 million. The highest price at which any house has ever been sold on that street is $1.577 million. Granted that was 4 years ago, but still, only a limited number of houses there command that sort of pricing, since prices drop quickly as you venture north, going away from the lake.

I could see a 30% price premium compared to 4 years ago, but that's nearly a 50% price premium. In other words, if they sell it for 15% under asking, that'd still be nearly $2 million, or 27% more than the most expensive house from 4 years ago (which would be in line with price increases over those 4 years).
 
I'm still sticking with my (for fun so don't try too hard to prove how wrong I am) May 17th 2011 Market Peak prediction.
I posted the June Teranet numbers last month, and they're higher than May 2011.

May 2011: 128.72
June 2011: 131.26

That's roughly 2.0% higher than May, and 4.2% higher y-o-y.

I could see a 30% price premium compared to 4 years ago, but that's nearly a 50% price premium. In other words, if they sell it for 15% under asking, that'd still be nearly $2 million, or 27% more than the most expensive house from 4 years ago (which would be in line with price increases over those 4 years).
June 2011 is around 25%-27% higher than early 2007, when that house was sold.
 
^Ha ha, Well I guess I'm wrong then!

Although, I don't think month-to-month data are particularly relevent to economic phenomena that have 10-15 year cycles. If you look at most economic data they also end up re-evaluating it in the future such that you really can't tell where you stand until a few years later. If you could accurately predict real estate market droughs or peaks to within 6 months there is no reason you couldn't be the richest person in the country. That's why I treat predictions, especially those made by myself, as half jokes. We won't know we are at the peak for sure until several years after it occurs.
 

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