Baby, we got a bubble!?

[interested]

Hi, good fellas, here is another one. You remeber my post about the guy who bought house in King City (King/Younge area)? Funny part is, he told me that RE Agent who found a house for him SELLS?!! her Mansion and moves into rental. LOLThese RE agents are not that stupid after all. Sell now and buy cheaper later?

I believe that R/E agents are no more or less clairvoyant than the rest of us. However, her selling at this time makes alot of sense as probably less upside potential than downside risk. So if her time frame was such that she was considering a move in the next couple of years, it might be wise to get out now. That said, and while I don't necessarily view agents with the greatest sense of admiration, it would be unrealistic to fully expect them to come out and say "I believe the market is going to tank" to prospective buyers though they might say it to sellers to create product as they would be shooting themselves in the foot financially which is alot to expect from anyone. That said, I would hope they would at least give the buyer/seller a fair appraisal of the risks/benefits of a purchase today but it is not the agents job to talk out the buyer who wants to buy a home for living though I would hope she would try and talk out someone who was buying solely as an investment if it is her belief that the market has peaked or is close to peaking. We had a little peak at what can happen when panic sets in and how fast the market mentality can change last year and as I have posted before I remember 1989 to 1992 when it got to the point that you could not give away a condo in Toronto. If I or that realestate agent knew that we could sell now and buy cheaper later we would all be foolish not to do it(remember all the costs: land transfer, taxes potentially, moving fees, R/E commission, legals etc.) you would likely need 5-10% depreciation in pricesand still only break even so you have to be anticipating a larger drop than this. You would also have to be willing to put up with the aggravation of displacing yourself (and your family) and that may be more about lifestyle than just money.

 

[Eug]

Maybe she just wanted to get out of owning, and happened to find a nice rental place for cheap, and found a buyer who was willing to spend good coin on her house. If so, then fine. Good for her.

However, personally I think it's often inadvisable to try too much to time the market, if that's what she was trying to do. ie. At normal rental prices and normal home sale prices, it may not make a lot of sense.

Who knows, she might get lucky, and the markets crashes all around her next year. Or she may just have gone through all this hassle for no good reason. Indeed, people were suggesting we do this same thing way back in 2005, and look where we are now. I suspect the chance of a downturn is higher now than it was in 2005, but that's looking at the situation with a 20/20 retrospectoscope, something I don't yet have for the 2011 time period.

 

[azureray]

Maybe she just wanted to get out of owning, and happened to find a nice rental place for cheap, and found a buyer who was willing to spend good coin on her house. If so, then fine. Good for her.

However, personally I think it's often inadvisable to try too much to time the market, if that's what she was trying to do. ie. At normal rental prices and normal home sale prices, it may not make a lot of sense.

Who knows, she might get lucky, and the markets crashes all around her next year. Or she may just have gone through all this hassle for no good reason. Indeed, people were suggesting we do this same thing way back in 2005, and look where we are now. I suspect the chance of a downturn is higher now than it was in 2005, but that's looking at the situation with a 20/20 retrospectoscope, something I don't yet have for the 2011 time period.

I agree a correction is very likely to happen later 2010 or early 2011...this does not necessarily mean a downturn, but may well be just a slow down or price remaining stagnant.

Just got a quote from an agent who got a unit at Nicholas, he sounds so excited to have got the penthouse 1 br unit 559 sf at $412,900, which is a staggering $738.6 / sq. ft. Can this kind of price sustain? I am not too sure.

But if you invest on a downtown core condo for less than $500 per sq ft now, it's unlikely you will lose out, even in a market correction. Anyone agree with me?

 

[interested]

I agree a correction is very likely to happen later 2010 or early 2011...this does not necessarily mean a downturn, but may well be just a slow down or price remaining stagnant.

Just got a quote from an agent who got a unit at Nicholas, he sounds so excited to have got the penthouse 1 br unit 559 sf at $412,900, which is a staggering $738.6 / sq. ft. Can this kind of price sustain? I am not too sure.

But if you invest on a downtown core condo for less than $500 per sq ft now, it's unlikely you will lose out, even in a market correction. Anyone agree with me?

I think you would be reasonably safe at $400 for entry level stuff, $500 for mid level finishings and $700 for luxury even if there is a "correction". I would not be so sure that prices could not melt to these levels. Location like Nicholas should easily be $500/sq. ft like you suggested but $738?
May be showing some froth. who knows though, we may look in 3 years scratch our heads and think it was reasonable or God forbid, a "bargain" if prices continue to rise. I don not expect this latter scenario. Remember, with this development at Nicholas we are looking probably 3 to 5 years out and who knows what will be then, even if there is a short term correction it may reverse and be higher again when this development is ready. One last thing, I know that MPAC assessed an identical PH unit from the floor beneath it(same layout) in a downtown building and added 10% for penthouse premium over the floor below it. This was successfully appealed and brought down to 4% premium but still it appears at least according to MPAC 10% premium for Penthouses in downtown Toronto is the norm.

 

[azureray]

I think you would be reasonably safe at $400 for entry level stuff, $500 for mid level finishings and $700 for luxury even if there is a "correction". I would not be so sure that prices could not melt to these levels. Location like Nicholas should easily be $500/sq. ft like you suggested but $738?
May be showing some froth. who knows though, we may look in 3 years scratch our heads and think it was reasonable or God forbid, a "bargain" if prices continue to rise. I don not expect this latter scenario. Remember, with this development at Nicholas we are looking probably 3 to 5 years out and who knows what will be then, even if there is a short term correction it may reverse and be higher again when this development is ready. One last thing, I know that MPAC assessed an identical PH unit from the floor beneath it(same layout) in a downtown building and added 10% for penthouse premium over the floor below it. This was successfully appealed and brought down to 4% premium but still it appears at least according to MPAC 10% premium for Penthouses in downtown Toronto is the norm.

Totally agree. In the coming six months or so, we will see two major events unfold: 1) BOC increases prime interest rate 2) HST in effect. These will have significant impacts on the market, and thus a lot of the members here are foreseeing a market correction or crash.

But I have a slightly different view on the impact of interest increase. The interest is likely to increase, but gradually. Now we are at a historically low 0.25 % base rate...so end of 2010, we may see this double, say 0.5%. But it is still historically low. It's impact will be more psychological than financial. Will this deter people from buying? I think it will be exactly the opposite. Since people will foresee a trend of interest rate increase and will be even more desperate to get their low rates locked down. There will be a rush of panic homebuyers trying to get into the market before its "too late".

So interest increase will actually counteract the negative impact of HST...what's the overall impact of these two factors combined? I don't know...of course then there's the increase of inventory when so many new projects are registered later this year...at least I think, the future of the market is more complicated than we think...

 

[steve_toronto]

"Flaherty and the CMHC can't publicly admit that there is a housing bubble in Canada because if they do, it will likely spark off a financial panic.

But the bubble itself was caused by the Tories who, following the banks in the US, dramatically and drastically loosened the CMHC's down payment and amortization regulations. When the credit crunch hit in 2008, Flaherty quietly tightened these regulations but in a very small way - hardly reversing the loosening of regulations.

In effect, Flaherty has "subprimed" the CMHC. There are at least a few financial analysts who have been quoted calling the CMHC the largest subprime lender in the world. And because the CMHC is a crown corporation, if Canada's housing bubble bursts, then the public is on the hook. It's no different than the United States except we've cut out the middle-man: the private banks.

This is the unwritten story of why Canada has weathered the crisis: keeping asset investments inflated.

The other largely ignored and unwritten story is the bailout of Canadian banks early last year to the tune of at least $80 billion via none other than the CMHC.

It's a fiction that Canadian banks have been prudent and wise. They did need a bail out because they did invest in subprime and asset-backed commercial paper.

And now the Tories are presiding over an "instant" $50+ billion debt and we all know that social spending cuts and wage repression are around the corner (you wonder why there are so many public sector strikes lately? It's preparing for a larger attack on wages and benefits to reduce costs).

We could avoid all this if we taxed the banks and major corporations - who are all, largely, still making enormous profits while receiving bailouts and ongoing subsidies at the same time. THAT is the bottom line and why Canada is in deep trouble in the long run."

2006 Flaherty changed the lending rules 0% and 40 years then quietly in 2008 changed to 5% and 35 years (he should have Left (of center) things as they were but these republicans could not help themselves enough it appears)

Please keep discussion here apolitically.

 

[interested]

Totally agree. In the coming six months or so, we will see two major events unfold: 1) BOC increases prime interest rate 2) HST in effect. These will have significant impacts on the market, and thus a lot of the members here are foreseeing a market correction or crash.

But I have a slightly different view on the impact of interest increase. The interest is likely to increase, but gradually. Now we are at a historically low 0.25 % base rate...so end of 2010, we may see this double, say 0.5%. But it is still historically low. It's impact will be more psychological than financial. Will this deter people from buying? I think it will be exactly the opposite. Since people will foresee a trend of interest rate increase and will be even more desperate to get their low rates locked down. There will be a rush of panic homebuyers trying to get into the market before its "too late".

So interest increase will actually counteract the negative impact of HST...what's the overall impact of these two factors combined? I don't know...of course then there's the increase of inventory when so many new projects are registered later this year...at least I think, the future of the market is more complicated than we think...

I am not so sure that interest rates won't go up more than you are suggesting. Either they will stay where they are until year end or 2011 (a real possibility because things are not looking promising first in the US and now in Europe. Unless the Canadian dollar vis a vis the US dollar declines significantly, the Bank of Canada will be loathe to raise interest rates(without the US doing the same) for fear of increasing the value of the Canadian dollar which will harm the Canadian economy. this could only happen if the US economy turns around more than it now appears to be doing. I have seen analysis and heard increasing concern that given that the stimulus package in the US cannot be repeated in 2010, the economy there may falter. However, already the Canadian stock market was down 6% this year reflecting concern that we may not recover as well as thought and this would put pressure to keep interest rates where they are.
If the interest rates are to rise, there will probably be definate signs of a stronger recovery and then I think it is unlikely that it will only be 0.25% rate increase but rather likely 2% rate increase over 6 months to a year.
The worrisome corollory to your argument of people running out to get "cheap mortgages" is what happens in 3-5 years when they go to renegotiate them. Once can't expect historical low interest rates to keep lasting. the only way that would happen is if the economy is not doing well and that would not bode well for house prices (i.e. the house prices would llikely fall).

 

[azureray]

I am not so sure that interest rates won't go up more than you are suggesting. Either they will stay where they are until year end or 2011 (a real possibility because things are not looking promising first in the US and now in Europe. Unless the Canadian dollar vis a vis the US dollar declines significantly, the Bank of Canada will be loathe to raise interest rates(without the US doing the same) for fear of increasing the value of the Canadian dollar which will harm the Canadian economy. this could only happen if the US economy turns around more than it now appears to be doing. I have seen analysis and heard increasing concern that given that the stimulus package in the US cannot be repeated in 2010, the economy there may falter. However, already the Canadian stock market was down 6% this year reflecting concern that we may not recover as well as thought and this would put pressure to keep interest rates where they are.
If the interest rates are to rise, there will probably be definate signs of a stronger recovery and then I think it is unlikely that it will only be 0.25% rate increase but rather likely 2% rate increase over 6 months to a year.
The worrisome corollory to your argument of people running out to get "cheap mortgages" is what happens in 3-5 years when they go to renegotiate them. Once can't expect historical low interest rates to keep lasting. the only way that would happen is if the economy is not doing well and that would not bode well for house prices (i.e. the house prices would llikely fall).

Could you please provide some reference in terms of US economy and your speculation of the future interest rates?

 

[PinkLucy]

Please keep discussion here apolitically.

Is there a new mod in town?

 

[azureray]

Is real estate a good way to shelter the inflation?

Anyone has any stats of housing price in a historical inflation storm? When money is worth nothing, will we be better off holding on to the properties we have?

Will the housing price fall faster than inflation or more or less the same pace? And if housing price falls slower than inflation rate...buying housing is a good way to shelter the inflation. Any thoughts?

 

[interested]

Could you please provide some reference in terms of US economy and your speculation of the future interest rates?

re: US economy reference. Articles in the paper Globe and Mail article of a day or 2 ago (sorry don't remember exactly which but I believe article written by the big bear at Sheriff gluskin suggested that backing out the stimulus effects would have resulted in negative growth of the US economy in the 2rd and 3rd quarters of 2009 and even the 5+% which will be revised down for the last quarter would have been only slightly positive. what happens when over a trillion dollars of stimulus put in in 2009 is not replicated in 2010. Do we slip back into negative growth or minimal growth?
My speculation re interest rates: these are more my thoughts as to a logical progression tieing various data together. if things are good, inflation likely will pick up. If things are bad, they will not do so and interest rates stay down. Canada's competitiveness is a big issue and the higher the Canadian dollar (if we unilaterally raise our interest rates without the US following suit) the less competitive our industries become. I do not claim to know if things will improve and inflation return. I just think it is likely there will be a grouping of these events: If economy does well, we will see some escalation of the Canadian dollar (exports to US and BRIC countries(raw resourses) improve,prices rise, wage demands increase, and interest rates go up. If the economy does badly, Canadian dollar falls, production/manufacturing stall or fall, interest rates cannot go up.
Again, I am not an economist so please don't hold me to every prediction, I just think that certain logical conclusions should be expected to follow.

 

[azureray]

re: US economy reference. Articles in the paper Globe and Mail article of a day or 2 ago (sorry don't remember exactly which but I believe article written by the big bear at Sheriff gluskin suggested that backing out the stimulus effects would have resulted in negative growth of the US economy in the 2rd and 3rd quarters of 2009 and even the 5+% which will be revised down for the last quarter would have been only slightly positive. what happens when over a trillion dollars of stimulus put in in 2009 is not replicated in 2010. Do we slip back into negative growth or minimal growth?
My speculation re interest rates: these are more my thoughts as to a logical progression tieing various data together. if things are good, inflation likely will pick up. If things are bad, they will not do so and interest rates stay down. Canada's competitiveness is a big issue and the higher the Canadian dollar (if we unilaterally raise our interest rates without the US following suit) the less competitive our industries become. I do not claim to know if things will improve and inflation return. I just think it is likely there will be a grouping of these events: If economy does well, we will see some escalation of the Canadian dollar (exports to US and BRIC countries(raw resourses) improve,prices rise, wage demands increase, and interest rates go up. If the economy does badly, Canadian dollar falls, production/manufacturing stall or fall, interest rates cannot go up.
Again, I am not an economist so please don't hold me to every prediction, I just think that certain logical conclusions should be expected to follow.

Great analysis...we would be better off with the second scenario...and hope the canadian economy goes under, then interest will stay low and Canadian dollar low, Canadian business more competitive and sky will be blue...

 

[interested]

Is real estate a good way to shelter the inflation?

Anyone has any stats of housing price in a historical inflation storm? When money is worth nothing, will we be better off holding on to the properties we have?

Will the housing price fall faster than inflation or more or less the same pace? And if housing price falls slower than inflation rate...buying housing is a good way to shelter the inflation. Any thoughts?

Perhaps those with economic training could better answer this but I will take a stab at some conjecture (without data to support it). Real estate is called just that "real" as it exists unlike stock "paper". If there is inflation, housing prices will obviously need over the long term assuming no excess supply or demand to rise to reflect the rate of inflation at the very least since to produce more product would be more expensive. If we draw from the1989 to 1992 when real estate crashed in Toronto, interest rates were dropping but the main issue was massive price(unjustified speculation) in the 3 years prior and a bad economy. The issue as to housing prices if they fall is far more involved than just whether or not there is inflation. Supply/demand, local market conditions, general economy, consumer confidence. Generally, if there is falling inflation or deflation, that is a bad thing because it usually occurs because the economy is contracting and just as a rising tide lifts all ships, the reverse works as well. Whether it will occur or not I just don't know.

Azureray, on one of the other UT forums, there were some graphs I believe put up by EUG which showed inflation in Canada and real estate prices. The economist came up with an article suggesting that house prices had not risen more than inflation over the last about 20 years. Sorry, I don't remember the exact thread. This was hotly debated and furthermore disputed with different figures being proposed and suggesting R/E had increased by more than inflation. Generally, if there is inflation, prices will rise on R/E(as with everything else) if all other things being equal which is of course the big "if".

 

[interested]

Is real estate a good way to shelter the inflation?

Anyone has any stats of housing price in a historical inflation storm? When money is worth nothing, will we be better off holding on to the properties we have?

Will the housing price fall faster than inflation or more or less the same pace? And if housing price falls slower than inflation rate...buying housing is a good way to shelter the inflation. Any thoughts?

Perhaps those with economic training could better answer this but I will take a stab at some conjecture (without data to support it). Real estate is called just that "real" as it exists unlike stock "paper". If there is inflation, housing prices will obviously need over the long term assuming no excess supply or demand to rise to reflect the rate of inflation at the very least since to produce more product would be more expensive. If we draw from the1989 to 1992 when real estate crashed in Toronto, interest rates were dropping but the main issue was massive price(unjustified speculation) in the 3 years prior and a bad economy. The issue as to housing prices if they fall is far more involved than just whether or not there is inflation. Supply/demand, local market conditions, general economy, consumer confidence. Generally, if there is falling inflation or deflation, that is a bad thing because it usually occurs because the economy is contracting and just as a rising tide lifts all ships, the reverse works as well. Whether it will occur or not I just don't know.

Azureray, on one of the other UT forums, there were some graphs I believe put up by EUG which showed inflation in Canada and real estate prices. The economist came up with an article suggesting that house prices had not risen more than inflation over the last about 20 years. Sorry, I don't remember the exact thread. This was hotly debated and furthermore disputed with different figures being proposed and suggesting R/E had increased by more than inflation. Generally, if there is inflation, prices will rise on R/E(as with everything else) if all other things being equal which is of course the big "if".

 

[ponyboy]

He is why we should be wary of any government or media reports on housing. The Canadian Government is in bed with the 5 Canadian banks. All the economists in Canada quoted daily in all of the Canadian media work for one of the banks. The government is currently guaranteeing all residental bank mortgages through their own "Fredy Mac" the Canadian Housing and Mortgage Corporation (CMHC). Any buyer who can come up with 5% down can acquire a mortgage and receive 35 year amortization simply by adding the CMHC fee to their mortgage. As prices are going higher, the rest of the Canadian home owners are refinancing their homes as low at 1.75% to maintain lifestyle, meet minimum payments, and the lucky ones are apparently buying more real estate. Banks are having record profits / bonuses, Canadians are spending, personal debt is at a record high. Any one want to buy some Canadian real estate?