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Baby, we got a bubble!?

I went on their website (Cinema's).
They say starting at the $350K range and they have studios starting at 421 sq.ft. That would be $831/sq.ft. Granted smaller units are generally more/sq.ft. However, I am guessing that $700/sq.ft. must have been a 2 bedroom or larger with poor view and lowish floor.
it's interesting drewp that when you reference Y/B and cite that 18 Yorkville is selling for $800 psf, you believe that supports $1000 psf for 1Bloor.
is there no possible consideration that both are overpriced in the first place ?!?

Then all of Yorkville is overpriced. 18 Yorkville is the cheapest per square foot and use that a reference point to determine the areas value as it is the entry level building for the neighbourhood.

Although 8 Scollard can be considered as well. See numbers in there in the 700's per square foot mark.[/QUOTE]

I dispute the notion that any closed sale is 'overpriced'. Asking prices may be overpriced as you can clearly see from the stale listings of luxury units collecting dust on the MLS. However if units at 18 Yorkville are selling for $800psf then thats what they're worth. One Bloor is years away from completion so any speculation on final closing prices is ultra speculative.

Trump Toronto, SL and the Four Seasons are all vulnerable to the same spec dumpers as the Ritz and based on the sub $800psf prices seen there i would expect prices settle at around $900-$1100psf at the SL and probably $1000-$1200psf at the FS. Trump Toronto could easily fall below the Ritz as i would expect very weak local demand for units there.
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Interesting observations CN Tower.
Would it not follow from your thinking that all the mid-high range buildings to come on line will fall as well since if you could purchase at FS at $1000, should not most of Yorkville existing also fall.
I think if there are a lot of speculators, the building price will fall as people try to unload. Then, when the pressed sellers are out, the question will be a better balance and the question will be: what are the market conditions at that time and also who wins out, buyers or sellers.
As for SL, if it goes for $900, I would think Cinema Towers and Ice would come down considerably as well. That said, in a good market, high end goes up more in absolute dollars, and if the market is getting soft and about to be "glutted", then the differential will shrink.

One other issue that I should mention, it may be that Toronto is just not the World Class City many would like to imagine, and mid range can survive downtown at $500-600 or even $700 but luxury cannot exist beyond or close to $1000/sq.ft. That remains to be seen.
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From the Family Finance section in today's Financial Post:

In response to this reader comment:
"What I do constantly see is a bias of the Financial Planners that you use away from hard assets and towards equities."

The author writes:
"...short term performance in any market should not obscure the fact that most national property markets have low single digit long run rates of appreciation. The Economist surveys these things and has found that 2% per annum is the non-bubble trend line. When markets get ahead of that baseline – think of Spain and Ireland from 1995 to 2005 – the reversions to mean values are bloody"

For me, my favourite is this quote from a reader:
"A nice, neat little analysis. Unfortunately in real life it doesn’t always work that way. Sell your real estate? Are you nuts? Buy more, leverage your equity to increase your return. My last two properties are earning a return of over 20%. My RRSP s have done nothing but go sideways for the past 10 yrs. Why is it all these financial “experts” suggest the same thing. Don’t you know that if you do what the average person does, you will be average."

The irony is that 70% of Canadians own their home, and the majority are heavily over weighted and over leveraged in real estate. Yet the above quoted reader is unaware just how "average" is his investment philosophy.
Look for 5% to 10% drop in home prices in first half of 2012

Christine Dobby Dec 19, 2011 – 2:30 PM ET | Last Updated: Dec 19, 2011 3:36 PM ET
REUTERS/Mark Blinch

REUTERS/Mark Blinch

Canadian housing prices are likely to drop between 5% and 10% in the first half of 2012, according to a research report from

With a gloomy outlook for the Canadian housing market, which they see as overvalued and flooded with supply, economists at Bank of America Merrill Lynch are warning that home prices are likely to drop between 5% and 10% in the first half of 2012.

Ryan Bohren and Sheryl King, Canadian economists at the bank, have taken a bearish stance on the real estate market before, warning of a possible 15% correction to the Toronto condo market in an October report.

In a report on the outlook for housing in 2012, Mr. Bohren and Ms. King noted that while Canada is somewhat shielded from the situation in Europe, it is not immune to it and the economic fallout could worsen if unemployment creeps up to 8%.

“In our view, the housing market is one of the most vulnerable sectors to this weakening economic environment, showing classic signs of overvaluation, speculation and oversupply,” they said in the report published Friday. “We are not calling for an all-out rout in the market, but caution is now decidedly warranted.”

What’s more, they said, using their fair-value model for average home prices, that takes into account disposable income and interest rates, home prices in Canada are about 10% overvalued. In their view, this is due to record low mortgage rates allowing households to leverage more than ever before.

“Lower interest rates explain a significant portion of elevated household leverage ratios,” Mr. Bohren and Ms. King noted.

In 1982, for example, for every $1 of income available for borrowing, the average household could borrow $6; now, that same $1 can be levered up to $20, the authors noted.

They also pointed to longer maximum amortization periods as a factor in inflated valuations.

“If mortgage rules were reverted back to where they were in 2000 and the maximum amortization for an insured mortgage was 25-years, instead of the current 30-years, we believe home prices would be almost 20% overvalued,” the authors said.

“If we removed both of these effects [low rates and longer amortization periods] on our fair value model, home prices would look about 35% overvalued,” they said.

As for the outlook for next year, their base case scenario, to which they assign a 50% probability, is for a soft landing for the housing market. They see home prices dropping by about 5% in the near term but rebounding in the second half of the year to end 2012 about flat.

Their more adverse outcome, to which they assign a 40% probability, is based on a global recession and sharp drop in commodity demand, pushing the Canadian economy into “outright recession” and unemployment up to 8% from its current level of 7.4%.

Linked as it is to jobs and income growth, expect a hard landing for the housing market under this scenario, the authors said.

A spike in the unemployment rate under the bearish outlook would likely result in a rise in mortgage delinquencies and forced selling, producing a decline in home prices of about 10%, they said.

For investors eyeing the sector, the authors noted that shares in Canadian home builders and non-bank financials with direct exposure to the housing market turned negative in April and could fall further in 2012,

Their base scenario is probably priced into the 30% decline home builder stocks have already experienced since an April high, the authors said.

“However, housing sensitive financial stocks are only down 13% from April and will likely fall further as home prices and home sale activity slows into 2012,” they added.

Their more adverse scenario could mean a further 20% decline for both home builders and housing sensitive financial stocks.

Along the same venue as Ka1's globe and mail report. Note. This is not new, just a rehash of their previous prediction.
So, as I understand it: soft landing 50% chance with 5-10% decline and recovery by end of year.
40% hard landing. I guess that means 10% status quo or increase. I think that covers just about everything, just a question of how much these particular economists guess probabilities. Let's face it, it is just guess work.

I find it difficult enough to predict a logical trend, let alone assign probabilities. I guess they can claim they were right at the end of the year no matter what happens.(barring a huge price increase).

I am actually a bit more hopeful. Everyone is so down on Europe and expecting everything to be so bad in N.America next year, maybe there will finally be some resolution and some improvement though a lot of problems still will exist.

The part most of us talk about, the condo market raises a question. I would like to know what their numbers actually show and how they conclude there are not enough renters in downtown TO with the number of condos. I am sure there is a point where that is true, I would just like to see the raw data.
Also, I would like to know which small markets they are talking about out West. I suspect it is condos being built in Richmond or the like. These are not large metropolis like cities and I am not sure we are comparing apples to apples. That said, of course TO condos can decrease in price. We know it happened severely in 1989 to 1992 after all.
GTA REALTORS® Report Mid-Month Resale Housing Market Figures

TORONTO, December 16, 2011 -- Greater Toronto REALTORS® reported 2,699 transactions through the TorontoMLS® system during the first 14 days of December. This result was 11 per cent above the number of transactions recorded during the same period in 2010. On a year-to-date basis, sales amounted to 87,407 – up 4.3 per cent compared to 2010.

“We have had the second best year on record for transactions under the current Toronto Real Estate Board boundaries. Households have continued to take advantage of affordable home ownership options across the diverse array of housing types available in the Greater Toronto Area,” said TREB President Richard Silver.
The average selling price during the first two weeks of December 2011 was $460,967 – up six per cent in comparison to December 2010.

“Strong average price growth, driven by seller’s market conditions, has been largely mitigated by the continuation of very low borrowing costs this year. The share of average household income going toward mortgage principal and interest has increased only marginally and remains in line with accepted mortgage lending standards,” said Jason Mercer, TREB’s Senior Manager of Market Analysis.

Average selling price in Toronto proper is $486,414, up 3% y/y. While the 905 is up almost 9% y/y

Toronto proper condo prices up 4% y/y, while 905 condo prices are up 13% y/y.

And for whatever reason, the price of townhouses plunged 10% y/y.

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In the US, the US realtor association kept talking about price increases, downplayed any decreases despite the absolute collapse, and denied it and talked about recovery for the next 4 years.

I can speculate why the townhouse prices plunged. Usually town homes are constructed for first time families. Singles do not buy them as much. Also, you have people cashing out trying to downsize. While there is a luxury townhouse market, I think you are seeing families stretched. The whole point of what is happening is that as more of income is going to house expenses; there is less left over. And as such, people at the borderline are being more pressed.

I would believe though I may be proven wrong that we are seeing a slow down of condo price rises. The next step will be stagnation and then followed by drops or at least stability. Once the psychology should it happen sets in that prices are or may drop, it becomes a self fulfilling prophecy as unless forced to buy for need, investors and others stay on the sidelines. And if the numbers are true that the condo market in particular has a lot of investors, and further that some of those investors are not financially sound enough to stick it out (I am talking about those investors who cannot close or were solely relying on price increases to sell in an up market), this has the potential of turning ugly very quickly. It will of course depend on how many are at the margin and what the psychology going forward will be. Initially in a downturn, people hope for the best and then end up chasing the market down. However, maybe we will have a repeat of the 9 month downturn in 2012 as happened in 2008 to 2009, though I don't understand why the market upturned so much in 2009 other than we were relatively spared in Canada, something that does not seem to be the economists views going forward. However, it it were an exact science, I'd be rich along with a lot of other smart people on this forum.
someone from here mentioned that they thought the Canadian peak was May 2011 ...

think they may be right.
cdr I checked on Guava and you are correct that the peak price this year was May 2011. Average TO price was $485K. Last month was $480K, the 2nd highest month. $460K for the first 2 weeks of December is lower but seems to follow the seasonal pattern.

The peak median price was June 2011, again $5K more than the previous month. $405K vs. $400K. Clearly the average is being skewed by higher priced properties.

However, one notes that in 2010 the peak was also in May as it was in 2008. It was in Oct 2009.
I am guessing that so many people want to move in May (traditional moving day) that there is demand from winter pent up.
the question is: Was May 2011 the peak and we go down, or is it the normal cyclical variation of the last few years.
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It's fun to make predictions without accountability. My prediction is May 2012 median price exceeds May 2011 median price by <5%.
Seems like these types of articles are poping up all over the place, with a few every week now.

Condo investors may head for exits

Investors rushed to buy Toronto condos in the good times, now there is a worry that they will rush for the exits as the economy weakens and they realize that profits are hard to come by in an overbuilt market.

A record number of condos were built in the past year in the Greater Toronto Area, with some 43,000 units under construction. Anecdotal evidence suggests many of the units were sold to investors who plan to rent them out, but a flood of supply hitting the market at once could drive rents below what’s needed to generate a profit.

Bank of America Merrill Lynch said if this happens, expect investors to slap “for sale” signs in the windows. And they won’t be selling for a profit, which will drag down prices for anyone else in the city putting a place on the market.

In a city accustomed to more than a decade of predictable price gains, the bank’s worst-case-scenario call of a 15 per cent price drop over the next two years is an uncomfortable proposition for many who count their homes as their financial asset.

“What drives this housing cycle up inevitably drives the market down,” economist Sheryl King wrote in a report. “We estimate there are already enough units in [Toronto] to satisfy fundamental demand for the next five years ... our estimates indicate there will not be enough renters in Toronto to occupy these units as they are completed.”

Toronto’s boom has been fuelled by several factors. Land use restrictions have encouraged vertical growth, and the price of standalone housing has exploded in recent years. The average detached house in the 416 area code sold for $708,993 in the first two weeks of December, the Toronto Real Estate Board said. The average condo sold for $359,206.

Merrill Lynch isn’t alone in its concern – in its December economic update, the Bank of Canada noted a “heightened risk of correction” in the condo market.

“Certain areas of the national housing market may be more vulnerable to price declines, the bank said. “Particularly the multiple-unit segment of the market, which is showing signs of disequilibrium.”

Builders, however, maintain the market is robust and suggest many who issue dire warnings are underestimating demand. While some suggest up to 60 per cent of all city condos are bought by investors, Tridel Group of Companies senior vice-president Jim Ritchie said his numbers suggest no more than 15 per cent of buyers are looking for an investment.

No reliable statistics are kept, which is one of the main reasons analysts often disagree about the market’s direction. It matters – homeowners are less likely to sell if prices drop because they aren’t looking to make a quick profit. If they hold on through any volatility, prices are less likely to fall sharply.

“As an industry, we’re getting pretty accustomed to people telling us that things are out of control and unsustainable,” said Mr. Ritchie, whose company plans to build eight new condo towers next year. “If this market had sprung up overnight, then maybe I’d understand. But this has been a solid contributor since 1967, and has been doing well for the last 10 years. This is not a blip.”
Canada’s housing boom among longest in Western world

Canada’s housing boom is among the most long-lived in the Western world at 13 years, but the next few years could chip away at the gains that have seen the average house increase in value by 85 per cent since 1998.

In a report released Tuesday that said the Canadian housing market was the strongest in the developed world in the third quarter, Bank of Nova Scotia economists said “the slow pace of the global economic recovery, intensifying sovereign debt concerns, weak consumer confidence and high unemployment all continue to weigh on residential property markets†in 10 countries it tracks.

The malaise has already set in – of the 10 countries studied in the third quarter, average inflation-adjusted home prices were below year-ago levels in seven of them, and above in three (including Canada, where prices are 4.8 per cent higher).

The other countries to post gains were France at 4.4 per cent and Switzerland at 3.3 per cent. The sharpest declines, meanwhile, were seen in Ireland were prices were down 14.7 per cent.

“Canada remained a notable outperformer, though activity here too shows some signs of cooling.

Weak market conditions will likely persist well into 2012,†economist Adrienne Warren wrote. “While the combination of low borrowing costs and lower home prices have bolstered housing affordability, there is insufficient domestic momentum in the majority of advanced nations to support a significant revival in demand. An oversupply of housing and a more cautious lending environment also will hold back the recovery.â€

Merrill Lynch warned Monday that prices could correct by as much as 10 per cent in the next two years in Canada because of weakness in the economy, expressing particular concern about Toronto’s condo market. The Bank of Canada also warned the Toronto market looks overbuilt and could see prices drop.

“The cycle of rising real home prices is long, lasting on average 12 years,†Ms. Warren wrote. “Italy’s boom was the shortest at 8 years, while Ireland and Sweden count 15 years. Canada’s ongoing housing boom is in its 13th year... Canada’s residential real estate boom started several years later than many of its counterparts, with the economy still feeling the effects of the deep recession of the early 1990s and weak labour markets through mid-decade.â€

From the report:

- "The Canadian housing market remains an outperformer among advanced nations, with real home prices up 4.8 per cent y/y in Q3. While the sector’s continued buoyancy is impressive, monthly data through November suggest prices have leveled off since the spring, with conditions in the majority of local markets in ‘balanced’ territory. Ultra-low interest rates are still attracting buyers, but increased economic uncertainty combined with some recent slowing in the pace of hiring could dampen demand in the new year.

- In the United States, average inflation-adjusted home prices fell 7.5 per cent y/y in Q3, bringing the cumulative decline since the 2005 peak to over 30 per cent. Despite near-record affordability, persistently high unemployment, tight credit conditions and a lingering oversupply of unsold and foreclosed properties suggest a sustainable recovery could still be several years away.

- The French housing market remains the most resilient in Europe. Average inflation-adjusted home prices were up 4.4 per cent y/y in Q3, and are nearing pre-crisis record highs after a brief downturn in 2008-2009. Tight housing supply is underpinning prices, but these continuing gains appear unsustainable in an environment of high unemployment, government restraint and slowing regional exports.

- Switzerland’s housing market also remains relatively buoyant, with average prices up 3.3 per cent y/y in Q3.

- Ireland still holds title to the weakest residential market in our sample, with average inflation-adjusted home prices down 14.7 per cent y/y in Q3 and by a cumulative 44 per cent from their early 2007 highs. The steep and continuous price declines of the past four years have essentially wiped out a decade of price appreciation.

- U.K. house prices are declining again after a brief recovery in 2010. Real home prices have contracted on a year-over-year basis for the past three quarters, falling 6.7 per cent y/y in Q3. Spain’s deep housing slump continues, with average prices down 8.9 per cent y/y in Q3 and almost 25 per cent from their early 2007 peak.

- Prices have also recently dipped into negative year-over-year territory in Sweden, consistently one of the region’s better performing housing markets.

- In Australia, average inflation-adjusted home prices fell 5.7 per cent y/y in Q3. Even so, the slowdown follows strong gains in 2010, leaving prices near record levels. While domestic economic conditions remain relatively solid, some potential buyers have been sidelined by deteriorating housing affordability and a more uncertain global outlook.

- There is still no end in sight to Japan’s two-decade long property slump, with residential land prices down 3.3 per cent y/y in Q3."