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Baby, we got a bubble!?
- Thread starter simuls
- Start date
interested
Senior Member
Own, will not sell.
I think cdr you are a better investor than I am. I think a lot of us unless we truly believe an "end of world scenario" or a US style crash is coming will not move. A home is more than an investment. I realize one should look at it objectively but my home is well....my home. Other investments I am more divorced from.
I will not be selling but I am relatively well capitalized. I guess there is a whole spectrum from my position to yours and beyond in both directions. Not sure we can conclude too much from our own views since I am sure there is a corresponding opposite view out there to balance it. The problem of course is when everyone gets the same view...read the US after 2007. Then the market overshoots (usually in both directions).
macookie
Active Member
The "proof" is that KA1 has a massive confirmation bias, whereas he sees what he wants to see and their accepts his truth, when someone present something that aligns with his already determined mindset. But... I read a neat fact, Mr. Nixon the CEO of RBC says his bank has a $2 billion exposure at 25% drop in R/E prices. The CEO of another bank believes that Vancouver and Toronto are likely the places where we'll first see the bubble expose itself... but... I'm thinking... it's likely going to be the outskirts and suburbs crashing first. But, once banks start making cuts... that's when dt Toronto is going to hurt. (3 years... that's when we'll see proof.)
http://en.wikipedia.org/wiki/Confirmation_bias
interested
Senior Member
Historically, the trend has usually been slowdown in Toronto first and then about 6 months later spreads to the suburbs. At least, that is what happened in 1989. That said, I think there is a shortage of good housing in the city proper now so that may not be the case this time. However, I am not so sure about condos in the TO.
ILuvTO
Active Member
Thank you for posting Andrew!
Very good read. They use a lot of statistics to argue their point.
Basically they are saying what many of us have been saying: Record low rates are propelling prices. If rates were to normalize then so would prices. Though they don't seem to think that Carney will jack up rates in a shock move. I tend to agree with them. With that said, if inflation were to ever take hold in the broad economy then he'd have no choice but to raise rates. Tricky situation.
ILuvTO
Active Member
If there is in fact over building in the condo sector then it will hurt the overall market. All those people getting slapped around on the lower rungs of the property ladder (condo owners) will bring the other segments down with them (town houses, semi's, detached houses) as the condo owner will no longer be able to move up unless those owners adjust their prices.
ISYM
New Member
What does a $2 billion drop in exposure at 25% mean? That it will all suddenly happen in 1 year or be spread between 2 and 5 years?
RBC in 2011 Reported $42.9 billion in securitized mortgage assets, $12 billion of which was retained. It mght be a shocking realization if the $2 billion is on the retained amount, but this is unlikely. Even if it was, its impact is more so marginalized when one realizes that it is based on a credit provision accounted for annually on a percentage basis based on active mortgage loans receivable to maturity - in layman's terms it is a bad debt provision. Considering that the Bank of Montreal, in preparing for a ponzi scheme judgement against them in Florida set aside for the first quarter of this year a $255 million provision, RBC's $2 billion spread over 3,4 or 5 years, much of which has already been set aside, is insignificant.
It seems a massive problem when stark numbers are provided and this is not by chance but not by design.
I've been reading this thread for a few weeks now and I find KA1's posts to be well reasoned particularly as they reflect his circumstance.
macookie said:
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ISYM
New Member
This is true however is it possible that history may or may not relate here since the suburban areas back in 1989 was anything considered north of Eglinton Ave, east of Greenwood and west of Spadina? The GTA's growth has been very significant over the last two decades yet a case can be made that contraction not expansion of boundaries is becoming evident. In other words is it possible that a housing correction will result from migration inward?
interested
Senior Member
I was actually talking about Oakville but I know the trend was seen in Mississauga at that time as well.I believe the burbs in general follow rather than lead Toronto. About the migration inward ISYM, is this an actual fact? I know I have read that there are as many people who leave the core of TO to work in the burbs as there are the other way around now. I get that there are boomers who "are all going to want to live in the City". I am not so sure that that is the case. Ka1 has made it clear he loves the decision. I know of someone else who moved to the City and also loved it but equally I know of a couple that moved to a condo in the city and after approximately 2 years moved back to the suburbs (though to a condominium Townhome...previously they were in a single detached). Their reasons were 1)did not like condo living..taking an elevator to get into their home and 2) did not like not being able to walk into their "back yard". They also found that though the City was exciting at first while they went out a lot initially that stopped within a year. They also commented it was "expensive" to be in the City as they did more things. I am not sure that last point is a bad thing but most "retired" people worry about money more in my experience since one does not have the ability to "make money" again as one does when working.
KA1
Senior Member
ISYM
New Member
As mentioned, a case can be made. The below cites 2011 census data for the regions including growth in dwellings.
www.toronto.ca/demographics/pdf/profile_tor_bulletin.pdf
www.toronto.ca/demographics/pdf/profile_tor_bulletin.pdf
KA1
Senior Member
http://www.theglobeandmail.com/glob...ont-fret-about-household-debt/article2346123/
Why banks don't fret about household debt.
Why banks don't fret about household debt.
Southcore
Active Member
For those of you that have been around longer, I have a question about pre con condo prices back in the day. After watching this video of Lash Developments (66 Portland, 20 Stewart, 500 and 530 St Clair, to name a few) I was thinking about pricing now compared to several years ago:
http://www.youtube.com/watch?v=16ssM9EG-H8
As per the video (it's about five mins long - the info I refer to below can be found within the first two mins, afterwards it's them shilling for their latest project) the head of Lash says they were one of the first to develop in the King W area, at around $300 PSF. According to UrbanDB, 66 Portland started construction in 2004 (so sales maybe in 2002/3), 20 Stewart started excavation in 2005 (so I'm guessing pre sales started in 2004, maybe 2003)
500 St. Clair was proposed in 2004, construction started a few years after and completed in 2010. Prices were in the low $300's PSF.
So fast forward now. Resale in King W is close to $600 PSF and more for pre con, topping at or around $700 PSF. St. Clair W resale is in the $500 PSF, and the most recent pre con in that area, Rise Condos, came in around $550 PSF.
Anyway, my questions are:
1) In 2002-2004, was $300 PSF for pre con in King W and St Clair W considered high? Reasonable? Or in the case of King W, really risky since the area was not it is compared to present day
2) Does the price appreciation (pretty much doubling in PSF over 8-10 years) surprise you? Does it reinforce the idea that TO could be overvalued? Or is the progression natural? Have things go up too fast, too soon?
3) Compared to present day, how do you feel about current projects? Consider a project like INDX, which just released info. Prices are in the lower $600 PSF. In ten years, no one knows that can happen, but does anyone really think we will see even a 50% increase in PSF, much less a doubling like we did from 2002-2012?
As it has been discussed in this thread before, the spread between resale and pre con is quite wide, in some cases a difference as high as $150 PSF. Is there a point anymore of getting in this way? I've been contemplating adding another project but I do think it makes financial sense.
Somewhat related to this discussion is the topic of this blog by David Fleming, and his take on pre con agents has also left me sour. Seems like the industry (the builders and the VVVIP agents) is trying to squeeze every last bit they can before things slow down. His argument is essentially that the builders are dishing out higher commissions to entice realtors to sell overpriced condos:
http://www.torontorealtyblog.com/archives/yet-another-conflict-of-interest/6507
I appreciate if those who were in the game back then could give their thoughts. Thanks
http://www.youtube.com/watch?v=16ssM9EG-H8
As per the video (it's about five mins long - the info I refer to below can be found within the first two mins, afterwards it's them shilling for their latest project) the head of Lash says they were one of the first to develop in the King W area, at around $300 PSF. According to UrbanDB, 66 Portland started construction in 2004 (so sales maybe in 2002/3), 20 Stewart started excavation in 2005 (so I'm guessing pre sales started in 2004, maybe 2003)
500 St. Clair was proposed in 2004, construction started a few years after and completed in 2010. Prices were in the low $300's PSF.
So fast forward now. Resale in King W is close to $600 PSF and more for pre con, topping at or around $700 PSF. St. Clair W resale is in the $500 PSF, and the most recent pre con in that area, Rise Condos, came in around $550 PSF.
Anyway, my questions are:
1) In 2002-2004, was $300 PSF for pre con in King W and St Clair W considered high? Reasonable? Or in the case of King W, really risky since the area was not it is compared to present day
2) Does the price appreciation (pretty much doubling in PSF over 8-10 years) surprise you? Does it reinforce the idea that TO could be overvalued? Or is the progression natural? Have things go up too fast, too soon?
3) Compared to present day, how do you feel about current projects? Consider a project like INDX, which just released info. Prices are in the lower $600 PSF. In ten years, no one knows that can happen, but does anyone really think we will see even a 50% increase in PSF, much less a doubling like we did from 2002-2012?
As it has been discussed in this thread before, the spread between resale and pre con is quite wide, in some cases a difference as high as $150 PSF. Is there a point anymore of getting in this way? I've been contemplating adding another project but I do think it makes financial sense.
Somewhat related to this discussion is the topic of this blog by David Fleming, and his take on pre con agents has also left me sour. Seems like the industry (the builders and the VVVIP agents) is trying to squeeze every last bit they can before things slow down. His argument is essentially that the builders are dishing out higher commissions to entice realtors to sell overpriced condos:
http://www.torontorealtyblog.com/archives/yet-another-conflict-of-interest/6507
I appreciate if those who were in the game back then could give their thoughts. Thanks
interested
Senior Member
^^^
In response to your questions Southcore:
I bought Precon in 2001 in the Core: Price for a 1 bedroom was $282/sq.ft.. Go forward 1-3 years (2002 to 2004) and the core was closer to mid $300's so for King West I think that may have been a bit high. Similarly for St. Clair.
2) In response to whether prices have gone up too much too fast this thread has been deliberating this point for years. Clearly the rate is beyond historical averages as far as price appreciation. Counter that with the lowest interest rates in 50 years for mortgages. My personal concern is interest rates can't go lower, only up and presumably with that at some point price resistance should follow.
3) Do I believe we will see 50% increase in 10 years personally no because I do not believe people can afford rent increases to match this as there is unlikely to be 5%/year wage increases. That would only happen if we had hyperinflation and even then it is questionable. So, unless "investors" will keep buying with lower rates of return than the already low rates now, I would not think 50% is realistic.
4) I think Precon is overpriced and does not justify the increase in price over Resale; personally I would look at an assignment if I was looking today.
Regarding David Flemming blog: I agree with this in essence. Agents are certainly not representing any client but themselves but this is an industry wide problem and serves to increase the value of properties by insertion of another commission. Developers have conscripted the R/E industry/agents to act for them under the guise of VIP priviledges. In any other environment this would be viewed as collusion, improper use of fiduciary duty and probably punishable by law. Yet it is the norm and justified by the real estate industry. Again just my view.
My question that I posed earlier in this thread...how can an agent acting for me represent me when he is being "bribed" with higher commissions by the developer to essentially insert himself/herself into a process in which all they are providing is "access". I appreciate some require the agent but personally I don't feel I need it for a Precon condo and even if I did, I would like to pay a wage for work offered rather than an overinflated percentage which in no way reflects the value of work provided.
I too would like to be paid a huge commission for doing nothing or close to it. I too expect to hear a lot of flack over this but as I stated before, I would like rather to hear a rational argument as to why these fees for these "semi-professionals" are in anyway proportional to what is being charged for this service.
In response to your questions Southcore:
I bought Precon in 2001 in the Core: Price for a 1 bedroom was $282/sq.ft.. Go forward 1-3 years (2002 to 2004) and the core was closer to mid $300's so for King West I think that may have been a bit high. Similarly for St. Clair.
2) In response to whether prices have gone up too much too fast this thread has been deliberating this point for years. Clearly the rate is beyond historical averages as far as price appreciation. Counter that with the lowest interest rates in 50 years for mortgages. My personal concern is interest rates can't go lower, only up and presumably with that at some point price resistance should follow.
3) Do I believe we will see 50% increase in 10 years personally no because I do not believe people can afford rent increases to match this as there is unlikely to be 5%/year wage increases. That would only happen if we had hyperinflation and even then it is questionable. So, unless "investors" will keep buying with lower rates of return than the already low rates now, I would not think 50% is realistic.
4) I think Precon is overpriced and does not justify the increase in price over Resale; personally I would look at an assignment if I was looking today.
Regarding David Flemming blog: I agree with this in essence. Agents are certainly not representing any client but themselves but this is an industry wide problem and serves to increase the value of properties by insertion of another commission. Developers have conscripted the R/E industry/agents to act for them under the guise of VIP priviledges. In any other environment this would be viewed as collusion, improper use of fiduciary duty and probably punishable by law. Yet it is the norm and justified by the real estate industry. Again just my view.
My question that I posed earlier in this thread...how can an agent acting for me represent me when he is being "bribed" with higher commissions by the developer to essentially insert himself/herself into a process in which all they are providing is "access". I appreciate some require the agent but personally I don't feel I need it for a Precon condo and even if I did, I would like to pay a wage for work offered rather than an overinflated percentage which in no way reflects the value of work provided.
I too would like to be paid a huge commission for doing nothing or close to it. I too expect to hear a lot of flack over this but as I stated before, I would like rather to hear a rational argument as to why these fees for these "semi-professionals" are in anyway proportional to what is being charged for this service.
Thesb
Active Member
All I have to offer here is my own anecdotal evidence:
I bought precon in Leslieville in early 2007 for $361 PSF. A year ago (December 2010) I bought another precon pretty much across the street from the first for $432 PSF. Last August, I decided to sell the first unit and rent until the new one is ready. My first unit sold for $558 PSF (an increase of $197 PSF).
There are variables at play (my new unit is double the size of my first) but assuming that the PSF in my area is >$500, then my new precon has already appreciated substantially.
Ultimately I think it all depends on the area. Leslieville over the last few years is a lot like the West side was 10 - 15 years ago. Once you reach the tipping point at which an area goes from up-and-coming to established then precon pricing doesn't save you much money, if at all.
I bought precon in Leslieville in early 2007 for $361 PSF. A year ago (December 2010) I bought another precon pretty much across the street from the first for $432 PSF. Last August, I decided to sell the first unit and rent until the new one is ready. My first unit sold for $558 PSF (an increase of $197 PSF).
There are variables at play (my new unit is double the size of my first) but assuming that the PSF in my area is >$500, then my new precon has already appreciated substantially.
Ultimately I think it all depends on the area. Leslieville over the last few years is a lot like the West side was 10 - 15 years ago. Once you reach the tipping point at which an area goes from up-and-coming to established then precon pricing doesn't save you much money, if at all.