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Baby, we got a bubble!?

Here's an article from the Globe and Mail on the Vancouver Real Estate Market - there is also another article on the Toronto market - i'll see if i can post it too.

Storm clouds forming over Vancouver’s real-estate market
wendy stueck
VANCOUVER— From Saturday's Globe and Mail
Published Friday, Mar. 16, 2012 9:58PM EDT
Last updated Sunday, Mar. 18, 2012 6:53AM EDT
For the past few years, Bill Liu has sold homes at a steady clip, averaging four or five sales a month in Richmond and other communities in the Lower Mainland.
This year, his sales are running at about half that, as the once white-hot British Columbia real-estate market cools off. Sales are down, though prices are holding firm for the most part. The slowdown has cast a shadow of uncertainty over the direction of the market – although real-estate agents such as Mr. Liu still see some rays of hope amid the clouds.
Prices aren’t likely to plummet, he said, since a mere whiff of a discount tends to draw bids from buyers waiting to pounce. “A lot of people have money,” said Mr. Liu, an agent with Royal Pacific Realty in Vancouver. “They’re waiting, but once they find something a little bit cheaper, they go and buy it.”
And lurking in the background is the hard-to-measure influence of real-estate money from China. Buyers from China – considered a major factor in price increases in Richmond and the west side of Vancouver and West Vancouver over the past year – remain keen on the city and are scouting other neighbourhoods, including Vancouver’s east side, real-estate agents say.
Vancouver’s climate, scenery, schools and well-established Asian population make it appealing for would-be buyers from China, said Caroline Hong, a Vancouver real estate agent who works almost exclusively with Chinese clients.
Ms. Hong, who recently sold a $9-million home on Vancouver’s west side that includes a cavernous media room and a wine bar, said the high end of the market has slowed slightly, but less costly homes are still in hot demand.
“On the east side, every single one that is well priced goes over asking,” she said, citing a Vancouver Special that sold for nearly $100,000 over the $900,000 asking price after 75 people streamed through an open house. She also works with developers who are building townhomes, priced in the $1-million to $1.2-million range, with Asian buyers in mind.
Multi-unit developments may face a different outlook. A February report from Vancouver research firms Strategics and MPC Intelligence notes B.C. is losing people to other provinces – a trend that’s been linked to high housing prices – and that there is a glut of unsold condos in some communities.
“Not much attention has been paid to declining net migration or the potential impact of the deflating Chinese real-estate bubble on foreign speculation in the Vancouver condo market,” says the February, 2012, Condominium Market Opportunities Report. “Both of these factors will have a negative effect on new condo sales.”
In response to speculation, China in the past year or so has tightened property regulations. In Beijing, for example, would-be buyers need a permanent residency certificate from the city to buy an apartment. There are also limits on those who wish to purchase two or more homes.
Those restrictions have pushed investors to look at other markets, including Vancouver.
The tempered activity in Vancouver reflects economic jitters and a market that was “pushing the edge of the price envelope,” said Tsur Somerville, an associate professor at University of British Columbia’s Sauder School of Business. “I think people in general are nervous.”
On the “foreign investor” front, he said, anecdotal reports don’t add up to hard numbers, and he noted that some supposedly foreign investors may actually be immigrants intending to settle in Vancouver permanently.
This year’s evolving real-estate picture includes a flurry of foreclosures in the Okanagan. Foreclosures there have spiked from an average 10 or 12 a month in 2009 to about 170 listed to date this year, Jason Neuman, a Century 21 agent in Kelowna, said.
As a percentage of listings, those foreclosures add up only to about 5 per cent of the market and don’t necessarily put downward pressure on prices – except when it comes to multiple-unit buildings, he said. In those instances, a foreclosed listing typically forces other sellers to drop their prices.
As a recreational real-estate market, the Okanagan is competing with rock-bottom prices in places such as Florida and Arizona – the result of the subprime mortgage mess in the United States.
The same impulse that persuades some real-estate investors to buy a home in Palm Springs instead of the Okanagan could come into play in Vancouver, as international buyers look to cities such as New York, Los Angeles and San Francisco for better value than what they can find here, said Andrey Pavlov, an associate professor at Simon Fraser University’s Beedie School of Business.
“I think they will eventually realize that they can get a better deal for investment in those cities, and either prices here are going to decline, or prices in New York or San Francisco are going to increase,” he said.
Far from worrying about a drop in the market, Mr. Liu is already eyeing new opportunities, akin to the North Shore housing boom sparked years ago by high prices in urban Vancouver. Now, he and many others are hoping that today’s prices, and the commuting convenience of the Evergreen SkyTrain expansion, will recreate the same magic in Coquitlam and other outlying suburbs.
 
GTA REALTORS® Report Mid-Month Resale Housing Market Figures

, March 19, 2012 – During the first 14 days of March, Greater Toronto REALTORS® reported 4,215 transactions through the TorontoMLS system, representing a seven per cent increase compared to the same period in 2011. The number of new listings was down by two per cent year-over-year to 6,970.

“Home buyers continue to benefit from the affordable housing situation in the GTA. Immigration to Toronto and surrounding areas adds to the pool of home buyers every year. The economic and ethnic diversity found in the GTA consistently attracts newcomers and foreign investment,” said Toronto Real Estate Board (TREB) President Richard Silver.

The average selling price for transactions between March 1 and 14 was $502,155 – up by more than nine per cent compared to the first 14 days of March 2011. On average, homes sold for 100 per cent of the asking price within three weeks.

“Strong competition between home buyers in many parts of the GTA has resulted in sellers realizing their asking price in a short period of time. The fact that homes are selling for 100 per cent of the asking price, on average, suggests that sellers are very much in tune with the current market situation and know the fair market value of their home,” said Jason Mercer, TREB’s Senior Manager of Market Analysis.

http://www.torontorealestateboard.c...market_updates/news2012/nr_mid_month_0312.htm
 
Prices increased 10% on detached but only 4% on condos. I believe this reflects the fact that people already living in houses are not moving and hence not a huge increase in product. Condos the supply is greater. 4% increase year on year if this in fact what is happening in the C01 core does not bode all that well for $650-700/sq.ft. condos being worth that when ready. If I assume a 4 year time horizon and a resale price of $500/sq.ft.; this amounts to closer to $585/sq.ft. assuming 4% compounded for the 4 years or $606 if it is 5 years hence.
 
Were they suggesting eliminating the 30 years altogether or onlywith regard to CMHC-insured loans?

although i didn't hear the radio, i'm pretty sure they might be referring to CMHC insurance.

i still hear 40-yr amortizations are still available at financial institutions, it's just that they won't provide it high risk clients with little down payment.
 
although i didn't hear the radio, i'm pretty sure they might be referring to CMHC insurance.

i still hear 40-yr amortizations are still available at financial institutions, it's just that they won't provide it high risk clients with little down payment.

Maximum mortgage ammortization is 30 years. Nobody is offering 35 and 40 years any longer. It's been like that for quite some time too.
 
I believe cdr108 is correct. If you have a large downpayment and do not need CMHC insurance, longer amortizations are still available. However, you won't find them at the big banks.
 
http://www.theglobeandmail.com/life...-gets-two-offers-sight-unseen/article2371951/


SELLING PRICE $495,000

WHAT THEY GOT: On one of the lower levels of a nine-year-old high-rise by reputable builder, Polygon, this 741-square-foot suite is a bright, modern space with floor-to-ceiling windows in areas like the combined living and dining area and the solarium off the open, galley-style kitchen.

THE AGENT’S TAKE: “It’s a great unit, a great building and showed well for something that was rented,†says agent Nadia Doucet. “The layout is phenomenal because they made such good use of that space. For something that’s under 800 square feet, it feels a lot bigger.â€

The prime location also appealed to buyers wanting to reside there or rent it out as the sellers had for $3,000 monthly. “The market downtown right now is really hot,†says Ms. Doucet. “From an investor’s point of view, there was good revenue from that suite as well.â€



We all here about how expensive GVR is.
I don't know their prices and rental rates, but if this is a representative example, at least their costs are covered by rent:

741 sq ft for $495,000 = $668 per sq ft
rental rate = 741 sq ft for $3,000 = $48.60 per year


In Toronto, a similar priced product would get a rental rate of $36 per yr.

$1900 rent
http://www.realtor.ca/propertyDetails.aspx?propertyId=11596925&PidKey=685661759

$429,000
http://www.realtor.ca/propertyDetails.aspx?propertyId=11601603&PidKey=1428037561



rental rate - $30 per year, approx $600 per sq ft cost

For Rent: $1,550/Monthly - 639 sq ft
http://www.realtor.ca/propertyDetails.aspx?propertyId=11648700&PidKey=-629313176

For Sale: $364,000
http://www.realtor.ca/propertyDetails.aspx?propertyId=11597669&PidKey=-667655071



rental rate - $36 per year, approx $657 per sq ft cost

For Rent: $2,600/Monthly - 836 sq ft
http://www.realtor.ca/propertyDetails.aspx?propertyId=11597861&PidKey=1705989187

For Sale: $549,000
http://www.realtor.ca/propertyDetails.aspx?propertyId=11644751&PidKey=-642870198



it appears that rents are SUBSTANTIALLY more (34-50%) in GVR to offset their prices/costs compared to Toronto.

Interesting. Do you think rents in TO are low relative to price to buy? Or are Van rents bloated just like their sale prices?
 
Prices increased 10% on detached but only 4% on condos. I believe this reflects the fact that people already living in houses are not moving and hence not a huge increase in product. Condos the supply is greater. 4% increase year on year if this in fact what is happening in the C01 core does not bode all that well for $650-700/sq.ft. condos being worth that when ready. If I assume a 4 year time horizon and a resale price of $500/sq.ft.; this amounts to closer to $585/sq.ft. assuming 4% compounded for the 4 years or $606 if it is 5 years hence.

Seriously, the case for pre con as an investment vehicle are just getting worse and worse. Besides the the outrageous prices (not just the suites themselves, how the hell did parking just double in price compared to a few years ago?), the other BS you have to deal with like delays (most recently Freed and Westside Lofts), occupancy fees, developers cheapening out (M5V), etc. That Remax blog from a month or so ago was on point: pre con at over $600 PSF is just not sustainable right now.
 
. That Remax blog from a month or so ago was on point: pre con at over $600 PSF is just not sustainable right now.


Freed's 60 Colbourne is starting from $650 psf for the lower podium units according to the VIP price sheet; and the tower starts from $700 psf ... they're trying to promote it as a discount to Trump / Aura / One Bloor ... LOL


Interesting. Do you think rents in TO are low relative to price to buy? Or are Van rents bloated just like their sale prices?

i don't know if i can say either ...

the rental rate ($30-36 for new products) for Toronto has been stagnate for almost a decade.
to me that's a reflection of the local markets ability to pay and the main reasons for our high prices have been fueled by cheap money / loosened lending standards / CMHCs exponential portfolio expansion to $600-billion limit

i don't know if Van's rent are 'bloated' but if the G&M example is reflective of their rental rates, at least it covers their sale prices:
$48 gross rent / year for sale price of $668 per sq ft is ALOT BETTER than our $36 gross rent / year for the same sale price.
 
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Freed's 60 Colbourne is starting from $650 psf for the lower podium units according to the VIP price sheet; and the tower starts from $700 psf ... they're trying to promote it as a discount to Trump / Aura / One Bloor

yeah I saw you mentioned that in the other thread, I don't know what's worse, the audacity of the developers to spin this BS or the rich spec'ers who cluelessly put down huge chunks of cash on 500 sq ft boxes.

Speaking of which, BBH tweeted that the line up for Casa II is already 60+ deep. The one day sales event is in 11 days! Apparently a line started forming last week. Guess Cresford wants to do it mass hysteria style instead of the more humane worksheet way. Hopefully this doesn't turn into a X2 situation with multiple lines.
 
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^^
As terrible as a line is, and I disapprove, at least it gives a motivated end user a chance to get in line and waste 2 weeks time to get a unit he would want. Or is the line only for "VIP's or agents". And if so, some "VIP" treatment.
As well, if there are already 60 people, I wonder if prices will "jump" up as they did when Bazis had 1 Bloor East.
 
Bank regulator proposes heightened scrutiny of mortgage market
tara perkins AND grant robertson
From Tuesday's Globe and Mail
Published Monday, Mar. 19, 2012 3:39PM EDT
Last updated Tuesday, Mar. 20, 2012 8:57AM EDT
Canada’s financial regulator is proposing strict rules to tighten lending practices in the housing sector, a move that could cool the red-hot market after months of warnings about rising consumer debt.
The new rules would require banks to take a closer look at how much a property is worth before issuing a mortgage – and to know more about the monthly finances of borrowers before the money is doled out.
For the first time, the Office of the Superintendent of Financial Institutions has put together a framework on mortgage underwriting principles, which if approved would set extensive due-diligence requirements for lenders.
In particular, the regulator is issuing a warning about home-equity lines of credit, known as HELOCs, and asking banks to do more to ensure that they are thoroughly scrutinizing borrowers.
The move is part of an international effort to avoid another crisis like the subprime mortgage fiasco that clobbered the U.S. economy and major banks. But it comes as the Canadian banking sector is locked in a heated mortgage price war heading into the spring home-buying rush, with five-year fixed rates as low as 2.99 per cent. Lenders are pushing to gain market share while the market remains strong.
“Spring is our busiest season,” said Marcia Moffat, head of home-equity financing at Royal Bank of Canada, the country’s largest lender. “The competition tends to intensify as we approach the spring market, so that’s what you’re seeing.”
But policy makers and regulators are concerned about the debts consumers are taking on as a result of persistently low rates. The fear in Ottawa is that many borrowers will struggle to keep up their payments once rates rise substantially, posing a threat to banks and the economy. At the same time, economists say that Canada’s housing market – most notably in Toronto and Vancouver – is overpriced. If house prices fall at the same time as interest rates rise, borrowers could find themselves under water.
The draft rules, which OSFI put out for comment until May 1, are designed to ensure that banks are collecting detailed information about a borrower’s identity, background, and willingness and ability to pay their debts on time. The rules also deal with due diligence the banks should conduct on the value of properties. And OSFI is telling banks that they will have to disclose more information publicly about the risks contained in their mortgage portfolios.
OSFI’s guidelines lay out the details that it wants banks to check when considering a mortgage application. They include items such as home heating bills and other variable expenses.
The banks are still digesting the OSFI draft report, but Ms. Moffat said she is supportive of rigorous lending standards. “We have quite a disciplined credit adjudication approach. There’s always opportunity to tie things up in a bow, and perhaps that’s where this goes.”
Unlike the central bank and Finance Department, OSFI does not normally concern itself directly with consumer debt loads. The regulator’s job is to protect the safety of banks, not consumers. But it is warning that if consumers take on more debt than they can chew, banks will suffer.
While HELOCs can provide consumers with an alternative source of funds, “these products can also significantly add to consumer debt loads,” OSFI said.
Unlike mortgages, which must be paid by a certain date, HELOCs are revolving in nature and that can spur consumers to keep their debt balances higher for longer, and pose “greater risk of loss to lenders,” OSFI said. “As well, it can be easier for borrowers to conceal potential financial distress by drawing on their lines of credit to make timely mortgage payments and, consequently, present a challenge for lenders to adequately assess credit risk exposure.”
Home-equity lines of credit have risen sharply in recent decades. The growth rate of HELOCs spiked above 30 per cent in 2005, and was above 20 per cent in 2009 but has since levelled off to about five per cent, which is roughly in line with the rate at which mortgages are growing, said Toronto-Dominion Bank chief economist Craig Alexander.
Ottawa took steps to rein in the growth of HELOCs early last year, when Finance Minister Jim Flaherty made a number of rule changes in an effort to cool the mortgage market and prevent borrowers from getting in over their heads. One of the changes was that the government would no longer guarantee mortgage insurance on home equity lines of credit.
That rule change shifted the risk of home equity lines from taxpayers to banks, and it succeeded in encouraging more prudent lending. (Mortgage insurance, the vast majority of which is backed by the government, protects the bank in the event the homeowner defaults.) In its guidance Monday, OSFI told banks that “mortgage insurance should not be a substitute for sound underwriting practices.”
RBC’s Ms. Moffat said several items beyond the rate need to be looked at when a mortgage is issued, including the flexibility of the terms. “Ultimately it comes down to cash flow,” Ms. Moffat said. “You need to make sure that you’ve got enough flexibility that you can continue to make payments on your mortgage through the term.”
 

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