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Baby, we got a bubble!?

Kenny said:
Here's the Alexandre Pestov article he referenced: http://www.scribd.com/doc/28454918/Canadian-Housing-Bubble

One part that stuck out for me is this:


I hate when authors fudge the numbers to support their arguments. You shouldn't equally compare a $1300 apartment to a $450,000 condo.
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Indeed.

Then again, it's often true that people buy a nicer place than they would rent. This is especially true once you go beyond condos IMO. People save money not necessarily just because they're renting. Part of the savings often comes from getting a smaller or crappier place.
 
Eug said:
Indeed.

Then again, it's often true that people buy a nicer place than they would rent. This is especially true once you go beyond condos IMO. People save money not necessarily just because they're renting. Part of the savings often comes from getting a smaller or crappier place.
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In fact the condo vacancy rate is about 1% and apartments closer to 5% the last time I saw data (about 6 months ago). this indicates I believe that more people would prefer condos as the apartments are older but that said obviously cost is an argument and EUG is absolutely correct that people will choose the cheaper rent to save money (possibly for the purpose of a later purchase).

that said, starting rents for a junior 2 bedroom downtown are $1800 and $2000 seems to be about average and yet they are renting.

However, the argument is still correct that to carry a property is more expensive than to rent. That said, there are other reasons to buy. Can't be asked to move, can decorate, pride of ownership, possibility that property over time will appreciate though I believe most on this forum now believe that prices will probably stagnate or go down slightly for the next couple of years based on the comments in this and other threads.
 
interested said:
possibility that property over time will appreciate though I believe most on this forum now believe that prices will probably stagnate or go down slightly for the next couple of years based on the comments in this and other threads.
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Yeah, I believe that inflation adjusted prices may decrease in the next 5 years, but I'm not sure what that means for nominal dollars. But of course, others believe even the nominal prices will decrease significantly.
 
JayBee said:
So how much of a drop in house prices are we talking here? At least I will no longer have to hear about 500sqft condos going for 20% above asking.
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I think houses will stagnate for 4-5 years and condos will drop 20% in the core (between DVP and Dufferin, Eglinton to Lakeshore) back to 2007 levels, so a 600sq ft. place will be around $300 000, not $350 000. New condo sales will plummet precipitously as lots of resale comes on and as the new 20% downpayment for investment condos becomes law.
 
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simuls said:
I think houses will stagnate for 4-5 years and condos will drop 20% in the core (between DVP and Dufferin, Eglinton to Lakeshore) back to 2007 levels, so a 600sq ft. place will be around $300 000, not $350 000. New condo sales will plummet precipitously as lots of resale comes on and as the new 20% downpayment for investment condo's becomes law.
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20% is pretty bad. Lets hope you're wrong. LOL
 
Eug said:
Then again, it's often true that people buy a nicer place than they would rent. This is especially true once you go beyond condos IMO. People save money not necessarily just because they're renting. Part of the savings often comes from getting a smaller or crappier place.
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Very true. And don't forget all that extra money that's spent on the house. (Sure, some of it may increase the value of the property, but, for the most part, it's pure consumption.) You simply won't blow as much money on a rental.
 
Eug said:
Financial Post Our unstoppable housing market may have met its match

The International Monetary Fund says that home prices in comparison to rents are higher in Canada than any other developed country with the exception of Sweden. David Rosenberg of Gluskin Sheff, the Toronto money management firm, has looked at Canadian home prices in terms of both price-to-rent and price-to-income and concluded that current home prices are 15% to 35% above levels that would be consistent with housing fundamentals.

Most likely is that we will see a period of flat home prices as real estate comes back into line with economic reality.
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Here's a different view from Citi Private Bank and Knight Frank. Toronto is #10 in the world I provided the link below.

The World's Most Valuable Real Estate Markets: Knight Frank, Citi (PHOTOS)
Huffington Post | Ryan McCarthy First Posted: 03-30-10 08:30 AM | Updated: 03-30-10 10:31 AM

After a historic real estate crash, we're all understandably wary about investing in property. For those in the position to spend serious amounts of money on property, however, the world's great cities seem to have lost little of their luster.

With the markedly affluent buyer in mind, Knight Frank and Citi Private Bank have put together an in-depth look at the world's most attractive real estate markets. Their annual Global Wealth Report ranks the world's leading cities on several factors, including economic activity, political power (always a plus for the rich buyer), knowledge and influence (who wouldn't want more of that?) and quality of life.

The result is a composite look at the cities that will be attracting the biggest share of high-net worth individuals -- 71 percent of whom, according to the Global Wealth Report's survey, say 2010 will be a good year to invest in real estate.

With that mild bit of reassurance in mind, check out the world's most valuable real estate markets below:

http://www.huffingtonpost.com/2010/03/30/the-worlds-most-valuable_n_518209.html
 
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Yesterday's Globe was a bit of an eye opener.

Danforth and Coxwell - $668721

deal-parkmount02_563976gm-a.jpg



Avenue and Eglinton - $1.226 million

deal-highbourne0_563968gm-a.jpg



Bloor and Parkdale - $1.02 million

deal-grenadier02_564004gm-a.jpg
 
Eug said:
I was referring to bidding wars too. My place went 7% over because of bidding war, but it wasn't 7% overpriced because I deliberately underpriced it.

I personally would not pay $350000 for $500 sq ft condo but what are the recent and true comps for that building? If $300000 then yeah that $350000 sale price is stupid high. However, if comps are $340000 then $350000 is not a big deal.
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regardless of recent sales and comps, i think $700 PSF for glas is overpriced, unlesss one was talking about the PH suites which are only, what, 15th floor ?!?!
 
Kenny said:
Here's the Alexandre Pestov article he referenced: http://www.scribd.com/doc/28454918/Canadian-Housing-Bubble

One part that stuck out for me is this:


I hate when authors fudge the numbers to support their arguments. You shouldn't equally compare a $1300 apartment to a $450,000 condo.
Click to expand...

to be abit more accurate, that condo example would probably go for $2100/m inclusive, excluding hydro.
still a savings of $1750/m, over $20,000 per year !
 
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So we have a confluence of several factors, all of which have been mentioned in this thread at some time or another?
Rising Mortgage Rates - CONFIRMED
CMHC/ Federal Rules for Mortgage qualification - CONFIRMED
Rules for investors made more stringent, with twenty percent d/p required - CONFIRMED
Suppy improvement based on recently completed and registered resale condos - PENDING. TO BE TRACKED VIA TREB IN THE COMING MONTHS
Summertime - An early one CONFIRMED.

I Think the sideways march is going to set in very soon. Would be interesting to track new sales for recently launched pre construction units, but I do not think those sales are readily tracked via public information. My guess is that there will be buying opportunities very soon. Getting some preliminary feedback from Sales Agents that things are slow...or slowing.
 
ILuvTO said:
Wow. Those are incredible prices for those properties. Some people (it seems like everyone but me) have serious coin to spend easily on real estate. I'd love to know what businesses those buyers are in!
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The mortgage business... as in all the money they're spending for the next little while is going to be to service the interest on their debt to the bank.

Most of these are probably upgrades.

eg. A couple sells their $380000 condo and gets $220000 from the equity from the sale. After all the expenses and what not, they get $200000 left over, which goes to a downpayment for a new home. They buy an $800000 house, which leaves them with a $600000 mortgage.

They were able to lock in last month to the killer rates, at 3.69% for a 5-year fixed, amortized over 35 years. Monthly payments are $2536, representing about a third of their $7500 monthly combined gross income ($90000 per year).

After 5 years, they still have $553631 left in their mortgage. The 5-year fixed rate then is 5.79%, a conservative estimate. In order to be able to manage, they are forced to re-amortize for another 35 years, and even then, their monthly payment is over three grand, at $3054. That represents a 20% increase in monthly payments. They've had a few pay raises since then, so now their combined monthly income is $8000 (or $96000 per year), and their monthly payment now represents 38% of gross monthly income. Manageable, but just barely.

This is a hypothetical situation, but this is what I think may happen in the real estate market and I'm a relative optimist it seems. The problem here though is if real rates hit jump even higher, say to over 7%. That's high for the last 10 years, but not completely out of the question. The bears predict this scenario, and that would wreak havoc on the market, including causing a big drop in real house prices.
 
Eug said:
The mortgage business... as in all the money they're spending for the next little while is going to be to service the interest on their debt to the bank.



This is a hypothetical situation, but this is what I think may happen in the real estate market and I'm a relative optimist it seems. The problem here though is if real rates hit jump even higher, say to over 7%. That's high for the last 10 years, but not completely out of the question. The bears predict this scenario, and that would wreak havoc on the market, including causing a big drop in real house prices.
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This is true but presumably if interest rates are 7% it will be because the economy has recovered and wages should go up(at least the 8% in the example but more likely10-15% over 5 years.(2-3%/year if economy recovers). All bets are off if we have stagflation like they had in the 70's.

You and I have thought similarly on these issues in the past. I don't think we are destined for havoc in the market at least I hope not. I just think it is wildly optimistic to think we will continue with the monthly increases we have seen, will likely see price stagnation, and possibly some nominal depression of prices which translates into post inflation real and significant losses. We live in "interesting times".
 
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