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Baby, we got a bubble!?

TrickyRicky said:
If you are buying to live in you've got to just live. On the other hand saying "...don't mind a 5% max correction, but anything more than that w/o a foreseeable recovery point, say, in 2 years' time thereafter, would not be palatable for me." is a clear decision to not buy. If you care about 5% corrections and 2 year time periods there is no way you should consider buying real estate of any kind.
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Thanks for the advice. Re my quote, I would be ok w/ a max 5% correction though.
 
redpopular said:
Yes, so this is a great season to maximize all your real estate connection. Its like a bargain of properties, and just when everything comes back to normal then you'll have a property you could possibly use for lease office space . Am I right? You don't have to sell it, as long as your earning monthy. Its best for the long run.
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When interest rates go up, purchasing power in the market place goes down and RE prices experience downward pressure. Your concern about being forced to sell is only part of the consideration. Do you feel comfortable with a mortgage greater than the resale value of the property? And is your monthly cashflow viable at higher interest rates.

Further, you should also consider the opportunity cost of lost investment income in other investments. (ie if you put $100k into a $400k property, then while you may have positive cash flow against your $300k mortgage costs, you should also consider the lost investment income on the $100k)
 
redpopular said:
Yes, so this is a great season to maximize all your real estate connection. Its like a bargain of properties, and just when everything comes back to normal then you'll have a property you could possibly use for lease office space . Am I right? You don't have to sell it, as long as your earning monthy. Its best for the long run.


____________________________________________________________________________________________________________________
United States companies want to invest in the Asia lease office space industry.
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Is this just spam or an actual response with a creative use of links to spam?
 
simuls said:
I'm pretty sure it's just spam. Article in the globe today about the very quick about face the market is dealing with over the past few weeks and how the relationship between buyers and sellers is moving back in the direction of the buyers again.http://www.theglobeandmail.com/real-estate/a-sharp-shift-in-the-market/article1567752/
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I been away travelling the last 2 weeks in Europe. The Greek crisis hit and I read that interest rates reversed again in that Royal bank undid the last .15% increase in interest rates based on decreased bond market demand for higher rates. Do you think with the uncertainty in Europe with the Euro, the PIGS countries woes, the fact that China may be considered overheated, and an anemic US economy, that lower interet rates would stick around lower and prolong the housing sector delaying the stabilization/correction we have been anticipating?
 
brockm said:
Well, I never said we were headed for an economic collapse. And for the record, that's not my view.

The economy is not driven by the housing market. That's the illusion.

What is driven by the housing market is a false sense of collective wealth, however. People's wealth as reflected by the speculative sale value of a property based on the most recent comparables is nothing short of an illusion. That home equity can disappear faster than you can blink, is something the downturn in the US should have proven to everyone involved.

What's frightening, though, is how talk of improper regulation of mortgage eligibility rests on the assumption that the natural state of the market is to, in fact, rise faster than inflation. And prior to the final nail in the coffin of the gold standard, with Nixon's hail mary of the Bretton Woods consensus in 1971, there was virtually no appreciation in average home prices adjusted for inflation since 1859. What changed?

What changed was government's got in the business of subsidizing mortgages with artificially low interest rates as a matter of monetary policy. Over time, government incentives to home ownership, such as organizations like Fannie Mae and Freddie Mac which represented almost guaranteed buyers of home loans, and more recently in Canada, the Canadian Mortgage Housing Corporation, made it easier and easier for people of lower and lower incomes to qualify for mortgages. Not simply as a matter of credit rating, but as a matter of the actual cost of the money being cheaper.

But interest rates were/are not lower because real savings were high; a natural prerequisite in a free market. They were low because the government's were printing money to make them low. And ever since the Great Depression, the Keynesian orthodoxy against savings has reigned supreme. Keynesians believe in the "paradox of thrift"; that, if you save your money in a checking or savings account, you're depriving someone of a job. Instead, you should go out to Winners and buy a new golf shirt. This economic belief system lead to the rise of pro-growth economics, which made the stability of the entire economy dependent on ever expanding GDP through higher productivity and higher consumer spending, in order to offset the inflationary pressures caused by the fact that monetary bases were being expanded to continually extend more and more consumers credit to buy homes and other items like automobiles.

Ever since this policy has been in full-swing, government interest rates have been fighting a losing battle as they average lower and lower -- loosening access to new money -- in order to keep the economy growing and avoid deflation. Governments have started to run out of options on this front, since interest rates can't really go below zero. So now they are resorting to using open market operations, quantitative easement, and tighter lending standards to try and reign in the natural inflationary pressures that the monetary policy is precipitating.

The housing problem is a result of the perverse incentives that all this nearly-free money create; people are looking to increase their capital wealth they easiest way possible. So are businesses.

If you have interest rates below inflation, the market is sending a signal that there is excess savings in the market, and it's cheaper to expand material wealth through borrowing than through savings. And it is the rational choice! Which is why consumers keep doing it. But the problem is that the interest rates are not indicative of savings levels. Rather, they're artificially imposed rates by the government, and the worse the situation gets, the lower they push the rates, and encourage more and more borrowing. And people borrow. They take the greater and greater pools of money, and they get into bidding wars for property, which pushed asset prices up. But all the while, the whole market is built on a false foundation.

The effects are even more perverse, and these policies have had a direct contribution to the de-industrialization of the West, as access to real capital for investors is extremely difficult. Since the labour force is biased towards quality of life improvement through borrowing, rather than labour-intensive work. This drives the minimum industry can pay up, and in turn, incentivizes industry to export labour.

How bad is the situation in Canada? Well, I can tell you with a great degree of confidence it's not as bad as the United States. For one, we have a significant amount of natural resources. We often beat ourselves up about being a resource economy, but in reality, this is one of our most important saving graces. The other factor is the fact that government debt levels are so low, which will help keep our buying power, relative to the rest of the world in check.

But that shouldn't give you any real comfort. The US economy is not going to recover like most people think it's going to. The structural imbalances there are beyond insane. It's only a matter of time before China and Japan stop buying US treasuries completely, and there's a run on the dollar. When this happens, all bets are off for Canada. Our economy is not prepared to absorb that shock, as our industries are far too dependent on US export.

The real key to Canada's future is what the government does. Does it panic and go on a money printing binge? (Probably.). Or does it focus on short-term relief for the unemployed and allow the economy to restructure away from US dependence? (Not very likely.).
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Thank you for that detailed analysis. I apologize for taking so long to respond but I have been away travelling the last 2 weeks. Even though you open your response by saying you do not think the whole economy is going to implode, reading the response does seem to leave one with the impression that this is the inevitable result. It seems to be more a question of when.

What I am wondering about from you, pursuing your logic is where does one invest in light of your scenario. One should sell non essential real estate, buy gold and commodities and sell paper assets which would include government/soverein debt as well as corporate debt and stocks. Am I interpreting this correctly. I believe in a balanced approach to assets (not all eggs in one basket) and if everything goes, well so be it but I still wonder from your response what do you view one should do. Interesting academic question.

thank you.
 
Eug said:
April 2010 numbers are out.

April 2010
Unit sales: 10898 (+34.4%)
Average price: $437600 (+13.5%)
416 average: $479340 (+13.7%)
905 average: $410293 (+13.3%)
Median price: $373000 (+13.0%)

April 2009
Unit sales: 8107
Average price: $385641
416 average: $421470
905 average: $362009
Median price: $330000

By the way, the average price for a detached in the 416 is now about $685000. It's $485000 in the 905, a difference of over 40%.
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Average price in the Toronto 416 for a home is now half a million $.

Back last year, who would have guessed this psychological threshold would have been hit so soon?
 
With the stock market crashing again, I wonder if real estate sales have slowed down, corresponding with the $INDU/$TSX charts? Basically, the last two weeks' bloodbath on the markets surely must be affecting investors' appetite for preconstruction condos?

Just looking at mls right now, it looks like Peter Freed is trying to sell his 66 Portland penthouse for $3.95 million. Is it really worth that...? :p

http://www.realtor.ca/propertyDetails.aspx?propertyId=9500406
 
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urbandreamer said:
With the stock market crashing again, I wonder if real estate sales have slowed down, corresponding with the $INDU/$TSX charts? Basically, the last two weeks' bloodbath on the markets surely must be affecting investors' appetite for preconstruction condos?

Just looking at mls right now, it looks like Peter Freed is trying to sell his 66 Portland penthouse for $3.95 million. Is it really worth that...? :p

http://www.realtor.ca/propertyDetails.aspx?propertyId=9500406
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if the figures are correct, i guess $550 PSF ($3.95MM / 6500 SF plus a premium for the 3200 terrace) is a good price.

however, i'm suspect about the maintenance fees ... only $1,514.50 Monthly ?!?!?

are the other owners subsidizing Freed's PH condo?
 
cdr108 said:
if the figures are correct, i guess $550 PSF ($3.95MM / 6500 SF plus a premium for the 3200 terrace) is a good price.

however, i'm suspect about the maintenance fees ... only $1,514.50 Monthly ?!?!?

are the other owners subsidizing Freed's PH condo?
Click to expand...

The 3200 terrace should not be calculated as part of the living space. So it should be $3.95M / 3300 SF

PSF = $1197
 
EXgeMMy said:
The 3200 terrace should not be calculated as part of the living space. So it should be $3.95M / 3300 SF

PSF = $1197
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oops, my bad ... i didn't read it properly.
i knew something didn't seem right when the maintenance fees were so low for 6500 SF ... it's b/c it's only 3300 SF ... lol
 
With the upcoming stock market crash, I await the warm nectar of zero interest rates and further money printing. "Real" interest rates will hold at negative levels for many years to come. This type of macro environment favors physical assets as the best method to preserve wealth.

We continue to witness the eventual debasement of all fiat currencies. This should be interesting...
 
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