Baby, we got a bubble!?

[simuls]

This building started out around $650/ft in 2007 and as of a 15 months ago, in the middle of the recession, was selling for $800/ft from the developer. I thought it was waaaaay overpriced then and still do, although $900/ft is not outrageous considering the starting price 15 months ago and the price increases we've seen since then. While it might sell for that, I have no reservations in saying that whoever buys this will see it's price drop back to $700/ft, if not less, within 2 years and it'll take another 3-5 to reach up again, if that quickly at all. It is not a luxury building and when prices are around $1000/ft for Shangri la, Ritz, 4 Seasons, why would I buy here? None of the numbers in Toronto add up to the prices we've seen over the past year and condo inventory has already surged and that's still not including the vast majority of projects that will be completed in the core in the next 10 months - which at my last count numbered around 20 and should add another 7-8000 units to the mix (and I would expect a good 20% of that to go straight to market and another 20% to follow shortly after when it can't be rented to cover costs). I believe in the past two months we have gone from 3 months of inventory to 9 months of inventory. This will only increase over the summer (this heatwave will also dull sales) and I predict the opposite of what some realtors are saying and I think the fall will be exceptionally weak. It will be interesting to start comparing prices not vs. a year ago, but vs. the peak in April. I would expect we'll see median prices will have dropped already by August. Especially in the condo market. Remember, bubbles don't burst in a RE market, they slowly let air escape like a balloon. The US is now in it's 4th year of "bursting".

 

[interested]

This jibes with my feelings that we may retest 2007-2008 prices.
Incidently, prices for luxury are higher now. I believe at the Ritz it is at least $1000/sq. ft but units are at least 1600sq. ft. minimum. this means that someone wanting a pied a terre is looking at a minimum $1.6 million. I believe the units at Festival towers are smaller so this is not an option.
I know at Shangrila now the average price is over $1100sq. ft. Smaller units (the smallest is 850 sq. ft.) is $950K. The next smallest unit is 1100 sq. ft. and on floor 27 is $1.28 million. 4 Seasons is even more expensive.
I suspect luxury will drop, along with it, the mid/high range will drop.

You are absolutely correct in saying bubbles don't burst but let air escape slowly. In fact, they do a bit of both but tend to delfate quickly and then continue to deflate. The condo market in Toronto in 1989 did this and continued to drop for 3 years, bottomed and trolled there for another 4 years before starting a slow ( more recently rapid) ascent.

 

[myfive]

You are absolutely correct in saying bubbles don't burst but let air escape slowly. In fact, they do a bit of both but tend to delfate quickly and then continue to deflate. The condo market in Toronto in 1989 did this and continued to drop for 3 years, bottomed and trolled there for another 4 years before starting a slow ( more recently rapid) ascent.

I just saw a note ont he elevator news today that Canada growth will be more than expected and will outpace other members of the G8. Interest rates are low, unemployement low in the GTA. Hardly an environment for deflating house prices.

 

[interested]

I disagree with most of this post regarding lux properties.

A lot of people can plunk down a deposit for a unit that years away from completion hoping to assign it for a profit in the interim. Meanwhile none of these lux towers have been registered yet (most not even finished) so the jury is still way out on whether deals are going to close at that $1,000 per square foot+ barrier. I have severe doubts that the real market exists. It`s a lot of hot air.

I don't know and you may be right that $1000+/sq. ft. may be a lot of hot air. However, if the high end comes down, then surely the mid/high end will also come down though the gap may narrow as higher priced articles tend to fall more in real dollar terms if times are bad than percentage terms.

I wonder how many "speculators" bought hoping to assign for profit. I would think however depositing 20-25% which was requested for these projects or $200-250,000 based on a million is alot of money to tie up. I would guess barring a change in people's position, these are buyers more likely to be able to close and carry for a while than say the person buying a $300,000 to $50000 property with perhaps 15% down and less which was happening with some projects.

If there is a burst, or alot of hot air, then there will be a big deflation, but it will still continue to let air out over the next 2-3 years or more as those initially strong enought to hang on either give up or decide to realize their losses and go forward. Once the weak, unwilling to stay leave the market, it will stabilize but then grow slowly (in all likelihood) in the recovery phase.

 

[interested]

I just saw a note ont he elevator news today that Canada growth will be more than expected and will outpace other members of the G8. Interest rates are low, unemployement low in the GTA. Hardly an environment for deflating house prices.

I also saw this but i believe they revised the growth upward for 2010 and then downward from 2011 predictions. Interest rates are low and seem to be staying low. this is not a good sign. It is a sign of generalized belief by the bond markets that perhaps inflation is not a risk and possibly factoring in some deflation. This does not make for an environmnet for prices to increase. Hold at best and likely deflate. Wages are not increasing so how will people pay higher prices anyhow? Oh yes, those foreign buyers who think we are cheap.

 

[myfive]

I also saw this but i believe they revised the growth upward for 2010 and then downward from 2011 predictions. Interest rates are low and seem to be staying low. this is not a good sign. It is a sign of generalized belief by the bond markets that perhaps inflation is not a risk and possibly factoring in some deflation. This does not make for an environmnet for prices to increase. Hold at best and likely deflate. Wages are not increasing so how will people pay higher prices anyhow? Oh yes, those foreign buyers who think we are cheap.

Definatley some interesting cross currents that will sort themselves out. Low interest rates of course will alllow more people to enter the market

 

[jonathanyu]

http://www.financialpost.com/news/Unemployment+rate+falls+surprise/3255338/story.html

see! no double dip, just a seasonal correction, stop worrying and buy a home already!

 

[jonathanyu]

I also saw this but i believe they revised the growth upward for 2010 and then downward from 2011 predictions. Interest rates are low and seem to be staying low. this is not a good sign. It is a sign of generalized belief by the bond markets that perhaps inflation is not a risk and possibly factoring in some deflation. This does not make for an environmnet for prices to increase. Hold at best and likely deflate. Wages are not increasing so how will people pay higher prices anyhow? Oh yes, those foreign buyers who think we are cheap.

Bank of Canada will meet in the 2nd week of July to discuss if they should increase interest rates again, i believe they will but only slightly! It will still remain particulary low compared to historically. Still at rates where people will find housing still afordable!

 

[interested]

Bank of Canada will meet in the 2nd week of July to discuss if they should increase interest rates again, i believe they will but only slightly! It will still remain particulary low compared to historically. Still at rates where people will find housing still afordable!

I sincerely hope you are right. I just don't see how this can logically continue. Unless you think rates will remain at these low levels (go up 0.25% in July) and then stop, each 1% additional to a mortgage adds 18% to the average carrying cost at todays rates. At least that is what I have read.

My understanding is that most economists were calling for 3/4 of a percent total increase in Bank Rate this year. Of course I understand that the mid-longer term bond market sets mortgage rates, but unless you believe the bond market believes inflation will start, or unless construction/land costs increase beyond which developers can't make a profit, why should the house prices just continue to increase. If this is the scenario Jonathon, then if there is inflation, eventually mortgage costs increase and houses become less affordable resulting in a slower increase or lesser house price, or we have stagnation which means prices drop as with no inflation why should prices just go up.

Now in an ideal world, minimal/no inflation, no deflation, confidence in Canada (independent of the rest of the world's wows, of which there are alot now), then things would edge up "at the rate of inflation or wage increases".
Certainly the days of the past increases outpacing inflation will likely pause at the very minimum.

but then, this much I know for sure, either you or I will be wrong, or both of us somewhat right, or in a way I can't imagine, both of us will be wrong. LOL

 

[jonathanyu]

I sincerely hope you are right. I just don't see how this can logically continue. Unless you think rates will remain at these low levels (go up 0.25% in July) and then stop, each 1% additional to a mortgage adds 18% to the average carrying cost at todays rates. At least that is what I have read.

My understanding is that most economists were calling for 3/4 of a percent total increase in Bank Rate this year. Of course I understand that the mid-longer term bond market sets mortgage rates, but unless you believe the bond market believes inflation will start, or unless construction/land costs increase beyond which developers can't make a profit, why should the house prices just continue to increase. If this is the scenario Jonathon, then if there is inflation, eventually mortgage costs increase and houses become less affordable resulting in a slower increase or lesser house price, or we have stagnation which means prices drop as with no inflation why should prices just go up.

Now in an ideal world, minimal/no inflation, no deflation, confidence in Canada (independent of the rest of the world's wows, of which there are alot now), then things would edge up "at the rate of inflation or wage increases".
Certainly the days of the past increases outpacing inflation will likely pause at the very minimum.

but then, this much I know for sure, either you or I will be wrong, or both of us somewhat right, or in a way I can't imagine, both of us will be wrong. LOL

haha, I must admit I am very bullish and believe there is always opportunity when fear lurks in the general sentiment.

Prices for homes could drop as you say with a stagnate market (probably buyers can have more negotiable leverage) but this is only happening because we had unusual buying frenzy in 2009. What Bank of Canada is trying to do is cool this housing market down, so that it follows the historical trendline which is on its way up with inflation and increase wages. Once the corporate side starts hiring through expansion with their pile of cash, it would only mean younger educated professionals will be paid more than in the past and once again drive house sales. There are a lot of bright young adults in our universities right now and I believe they have the intention to purchase a home soon after they graduate (or at least rent my condo muhahah).

Toronto is looking like the most stable growth in housing supply and demand in the country, who agrees?

 

[cdr108]

Bank of Canada will meet in the 2nd week of July to discuss if they should increase interest rates again, i believe they will but only slightly! It will still remain particulary low compared to historically. Still at rates where people will find housing still unaffordable!

it's not the rates that make housing unaffordable since we're at historical lows; it's the over-inflated price of real estate beyond historical trends that makes housing affordable.

were it not for the lowest rates in history, do you believe prices would be where they are?
(that's a rhetorical Q since you've said you're bullish and i'm also guessing you are the realtor by the same name)

 

[cdr108]

haha, I must admit I am very bullish and believe there is always opportunity when fear lurks in the general sentiment.

...

Toronto is looking like the most stable growth in housing supply and demand in the country, who agrees?

Toronto is also the condo capital of North America, with conservative estimates that 50% of units purchased are by 'investors' ... so no i don't agree

 

[Coltaine79]

5 yr mortgage rates went down again today. Back to 3.99%! yay! (well, I don't need one, but...)

 

[simuls]

Job numbers were good today, but I have to question the inclusion of 26000 self-employed. Who determines whether they make money? It seems disingenous of the powers that be to include what may be no jobs at all in an unemployment rate. Ludicrous. If you look at how many people have become "self-employed" since the beginning of the recession it equals roughly 35% of the total jobs gained. This is insane.

Also, the BoC will undoubted raise rates .25 point in a couple weeks after this announcement and the recent study done that shows that their rate actually has little to no effect on the value of the Canadian dollar.

 

[jonathanyu]

it's not the rates that make housing unaffordable since we're at historical lows; it's the over-inflated price of real estate beyond historical trends that makes housing affordable.

were it not for the lowest rates in history, do you believe prices would be where they are?
(that's a rhetorical Q since you've said you're bullish and i'm also guessing you are the realtor by the same name)

low rates encourage buyers to buy!