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Baby, we got a bubble!?

ttk77

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Yeah...this sounds like what happened in Vancouver after their new taxes were brought in. A period of uncertainty while things settled where prices stabilized or dropped a bit until starting to climb back up. The fundamentals haven't changed. Interest rates are at historic lows, Toronto's economy is strong, and our population continues to grow at a rapid rate. Something along those lines will have to change before we see any serious changes.
 

NorthYorkEd

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The fundamentals haven't changed.
The fundamentals have never supported the rapid price appreciation and RE frenzy we've seen in the GTA. It's one of the biggest RE bubbles in history, and Canadians currently carry more household debt than any other G7 nation (over 2 trillion dollars worth, of which mortgages are a whopping 65%).

On another level, this is likely an orchestrated wealth swindle on par with the financial crisis of 2008. I've never seen so much debt stacked on top of leverage stacked on top of more leverage. All of which must be paid back, eventually, somehow. It's all very precarious and risky. Lots of folks might end up being pounded back to the financial stone age (and watch for the hat to be passed for "bailouts").

Interest rates are at historic lows, Toronto's economy is strong, and our population continues to grow at a rapid rate.
Interest rates will eventually rise. And despite the lows, many people are strapped right now.

I somehow doubt that many of the newcomers to our city arrive flush with enough cash to buy our housing stock, much of which in any other North American city would be considered complete crap. Despite our "schools" and "weather" and "safety" and "stability", there is not enough intrinsic value in these asbestos-laden, pest-infested tear-downs to even come close to justifying the prices.

Also, the rapid population growth may have abated, according to a recent Macleans article:

The city grew by 6.2 per cent over the 2011 to 2016 period, compared to 9.2 per cent between 2006 and 2011. In fact, it was the slowest census-to-census growth rate Toronto has experienced in at least 40 years.
Basically, it's NEVER "different this time". All things being equal, there is nothing at all to justify this housing market other than the usual suspects in any asset bubble: fear and greed.
 

ttk77

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The fundamentals have never supported the rapid price appreciation and RE frenzy we've seen in the GTA. It's one of the biggest RE bubbles in history, and Canadians currently carry more household debt than any other G7 nation (over 2 trillion dollars worth, of which mortgages are a whopping 65%).

On another level, this is likely an orchestrated wealth swindle on par with the financial crisis of 2008. I've never seen so much debt stacked on top of leverage stacked on top of more leverage. All of which must be paid back, eventually, somehow. It's all very precarious and risky. Lots of folks might end up being pounded back to the financial stone age (and watch for the hat to be passed for "bailouts").

Interest rates will eventually rise. And despite the lows, many people are strapped right now.

I somehow doubt that many of the newcomers to our city arrive flush with enough cash to buy our housing stock, much of which in any other North American city would be considered complete crap. Despite our "schools" and "weather" and "safety" and "stability", there is not enough intrinsic value in these asbestos-laden, pest-infested tear-downs to even come close to justifying the prices.

Also, the rapid population growth may have abated, according to a recent Macleans article:



Basically, it's NEVER "different this time". All things being equal, there is nothing at all to justify this housing market other than the usual suspects in any asset bubble: fear and greed.

I think you're missing the point. Yes, we're in a bubble, and yes the current interest rates will rise, and yes, this may eventually lead to a rapid decrease or even a crash in home prices. The argument that I was responding to seemed to be indicating that the current changes we're seeing in the market are the beginning of that crash. My point was that this is just a momentary correction, and that the crash will not happen until at least one of those fundamentals (low interest rate, strong economy, rapid population increase) changes. That may happen tomorrow, or not for several years, but I don't believe that's what we're seeing now.
 
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shal1n

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this is just a momentary correction, and that the crash will not happen until at least one of those fundamentals (low interest rate, strong economy, rapid population increase) changes
Very wishful thinking and the same old population and strong economy arguments made over and over again. What particular job boom are you speaking of in the Toronto area? The only boom has been in housing and housing related industries.

This ship is all driven by speculation.

Canada doesn't have the luxury of a reserve currency status. Wholesale funding in the banking system of a small open economy is hot money. Once the cracks continue to unfold that money leaves. The BoC won't be able to ease, and in fact they will have to raise rates to defend a weakening currency, which will only exacerbate the housing unwind as the mountain of household debt begin to crumble.
 
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typezed

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I guess it had nothing to do with government/banks/media doing their best to shut down the market?

You simply can't interfere with the market and not expect to f*** it up.
F'd up: Safe and secure modest housing is unattainable for responsible working young people in the years when they might want to form families.

Not F'd up: Little to no short-term or medium-term upside for investors and speculators.
 

ponyboy

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The housing market should serve end users first and foremost, which means for-purchase and for-rent units at price-to-income and price-to-rent levels close to historical averages. These are the key outcome variables policy makers should have their eyes on, not investment returns, real estate as percent of GDP, number of transactions. Policy makers should seek stability in these ratios with the same vigor they seek stability in inflation numbers. It is a matter of finding the right incentives and disincentives and regulatory regime that will allow the market to provide these options. We can look to countries like Germany as positive examples because they encourage investment in productive assets and discourage investment in non productive stuff like real estate. The real estate sector has way too much sway in political corridors, and has been able to distort the narrative and economy toward privileging non-productive investment, thereby weakening our productivity and economic prospects. Rather than taking the more challenging path of an innovative economy founded on productivity improvement, I feel that we have taken the lazy path the makes fast money for the well-connected by encouraging a real estate bubble.
 

Ex-Montreal Girl

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Frankly, I think the media are just sensationalizing a few blips.

"That faint hissing sound — music to the ears of Toronto home buyers — could be the air escaping the region's housing market.

It could also be the barely concealed frustration of sellers, who listed their homes this spring expecting to attract cut-throat bids from desperate, over-extended buyers. Instead they are seeing fewer showings and fewer offers.

Toronto area home prices dipped about 7 per cent in May compared to April but remained about 15 per cent higher year over year averaging $863,910."
 

TheKingEast

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Frankly, I think the media are just sensationalizing a few blips.

"That faint hissing sound — music to the ears of Toronto home buyers — could be the air escaping the region's housing market.

It could also be the barely concealed frustration of sellers, who listed their homes this spring expecting to attract cut-throat bids from desperate, over-extended buyers. Instead they are seeing fewer showings and fewer offers.

Toronto area home prices dipped about 7 per cent in May compared to April but remained about 15 per cent higher year over year averaging $863,910."
I agree. The media is deff doing their part.
 

Ex-Montreal Girl

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I agree. The media is deff doing their part.
They've run out of headlines screaming about new records being set. So now they're making mountains out of molehills. Anybody reading those headlines would think the sky is falling. But it's not. The rate of growth has slowed, most likely temporarily.
 

jozl

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I think your comments are right on Ponyboy. If legislators were serious about their "concerns" about this ridiculous bubble the foreign investor tax would be about 50% instead of 15%, there would be a capital gains tax on all realestate including principle residences (tuned to inflation) and profits from speculation (non principle residence) would be taxed at a premium. Instead we have policies that only nibble at the problem, the results of which have screwed an entire generation of young families. It's shameful and disgusting. We control the price of dairy products, electric power, alcohol and poultry but realestate is left up to the whims of the market. Last time I checked winters are pretty cold here and having an affordable place to live is still a necessity.
 

TheKingEast

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I think your comments are right on Ponyboy. If legislators were serious about their "concerns" about this ridiculous bubble the foreign investor tax would be about 50% instead of 15%, there would be a capital gains tax on all realestate including principle residences (tuned to inflation) and profits from speculation (non principle residence) would be taxed at a premium. Instead we have policies that only nibble at the problem, the results of which have screwed an entire generation of young families. It's shameful and disgusting. We control the price of dairy products, electric power, alcohol and poultry but realestate is left up to the whims of the market. Last time I checked winters are pretty cold here and having an affordable place to live is still a necessity.
And those taxes would screw several generations. This notion that "I deserve a house and everyone needs to pay!" is completely ridiculous. 50% tax? First of all, please provide data on the amount of transactions that foreign buyers are a part of. It is ingrained in our culture to solve any problems with more TAX! On top of that you want to add more tax on primary residences? WTF?

real estate is not the same as dairy, or alcohol, or poultry. So much entitlement it makes me sick.
 

Ex-Montreal Girl

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I think your comments are right on Ponyboy. If legislators were serious about their "concerns" about this ridiculous bubble the foreign investor tax would be about 50% instead of 15%, there would be a capital gains tax on all realestate including principle residences (tuned to inflation) and profits from speculation (non principle residence) would be taxed at a premium. Instead we have policies that only nibble at the problem, the results of which have screwed an entire generation of young families. It's shameful and disgusting. We control the price of dairy products, electric power, alcohol and poultry but realestate is left up to the whims of the market. Last time I checked winters are pretty cold here and having an affordable place to live is still a necessity.
Entitlement indeed.

Seriously? Capital gains from all real estate including principal residence? Only the richest would ever move. Only the richest would ever upgrade.

Corporations transferring employees would have to pick up the tab for that, on top of moving expenses, real estate agent and legal fees and other associated costs. It cost my employer about $40K to move us from Montreal to Toronto ... 30 years ago! Today, what would it cost for an employer to move somebody the other way, or to Calgary or Vancouver?

I don't like that real estate is virtually speculative at this point. I do want to see affordable housing. We have a family in our building which can barely keep up with the maintenance fees but live here because they need their severely disabled children to be close to resources. They have been on the list for something subsidized for years -- they do already get SOME government help -- but, because of the kids, can't live in a townhouse with stairs. I would rather help them than some yuppie couple not prepared to make a few sacrifices like we did, or our parents did.

I am not into "When I was a kid, we had to walk 10 miles barefoot in the snow" idiocy but why on earth would you want to turn Toronto into 1970s Smolensk?

P.S. The price of alcohol is not "controlled." Prince vodka or Grey Goose? Who decides? And, as far as I know, neither is the price of poultry.
 

Toronto Rocks

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TREB's data is for the entire GTA.

I believe it reaches as far north as Newmarket, west to Burlington or maybe Hamilton and as far east as Oshawa. For the past year or two, it was those out lying areas (the 905) of the GTA that had some of the largest price increases.

We need to keep in mind that Central Toronto homes (Etobicoke Creek to Vic Park, up to the 401 or Steeles) have much higher demand as most people want to live closer to the core. (We can't build transit or highways fast enough). As such the data need to be broken down into individual areas.

Demand for homes in the core located within walking distance to TTC and in a good school district will continue to be strong and as such these properties will appreciate in value differently then the entire GTA region.
 

ponyboy

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Seems reasonable to put limits, whether it be extra tax or simply limiting foreign ownership, on who can own real estate. Many nations do that in order to protect their housing prices from outside speculation. I realize that many locals are also involved in the speculation, and that should be discouraged as being anyone's livelihood. I believe that the prices of buying (or renting) a place to live should be somewhat protected from boom/bust cycles found an other parts of our economy. It isn't a sector for gamblers because stable housing costs, aligned with inflation, is conducive to stable neighborhoods and less stress in people's lives. Same is true of the supply side -- developers should ideally be companies that make consistent but modest profits rather than having to rely on big asset bubbles, high leverage consumers, flight capital, and wild land speculation to make most of their money. Our government has become addicted to the revenues from real estate, and has been loathe to end the party for their biggest contributors, the real estate related FIRE industry, which represents too much of the economy for long term stability. Let foreigners invest in businesses and productive assets so they can create jobs and make money here in Canada. As far as not having the data, the government has had willful blindness about that issue for a long time, and is still just studying the issue.

I found this article to be quite informative, because it details how lax people have been about following the rules, up and down the line --

http://www.calgaryherald.com/busine...rt+ruling+will+shake+real/13187081/story.html
 

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