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Baby, we got a bubble!?

RBC Economics Research just released a study today:

Home ownership in Canada remains affordable … for buyers outside Vancouver or Toronto: RBC Economics Q4 2015

  • It has never been so unaffordable to own a single-detached home in the Vancouver area
  • Toronto is seeing rapid deterioration in affordability, particularly for single-detached homes
  • Affordability in the majority of other Canadian markets is improved or stable

http://www.rbc.com/newsroom/news/2016/20160229-housing-affordability.html
 
Real estate prices in Vancouver are obviously fueled by money laundering at this point. Few local citizens can afford these prices. Toronto is a much bigger market but when over 80% of home buyers are from Asia (anecdotes from several realtors so take with a grain of salt), something is up.

The gov't in the short term won't do allow the prices to crash for several reasons:
- Construction too big a part of the economy and we are already in recession.
- Interest rates are low and will remain low to stimulate economy, allowing bigger mortgages and thus driving higher home valuations
- Canadians are more in debt than Americans were in 2007. Allowing house prices to crash now will put a lot of people underwater. Need to figure out how to engineer a soft landing. There is no way the first Liberal government in 9 years lets a crash like this happen. Suicide.
- CAD is weak, so our real estate is actually at a 30-35% discount. It should help prop up the housing sector.
- US is showing signs of cracking down on illegal investing. It is possibly that this may push more dirty money north of the border, further propping up real estate prices.

Given that affordable housing can become an issue, I feel that forcing overseas investors' to rent their properties out would go a long way towards solving this. This would also drive more people into employment as overseas investors will need people to take care of their properties. And Canadians can save up with the cheap rent.

All in all, pretty bullish on housing right now. In 7 years tho, I'd crash it.
 
I'd say 10% to 20% of general housing real estate may be from dirty money. The rest is bought by the average Joe and Jane going from rental into the market.
 
Let's stop for a moment and look at at a couple of sample buildings downtown and ask ourselves if the current asking prices make sense. Theatre Park and King Charlotte are both asking for $800psf for the former and $700-760psf for the latter. Based on current rental rates, do these prices make sense? Based on my analysis an investor would be hard pressed to achieve positive cash flow at these prices. Does anyone see rental rates rising to match selling prices?

Maybe we will see $1000psf in 2-3 years, who knows. I always thought $600psf was expensive but it turns out I was very wrong.
 
Theater Park is a high end building in an excellent location. $800psf isn't surprising. King Charlotte is going for around the same as the other buildings in that area. Can't say I'm surprised. Does it make sense? Nothing makes sense me anymore where real estate is concerned. I don't even know what normal is anymore.
 
ILuvTO said:
Let's stop for a moment and look at at a couple of sample buildings downtown and ask ourselves if the current asking prices make sense. Theatre Park and King Charlotte are both asking for $800psf for the former and $700-760psf for the latter. Based on current rental rates, do these prices make sense? Based on my analysis an investor would be hard pressed to achieve positive cash flow at these prices. Does anyone see rental rates rising to match selling prices?

Maybe we will see $1000psf in 2-3 years, who knows. I always thought $600psf was expensive but it turns out I was very wrong.
Click to expand...

Does it make sense to buy at TP for $800 PSF and rent out? No. You can't be cash flow positive with 20% down.

But if you bought it pre constrstuction at $600 PSF, you're laughing. I know a few people that bought here and are cash flow positive and have seen some great appreciation. Ditto for other buildings near completion, such as Karma Condos and INDX. Back in 2011, the record year for pre con sales, bears were saying the bubble was bursting at prices at $600 pre con are ridiculous. Based off of today's numbers, looks like buying at $600 PSF wasn't that bad of an idea after all.
 
Southcore said:
Does it make sense to buy at TP for $800 PSF and rent out? No. You can't be cash flow positive with 20% down.

But if you bought it pre constrstuction at $600 PSF, you're laughing. I know a few people that bought here and are cash flow positive and have seen some great appreciation. Ditto for other buildings near completion, such as Karma Condos and INDX. Back in 2011, the record year for pre con sales, bears were saying the bubble was bursting at prices at $600 pre con are ridiculous. Based off of today's numbers, looks like buying at $600 PSF wasn't that bad of an idea after all.
Click to expand...

Ahh... the good old days when we all thought $600/psf was expensive. :)

At the end of the day, if rents don't keep up then investors will flee (assuming they want to be cash flow positive). This should in theory cause prices to come down. The big question is, will rents keep up with escalating psf purchase prices?
 
TREB monthly figures for February 2016 are out: http://www.trebhome.com/market_news/market_watch/2016/mw1602.pdf

Stats for single family homes and condos...

Detached Houses
City of Toronto : $1,211,459 avg / $920,000 median
Toronto West : $891,979 avg / $767,500 median
Toronto Central : $1,869,749 avg / $1,686,944 median
Toronto East: $780,799 avg / $717,500 median

Condominium Apartments
City of Toronto : $435,579 avg / $377,500 median
Toronto West : $354,441 avg / $322,950 median
Toronto Central : $488,518 avg / $412,250 median
Toronto East : $300,569 avg / $275,000 median
 
The TREB report says the YOY % change for 416 condos was 17.8%. It outpaced detached and towns but not semis. Impressive.

Would there be any data that focuses on just the C01 condo YOY price change? Didn't see it in the report.
 
February 2015, avg price for a condominium apartment was $427,275 in C01, vs $475,106 in February 2016. +11% growth
 
Are any of the seasoned agents or investors in this thread surprised at all with these numbers?

Do you expect to see the same kind of YOY gains in February 2017?
 
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