Baby, we got a bubble!?

[simuls]

Interesting, Toronto you feel needs less housing? This goes against most analysts, demographers and expert that studys the Golden Horseshoe. I'll take my chances. I buy for cashflow within an hours drive from downtown.

Not less housing - less NEW housing. It's very simple math. The number of people anticipated to move to the Toronto region over the next 20 years is less than the number of people who came over the last 20 years - how this can possibly result in the need for more new housing built per year vs. the average, makes no sense. We still need new housing - just less of it. So if we built 25 000 on average over the past 20 years, we will only need maybe 15 000/yr over the next 20.

This is from a report that helps the city of Toronto project planned growth. Most analysts, demographers and experts that I've seen quoted in the papers and elsewhere are, in fact, employed by the development business - there is no objectivity. God, just listening to the president of CREA or BILD makes me cringe - I'd be terrified to live inside that bubble.

Also, I must point out that my primary interest is Toronto's core and if you're looking for cashflow, it just ain't there until prices drop down to, at a minimum, 500 ft and even then it's hard to generate any. Pre-con needs to equal or be lower than resale - that's the whole point of taking an RE risk. The problem is, for the last ten years there's seemingly been no risk to take. Builders will still make money on anything above $300/ft.

 

[BrianPersaud]

I hope you are right Brian.

I am clearly in the camp that feels we will have a correction. I have not expected nor posted that I believe we will have a crash but I do believe we will retest 2007-2008 prices. I hope you are correct and that we just stabilize or drift downwards slightly for a few years and start our upward climb.

I will try and read your CAAMP study when I have some time. The US with QE is clearly trying to devalue its currency further. Already today we are almost at parity (99.80 when I last looked) and this means again pain for our manufacturing and exporting segments which have alot of difficulty coping with a par dollar, let alone if the US continues its downward trends and our goods get more expensive to the US consumer as the US consumer continues with his extended budgets.

Anyhow, I guess we will have to wait at least another 6 months to have a clearer direction and even then I am not sure things will be obvious. Clearly QE by making more money available, giving confidence to the stock market (TSX is up 2% as we speak) makes people feel wealthier and perception is often "reality" until perception can no longer hide under the guise of reality.

I really hope we get good leadership to Make Ontario more competitive for high paying jobs. It was really sad to see David Pecaut pass and Michael Bryan'ts personal problem prevented them from continuing on with their work of making the GTA a hot bed for jobs. I'm hoping with the QE in the states will push Ontario as a whole to recalibrate our economy.

Regarding going to the 2007 prices...not even the most Bearish respected analyst is saying that. (David Rosenberg comes to mind - Google him, he is always talking about the impact QE will have in Canada and how the US is in for a rough ride for the forseable future because of the massive amount of deleveraging). Believe me, I know a lot of marketing material that banks pass off is analysis is flawed, but I really dig in to the numbers to see how they come up with their conclusions.

Yesterday, I was the only one who confronted Bob Dugan (CMHC's Chief Economist) about how he came up with his some of his conclusions on debt, assets, and interest rates. They can blow you off with economic filibuster...but if you know your stuff you can push.

I can see the Toronto market falling, in some areas it has fallen off at least 10%...others I think will still do well. (City Place condos are having tons of showings still and the market is still active in Liberty Village) . Do your homework

 

[BrianPersaud]

Not less housing - less NEW housing. It's very simple math. The number of people anticipated to move to the Toronto region over the next 20 years is less than the number of people who came over the last 20 years - how this can possibly result in the need for more new housing built per year vs. the average, makes no sense. We still need new housing - just less of it. So if we built 25 000 on average over the past 20 years, we will only need maybe 15 000/yr over the next 20.

This is from a report that helps the city of Toronto project planned growth. Most analysts, demographers and experts that I've seen quoted in the papers and elsewhere are, in fact, employed by the development business - there is no objectivity. God, just listening to the president of CREA or BILD makes me cringe - I'd be terrified to live inside that bubble.

Also, I must point out that my primary interest is Toronto's core and if you're looking for cashflow, it just ain't there until prices drop down to, at a minimum, 500 ft and even then it's hard to generate any. Pre-con needs to equal or be lower than resale - that's the whole point of taking an RE risk. The problem is, for the last ten years there's seemingly been no risk to take. Builders will still make money on anything above $300/ft.

It's tough to get huge cash flow with 20% down anywhere in a big city in Ontario....unless your packing 4 apartments or 15 rooms (ie breaking the law) or buying in a rough neighborhood. Even apartment buildings, with the amount of money pouring in from pension funds and REITS cap rates are being pushed lower.

I spend most of my days researching pockets within an hours drive from here where you can re-position a building for high yield. The deals are out there.

 

[Kenny]

Not less housing - less NEW housing. It's very simple math. The number of people anticipated to move to the Toronto region over the next 20 years is less than the number of people who came over the last 20 years - how this can possibly result in the need for more new housing built per year vs. the average, makes no sense. We still need new housing - just less of it. So if we built 25 000 on average over the past 20 years, we will only need maybe 15 000/yr over the next 20.

Won't there be more new home buyers among non-immigrants in the next 20 years than the last 20? If you don't include immigration numbers, it follows that if the population is greater, there will be more new home buyers.

Also, as people who have immigrated in the last 20 years become more wealthy, they may want to split up their living arrangements. Some may go off and get married. Some may not want to live in a crowded space with their siblings.

Also, people are living longer, healthier lives. This leads to needing more housing as well.

 

[interested]

It's tough to get huge cash flow with 20% down anywhere in a big city in Ontario....unless your packing 4 apartments or 15 rooms (ie breaking the law) or buying in a rough neighborhood. Even apartment buildings, with the amount of money pouring in from pension funds and REITS cap rates are being pushed lower.

I spend most of my days researching pockets within an hours drive from here where you can re-position a building for high yield. The deals are out there.

I get that. But Brian I like others have a life outside of real estate and do not wish to be spending time overlooking investments 1 hour away.
When you get to smaller town and University towns in particular you can get a yield, in fact a healthy one. Then again, you are landlord to students which in itself can be a problem. Not saying all but there are alot of horror stories out there. But then you sacrifice growth in property value in exchange for yield.

As for David Rosenberg, he is a big permabear but alot of what he says is accurate I believe. Retesting the lows of 2008: why would you think this was a stretch. Would you argue Brian that before we all became aware the sinking of Lehman Bros.and the near end of the banking system that things are actually better now? Because prices are certainly higher and all this was just coming out. Why would we not say that prices going back to before we learned about Lehman and the catastrophe that unfolded in late 2008 would be unreasonable. Sure there was subprime
in the market place before the stock meltdown but people thought things were otherwise pretty good and the subprime would be contained. We now are aware of all the problems, you have had QE1 and QE2 coming, central banks around the Developed world stimulating their economies. All this tells me things are not as good as they were before we knew about the big 2008 meltdown. So why would prices not retest that?

 

[CN Tower]

Not less housing - less NEW housing. It's very simple math. The number of people anticipated to move to the Toronto region over the next 20 years is less than the number of people who came over the last 20 years - how this can possibly result in the need for more new housing built per year vs. the average, makes no sense. We still need new housing - just less of it. So if we built 25 000 on average over the past 20 years, we will only need maybe 15 000/yr over the next 20.

This is from a report that helps the city of Toronto project planned growth. Most analysts, demographers and experts that I've seen quoted in the papers and elsewhere are, in fact, employed by the development business - there is no objectivity. God, just listening to the president of CREA or BILD makes me cringe - I'd be terrified to live inside that bubble.

This is GOLD, Sim, GOLD! You are right on the money. It is a speculative overbuilding bubble more than a price bubble although prices are definitely multiple levels above economic value. Don't let any vested 3rd party salesperson or advisor tell you otherwise. The way I see it sophisticated investors would never touch pre-sale condo product to begin with (too small, dealing with boards, lack of control, illiquid, inefficient management, etc.) but in the wholesale game we get about 6- 6.5% yield on investments in decent buildings in decent areas. So you guys buying the retail stuff should probably be making 4.5%-5% today. And what are you realistically getting? Half that? The numbers are way way off.

Also, I must point out that my primary interest is Toronto's core and if you're looking for cashflow, it just ain't there until prices drop down to, at a minimum, 500 ft and even then it's hard to generate any. Pre-con needs to equal or be lower than resale - that's the whole point of taking an RE risk. The problem is, for the last ten years there's seemingly been no risk to take. Builders will still make money on anything above $300/ft.

On this point we disagree friend. With the cost of land today I believe the break even if probably north of $350/ft. today, probably higher.

Meantime unsold inventory continues to swell and new projects are launched faster than new ipods or Urban Dreamer stock picks. This market is running on fumes and teetering on a large correction.

 

[PinkLucy]

Meantime unsold inventory continues to swell and new projects are launched faster than new ipods or Urban Dreamer stock picks.

Best comment ever

 

[interested]

This is GOLD, Sim, GOLD! You are right on the money. It is a speculative overbuilding bubble more than a price bubble although prices are definitely multiple levels above economic value. Don't let any vested 3rd party salesperson or advisor tell you otherwise. The way I see it sophisticated investors would never touch pre-sale condo product to begin with (too small, dealing with boards, lack of control, illiquid, inefficient management, etc.) but in the wholesale game we get about 6- 6.5% yield on investments in decent buildings in decent areas. So you guys buying the retail stuff should probably be making 4.5%-5% today. And what are you realistically getting? Half that? The numbers are way way off.



On this point we disagree friend. With the cost of land today I believe the break even if probably north of $350/ft. today, probably higher.

Meantime unsold inventory continues to swell and new projects are launched faster than new ipods or Urban Dreamer stock picks. This market is running on fumes and teetering on a large correction.

CN Tower
To the first point: most retail investors (small) can't get in on these wholesale game and descent investments that you are suggesting. Is there a way you can suggest that we can participate? Otherwise while I appreciate the validity of the comment it is not a viable option for most on this forum I would be guessing. Returns in the core are lucky to be at 2-3% based on current value of condos incidently. I think people were willing to accept this as long as prices were rising. I highly doubt that people will be willing to accept these returns going forward.

To the second point and pricing. Breakeven was close to $300 in 2007 for many downtown projects and land costs are higher now though I am not sure about construction costs/materials. However, your $350 is likely accurate as a minimum price in downtown and then there is the time value of money and the risk so the developer has to look at least at 20% otherwise he won't build. So expect if prices approach $425/sq.ft I would think that most projects will be shelved and not undertaken.

Simuls, your logic is undeniable. It is amazing to me how common sense is lost in "spin". A good dose of it is helpful. Keep informing us with your thoughts. Thank you.

 

[cdr108]

Also, people are living longer, healthier lives. This leads to needing more housing as well.

living longer and healthier lives doesn't mean one buys an ADDITIONAL unit ...
only a demographic shift as one sells their current resident, and buys something more appropriate or as some have alluded to, some seniors will sell their home to tap into the built up equity as 45-60% of Canadian workers have no pensions or RRSPs (http://www.theglobeandmail.com/repo...retirement-dreams-under-siege/article1327536/).

apt living in either rentals or senior residences is a popular option as their costs is fixed, plus they don't have to do maintenance, etc if something breaks down within the unit.

 

[detroitbootybass]

Isn't CAAMP an industry group? And wouldn't any study done by said group have to be taken with a large grain of salt (like when the CMHC spins numbers)?

 

[Kenny]

only a demographic shift as one sells their current resident, and buys something more appropriate or as some have alluded to, some seniors will sell their home to tap into the built up equity as 45-60% of Canadian workers have no pensions or RRSPs (http://www.theglobeandmail.com/repo...retirement-dreams-under-siege/article1327536/).

apt living in either rentals or senior residences is a popular option as their costs is fixed, plus they don't have to do maintenance, etc if something breaks down within the unit.

I think there was an article recently (the star? globe? not sure) where it said that more and more seniors are opting to stay in their detached homes longer. Senior's homes have gotten a pretty bad rap in the media and press over the past decade.

 

[interested]

Kenny, I recall reading that too.
This is assuming they can afford that.
Most seniors when they first retire can but within 10 years even if they are fortunate enough to have pensions, many are not indexed (unlike CPP and OAS). Also, retirement is often described in 3 phases: Early when people are active and they do not actually spend less than working. The second phase where they have done their travelling and other desires and costs decrease, and finally the 3rd phase in which expenses may increase significantly (need for elder care etc).
I appreciate that not everyone follows this pattern but it is sadly the reality (phase 3 in particular) for at least some elderly Sr.'s.

I had the priviledge to be exposed to alot of elderly and I can tell you that they have a bad recollection of what nursing homes used to be. Hence, even though they have improved, most tell me they hope to die before ever having to avail themselves of this facility. That is not to say that retirement homes have improved alot but the problem there is only the top 25% likely can afford it as certainly in the city they can be very costly (not subsidized like the nursing homes are).

 

[BrianPersaud]

Isn't CAAMP an industry group? And wouldn't any study done by said group have to be taken with a large grain of salt (like when the CMHC spins numbers)?

I think you should read their studies before saying that

 

[BrianPersaud]

I get that. But Brian I like others have a life outside of real estate and do not wish to be spending time overlooking investments 1 hour away.
When you get to smaller town and University towns in particular you can get a yield, in fact a healthy one. Then again, you are landlord to students which in itself can be a problem. Not saying all but there are alot of horror stories out there. But then you sacrifice growth in property value in exchange for yield.

As for David Rosenberg, he is a big permabear but alot of what he says is accurate I believe. Retesting the lows of 2008: why would you think this was a stretch. Would you argue Brian that before we all became aware the sinking of Lehman Bros.and the near end of the banking system that things are actually better now? Because prices are certainly higher and all this was just coming out. Why would we not say that prices going back to before we learned about Lehman and the catastrophe that unfolded in late 2008 would be unreasonable. Sure there was subprime
in the market place before the stock meltdown but people thought things were otherwise pretty good and the subprime would be contained. We now are aware of all the problems, you have had QE1 and QE2 coming, central banks around the Developed world stimulating their economies. All this tells me things are not as good as they were before we knew about the big 2008 meltdown. So why would prices not retest that?

That could be the very reason why Toronto pre-con is so attractive. The world economy is getting the shit kicked out of it and Toronto is an island of stability. So international investors are parking money in Canada.

Do I think the market will slow down? Yes The irrational exuberant buying has slowed down. Which is great. The market may fall off 10% from the q2 peak overall...but bubble, definitely not.

 

[BrianPersaud]

Anyone else going to Garth Turner's ‘HouseAgeddon’ Tuesday evening, November 9th, at the DoubleTree Hilton Hotel, 655 Dixon Road. I just got a media invite