Baby, we got a bubble!?

[BrianPersaud]

Steady sales for Bisha? That's not what I've heard. Stuck at 45% for the last 4 weeks - this for a project that's been on sale for 3 months now.

I think this recent surge in new condo buying is an indication of investor speculation. I was in tons of condo showrooms in October and they were all empty - EMPTY. This indicates to me that the people buying are buying high multiples of units, sight unseen, from elsewhere - not Toronto. If I had to guess, I'd also say that we're looking at around 80% investor driven sales - and these types of investors and bulk buyers seem to be the last to know. It's not a good sign - it's a bad one.

These investors are putting large downpayments are getting qualified for a mortgage + google searches to ensure they are not realtors.


I haven't yet talked to a bubble theorist who has any depth on why we are in a bubble....or dropping 25% over the next 5 years.
It's going to be fun reading all the fodder bubble theorists as YOY numbers will show declines from the crazy numbers from last year. Expect prices and sales to show declines from now until possibly spring...but if you are waiting for a bungalow to fall to 2003 prices good luck.

 

[BrianPersaud]

Lots of comments follow article.

http://www.cbc.ca/money/story/2010/11/17/housing-bubble-warning.html

Housing bubble a danger: expert
Prices could drop by 25 to 30%

One of the first economists to predict the U.S. mortgage crisis warned Wednesday that Canada's housing sector could be headed for a sharp correction.

Dean Baker of the Washington-based Centre for Economic and Policy Research said he sees no reason why average home prices in Canada should be about 50 per cent higher than in the U.S.

Baker said if interest rates rise by two per cent, Canadians could see house prices collapse by 25 to 30 per cent.

Given the potential damage, Baker said the federal government should consider regulations to further tighten mortgage lending and the Bank of Canada should consider raising rates.

Ottawa has already moved once, in February, to tighten lending requirements.

And on Oct. 19, the Bank of Canada left its key interest rate unchanged at one per cent after three consecutive quarter-percentage-point increases, saying that the Canadian outlook had changed and that it expected full recovery to take a year longer than it had earlier predicted.

After that, many economists predicted the central bank would avoid raising rates further for a matter of months.

Baker was recently given the Revere Award along with two others for being the first to sound the alarm on the U.S. housing bubble five years before it burst.

Does someone have his analysis on why he thinks we'll crash rather than saying that Canadian homes shouldn't be more 50% more than US

 

[interested]

These investors are putting large downpayments are getting qualified for a mortgage + google searches to ensure they are not realtors.

I haven't yet talked to a bubble theorist who has any depth on why we are in a bubble....or dropping 25% over the next 5 years.
It's going to be fun reading all the fodder bubble theorists as YOY numbers will show declines from the crazy numbers from last year. Expect prices and sales to show declines from now until possibly spring...but if you are waiting for a bungalow to fall to 2003 prices good luck.

This is fascinating. Are you saying the builder is doing due diligence? Way to go. At least his project if it proceeds will likely not go under like Trump Hollywood Florida just did recently (being repossessed by lenders).

No Realtors: Is that acknowledging that realtors are a "problem".

They don't want speculators. Good for them not wanting the speculators because it means it protects the other would be owners from an immediate downturn at least to a degree.

One more fact: 45% in 3 months save the past insanity of sellouts in a weekend or a month of 75% of a project was never the norm until the development industry figured out how to prelaunch through multiple phases and then sell huge chuncks with VIP sales making realtors wealthy for simply having access to deliver their potential clients/investors. However, if what Bisha is doing becomes common play, then eliminating speculation/middleman markups to realtors who are buying to flip to their clients means prices should slow down quite a bit and in fact perhaps even drop by 3-5% that is being kicked back to the realtors.

That said, why only realtors however. I guess it is because the builders have figured that many realtors cannot close or are a risk as they likely purchase for their clients in many developments. Is that the rationale?

 

[interested]

From Remaxcondosplus: Jamie Johnson's Dec report:

At least it is objective. I assume he deliberately chooses representative units in the condos and not ones that support ongoing upward prices but the apples to apples comparisons are helpful. He chooses different buildings with each report.

December Market Report 2010
Posted on November 25, 2010 by admin
SALES COMMENTARY:

The trend discussed in last month’s commentary continued to play out. October sales on TREB were 6700 units, about 6% higher than in September. October is usually the highest sales month of the fall market. Last year, October sales increased just 3% from September! Still sales for October this year are down 21% from October of ’09. We are currently forecasting that November sales will come close to matching October sales and when you look at 2009, November sales actually declined 13% from October. Overall, the market is at a level that will support current prices and those looking for further price declines will be disappointed!

The condo market continued to outperform the overall market through the fall. Condo sales this October were down by 18% from October ’09. Downtown condo sales this October performed even better and were off by just 10% from a year ago. As we continue to stress, there are sufficient buyers for downtown but the supply of condos coming to market has reduced the sale-to-listing ratio from 78% a year ago (a tight market) to 32% this year (a balanced market) – not a fire sell market as the media would like to hype! Looking to the new condo market, developer sales even outpaced those of the resale market. Breaking the downtown market into three areas, sales in the core averaged almost $700/sf while downtown west was at $600 and the east side was just above $500/sf.
For whatever reason, sales in the west always seem to be slightly higher than those in the east and to prove our point; we looked at sales at 80 Western Battery or Zip Condos in Liberty Village. This building appeals to first time buyers and most of the units are smaller. The smallest unit we looked at was a one bedroom with balcony, but no parking or locker. At just 484 sf, it sold in April of ’09 for $222,000 and again in June of this year for $270,000 – that’s an increase of 21% in just 14 months at a price of $557/sf. A similar unit at 486 sf but with parking and locker sold in March of ’09 for $260,000 (you can see that the value of parking and locker is $38,000). The same unit sold in October of this year for $314,000. That’s a 21% increase over 19 months. But when you adjust for parking and locker, the sale price was $567/sf. The first unit sold before July 1st of this year and the second after – you would have expected prices to drop. Instead units in this building maintained their value. The final unit we looked at was a one bedroom, two storey with 1 ½ baths, parking and locker. At 600 sf. approx. It sold first in March of ’09 for $307,000 and in July of this year for $405,000. This was an increase of 32% over 16 months. When you adjust for parking and locker, the price is $610/sf – even higher than the smaller units.

RENTAL COMMENTARY

The rental market for October continued to be strong, although the number of units leased was slightly lower than in September. Studios ranged from $1200 -1450 with parking. Thirty two units were leased at an average time on market of just 10 days. One bedroom rentals ranged from $1350 for no parking to $1680 for parking and a den. Of the 248 units rented, the one plus one with parking is the most popular choice and rentals rates moved up $30 on average. There were 136 two bedroom units rented from $2000 without parking to $2300 with parking and den. Again the bigger units were more popular and average prices increased $50 per month. All units being rented went for prices of 99-100% of the asking price[/B]. For a major city, our rental prices are still relatively cheap.
This entry was posted

 

[Condo George]

Strongest spring ever is my prediction, all my indicators are pointing this way.

 

[interested]

Hi CG:

Glad to hear.

How do you justify to your investor group purchasing at these prices: $600 for King West and $700 for the Core.

What do you say to them? It can't be the rental argument making sense so I assume you believe and your clients believe that prices are still going up. Correct?

By the way, I hope you had time to get that haircut. Wouldn't want you appearing beshevelled. LOL

 

[Condo George]

I did get a haircut imagine that lol

Quality core condos in quality locations are headed to $1000 psf, Ice Maple Leaf Sq , L Tower , Festival etc

 

[Condo George]

I am an investor too and if I sell I dont deplete my assets at that location at this time only sell to add in better location/product, I dont see any storm clouds on the horizon. I am not saying this to get sales, I already have that. I am just speaking openly with my honest opinion, I could be wrong.

 

[interested]

I did get a haircut imagine that lol

Quality core condos in quality locations are headed to $1000 psf, Ice Maple Leaf Sq , L Tower , Festival etc

When do you figure they will hit $1000. This Spring? or are you talking over the next 5 years, or what exactly?

Also, for Ka1 and me, what are your predictions for Aura and Shangrila Residences (not the Private Estates) then?

And over what time period. We will document it and see. If you get it right, I will give you all my money to invest.

(Of course, I don't have any money left over to give you to invest, so all of nothing is not too much).

 

[Condo George]

Ice and Maple Leaf sq could hit $1000 psf when all 4 office towers and the Ripeys Aquarium and the Delta Toronto hotel are complete 2014, I have loaded up in this area.

You have to be selective, some core locations will surge, others maybe stagnant. If we make it past 2010 and it looks so, 2011 and beyond will be quite prosperous.

Aura and Shangril will do well.

I remember when Aura was selling high floor one beds for $280,000 prob in the $350,000 range today

Yonge and Front is another area I have sold and invested in

Good luck to all

 

[Condo George]

I like the potential of Bayside, first sales event first tower. I think Sim spoke about East of Yonge in his posts, I have never sold or invested beyond London on the Esplande, recall those bachelors were $119,900 and now selling for $220,000 to $235,000, remember if I sell a site, I also buy multiple units in that site.

 

[Condo George]

take care int, gotta go

 

[interested]

Bye CG.

 

[interested]

Simuls,
See CG's post above.
What do you think of Bayside?
Realizing that you and I are on the same page expecting a decline (just somewhat different as to the exact amount).

Will that be the next " hot spot "?

 

[paperchopper]

rofl?

Yes, no, you guys are right, prices will keep going up FOREVER! People are making $200K a year now on average and a $500K condo is chump change.

A bubble is a bubble is a bubble. The academic definition of a bubble is when the majority of the market participants are speculators-- ie all all of you "condo" investors who are negative gearing. Purchasing condos and flipping them, with the only reason being able to buy condos is due to rock bottom interest rates and lax lending standards on behalf of the banks.

Interested, I typed a long post but this freaking site times out after 5 minutes. Several points, 1, ARM's never reset from 2% to 20%, more like 2% to 5-6%, but people were maxed out to the hilt and as soon as they reset people couldn't afford them (cough cough Canada today). The highest interest rates I saw on Wall St were 9%, and those were Puerto Rican mortgages everyone was snapping up towards the end of '05. Second Miami went from $180K to 425K, about a 136% increase. Vancouver has gone from 325K for a detached house in '01 to 1M in '10, over a 200% increase. A 136% increase is about in line with Toronto/Montreal, hrmmm, similarities anyone?

Banks don't follow the qualifications for 5-6% when doing VRM's. They can add any hypothetical situation, ie a basement suite, your husband/wife taking a part time job, etc to make up the additional monthly payments that will be incurred as a result of the 2-3% extra interest rate, which is negligible.

The big one, which you are completely wrong on, is the interest rate argument and Toronto back in the day. The high interest rates SOFTENED the crash, not made it worse, because jacking interest rates from say 13% to 15% isn't going to raise your monthly payments by too much, perhaps by 5% a month if that. So the interest rates going up had nothing to do with it, it was just a bubble, and once people realize that it's a bubble, the bubble bursts and panic selling sets in. That's how they all burst. Anyways, carrying costs on $100k @ 4% are $500/month, boost that up to 7%, which is a very small increase in interest rates terms, and we're paying $700 a month per $100k, a 40% increase. Not so good.

Anyways, Brian, here are the reasons that have been repeated, oh I don't know, 50 trillion times as to why Canada has a housing bubble?

1. Historic, unprecedented low interest rates @ 2% that will not last (straight from the mouth of Marc Carney, BoC Governor)
2. Increased amortizations (35-40 years) and 0 or negative downpayments (BMO 2% cashback, TD 125% mortgage, etc)
3. Subprime (9% of Canadian mortgages are subprime, see Xceed Mortgage Corp)
4. Lax lending standards by the banks (every mortgage has a 'helper suite' to boost monthly income / borrowing amount)
5. CMHC insures virtually all mortgages, taking any risk off the banks (essentially risk-free money to them). CMHC has 9.1B in assets and over $900B in liabilities.
6. Average downpayment is approximately 7% in Canada-- indicating that nobody has any savings or can afford much.
7. Canada has a debt-to-income ratio higher than the USA did at the peak of their bubble, 147% vs 139%.
8. Over $1 trillion in mortgage debt - clearly pointing that the run up in prices is DEBT based, again, the classic signs of a bubble (cheap credit)

All of this has resulted in prices for single family homes going from $325K in Vancouver to 1000K in Vancouver, with similar increases elsewhere. The price of an average house in Canada is now $340K -- completely unaffordable by the average person without going into as much debt as possible.

Our per capita income purchasing power wise hasn't increased in over a decade. Canada hasn't become more productive. We're just taken on more and more and more debt on cheap credit, which is exactly what the:

1. Americans did (Pop!)
2. Irish did (Pop!)
3. Spanish did (Pop!)
4. British did (Pop!)
5. Japanese did (Pop!)

The 3 largest bubbles remain in China, Canada and Australia, coincidentally, the Chinese are driving Vancouver's RE market.

Canada has had many RE booms and busts, Vancouver has crashed 50% before, but this time it'll be far worse.