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Baby, we got a bubble!?

marsh said:
Any comments on the story from the G & M on the Vancouver realestate market? Here is the link.

http://www.theglobeandmail.com/repo...ouver-in-a-real-estate-bubble/article1808967/
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Well after reading that it sounds to me that one should conclude that Vancouver will be a little island unto itself inhabited by wealthy Chinese and not part of Canada. I don't know that I buy all the arguments that money will just keep flowing. And certainly, the article eludes to the question of what can happen if China's real estate market suffers a set back.

The point of the article which is disconcerting is that it suggests one conclude the following: local fundamentals and supply/demand of end users is not relevant in this market because the high end and increasing the middle market can only be afforded by wealthy immigrant investors/end users. Great but better hope that that continues indefinately because if that underpinning is removed, the only conclusion is that Vancouver would suffer a drop making the worst hit markets in the US look good.

I realize they say it won't happen. I just think this is a shakey foundation to base the local real estate upon.

That said, the article is anectdotal in nature but is interesting for how it portrays the Vancouver market. Certainly this would make Vancouver unique as far as markets go for the rest of Canada and even unique comparing it to most major US markets.
 
urbandreamer said:
If you have to rely on msm to get an idea where the market's headed, you're gonna be a loser for life.
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UD, even msm can be educational. One should analyze the information and rate it. It may well be that the information is all garbage but if one takes the approach to not even review all opinions, one risks having a less than complete perspective. And not all msm is 100% garbage, though alot of it is so biased by special interests that one must discount alot of it.
 
BrianPersaud said:
if you look Toronto developers have very a different sandbox to play in than the US...banks won't lend construction financing unless builder pre-sells up to 80% of their revenues to qualified buyers, US could lend with as much as 20%. The idea is that developers make more money selling when people can walk into units (essentially building on spec). When buyers went away, builders were force to foreclose.

If builders were driving things you would see 100 storey towers vs two 50 storey towers....very hard to get construction financing for one project like that.
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Daniels is doing just this with Cinema Tower - it has nothing presold and is almost completely excavated. The larger boys don't need bank financing, so here's another tower of 400 units going up, just when we don't need them, with no idea what the demand will be like when they decide to start selling. It's ridiculous and incredibly short-sighted on their part. As others have mentioned we had a 15% drop in 2008/09 over a period of about 6 months - this can very well happen again. However, developers margins downtown are roughly 40-50% so they can probably afford a drop and still make money.

As to the whole Vancouver thing - it's a city just waiting for a MASSIVE correction - something in the realm of Las Vegas.
 
simuls said:
Daniels is doing just this with Cinema Tower - it has nothing presold and is almost completely excavated. The larger boys don't need bank financing, so here's another tower of 400 units going up, just when we don't need them, with no idea what the demand will be like when they decide to start selling. It's ridiculous and incredibly short-sighted on their part. As others have mentioned we had a 15% drop in 2008/09 over a period of about 6 months - this can very well happen again. However, developers margins downtown are roughly 40-50% so they can probably afford a drop and still make money.

As to the whole Vancouver thing - it's a city just waiting for a MASSIVE correction - something in the realm of Las Vegas.
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I think your point about the Daniel's family is exactly correct. They are very well capitalized and they do all their projects inthis fashion.

That said, they make more because they don't need to sell based on "presale prices" and increase as they go, but rather start at a higher price point since the project is being built and the closer to end user status, the more "end users" they attract. A different strategy but I agree with you Simuls it means more product. However, they will come to market say 1 year before move in which means they have new competing with resale essentially within an acceptable time frame but demanding the new price.

It has worked well so far but then of course with an up market, every strategy has worked.

Regarding Vancouver, I agree it is waiting for a massive correction. However, we are applying conventional (and likely correct wisdom) to this market. That said, I think the point of the article was that it is a somewhat different market than others in Canada. However, I think banking on this is risky and if there is a downturn, it will be far more significant than other markets. Like the Vegas downturn only worse if/when it happens.
 
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paperchopper said:
PS X2 Inflation = Money Supply x Money Velocity, interest rates are raised to decrease inflation because people pay down debt and spend less when interest rates are higher. Increased inflation results in higher interest rates, I think you have it the other way around...
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Inflation does not automatically cause the interest rate raise. To raise the interest rate it is one of the methods (monetary policy) if the central bank chooses to apply. However to raise the interest rate will upset export, delay the economic recover so that I do not think the government will do so without cautious assessment, until they are confident about our current economic situation. So how many of you think we are confident about that today?

p.s. when that day comes...economic will be in a much better position - what that will affect R/E market?

I am not optimistic about today's economic at all - this is what I am worried, a world-wide financial system crash..
 
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X2 Buyer said:
Inflation does not automatically cause the interest rate raise. To raise the interest rate is one of the methods (monetary policy) if the central bank chooses to apply. However to raise the interest rate will upset export, delay the economic recover so that I do not think the government will do so without cautious assessment, until they are confident about our current economic situation. So how many of you think we are confident about that today?
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I agree with your premise that interest rate rises are the essence of monetary policy.

Monetary policy in Canada at least according to the guidelines and the Bank of Canada's targets is to keep inflation between 1-3% with a desired rate of around 2% usually sought.

House prices alone per say while looked at are not the driving force behind the Bank of Canada's decisions. Of course, that said, Mark Carney does look at it along with other factors.

More importantly likely will be the C$ value and if it appreciates it in turn acts to lower effective inflation.

On the other hand X2, given that you are correctly implying that no one is too confident about the current economic situation, this statement inherently contradicts the position that R/E prices rise since R/E prices will not rise in uncertain or a "bad economic situation". So in this regard, Paperchopper's expectation of a price realignment is reasonable. Again, his assertion of a disastrous pop and a following of Spain, US hard hit markets, Ireland housing market etc. should not occur unless there is another major traumatic Canadian or World event.
 
..guess what I should be more specific and may have repeated myself here again -

UNLESS a crash on financial system, I do not see any direct cause of the R/E price's sudden drop - even 2008 drop I consider it as a correction rather than what happened in 1989.
 
X2 Buyer said:
agreed, see my edited comment.
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You better not anticipate a World Wide financial crash:

You should have physical gold, cash but which currency: probably the USD despite all its malignment it is the world reserve currency. The Euro if there is a crash will likely "die".

Bonds and stock market will go down.

R/E will go down but people still need a place to live.
So some rent can be had.

Oh yes, and then do what the fringe does: get a compound somewhere in the country, with a generator, stored food, and have guns to protect the fact that you survived when no one else saw it coming. This last point I say somewhat tongue in cheek but there are those who genuinely believe this will be the ultimate result.
I can tell you anectdotally of a story involving our family. My grandfather had a few apartments in Europe in the early 1930's. After the stock market crash of 1929 and more importantly the "depression of 1932, his tool and die making operation which made him a wealthy man all but evaporated. The only thing that kept the family afloat was the reduced but still present "rent" that he made for the next few years. Unfortunately, after the war, since this was in a country that became part of the Russian/Soviet Union block, he was punished for having been a capitalist and everything taken away by the Communist regime. However that is another story. My point is that "rent could still be obtained.

Of course, there was a big difference back then. (I am beating Paperchopper to the point because I am sure he will bring it up). There was not 0% or 7% or 20% equity at that time and he would be correct.
 
X2 Buyer said:
..guess what I should be more specific and may have repeated myself here again -

UNLESS a crash on financial system, I do not see any direct cause of the R/E price's sudden drop - even 2008 drop I consider it as a correction rather than what happened in 1989.
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So then do you consider a 2008 correction of 15% likely in even an uncertain economic environment, given an overbuilt market, overleveraged citizens in Toronto going forward or do you think outside demand (Indo China for eg) and all the other reasons not relisted here will mean no correction or will we have the 15-25% correction some of the more moderate callers here predicted?

I assume you are not predicting another crash of the financial system.
 
KA1 said:
http://www.yourhome.ca/homes/newsfe...e/896731--dupuis-condo-monium-strikes-the-gta

Link to an article in today's (Saturday) The Star. Condo sales in October were fantastic and November sales appear to be going well.

Condo George was right.

Hail the Condo George.
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I Hail to Condo George as well.

However, I have to point out a major factor. A number of projects were delayed, taken off the table over the past year and relaunched recently. We all have seen the trend that the launch is the time when most sales occur and in that first month especially. So this is distorting the numbers I believe given that there were a number of projects launched in October and November.

Don't misunderstand. The fact that there are alot of sales is encouraging. Still does not change my view shown time and again with every bubble (since this is a topic about bubbles) is the last minute frenzy and pickup occurs just before the bubble pops. I won't bore everyone with my view yet again that there need not be a pop but a deflation I believe will occur. The only issue I think is how much. No one can predict when it will occur and those saying it will scratch their head and the other side will gloat: until it actually happens when the latter group will say "I told you so"
That said, I will remain happy as long as there is no upward pressure on prices since like the stock market, we need a few years of consolidation.

As others have said: nothing goes straight up and when it does, the fall down is pretty scary. Not good for anyone.

One additional point: from the article and I quote:

"With an astonishing seven out of every 10 new homes sold in October being a highrise condominium suite, condo sales were up 27 per cent over October 2009, and are running 52.6 per cent ahead of the January-October 2009 period."

Given that some are saying that 90% of all new launches is to investors, it frightens me that if 7 of 10 units are condos and 90% is investors rather than end users, this is pretty well the end of the line as we are no longer talking about "investments but rather speculation on a mass scale" since as others have shown, the price/rent ratio is simply not there at current pricing.
 
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Daniels is doing just this with Cinema Tower - it has nothing presold and is almost completely excavated. The larger boys don't need bank financing, so here's another tower of 400 units going up, just when we don't need them, with no idea what the demand will be like when they decide to start selling. It's ridiculous and incredibly short-sighted on their part. As others have mentioned we had a 15% drop in 2008/09 over a period of about 6 months - this can very well happen again. However, developers margins downtown are roughly 40-50% so they can probably afford a drop and still make money.
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this caught my attention because I always wondered what margin developers make. How do we know it is so high? If it is this high, what does this say about the competitiveness of the development industry (or lack thereof)? If it was competitive, wouldn't margins be much lower? Such a high mark-up would suggest that developers will continue to build even as the prices correct, even substantially. Also, I imagine that land acquisition costs would decline in the faces of property devaluation, somewhat buoying profits in the face of lower asking prices. What is there to lose if this industry really is this profitable. The real loser seems to be common purchasers who will pay for many years to come.
 
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