Baby, we got a bubble!?

[Catapult]

Daveto - why are you so negative? Sales figures only matter to a buyer or seller to the extent that they affect price and perhaps choice. The price data suggests that supply and demand are pretty balanced. If there was oversupply prices would be dropping. I also don't think there is excessive inventory in the pipeline to cause any worry about oversupply in the near to medium term. I don't see any looming crash based on the latest TREB figures.

 

[Eug]

What's a crash vs drop? Actually that's a good question but I think of a crash as maybe 25-30% over several years, vs maxing out at say 15% down.

As for the numbers, we cannot exclude a crash, but all I'm just saying it would an extreme leap in logic to conclude one is coming based on those numbers.

 

[Kenny]

Eug, don't the sales figures concern you? What about the attached graph from Teranet's October numbers.

The sales numbers mean didly squat. They're pretty comparable to 2007 levels, which were pretty high. Late 2009 and early 2010 are the anomalies. People were acting pretty crazy.

Low supply is a symptom of people being disappointed with the retreat of the buying frenzy of earlier this year. Once they realize that the currently market is the new norm, the supply will go up again.

We won't know if we're in a corrective situation until mid 2011. Signs of a crash won't be visible for at least another year.

 

[daveto]

Daveto - why are you so negative?.

A strange thing to say. Based on what? Because I see "2 minus 3 = minus 1", and I go to great effort to help others understand why they don't see the "minus 3" part of the equation. Seems pretty positive to me.

The only people in my life who have ever described me as negative are a few posters on forums like this when I talk about real estate.

Sales figures only matter to a buyer or seller to the extent that they affect price and perhaps choice. The price data suggests that supply and demand are pretty balanced. If there was oversupply prices would be dropping. I also don't think there is excessive inventory in the pipeline to cause any worry about oversupply in the near to medium term. I don't see any looming crash based on the latest TREB figures.

RE is a slow moving market, and what has happened in the past 4 year in Canada (5/35 mortgages, and lowest rates in history) is unprecndented. It has juiced prices by juicing buying power and moving demand forward and into costlier homes. Its like increasing the accelerator a little bit each year, and thus the car is able to counter the drag and even accelerate. But what do you think happens when the accelerator is down to the floor? And if your car does indeed start slowing down, doesn't it seem like a good idea to ask why?

Consider this analogy.

Imagine that you are driving a car. Don't you want to know how much gas is in the tank? If the furthest that you've ever driven your car without a refill is 300 km, then aren't you curious what is happening if one day you drive 350km and the car is still running? Doesn't it seem a tad naive to presume that suddenly gas is now irrelevant for your car? (or that "price to income" or "rent to ownernship costs" are now irrelevant in RE?)

Especially if the "cars" in numerous other countries have all run out of gas at the 325-375km mark in the last few years.

The only arguments that anyone has been able to give me on this board to counter my arguments are "we're different here because of commodities or asian investors", or simply " why worry and stop being negative"

I'm an actuary. It is similar to an accountant, but whereas an accountant adds up what you have today, an actuary adds up what you will have in 10 or 20 years.

A reader who stumbles across this thread can educate themselves, or simply bury their heads in the sand, and in 10 year they will think back to those negative guys on that discussion board that kept saying things that you didn't understand.

 

[daveto]

The sales numbers mean didly squat. They're pretty comparable to 2007 levels, which were pretty high. .

100% factually untrue.
http://guava.ca/

2010 June-Dec Sales are 20% lower than 2007 levels. And that doesn't account for the typical 1-2% annual growth in the housing stock, which makes the difference 25% on real terms.
2010 June-Dec Sales are lower than any year 2004-2009 as per summarizing graphs from the link above, which uses TREB data (excluding the exception market of 2008 Sept-Dec)

 

[Hercules]

Well this is my first post on this forum but I wanted to thank you guys for all the info on the Toronto market. I just moved here from London, Ontario where I was active as a real-estate investor and landlord (and where the odd 8% cap rate can still be found). I ran the typical rent vs. buy analysis on some of the condos in toronto before I moved as I was looking for a personal residence, and things didn't really make sense in terms of the prices here, so I decided to rent for a while. Given much of the info on this forum, I think I'll be renting for quite a while longer. I'm not even going to waste my time looking for any investment properties at this point as finding a personal residence will be enough grief (but i'm in no rush).

I'm living in the Glas building now, with a beautiful view of the Charlie condo construction (south). I can see now why the landlord decided to rent the place, as it's so freakin' loud you don't want to spend a weekday here at all. As soon as the 11 Charlotte (behind MEC) got announced, a bunch of owners here shat their pants and put their condos on the market. We looked at them and, once everything is factored in, it would cost around 2x what we are renting for which, from the looks of things, is pretty standard anywhere downtown. This Glas building will be boxed-in like nobody's business once all the condos around it are done. Its a shame because its a really nice building. With only 15 floors you never wait for the elevator, and it was really quiet until the construction started. Lesson I learned: Look for the empty parking lots around you before buying/renting.

I briefly looked into buying the pre-constructed condos (langston hall, charlie, M5V, Mercer, etc.) just so I understood the process in the case prices do drop, however, given some of the horror stories of people waiting way longer than promised for occupancy, I threw that idea out the window as well. Also, places like tableau condos (and a few others) have these slimy tactics where you aren't allowed to look at anything online until you "register for VIP access" in which you divulge all of your personal information and some agent humps your leg for a few months, pretending to build a "relationship". Is this the new trend around here?

I must comment on the renting procedure here as well, where agents convince landlords that they "must" be used. We were lined up like cattle to see our current place, with cheques, proof of employment, rental app, and credit report in hand. My understanding is that the agents line up all the "offers" to rent for the landlord and then the landlord picks the one they like the best. Now, if that were done in any other city, i'm pretty sure it would be illegal since it raises the issue of discrimination based on anything the landlord chooses (a few landlords got in trouble for that in London). But here it seems to be the accepted norm...

With regard to us seeing a correction in prices, I believe it will happen, just not sure when. I work as an investment banker and find the prices here ridiculous in terms of affordability. Agents are now spewing the "immigration" story about how millions are coming to Toronto (true) and therefore real estate will continue to go up (false). Sorry, but that requires that these newcomers get jobs, which is difficult. Yes, many of them are well-trained and educated, but they aren't handed high-paying jobs. I worked as a professional engineer in the past, and newcomers were all required to pass the standard tests in order to practice. Same goes for doctors, etc. Yes there are placement programs, but they are still a lot of work for them. Only after they pass these tests and (often) practical experience requirements can they look for professional jobs. Often, what I've seen, is that they still have trouble because the private marketplace does not value their international experience (which is why many of them take the school/Masters degree route to get the stamp of approval rather than just write the tests). Also, given the lack of Canadian firms hiring because of the issues many of their customers are experiencing in the U.S., I can't see the "immigration" story playing out as told. Besides, if you just came to a new country, would you drop $700+ psf on a new condo to fit your family? Especially in this environment with all the bubble talk going around?

Anyways, keep arguing because I'm learning a lot, and hope to contribute as well. And once again, thanks.....

 

[daveto]

This might be interesting to track. The relationship between Days on the market, and price changes.

 

[Kenny]

100% factually untrue.
http://guava.ca/

guava hasn't been updated for December, yet.

 

[daveto]

guava hasn't been updated for December, yet.

First, I had said "It is of note that sales for the past 7 months have come in at 15% below typical June-Dec figures over the prior 6 years (excluding the exception of Sept -Dec 2008)."

Second, so what if Guava hasn't been update for Dec. The prior year figures are there, and the Dec figures were quoted in the post.

 

[interested]

This might be interesting to track. The relationship between Days on the market, and price changes.
View attachment 6227

Not really sure that one can read too much into this. while it is to be expected perhaps that the longer the days on the market, the less the prices, I am not sure that one would extrapolate days on market to guestimate where prices are going. As well, they seem to be negatively correlated and unless one expects one to move before the other; how will it help to track going forward. By this I mean unless there was a delay in price drops as days on the market increase, won't we see both just moving in opposite directions at the same time.

Or am I missing the point daveto?

 

[daveto]

I agree that they are negatively correlated.
The DOM is summary of the interaction between supply and demand, which similarly influences prices.

Does either serve as a forward looking indicator? Intuitively, if it is taking a longer or shorter time to sell a house, it seems that the remaining sellers and buyers will eventually adjust their behaviour, so yes, I think that one can predict future activity from the direction things are going.

DOM increasing is a bearish indicator, whereas DOM decreasing is a bullish indicator. This one shows 6 month rolling averages. Maybe there some special rolling average (3 month? 9 month?) which provides more relevant data. I don't know.

But I think if DOM doesn't change direction soon that will place significant downwards pressure on prices.

 

[interested]

Got you.
I think your point addresses exactly what I was wondering about. I think we would have to look historically over a few years and see if there was some point at which one can predict that when days on market increases there is a corresponding price drop. Is it 3 or 6 or or even 12 months later I don't know but looking at this data all I can conclude is the negative correlation.

Your logic is sound and clearly the longer the days on the market, presumably there will eventually be a price drop as sellers throw in the towel. However, if people are not forced to sell as occured in the US, there may not be a clear correlation as people may elect to hold longer and possibly take their product off the market (as we may in fact be seeing presently with lower inventories) which will allow prices to remain higher than otherwise despite longer DOM. Of course, this should only be a temporary situation which eventually will have to revert to sales one would assume and decreased prices. I think we will have to wait until the spring market to see if there is a burst of new activity.

The "irrational exhuberance" continues. See my previous post about the fact that irrational exhuberance can continue for protracted times but that just makes the eventual correction that much more painful. Perhaps however, we will be spared the painful correction and only have a steady decline at some point to a smaller degree than Paper Chopper feels we will have. For now, those betting on a sustained continuance seem to be correct and I believe will be correct for at least the first 1/2 of 2011. Whether at the end of 2011 we won't see price decreases however, I would be less certain.

 

[TrickyRicky]

CN Tower, of course I just threw out some numbers to make a rough comparison between asset classes for the general Toronto market. To be honest I never think in terms of cost per square foot, and don't generally follow the condo market. That's why I sometimes enjoy reading the discussion here which almost exclusively follows short-term condo market fluctuations. I appreciate that there are many niche strategies for investing in real estate and I think that is a great thing and I wish everyone here who does invest in condos good luck.

To me however the name of the game is upside potential. I think focusing on the numbers or an over analytical approach is missing the bigger picture. I think that is something to keep in mind as we transition from a period of rapid asset appreciation to one where gains are likely to underpreform historical averages. Investing in condos provides very little opportunity to realize upside potential and so you can see that it holds little interest for me.

The market conditions where interest rates are low and asset values are high are particularly challenging times in the game of realizing upside potential. It's like trying to roll a ball up a hill. I also feel that the condo market is particularly sensative to the downside potential of a transition away from a low interest rate high asset value environment. Couple this with the fact that many investors are trying to optimize their rental renturns by relying on renting out their units for the maximum possible rent the market can bear and the new and shiny-ness of their units, your eyes start to strain to see any hidden potential in holding on to these properties for too many years or outside a period of historically above average capital appreciation.

 

[Kenny]

First, I had said "It is of note that sales for the past 7 months have come in at 15% below typical June-Dec figures over the prior 6 years (excluding the exception of Sept -Dec 2008)."

Second, so what if Guava hasn't been update for Dec. The prior year figures are there, and the Dec figures were quoted in the post.

If you look back in the thread, I was responding to your response to Eug's post on December numbers.

I was merely saying that the latest December report does not make for a strong case that there's a contraction in sales. June-Dec figures may be a different story. That being said, Jan-Dec numbers show that 2010 was a very good year, sales wise.

 

[daveto]

If you look back in the thread, I was responding to your response to Eug's post on December numbers.

I was merely saying that the latest December report does not make for a strong case that there's a contraction in sales. June-Dec figures may be a different story. That being said, Jan-Dec numbers show that 2010 was a very good year, sales wise.

My reply referenced "sales figures", and not "december sales figures". My prior post included focused on sales figures July to Dec, and Eug had responded to my post.
It may have been your intention to refer to December sales figures only, but that's not what you wrote.

I'll agree that I should have written "jun-dec sales figures" if you agree you should have written "dec sales figure"...