Baby, we got a bubble!?

[Eug]

To answer Eug's question: I already provided my prediction (post # 2860) - slide to start in 18-24 months, total damage 25%.
Of course, nobody has a crystal ball - all these numbers are just our educated guesses ... but I guess that's the point of this thread: provide some some views, opinions, analysis and, of course, predictions.
What I'm sure of is the following: it won't be a "soft landing", many people (those fully leveraged) will be hurt.

My prediction is 10-15% down by mid 2013. Originally I had predicted 2011, but now that doesn't seem as likely, so perhaps 2012. However, even though I predict a pullback, I believe a soft landing between now and 2013 is more likely than a pullback of more than 25%.

 

[cdr108]

IARTICLE from Globe and Mail:

Canadians are not only confident that they are assiduously paying down their mortgages, but they also believe they have the means necessary to weather a drop in house prices, contrary to worries that household debt is out of control, a poll showed on Wednesday.

Almost three-quarters of Canadians, or 73 per cent, believe that they or their families are well-positioned in the event of tumbling home prices, according to the annual RBC Homeownership Study undertaken by Royal Bank of Canada .

The poll found that 85 per cent of respondents feel that they are doing a good or excellent job of paying down their mortgage, while 90 per cent of Canadians are confident that real estate in Canada is a good investment. ...

glad they 'believe' and 'feel' things are/will be fine, but considering how financially illiterate a large proportion of the population is, it doesn't inspire confidence in me.

to reference an earlier post, i wonder how many people know that each additional 100 basis points (ie.1.00%) increase in rates would mean 10% higher mortage payment ?

that's a substantial change in one's monthly mortgage payment from a minor correction in rates.
if people were informed of the figures, what would be the results of the poll ?!?

 

[urbandreamer]

Another angle on the bubble bursting timeline:

I predict when this thread enters the 400's pages, like the Chinese fear of #4 the retreat will be under way...

 

[interested]

^^^
UD, this will have to be my last post. I can't bear to think that by reaching 400 pages eventually I somehow contributed to the bursting of the Canadian/Toronto housing market. LOL

 

[interested]

cdr,
to you post #2912 I agree.

People say alot of things without really thinking it through nor appreciating the magnitude on the bottom line of minor interest rate hikes.

Also, given that the market has as many or more investor/speculators in it now probably than at any time in the past I am guessing that fhose will view it more like the stock market and as such the housing market and in particular the condo market will be more likely to be driven by "fear and greed" than by an approach of end users who may well ride out the storm more as "they still need a place to llive". I am not saying the end users won't be affected, simply that they may be willing to ride out the market longer than say investors/speculators because they have a "vested interest to live with their family".

 

[Eug]

A lot of people are idiots. However, assuming the peoples' idiocy means disaster, then we should have hit disaster a long time ago.

I'm not saying we won't eventually hit disaster mode, but just because people are idiots doesn't mean we have to have a disaster.

 

[KA1]

For sometime, I have been reading, with no comments, various posts on this thread talking about coming disaster, that, as yet, has not happened and will not happen for quite a few individuals on this thread. For them, all this talk of looming disaster will turn out to be nothing but 'hot air' minus salted peanuts and a jug of beer.

Individuals who have purchased fully funded, or almost fully funded residences in developments, say, Shangri-la, 15 or so% decrease in prices will not even cause a ripple. It is the individuals who have bought a commodity -- low end of the market, junion 1 bedroom, 1 bedroom, 1+1 with a low downpayment-- will feel the brunt, especially, where the units have been purchased in high density developments -- City Place, around Rogers Centre, entertainment district etc. Job lossses or even 1 or 2% increase in mortgage rates will cause problems. Easy come, easy go.Some on this thread will be oberservers -- told you so.

 

[interested]

I was speaking to a realtor today (Hi end mid town TO) about a condo to be listed. Her comment is the $1-3 million market is largely dependent on the stock market. If it goes done, at least significantly, expect prices (even higher end) to correct.

That said, I agree with KA1 comment about fully or almost fully funded more high end residences. I am not sure however if someone buys at the very high end in 2011 that that will be still be case but certainly those who bought in 2007-2009 or even end 2010 will likely follow what KA1 said, at least for the overwhelming majority (enough that apart from some good deals the minority will not destroy the prices here in my view). Would require a very major meltdown; the 25%+ drop in price to occur I believe.

 

[SovX]

There's a misconception that housing prices are representative of the entire market when in fact valuation is limited to specified areas. Some areas would always maintain a premium regardless of where the market goes and prices hold up while homeowners in areas that are more susceptible to losses feel that they can sell for a higher price just because of the general sentiment that values have increased when in fact their area has actually been on the decline.

In other words, when the headlines read that housing prices are inching upwards, everyone tries to capitalize on it even though one area has seen significant increase in values while others have actually declined or remained the same. That's why it's confusing for a lot of homeowners to digest the numbers. They try to apply the number to the whole market when in fact valuation is highly individualistic. I've had people tell me that their home is worth over $100,000 than their current MPAC and I'm like "how did you figure that?" When we performed an appraisal it turns out some properties were worth slightly below the MPAC valuation while other properties were indeed higher but only by a nominal amount. For the economists who expect a 15% decrease, it may indeed happen. But not all areas will be affected and I doubt the national average would hit minus 15%. Keep in mind there are forecasts for a more aggressive 25% reduction.

My own personal take: I think a lot of suburbs have become insanely overpriced, especially the neighborhoods that are really out in the boonies. For a 1,400 sqft. townhouse in north Brampton to start at the mid 350s is, in my view, quite laughable considering the build quality these days. It's no surprise why more people are choosing condos and as the demand increases so would the price.

 

[Eug]

I think if the market tanks, all areas will likely get hit. It's just that some will get hit less than others. In any case, I'm talking about the Toronto 416 specifically. I'd expect the Vancouver 604 to be hit a lot harder than the 416 in a national real estate pullback for example.

BTW, are you liorsyncro?

I was speaking to a realtor today (Hi end mid town TO) about a condo to be listed. Her comment is the $1-3 million market is largely dependent on the stock market. If it goes done, at least significantly, expect prices (even higher end) to correct.

Big drop in the TSX today. Ouch.

 

[interested]

Big drops all weeks. Will see. End of stock market =end of real estate????
Condo belongs to an elderly couple at Yonge/St. Clair area and will go at around the $1-$1.1 mill figure we believe. Will see.

 

[SovX]

Hi Eug!

The fact we've had a sell off today is reflective of several problems:

1) Spain's credit rating downgraded: not a surprise but brings the European sovereign debt crisis to the headlines again
2) Possible turmoil in Saudi Arabia: there were reports of sporadic fighting in the eastern part of the country where a lot of oil reserves are located
3) U.S. employment coming in a bit weaker than expected
4) Libya on the verge of civil war with Qaddafi's troops bombing rebel targets and the international community's slow reaction
5) BRIC central banks tightening fiscal policies to curb inflation and cool down their economies
6) China reporting unexpected trade deficit

So combine all these things together and what you saw today on the markets is the result of investors growing increasingly worried. But remember that even if inflation becomes a problem in North America, stocks are a good hedge.

 

[interested]

Hi Eug!

The fact we've had a sell off today is reflective of several problems:

1) Spain's credit rating downgraded: not a surprise but brings the European sovereign debt crisis to the headlines again
2) Possible turmoil in Saudi Arabia: there were reports of sporadic fighting in the eastern part of the country where a lot of oil reserves are located
3) U.S. employment coming in a bit weaker than expected
4) Libya on the verge of civil war with Qaddafi's troops bombing rebel targets and the international community's slow reaction
5) BRIC central banks tightening fiscal policies to curb inflation and cool down their economies
6) China reporting unexpected trade deficit

So combine all these things together and what you saw today on the markets is the result of investors growing increasingly worried. But remember that even if inflation becomes a problem in North America, stocks are a good hedge.

Good summary not sure I agree that stocks are a good hedge however at this time.

If we get a "problem with inflation in North America", the assumption here being made which I am not sure is correct is that the pricing increases due to the inflation can be passed off to the consumers. With weak consumers already stretched, it becomes a debate if the pricing power exists for companies to do this. With relatively high unemployment, it is also questionable that wages would be able to rise or that there would be pressure to do so even with inflation. So the companies may have to absorb the increase in costs due to inflation thereby eating into their profits and hence lowering P/E ratios and other perameters.

In the past, inflation has usually occurred during times of price escalation but also "good performing economies" which at present I would argue we don't have in the US certainly and even Canada's is fragile. Hence Carney's desire to raise interest rates but fear to do so for increasing the value of the C$.

I appreciate Bonds will be hit hard and are the opposite of a good investment in inflation times. Real assets tend to go up with inflation. That would normally include real estate but in this case again, with prices high and lowish relative rents (in Toronto at least), I don't see upward pressure.

 

[KA1]

Lifetime Developments has started selling units, at this stage only to the Brokers, in their Yorkville Condominium development starting at around $ 800.00 + sq.ft. Would be buyers crazy, not worried about the upcoming disaster or just plain visionaries?

 

[cat]

Absolutely insane! But the TWO Brokers' Previews yesterday were packed.

Looked at the (crappy) floor plans and pricing last night. Developers are holding back layouts for podium and penthouse units. My RE guys tell me that Lifetime/Baker RE were trying to gauge interest and have given brokers until Monday March 14 deadline for "expressions of interest".

Who's buying this stuff?