Baby, we got a bubble!?

[interested]

This is encouraging. I hope you are right but we will see.

There is one exception I would have to point out to the study. Diabetes is inversely related to income and education ( and income and education levels as well in the cities is higher hence part of that is access to better care (in the city) and more awareness of health issues and the financial where with all to afford a better
diet. That said, I see in my neighbourhood a fair number of people out at night walking, walking their dogs and running. Again, an upper middle class neighbourhood.

That said, I agree with the premise that city's encourage walking much more so than the car mentality necessitated by the suburbs' designs.

The other assumption with this is that people will be able to afford to move back to the city. The city is more expensive (at least to buy the house
if not the transport costs included) and when people retire, there are those who can afford to spend as much or more but for a lot of people, economic
reality may well be that a downsize in the hope of getting some equity out of their property to improve their lifestyle may mean no excess cash with which to
pay for the additional cost of downtown. I appreciate that people with more to do will manage with less space (as they can be out more downtown/midtown)
but not sure that is how people will chose to redistribute their wealth.

 

[CN Tower]

New mortgage rules crimp home sales

http://www.theglobeandmail.com/glob...rtgage-rules-crimp-home-sales/article2024711/


please note:

The Canadian Real Estate Association blamed new mortgage rules for taking first-time buyers out of the market, as it reported sales slipped 14 per cent in April compared to last year.

and:

CREA said seasonally adjusted sales activity decreased by 4.4 per cent in April compared to March. The declines were largest in the more expensive markets – Toronto, Vancouver, and the Fraser Valley.

 

[KA1]

http://www.theglobeandmail.com/glob...rtgage-rules-crimp-home-sales/article2024711/:

CN Tower, you missed the most important last para. Prices in April increased 8% as compared to last year.

 

[interested]

Not to speak for CN tower but I think what he was trying to get at is that the first time buyers who were driving a large segment of the market
have now hit the margin and are making decisions not to buy. So logically, that would imply price resistance +/- price adjustment.

I understand prices increased 8% compared to last year but there was another artificial push in prices to meet the mortgage deadline from March and
prices will take a bit of time to drop that artificial uptick. Also, weren't prices up something like 10% in March year on year which implies some slowing.

 

[TrickyRicky]

I was joking around with people at work today and I told them I'm calling it. I even wrote it up on the wall:

Officially real estate market peak May 17th 2011. Bam! (localized conditions notwithstanding)

 

[KA1]

I was joking around with people at work today and I told them I'm calling it. I even wrote it up on the wall:

Officially real estate market peak May 17th 2011. Bam! (localized conditions notwithstanding)

I have a distinct feeling that, like so many other individuals before you, you will be proved wrong.

 

[daveto]

A intriguing justification often offered for prices continuing to increase is that one's city/neighbourhood/street/building, is "different". But even then, people are very hesitant to concede that ANY specific city/neighbourhood/street/building will actually experience a price correction, because then it strikes just a little too close to home.

Sometimes, one loses sight of the state of the forest because one is gazing too longingly at a specific tree.

But consider this...

The housing subsection of our economy (including not just house prices, but other derivative elements) has been increasing faster than the rest of the economy and has now increased to 19% of GDP (up from a long term average of 15-16%). The last time it was at 19% was in 1990.

My question of the day is this...

For how long can the housing market (currently at 19% of GDP) continue to expand faster than the non-housing market? Can it continue indefinately?

Because in order for real estate to continue providing the great speculative gains that it has provided, this disproportionate increase will need to continue.

We housing bears simply point out that over the long term, the housing subsection of the economy simply increases at the same pace as the general economy and when one removes the new constructions and the cost of renovations, the true long term price of appreciation existing housing stock tends to be scarcely greater than inflation.

If housing is not going to eventually expand to equal 100% of the economy, then SOMEBODY's house will have to stop increasing in price (or perhaps even decrease?). And once one accepts that it can happen to the guy across town...well, it is slippery slop towards enlightenment. And enlightenment sucks.

 

[KA1]

We housing bears simply point out that over the long term, the housing subsection of the economy simply increases at the same pace as the general economy and when one removes the new constructions and the cost of renovations, the true long term price of appreciation existing housing stock tends to be scarcely greater than inflation.

Very well stated.

Now consider this.

If someone buys a $ 500,000 apartment with, say, $ 250,000 down. Without crunching too many numbers, rental income should cover the mortgage and other carrying costs.

Let's assume that price increases in line with the 'official' inflation of 2% per year. Increase in the value of the unit will be up by $ 10,000. That's 4% return on the invested capital plus part of the principal -- howsoever small -- being paid with the rental income. Actual rate of return, then, will be more than 4%. Consider also this that the real inflation rate is more than the 'official' inflation rate. It is the 'core' inflation ignoring volatile items -- energy, transportation etc. Real inflation rate, then, is more than the 'official' rate.

As long as someone does not speculate in real estate -- around 10% down --, then, it is still a safe investment as compared to other type of investments -- GIC and stock market.

A few months ago, a personal friend was 'crowing' about the fact that in another week or so, his investment folio, tilted a bit towards energy stocks, will cross $ 1million mark. Now, he wishes that he had invested money in real estate.

Playing it safe, on a long term basis, real estate investment should bring 'supeior' return even if the increase in price is equal to the 'official' inflation rate.

That's all I understand. But, then, I am a bean counter and my horizon, I am willing to admit, is not too broad and expansive. Perhaps, someone else has a better view.

 

[MAU]

If someone buys a $ 500,000 apartment with, say, $ 250,000 down. Without crunching too many numbers, rental income should cover the mortgage and other carrying costs.

Let's assume that price increases in line with the 'official' inflation of 2% per year. Increase in the value of the unit will be up by $ 10,000. That's 4% return on the invested capital plus part of the principal -- howsoever small -- being paid with the rental income. Actual rate of return, then, will be more than 4%.

Your real rate of return is only 2%. A better way to look at it, is that your house has kept up with inflation (i.e. 0% real increase), but your debt has not (i.e. 2% real decrease).

I disagree that your investment is as safe as a GIC. First, even a 100% owned apartment is more risky than a GIC. Second, what you've described is still a leveraged investment. So if your house drops by 10%, the loss on your capital is 20% ($50,000). A very possible reality.

 

[TrickyRicky]

KA1, probably but at this point you have to have some fun with it don't you? I don't really care if I'm right, I'm taking a fun stand on the issue. Houses on my block are now selling above $900,000. I could cash out but it doesn't help because I still want to live in the same neighbourhood.

 

[redfirm]

Actually, I don't think it is counterintuitive. I am actually surprised it is as high as 5%. The smaller the inventory and the less people moving means that those
at the margin become that much more important.

By way of example. There are 10 million homes say in Canada. 800,000 are for sale. Say there are 300,000 which are in need of serious repair, not nice or
incorrectly priced. Hence 500,000 available for the 500,000 looking. the first 300,000 get sold. Now you have 200,000 looking for the best of what is left
in the residual 200,000 and anything decent is going to get bid up. I appreciate this example does not allow for new inventory but there is also new purchasers
to be considered.

The point is that there are people are the margin who are deciding the price because they are buying what is on inventory at any time.

Now add that there have been investors buying as well, the investor looks at rate of return. If money can be made and the investor is willing to accept that
rate of return, the investor will bid accordingly. At present the cheap availability of capital is meaning we are drawing investors and a number of marginal
investors, hence artificially driving demand; at least compared to what it would be if capital costs were at historic levels.

My point is: relatively small % of people / buyers has huge impact on r/e prices. Since I joined this forum I kept saying: if our group of fully leveraged marginal buyers is
15-20% of the total mortgage holders - and income levels do not rise to catch up with r/e, or interest rates start moving up - we will have adjustment. Still stand by my prediction (20-25% in 18-24 months) that I made two months ago when I made my first post here.

 

[KA1]

KA1, probably but at this point you have to have some fun with it don't you? I don't really care if I'm right, I'm taking a fun stand on the issue.

Yes. You have every right to have fun. Just do not get upset if someone takes your posts seriously.

 

[KA1]

My point is: relatively small % of people / buyers has huge impact on r/e prices. Since I joined this forum I kept saying: if our group of fully leveraged marginal buyers is
15-20% of the total mortgage holders - and income levels do not rise to catch up with r/e, or interest rates start moving up - we will have adjustment. Still stand by my prediction (20-25% in 18-24 months) that I made two months ago when I made my first post here.

God willing, I hope to be around in 18-24 months to tell you that you were wrong in your predictions of 20-25% decline in prices.

 

[redfirm]

God willing, I hope to be around in 18-24 months to tell you that you were wrong in your predictions of 20-25% decline in prices.

KA1, you will be around and you just got yourself a date in "18-24 months"!

 

[redfirm]

CN Tower, you missed the most important last para. Prices in April increased 8% as compared to last year.

I'm wondering where's the paragraph that says that income / salaries in April increased 8% as compared to last year. Or is that irrelevant? Or is that covered by the paragraph that talks about mythical, bulletproof Asian investors that will keep our r/e increasing forever, regardless of the state of our own Canadian economy?