Baby, we got a bubble!?

[klb86]

October 2011 stats are out.

TORONTO, November 3, 2011 -- Greater Toronto REALTORS® reported 7,642 home sales through the TorontoMLS® in October 2011. This represented an increase of 17.5 per cent compared to the 6,504 transactions reported in October 2010.

Monthly sales data follow a recurring seasonal trend that should be removed before comparing monthly results within the same year. After adjusting for seasonality, the annualized rate of sales for October was 97,100, which was above the average of 90,700 for the first three quarters of 2011.

“The pace of October resale home transactions remained brisk in the GTA. This bodes well for a strong finish to 2011,” said Toronto Real Estate Board President Richard Silver. “Home buyers who found it difficult to make a deal in the spring and summer due to a shortage of listings have benefitted from increased supply in the fall.”

The average selling price through the TorontoMLS® in October was $478,137 – up eight per cent compared to October 2010.

“Sellers’ market conditions remain in place in many parts of the GTA. The result has been above-average annual rates of price growth for most home types,” said Jason Mercer, the Toronto Real Estate Board’s Senior Manager of Market Analysis. “Thanks to low interest rates, strong price growth has not substantially changed the positive affordability picture in the City of Toronto and surrounding regions.”

Average condo price in the City of Toronto now at $367,715, up 9% y/y.

Number of condos sold for $800,000+ in the GTA: 36
Number of condos sold for under $400,000 in the GTA: 1475

Average selling price of a home in the City of Toronto is now $522,606, up almost 7% y/y


http://www.torontorealestateboard.c...ket_updates/news2011/nr_market_watch_1011.htm

 

[Thesb]

Will Ontario housing soon be priced completely beyond reach?

There are growing concerns that Ontario’s push to curb urban sprawl and intensify development has taken off with unexpected vigour.

Condo development is in overdrive in the downtown core while construction of new single-family homes in the regions has “run out of gas” — down 57 per cent in the last decade, veteran housing experts are quietly warning.

Land prices are skyrocketing as developers, keen to cash in on the biggest condo boom in the world, are engaging in “extremely competitive” bidding for the dwindling number of prime development sites left along subway lines.

At the same time, a “perfect storm” of high development surcharges by municipalities and a shortage of develop-ready land in the outlying regions has seen housing starts decline so dramatically, they now lag far behind demand.

The numbers are so confusing and worrisome, most of the discussion about what to do — if anything — is just going on behind the scenes at this point, although some will feature prominently Thursday at the Canadian Mortgage and Housing Corporation’s annual Toronto Housing Outlook Conference.

“Maybe we need to rethink what high density means,” says George Carras, a well-respected watcher of the housing market.

“I wouldn’t say the (province’s intensification) policy hasn’t worked. But there may have some unintended consequences.”

The biggest one, developers and housing experts fear, is that housing is already becoming unaffordable and will become completely out of reach when interest rates start rising.

Despite all the construction cranes on the Toronto horizon and suburban homes still springing up in the outlying regions, the total supply of new housing in the GTA — from condos to detached homes — is down about 32 per cent now over a decade ago, says Carras.

There are just 4,000 so-called develop-ready sites for single-family homes left in the GTA now, down from about 12,000 in 2007, he notes. And most of those are in far-flung areas of Durham such as Clarington, too far for most to commute.

The effects are now being felt from two provincial policies introduced five years ago — the greenbelt policy which set strict limits on how far the GTA could sprawl and the Places to Grow policy which encouraged higher density development.

What no one anticipated at the time was that the global financial meltdown would send investors scurrying to safe havens like Canada, looking for the keys to hard assets like real estate.

That, and the “urbanization trend” that’s taking hold right across the country — young professionals, in particular, wanting to live close to work — has sent demand for high-rise soaring, says John O’Bryan, vice chairman of commercial real estate company CB Richard Ellis.

A decade ago, some 35,000 homes — detached, semi-detached and townhouses — were being built across the GTA, says Carras. That’s now down to 15,000 a year.

While high-rise has risen from an average of just 12,000 to about 20,000, that increase of 8,000 units doesn’t begin to make up for the shortfall of new homes, especially given immigration which is seeing about 100,000 new people a year migrate to the GTA, says Carras.

The Building Industry and Land Development Assoc. (BILD) has warned that “regulatory inertia” is also contributing to housing shortages and escalating land and housing prices. Municipalities in the GTA have asked that some 10,500 hectares of so-called “whitebelt” lands — lots between the existing cities and the greenbelt — be freed up for development.

But provincial approvals and Ontario Municipal Board reviews have slowed the process and it could be two more years before major parcels are released, says Joe Vaccaro, acting president of BILD.

Right now the “active inventory” of low-rise housing in the GTA stands at just 6,000, says Carras, a record low from historic levels of about 24,000.

Already the region is at risk of an affordability crisis that will only worsen if supply doesn’t pick up and interest rates do, notes economist Will Dunning in a recently released report Restricted Land Supply and Rising Housing Costs in the GTA, done for the Residential Construction Council of Ontario.

House prices have risen 78 per cent in the GTA from 2000 to 2010 — on average 5.9 per cent per year, well above the 2.1 per cent inflation and 2.7 per cent wage increases during the same period.

http://www.thestar.com/business/art...g-soon-be-priced-completely-beyond-reach?bn=1

 

[ILuvTO]

Will Ontario housing soon be priced completely beyond reach?

There are growing concerns that Ontario’s push to curb urban sprawl and intensify development has taken off with unexpected vigour.

Condo development is in overdrive in the downtown core while construction of new single-family homes in the regions has “run out of gas” — down 57 per cent in the last decade, veteran housing experts are quietly warning.

Land prices are skyrocketing as developers, keen to cash in on the biggest condo boom in the world, are engaging in “extremely competitive” bidding for the dwindling number of prime development sites left along subway lines.

At the same time, a “perfect storm” of high development surcharges by municipalities and a shortage of develop-ready land in the outlying regions has seen housing starts decline so dramatically, they now lag far behind demand.

The numbers are so confusing and worrisome, most of the discussion about what to do — if anything — is just going on behind the scenes at this point, although some will feature prominently Thursday at the Canadian Mortgage and Housing Corporation’s annual Toronto Housing Outlook Conference.

“Maybe we need to rethink what high density means,” says George Carras, a well-respected watcher of the housing market.

“I wouldn’t say the (province’s intensification) policy hasn’t worked. But there may have some unintended consequences.”

The biggest one, developers and housing experts fear, is that housing is already becoming unaffordable and will become completely out of reach when interest rates start rising.

Despite all the construction cranes on the Toronto horizon and suburban homes still springing up in the outlying regions, the total supply of new housing in the GTA — from condos to detached homes — is down about 32 per cent now over a decade ago, says Carras.

There are just 4,000 so-called develop-ready sites for single-family homes left in the GTA now, down from about 12,000 in 2007, he notes. And most of those are in far-flung areas of Durham such as Clarington, too far for most to commute.

The effects are now being felt from two provincial policies introduced five years ago — the greenbelt policy which set strict limits on how far the GTA could sprawl and the Places to Grow policy which encouraged higher density development.

What no one anticipated at the time was that the global financial meltdown would send investors scurrying to safe havens like Canada, looking for the keys to hard assets like real estate.

That, and the “urbanization trend” that’s taking hold right across the country — young professionals, in particular, wanting to live close to work — has sent demand for high-rise soaring, says John O’Bryan, vice chairman of commercial real estate company CB Richard Ellis.

A decade ago, some 35,000 homes — detached, semi-detached and townhouses — were being built across the GTA, says Carras. That’s now down to 15,000 a year.

While high-rise has risen from an average of just 12,000 to about 20,000, that increase of 8,000 units doesn’t begin to make up for the shortfall of new homes, especially given immigration which is seeing about 100,000 new people a year migrate to the GTA, says Carras.

The Building Industry and Land Development Assoc. (BILD) has warned that “regulatory inertia” is also contributing to housing shortages and escalating land and housing prices. Municipalities in the GTA have asked that some 10,500 hectares of so-called “whitebelt” lands — lots between the existing cities and the greenbelt — be freed up for development.

But provincial approvals and Ontario Municipal Board reviews have slowed the process and it could be two more years before major parcels are released, says Joe Vaccaro, acting president of BILD.

Right now the “active inventory” of low-rise housing in the GTA stands at just 6,000, says Carras, a record low from historic levels of about 24,000.

Already the region is at risk of an affordability crisis that will only worsen if supply doesn’t pick up and interest rates do, notes economist Will Dunning in a recently released report Restricted Land Supply and Rising Housing Costs in the GTA, done for the Residential Construction Council of Ontario.

House prices have risen 78 per cent in the GTA from 2000 to 2010 — on average 5.9 per cent per year, well above the 2.1 per cent inflation and 2.7 per cent wage increases during the same period.

http://www.thestar.com/business/art...g-soon-be-priced-completely-beyond-reach?bn=1

An asset is only worth what someone is wiling and able to pay for it. I don't buy this idea that house prices will remain sky high when interest rates go up. Unless incomes increase at the same pace then prices will have to come down. That, or all the condos and houses for sale will be bought by rich foreign investors. I don't see that happening.

 

[klb86]

Good news for baby boomers — the kids are finally leaving home

The echo boomers are finally moving out of their parents’ homes and expected to be the biggest rush of renters to hit Toronto’s housing market since the early 1990s, according to projections by the Canada Mortgage and Housing Corp.

But they’re likely to be renting for quite a while — much longer than their parents, thanks to a job market that remains tentative and offers far less of the stable, full-time employment that made their parents the most affluent generation of all time.

That boom in rental demand is already being felt with bidding wars for prime units and vacancy rates for apartments and rental condos hovering at 1.6 per cent, the lowest vacancy rate in a decade, says Shaun Hildebrand, CMHC’s senior market analyst for the GTA.

That vacancy rate has been declining steadily since 2004 when it stood at 4.3 per cent.

There are currently 325,000 rental apartments across the GTA, says Hildebrand, but just 1,500 new units are being added each year, most of them high-end rentals aimed more at affluent, downsizing baby boomers.

Even the unprecedented condo boom across the GTA, much of it driven by investors, many of whom are putting up their units for rent, is having a hard time keeping up with demand, says Hildebrand.

That is already playing out in bidding wars for brand new and two-bedroom units, with some would-be renters offering to pay more per month or offering up to six months’ rent in advance.

The GTA has seen such an unprecedented building boom the last few years that we now have almost as many condos as rental apartments.

The total number of condos now stands at 300,000 with another 80,000 under development and 60,000 more approved but yet to start, Hildebrand told bankers, developers and housing market watchers Thursday during its annual 2012 Housing Outlook Conference at the Metro Toronto Convention Centre.

But there are now 875,000 echo boomers between the ages of 25 and 35 across the GTA, accounting for about 11 per cent of the population.

With the average price of a GTA home expected to hit $469,700 next year — in Toronto that’s closer to $650,000 — and condos averaging $500 a square foot, echo boomers’ dream of owning a home may be just that.

A dream.

Hildebrand expects to see growing demand for basement apartments, both as an affordable place to live for those heading into their first jobs, and for homeowners struggling to pay high mortgages.

Already the shifting demographics are playing out in increased demand for townhouses and row houses which offer all the amenities of traditional detached homes, but at more affordable prices and often on infill lots closer to the downtown core, he said.

“All eyes are on the (Toronto) condo market,” Hildebrand told the crowd, because of a “healthy level of fear” that this unprecedented boom is on the verge of bust.

Instead, he predicts the condo market — which now accounts for 25 per cent of all MLS sales — will soon start to “self correct.”

New condo prices have escalated to the point where rents can’t keep pace with costs, and that should ease demand among investors to more realistic levels, he said.


http://www.thestar.com/business/art...aby-boomers-the-kids-are-finally-leaving-home

 

[Eug]

An asset is only worth what someone is wiling and able to pay for it. I don't buy this idea that house prices will remain sky high when interest rates go up. Unless incomes increase at the same pace then prices will have to come down.

Well, that's tempered somewhat by the fact that new condo units have gotten smaller.

 

[ILuvTO]

Well, that's tempered somewhat by the fact that new condo units have gotten smaller.

That is true. But I was thinking more along the lines of house A today being worth x and when interest rates go up will it still be worth x or will it be x - y? I don't see how it will be worth x + y.

 

[Eug]

That is true. But I was thinking more along the lines of house A today being worth x and when interest rates go up will it still be worth x or will it be x - y? I don't see how it will be worth x + y.

I think if interest rates go up modestly, but the economy improves, prices will plateau, give or take 10%.

However, I don't think rates will really start to go up noticeably until about 2013.

Note that a couple of years ago I said that rates would start to go up noticeably in 2010-2011ish. Then I said 2012. And now I'm saying 2013. Who knows what I'll say next year.

 

[Eug]

It seems CMHC more or less agrees with me.

Prices to hold next year: CMHC

The housing market may be a boring place for the next year, according to CMHC, as the number of starts remains near current levels and resale prices hold steady.

In its fourth quarter market update, Canada Mortgage and Housing Corp. said mortgage rates would likely remain at historically low levels at least until the last half of 2012. The housing market’s fate is largely tied to rates, the agency said.

“Ontario, Saskatchewan and Nova Scotia’s growth will be the strongest, while Prince Edward Island and British Columbia are forecast to see modest growth,” CMHC said. “The other provinces, on the other hand, are expected to see decreases. In 2012, housing starts are forecast to increase in British Columbia, Alberta and Manitoba.”

Other highlights from the report:

· Posted mortgage rates will remain relatively flat until late 2012. For 2012, the one-year posted mortgage rate is expected to be in the 3.4 to 3.8 per cent range, while the five-year posted mortgage rate is forecast to be within 5.2 to 5.7 per cent.

· Single starts have rebounded coming out of the recession. After an increase in the third quarter of this year, they are expected to moderate before rising later in 2012.

· Since the beginning of 2011, new listings steadily outpaced existing home sales. As a consequence, the resale market has moved from sellers’ to balanced market conditions.

 

[detroitbootybass]

Canada sees biggest monthly job loss since 2009

http://www.theglobeandmail.com/repo...t-monthly-job-loss-since-2009/article2225234/


The Canadian economy unexpectedly shed 54,000 jobs last month, the most since 2009, a sign faltering business and consumer confidence is slowing the pace of hiring.

All the losses were in full-time positions, Statistics Canada said Friday. The number of full-time workers tumbled by 71,700 in October, with many in manufacturing and construction in central Canada. The country’s jobless rate rose two notches to 7.3 per cent.

The second drop in three months, after a year of fairly steady hiring, suggests global economic woes and market volatility are weighing on Canadian employers. Several economists, and the Bank of Canada, have cut their forecasts for economic growth in recent weeks.

“Suddenly the jobs market doesn’t look quite so rosy in Canada,” said Avery Shenfeld, chief economist at CIBC World Markets, in a morning note. “Canadian employment was weak across the board in October.”

Among sectors, natural resources was the only industry to post notable gains for the month, the agency said. The private sector shed 32,000 positions and the public sector eliminated 3,800 jobs.

The Canadian dollar shed more than a full cent after the report, sliding to 98.10 cents (U.S.) from Thursday’s close of 99.20 cents.

The most worrisome sign is that wage growth is slowing, to 1.3 per cent from a year ago, noted Bank of Nova Scotia economists Derek Holt and Karen Cordes Woods. “Swings of tens of thousands in the monthly job count matter far less than the fact that the millions of employed Canadians are just not making wage gains that are keeping up with the cost of filling their grocery carts, fueling their cars and what they’re spending on other staples,” they said.

That translates into wage reductions in real terms, which will weigh on Canadian consumers and dampens the outlook for consumer spending, they added.

Central Canada felt the brunt of the losses. Employment fell in Ontario, Quebec, British Columbia, Nova Scotia and Prince Edward Island, while it grew in Newfoundland and Labrador.

The losses comes after steady job growth through much of the past year. Total employment has risen 1.4 per cent, or by 237,000 jobs in that time. Full-time employment has grown 1.6 per cent in the past year, despite October’s loss. Part-time employment rose by 17,700 last month and is little changed over the past 12 months.

Jobs numbers are subject to monthly volatility, but losses of this magnitude are “extremely rare,” aside from recessionary periods, said Douglas Porter, deputy chief economist at BMO Nesbitt Burns. In fact, the last such hefty job drop outside of recession was in September 1996, he added.

“No question, this is an extremely loud warning shot for the economy.”

Last month’s job losses were the most since February, 2009. Economists had expected 15,000 new positions, with the jobless rate staying put at 7.1 per cent.

Job losses among youth caused their unemployment rate to rise a notch to 14.1 per cent. Youth aged 15 to 24 have the highest jobless rate of any age demographic.

 

[kkgg7]

An asset is only worth what someone is wiling and able to pay for it. I don't buy this idea that house prices will remain sky high when interest rates go up. Unless incomes increase at the same pace then prices will have to come down. That, or all the condos and houses for sale will be bought by rich foreign investors. I don't see that happening.

that's more or less bookish or wishful thinking.
Why not look at Vancouver, where price is more beyond reach but prices kept shooting up. Why would Toronto be different. If price does have to be supported by income, then Vancouver should be half its current prices, and Shanghai, where average income is somewhere about $4000-5000 a year and someone making $30,000 is considered high-income, would not be higher than Toronto's.

 

[KA1]

http://www.theglobeandmail.com/repo...prices-to-hold-next-year-cmhc/article2225301/

There goes the bubble -- if there ever was any.

 

[ILuvTO]

that's more or less bookish or wishful thinking.
Why not look at Vancouver, where price is more beyond reach but prices kept shooting up. Why would Toronto be different. If price does have to be supported by income, then Vancouver should be half its current prices, and Shanghai, where average income is somewhere about $4000-5000 a year and someone making $30,000 is considered high-income, would not be higher than Toronto's.

Notice I said "willing and able". In this economy people are willing to pay the prices being asked because money is cheap. My scenario is based more on when interest rates revert back to historical norms.

 

[ILuvTO]

Who knows what I'll say next year.

That goes for both of us. Good thing I am not a prognosticator of anything!

 

[KA1]

On the thread 'Karma' someone has posted pictures of individuals (investors?) lined up to buy a unit.

Obviously, these individuals(investors?) do not believe in the upcoming 'bubble burst'.

 

[klb86]

Yesterday I sent Garth Turner an e-mail about the "Karma Condos" and he made a blog about it tonight. I knew he'd love it lol.

http://www.greaterfool.ca/2011/11/06/no-risk-2/

As you can see below, there was a healthy lineup in Toronto as people queued to snap up the latest condo offering. Of course, these were not anxious, homeless couples hoping for a toehold in the escalating market. Nah. Total investors, speckers and flippers. Typical of eight in ten buyers in the godless GTA these days.

After all, who in their right mind would acquire one of these units to live in?

Prices start at $190,000 for 227 square feet, which is a numbing $836 per foot. For something actually livable (a 700-foot, two-bedroom unit), the starting price is $451,000 (that’s a bargain $620 per pied).

Of course, add on to that an extra $45,000 for a parking space, and $5,000 for more bicycle storage. Now it’s half a million. Oh, and I forgot the education levy of $6,500, which is in addition to closing costs of $10,000. Now it’s $710 a foot. Hmm, wait. Maintenance fees. They’re fifty-three cents a foot a month, plus another hundred bucks for ‘parking and locker maintenance’, which comes to about $500. Property taxes will be an additional $400 a month.

So, spend $517,600 and get a 700-foot concrete box, which costs a grand a month to own, without a mortgage. If you bought with 20% down ($103,000) and a cheapo 3% mortgage, the payments would be $1,750 a month, bringing the carrying costs to $2,850. Oops. That’s $1,100 a month more than market rent – which means an ‘investor’ would spend $103,000 in order to buy something generating an annual loss of $13,200, or a negative return of 12.8%.

Welcome to the end times of the real estate orgy. The masses have flipped.

Why would anyone buy a ‘Karma Condo’

Two reasons. You can lock in a deal for only $5,000. Major credit cards accepted. Plus, for an extra $2,500 you can secure an ‘option to assign’. This allows an investor-specker-flipper to resell the unit months or years before it actually exists (this building will not be habitable until 2015). So, naturally, if you sell a $500,000 unit a year from now for $600,000, after having only coughed up a fraction of the purchase price, you leverage your down payment into a handsome profit. You have not sold real estate, but rather a purchase agreement – a futures contract.

This is legal, of course, but also every bit as risky as an option on three tons of copper for delivery next May. If the market tanks and you can’t assign the paper, you’ll have to close. Walking away from the deal is no option, since that invites a lawsuit you will lose. And if you assign the deal, but your own purchaser reneges on closing, too bad.

All the while, the end product – a two-bedroom condo – has a zero chance of carrying itself as a rental unit, unless you upfront at least $400,000 in cash. And why would you do that to earn a few hundred dollars a month in positive cash flow (fully taxable as income), and forgo $20,000 a year in dividend income if you stuck it in the safety of preferred bank shares?

So why are these people lined up?

Because they believe the myth – there is no risk. Real estate prices only rise. Even when 21,000 new condo units come to market in a single year in a single city. Even when market rents are falling. Even when interest rates will unquestionably rise in the years ahead. Even as the economy slows, unemployment rises, Europe and America slumber and shudder. Even as residential real estate faces the inevitability of a correction which could make Karma Condos a distant memory on closing day.

Like I said, the masses have flipped. Manipulated by marketing, aroused by cheap money, infatuated by easy profits and seduced by peer pressure, with every deal they elevate the risk for all homeowners. But who cares (other than us)?

The smallest unit at Karma is 277 sq. ft, not 227 sq. ft like Garth said.