Baby, we got a bubble!?

[PinkLucy]

I'm in my 50s, downsized from 3500 sq ft to 1500 (great for cleaning out the basement, let me tell you!). Condo lifestyle is appealing because you can lock up and go -- healthy lifestyle is a big thing these days -- travel, recreation, running events, biking events. Many BBs (we're actually at the tail end) have done well and are set to enjoy retirement and are moving from the 'burbs to downtown to enjoy all that it has to offer. I know that I've seen, but I can't remember where, information about this with facts and figures, but anecdotally, I know a number of people who have done this and have met quite a few people in our building who moved here for the same reasons we did.

 

[cdr108]

thanks PinkLucy.

here's another article for consideration:

Home equity loans a concern, Bank of Canada warns

http://www.cbc.ca/news/business/story/2012/02/23/household-debt-house-prices.html

Home prices, along with debt, have risen sharply over the last dozen years as households needed both bigger mortgages to buy homes and used equity from higher home values to finance other purchases. (CBC)

Canadians are relying too much on home equity loans for their borrowing, the Bank of Canada warned Thursday.

In four research papers looking at trends over the last dozen years, the central bank says Canadians are increasingly exposed to a correction in house prices because they have increased their borrowing amid a sharp increase in house prices — and equity.

The bank expressed particular concern that much of the increase in household debt was not mortgages, but loans secured by home equity which Canadians in turn spent on consumer items and renovating their homes.

Statistics Canada has calculated that average household debt has risen as a percentage of income from 110 per cent in 1999 to 153 per cent currently, with about 70 per cent of that being mortgage debt. And debt to household equity has risen as well even as home prices have soared.

The economists who prepared the Bank of Canada reports point out that home prices have risen sharply in the period, along with debt, as households needed both bigger mortgages to buy homes and used equity from higher home values to finance other purchases.

"These facts are interrelated, since rising house prices can facilitate the accumulation of debt," one report noted.

"Households therefore experience a significant shock if house prices were to reverse."

Report warns consumer spending could drop

The report warns that any downturn that causes a drop in house prices will be made worse as consumer spending falls as home equity disappears and the ability of householders to borrow is diminished.

It calculated that a 10 per cent drop in home prices could generate a one per cent decline in consumption.

Only part of that is well grounded on growing incomes, it said, with super-low interest rates and unrealistic expectations that home values will keep rising other causes.

Just hours earlier, credit reporting firm TransUnion released an analysis that found that non-mortgage borrowing had slowed sharply in the past year to a one per cent increase, the lowest since 2004.

And in the last three months of the year, despite the holiday spending season, average credit rose 1.4 per cent to $25,960, reversing three consecutive quarters of flat growth or reduction on everything from credit card debt to lines of credit, consumer and car loans.

Finance Minister Jim Flaherty said he was pleased to see some reduction in credit demand.

“This is dealing primarily with non-residential mortgage credit,†he said, “so people are being more careful with their credit cards in Canada and that's a good thing.†“On the housing market we've seen some moderation of late in good parts of the residential mortgage market. We watch that carefully, in particular the condominium market in some of our large cities.â€

The Bank of Canada also noted that increasing debt levels have made Canadians more vulnerable to bankruptcies and insolvencies. Since 2000, about 100,000 Canadians a year have filed for insolvency or bankruptcy, triple the number in the 1980s.

But it pointed out that in most cases, these were not homeowners. The vast majority are renters and the unemployed who have taken on too much in the way of credit card debt and bank loans.

With files from The Canadian Press

 

[cdr108]

Why we’re in trouble if housing craters

http://business.financialpost.com/2012/02/23/why-were-in-trouble-if-housing-craters/

The Canadian household debt burden has climbed ever upward over the last 30 years. That trend generally held globally, amplifying in the years preceding the financial crisis.

Unlike in the United States and the United Kingdom, Canada refrained from the worst of those “excesses,†and thus averted a good amount of the economic carnage that ensued, the report said.

But as households elsewhere in the West now agonize through a period of deleveraging, Canadians have continued borrowing at about the same pace, compelled by income growth, low interest rates and ever rising home equity.

While those debt levels are mostly driven by mortgage borrowing, consumer credit now accounts for about one-third of the household debt burden.

Instruments like home equity lines of credit (HELOCs) have encouraged homeowners to borrow against the equity afforded by rising home prices.

“Financial innovation that made it easier for households to access this type of borrowing†has likely helped facilitate debt accumulation, the report said.

Borrowing and spending
Home-equity extraction, which includes HELOCs and mortgage refinancing, accounted for a large increase in total household debt since 1999, the report said.

Over that period, as a percentage of disposable income, borrowing on equity rose from 2.2% to a peak of 9.0% in 2007.

Through the recession and its aftermath, Canadians appeared to compensate for declines in income by resorting to credit secured by their homes. In 2009, HELOCs drove one-quarter of the increase in average household debt.

A significant share of those borrowed funds — about 40% — were used to finance consumption and home renovations.

Canadians invested about 35% of those proceeds and used 25% to repay other debt. A portion of the debt in that final category, however, would be consumer debt, understating the extent to which Canadians increasingly finance their consumption through home-equity extraction.

Given the recent emphasis of borrowing in household expenditures, “this suggests that household spending on consumption and home renovation can become vulnerable to house price shocks, since lower house prices would reduce the value of housing collateral,†the report said.


Housing prices
An indebted household, particularly one that has borrowed against home equity, is one that is vulnerable to the forces of depreciation.

The behaviour of the Canadian housing market over the past several years alone has some convinced of an impending correction. On average, real house prices in Canada increased by 88% since 1980. Since 2000, prices rose nationally almost without interruption.

Over the long term, housing prices are a function of income and population — factors that fall short in explaining medium-term price fluctuations.

With housing, supply is slow to respond to demand, leaving movements in prices to correct the imbalance in the interim.

Additionally, interest rates and credit conditions skew the forces of demand and supply of housing.

One model described in the report attributes 60% of the rise in Canadian home prices from 2001 to 2010 to population and income growth.

Other possible factors explain the remainder, including: declining mortgage rates, changes in expectations of future price growth and changing liquidity measures in the housing market, like vacancy rates, the time it takes a house to sell and volume of houses listed for sale, the report explained.

Much is at work in the housing market and it’s risky to count on a steady upward march of prices.

Insolvency
The rate of insolvency, which includes both bankruptcies and debt restructurings, has been on the rise in recent years in Canada.

Approximately 100,000 Canadians file for insolvency each year — triple the rate of the 1980s. The average debt of those declaring bankruptcy amounts to about $92,000, rising to $115,000 for those applying to restructure their debts.

Considering the rising levels of average household debt, “the number of households that may be vulnerable to a negative economic shock is rising as well,†the report said.

The main domestic sources of risk to financial stability, as identified by the central bank, include that vulnerability and the deterioration of the credit quality of household loans.

“Fragility in the household sector can have substantial adverse spillovers to the financial system and the entire economy,†the report said.

That phenomenon was illustrated most starkly in the recent experience of the United States.

 

[bmc]

Let's talk about crazy asset prices...

81 Macpherson Ave sold today for $2,328K, which was $333K over asking.
289 Westmount Ave sold today for $629K, which was $130K over asking.
59 Forest Grove Dr sold today for $2,530K, $60K less than asking... (taxes were considerably less than MacPherson, value???)
92 Northly Dr (semi) sold today for $610K, which was $41K over asking.
84 Castle Knock Rd sold today for $1,005K, which was $210K over asking.

That was only today... (I'll list more tomorrow like this....) I don't see any problems with today's market... at long as interest rates remain low, and that people remain rational and don't panic ever, and that banks are due diligent in accessing the real value of these homes, ensuring that appraisals are completed with standards that are a little more professional than like those done during the pre-crash in Florida/Nevada/Arizona because these some of these loans are ultimately insured by taxpayers via CMHC.

Unbelievable! I actually looked at 289 Westmount and although it looked like a great house it needed some work. 130K over asking is just plain crazy. Wow!

 

[James]

Be careful comparing asking prices with actual sold prices though because there are just as many houses that sell for less than asking as there are over asking. The most significant factor to take away is that regardless of over or under, these properties are selling for very high amounts.

 

[AKS]

while somewhat true about the downsizing boomers, they aren't seeking the 500 sf 1 bedroom units that proliferate many of the dt condos. my guess is they require at least a 2 bedroom unit that's efficiently and well designed of at least 850 sf. there aren't many of those in the newer projects, but more common in older products from 5-25 years ago.

the first wave of boomers are from 1945 so they are 66/67 yrs old now, and i don't see them selling off their SFH to move into condos.
some may downsize to smaller SFH of 1,500 sf from the mcmansions.

from my observations of the generation before them, many stayed in their residence until either their health declined significantly so they required nursing homes (infirmed ? ), or death.

I was at Pier 27 sales centre a few years ago and the sales woman told me their large south facing millions in dollars units sold very quickly. Seems the retirees were buying them up. She mentioned one of them were retired/retiring teachers. She mentioned most people purchasing there were living there and not many investors buying there.

I also meet a retired couple who downsized from their place in Scarborough to a condo downtown at one of the buildings I lived at.

 

[zaius]

if I recall correctly, a couple of years ago the media was speculating a bubble in the Australian housing market. does anyone know if the bubble still exists or has deflated?

 

[interested]

Another bear article linked in today's G&M:

http://theeconomicanalyst.com/content/where-we-stand

A lot of graphs and charts.

Interestingly for those of us following Toronto he suggests the lack of inventory in single family homes may lead to more significant price increases. While longer term he is bearish, for the next few months the lack of inventory suggests unless there is a change that SFH will increase in price based on supply and demand.

Not as sure for condos as the numbers here are "exploding".

 

[cdr108]

if I recall correctly, a couple of years ago the media was speculating a bubble in the Australian housing market. does anyone know if the bubble still exists or has deflated?

Fears mount over health of Australia's housing market
By Phil Mercer
BBC News, Sydney

http://www.bbc.co.uk/news/business-16111735

On the main shopping strip in the multicultural suburb of Auburn, 12 miles from the Sydney Opera House, the mood is as gloomy as the dismal start to the southern summer.

This blue-collar district, where modest houses sit alongside freshly-minted apartments, is one of the areas where Australia's very own property crunch is playing out.

Recent figures from the Supreme Court show that in New South Wales, which has Sydney as its capital and is Australia's most populous state, the number of people having their homes repossessed by banks has risen by 22.5% this year.

A report by insurance provider Genworth does not give detailed figures for arrears but states that "no previous survey has seen mortgage stress levels hit 25%, not even during the depths" of the global financial crisis.

On the streets of Auburn, the increase in the numbers and percentages is much easier to gauge.

"I used to have a house before," explains Brendan Timmins, who works in Auburn. "But it was no good, I couldn't afford it, so I lost it".

"People shouldn't go too far into debt. They are trying to get the Australian dream but it is out of reach for a lot of people," he adds.

Mr Timmins goes on to explain that he sold his house as his debts got him "into a fair amount of trouble and I'm not going there again".

'Entrenched problem'

For many observers of Australia's housing market and economy, the increase in the repossession rate highlighted by the New South Wales Supreme Court is a worrying development.

Not least because Australia's housing market has enjoyed near-perfect conditions for much of the past decade, with increasing wages helping fuel significant price gains.

Australians for Affordable Housing estimates that over the past decade house prices across the country have increased by 147%, while incomes have risen by only 57% during the same period.

Community groups warn that financial strain has become deeply embedded in Australia's housing market.

For them the worry is that should Australia's economy slow as a result of weaker global conditions, then more households may end up struggling to repay their mortgages.

"This is an entrenched problem," says Sarah Toohey, the campaign manager for Australians for Affordable Housing, which represents more than 60 community and housing organisations.

"Housing stress is something we have seen become really severe over the last decade in particular as house prices have risen."

Out of reach?

House buyers have been faced with a stark choice of either borrowing increasing amounts of cash or resigning themselves to not getting on the housing ladder at all.

"Honestly, it is out of control, man," says Mustapha, 28, a taxi driver in Auburn who lives with his parents.

"I'm a good 15 to 20 years away from owning my own home. It is not something that is realistic anymore.

"Australia used to be the 'lucky country'. Now it is the 'expensive country'."

The recent rate cuts by Australia's central bank are likely to ease some pressure from consumers
University graduate Laura Smith-Kahn feels the same frustration.

"Owning a house is a fairly distant dream," she explains. "Most of the time you feel like you are just working to pay your rent, living from day-to-day, week-to-week. It is very hard to save any money".

However, struggling households and house-buying hopefuls were given some pre-Christmas cheer by the Reserve Bank.

It is attempting to inject more vigour into ailing sectors of the Australian economy and in December reduced interest rates for the second month in a row to 4.25%.

The worry is that despite a bounce back in the mining and construction sectors, Australia's economy and consumers may be hurt by the continuing eurozone debt problems, coupled with a slowdown in China and a nascent but fragile recovery in the US.

"The rate cut in November and the one just announced is certainly going to go a long way to help consumers feel more confident about the future," Ellie Comerford, the chief executive of Genworth, says.

Helping hand

Banks too are trying to do their bit to help those buckling under the weight of a mortgage.

In an unprecedented move they have launched a new website, www.doingittough.info, to give hardship advice to homeowners struggling to make their repayments.

"Even though Australia's economy is doing well, lots of Australians are doing it tough. For some of us, it's getting harder and harder to make ends meet," says the website.

Paul Clitheroe, the chairman of the Australian government's Financial Literacy Board, says that lenders are obliged to help those who are financially stressed.

"Banks, credit unions and building societies are now required to have a hardship area that deals with people in genuine hardship," Mr Clitheroe explains.

"What the banks may do is reduce your interest repayments, they may freeze interest for a while but it is in the banks interests to let consumers stay on top of their debt."

At present, many of the problems are limited to certain areas of Australia's main cities, and larger country towns including Dubbo and Orange in New South Wales.

Analysts say that the key going forward will be ensuring that both homeowners and borrowers can find a way of ensuring that neither one of them ends up on the wrong end of the housing deal.

Especially as Australia is a country where many still strive for a place of their own and homeownership is woven into the national fabric.


other good reads to answer your Q:

http://www.globalpropertyguide.com/Pacific/Australia/Price-History

http://www.news.com.au/money/proper...r-through-market/story-e6frfmd0-1226221461085

http://online.wsj.com/article/SB10001424052970204026804577097803921139114.html

Australia Home Strains

Cracks are starting to appear in Australia's housing market.

The value of homes in Australia's capital cities has fallen 4% in the first 10 months of this year. By June, Merrill Lynch predicts, house prices will be 10% below the June 2010 peak.

Those numbers might not look too alarming given the depth of recent housing crises in other parts of the world.

But weakness in Australia's property sector could be especially acute because of a boom in investment-property ownership.

Since the late 1990s, property investment has become a hobby for millions of ordinary Australians.

The trend picked up pace in recent years thanks to tax and other incentives.

Today, around 30%, or 325 billion Australian dollars (US$325.6 billion), of all mortgages are on properties in which the buyer doesn't live. That's around double the proportion in the U.S. or Canada, according to mortgage insurer Genworth.

Worryingly, 1.2 million of Australia's 1.7 million landlords make less from their tenants than the cost of home ownership, according to data from Endeavour Equities. Because investment property owners in Australia can write losses off against their taxes, millions of landlords haven't been too concerned about collecting enough rent to cover their mortgage.

But the economy is slowing; the government recently revised up its unemployment expectations and cut its growth forecast for gross domestic product.

Combine that with falling house prices, and loss-making investment property could start to look a lot riskier.

Already, borrowing for investment property is falling, down 5.5% in October from September compared with a 1.2% decline in owner-occupied borrowing.

A crisis of confidence could spread quickly beyond investment property. Compared with live-in homeowners, landlords are more likely to put properties up for sale when things go wrong.

So a surge in properties for sale could cause disarray in the broader market.

In a review of the country's mortgage insurers, Moody's said this week that rising delinquencies, high house prices and heavy mortgage debt burdens leave mortgage insurers vulnerable.

Australia's central bank has room to cut interest rates to help borrowers. That is a luxury that many others in the developed world don't have.

But with so many Australian landlords already stretching their finances, a drop-off in prices has the potential to turn millions of small property moguls into a national concern.

 

[interested]

^^^
I think cdr this points to the bursting of the property bubble in Australia. However, remember what happened in Toronto from 2008 to early 2009...to only see prices march up again. Australia has some room to play however since their interest rates are around 5% so the government has some room to "float" the housing market by lowering interest rates. that would also devalue the currency in all likelihood which would help the Australian economy.

The above said, the article clearly shows that similar things could happen in Canada in general and TO in particular and we do not have as much maneuvering room as interest rates are already "rock bottom". The other interesting point is the 30% non owner occupants vs. 15% in Canada and the US. Assuming these numbers are right that would give some feeling of reassurance. However, in the C01 district and condos in particular, some suggest investors make up to 80% of the new condo Precon construction so this may in fact be a false sense of comfort, at least as far as downtown condos go.

 

[interested]

I'm in my 50s, downsized from 3500 sq ft to 1500 (great for cleaning out the basement, let me tell you!). Condo lifestyle is appealing because you can lock up and go -- healthy lifestyle is a big thing these days -- travel, recreation, running events, biking events. Many BBs (we're actually at the tail end) have done well and are set to enjoy retirement and are moving from the 'burbs to downtown to enjoy all that it has to offer. I know that I've seen, but I can't remember where, information about this with facts and figures, but anecdotally, I know a number of people who have done this and have met quite a few people in our building who moved here for the same reasons we did.

A further anecdotal story. My parents sold their house when they hit 70 years of age. My mother told me it was the best move she ever made. She lived in downtown TO until recently in a 1550 sq.ft. condo + a 100-120 sq.ft. balcony. I remember when it was bought in 1994 thinking I could never live in such a small condo (2 bedroom + solarium+balcony). Furthermore, I think when I look at that condo that in those days they advertised usable space and not footage to the outside wall or to the mid wall so her 1550 sq.ft. may in fact have been closer to 1700 sq.ft.

I personally live in about the same size home that you downsized from. Now, also in my late 50's I am coming to the conclusion that the 1550 sq.ft. condo would be quite livable. Ideally, I would prefer to have 2000 sq.ft. but I must say that having spent time in a 1400 sq.ft. condo ( 2bedroom/balcony of 200 sq.ft. additional) it was really very livable.

I think one can do with much less space.

All of that said, I truly like being able to walk into the back yard and our home and I am not sure that I will live downtown in a condo. That said, My wife and I intend to try it and will be moving into a 1 bedroom/den at 1100 sq.ft. with 200 sq.ft. of outdoor space. We will keep the house in the short term as the fall back position and if we conclude that we like downtown living and the building, we will hopefully sell the house and if necessary later on consider increasing the condo size.

 

[PinkLucy]

Layout is a big factor, it's not just about the square footage but about how it's designed. As for the backyard, we live across from a big park and the Martin Goodman Trail which I use almost every day and that works for me. We have 3 balconies and use them quite a bit; we even bbq. We don't miss shovelling snow or mowing grass. It's not for everyone, but it works for us!

 

[interested]

^^^
3 balconies. Now I am jealous.

 

[cdr108]

thought i read it here but couldn't find it .... just in case it wasn't posted

http://ca.finance.yahoo.com/news/bank-canada-raises-concerns-over-203240722.html

Bank of Canada raises concerns over home equity loans, housing correction
By Julian Beltrame, The Canadian Press | The Canadian Press – Thu, 23 Feb, 2012 7:20 PM EST


OTTAWA - Canadians are becoming increasingly vulnerable to a housing correction, exposing them to a perfect storm of high debt and falling assets, the Bank of Canada warns.

In a book of four research papers released Thursday, the central bank suggests many Canadians have constructed their finances on a house of cards, with ever rising home values the key and vulnerable support.

The bank economists point out that home prices have risen sharply in the past dozen or so years along with debt, as households needed both bigger mortgages to buy homes and used equity from higher home values to finance other purchases.

"These facts are interrelated, since rising house prices can facilitate the accumulation of debt," the report notes. "Households therefore experience a significant shock if house prices were to reverse."

It adds that falling home prices could have a "relatively large impact on consumption" as equity disappears and the ability of householders to borrow is diminished.

It calculates that a 10 per cent drop in home prices could generate a one per cent decline in consumption, which would slow economic growth.

TD Bank chief economist Craig Alexander said the fact the central bank devoted it's winter review on a single topic — debt — demonstrates how seriously it takes the issue.

And he says the bank's example of a 10 per cent correction is not unrealistic given that it is the over-valuation figure the International Monetary Fund gives for Canadian housing stock. Alexander himself believes it could be as much as 15 per cent.

He agrees that the central bank has every reason to be worried, because a correction could knock the stuffing out of Canada's fragile recovery.

"When it comes to the housing market and personal debt, I'm not worried that a housing market correction will lead to a problem in the Canadian financial system," he said.

"I worry more about the economy. I worry that if you have a drop in home prices and you wind up with consumers struggling to deleverage, it will lead to an economic contraction."

The bank does not suggest a U.S.-style housing collapse for Canada is in the offing, nor does Alexander. A big part of the problem south of the border was due to easy credit conditions, something Canadian banks have avoided.

But the bank's economists are clearly concerned nevertheless about the pitfalls from the steady increase in household debt, which has risen as a percentage of income from 110 per cent in 1999 to 153 per cent currently.

And debt to household equity has risen as well even as home prices have soared.

Part of that is well grounded on growing incomes, it says, but part is also due to super-low interest rates and unrealistic expectations that home values will keep rising.

Of particular concern to the central bank is that much of the increase in household debt was not mortgages, but loans secured by home equity which Canadians in turn spent on consumer items and renovating their homes.

"These findings suggest that household indebtedness constitutes an important source of risk to household spending, since it makes households more vulnerable to substantial negative economic consequences in the event of a correction in house prices," one paper states.

The Bank of Canada papers were released hours after a new analysis by the TransUnion management firm found that non-mortgage borrowing had slowed sharply in the past year to a one per cent increase, the lowest since 2004.

While that represents only a small fraction of what Canadians owe, analysts have noted that overall debt accumulation has also been slowing of late and that expectations for home prices have moderated.

That's a good indicator that Canadians are starting to heed the message, said Alexander.

One paper issued by the central bank suggested that home prices have been influenced not only by low mortgage rates but also on expectations that values will keep rising. History shows that's a bad bet, the paper states.

"Over history, these other factors are associated with the medium-run tendency of house prices to rise faster than their long-run trend for a number of years and then subsequently adjust back to trend."

Those corrections could be as great as 20 to 30 per cent relative to the growth in the economy, it said.

The Bank of Canada also notes that increasing debt levels have made Canadians more vulnerable to bankruptcies and insolvencies. Since 2000, about 100,000 Canadians a year have filed for insolvency or bankruptcy, triple the number in the 1980s.

But the bank points out that in most cases, these were not homeowners. The vast majority are renters and the unemployed who have taken on too much in the way of credit card debt and bank loans.

 

[KA1]

We will keep the house in the short term as the fall back position and if we conclude that we like downtown living and the building, we will hopefully sell the house and if necessary later on consider increasing the condo size.

Inteested, if I were to take your latest post to its next logical level, then, the obvious conclusion is that there is no bubble in Toronto R/E -- not for PinkLucy, not for me and, if you were to decide to move downtown, then, there will not be a bubble for you either. If there is no bubble, then, there is no burst either. What happens to the 'flippers' or spectulators is for them to worry.

Since 2006, my small unit has increased in price 100%. It would not bother me at all if it goes another 20% North or 50% South. I chose to move to 'core' downtown. That is important.

For the past 2 or so years, you have been shouting from the pulpit about upcoming 'bubble burst'. Time for you to move away from this line of reasoning. Relax. There is not going to be a 'burst' for PinkLucy, myself, yourself and the others in the same situation.

Time to move on to another thread?