Baby, we got a bubble!?

[Eug]

August brings two milestones for me:

1) Teranet has officially reached the 150 point mark, which means prices are now 50% higher (using their calculations) than they were in June 2005.
2) With the latest index of 150.2, Toronto home prices have gone up over one-third, since the time I bought, 6 years ago this month. That means even if prices were to drop by one quarter, the valuation of my house would just be the same as what I paid for it 6 years ago.

P.S. Happy 8000th post in this thread to the next poster!

 

[Bass gtr]

Some more in MSM

http://www.thestar.com/business/2013/08/07/toronto_condo_market_normalizing_report_says.html

 

[klb86]

CMHC cools mortgage market with new cap for banks

Canada Mortgage and Housing Corp. is putting a cap on the amount of mortgage-backed securities sold by banks that it is willing to guarantee.

A spokesperson with CMHC confirmed media reports Monday that the national housing agency will, effective immediately, limit banks and other mortgage lenders to $350 million worth of new mortgage-backed securities per month. The decision comes in the wake of "unexpected demand" for the guarantees, a spokeswoman for CMHC said in an emailed statement.

Under the National Housing Act Mortgage-Backed Securities (NHA MBS) program, banks have been able to securitize large portions of the mortgages they carry on their books. Because those securities are backed by CMHC, not the banks themselves, they're able to go out and lend that freed-up money to new homebuyers at lower prices, which adds fuel to Canada's housing fire

Earlier this year, Ottawa announced it would limit the amount of those mortgage-backed securities that it would guarantee to $85 billion this year. That's a rise from from $76 billion in 2012.

But by the end of July, barely over halfway through the year, the banks had already tapped the program for as much as $66 billion, hence the need for the cap to stay under the annual limit.

CMHC said Monday no one lender will get guarantees for more than $350 million worth of securities per month, from now on.

The move takes some of the air out of the housing market by forcing banks and other lenders to be responsible for the risk of mortgage defaults, instead of being able to pass that risk on to government and taxpayers via the CMHC.

It's the latest move from a government that's getting increasingly vigilant about its attempts to cool down the housing market. After loosening rules to allow for no-money-down mortgages of more than 40 years a half-decade ago, the federal government has taken multiple steps to ratchet those rules tighter again, limiting new mortgages to no longer than 25 years, and requiring a minimum down payment of five per cent of the value of the home.

Those moves were targeted directly at the homebuying public. But moves such as the one revealed Monday target the banks themselves, by effectively limiting the amount of money they have at their disposal to lend out in mortgages.

In the spring, Finance Minister Jim Flaherty went as far as publicly criticizing a number of lenders for encouraging reckless spending by offering mortgages with historically low interest rates.

The last time CMHC disclosed its data, the housing agency had $562.6 billion worth of mortgages on its books, getting close to its legally mandated limit of $600 billion.

http://www.cbc.ca/news/business/story/2013/08/06/business-mortgage-banks.html

Meanwhile the yield on Canadian bonds continue to rise. My REITs are taking a beating....

 

[Riverdale Rink Rat]

Would you still buy?

August brings two milestones for me:

1) Teranet has officially reached the 150 point mark, which means prices are now 50% higher (using their calculations) than they were in June 2005.
2) With the latest index of 150.2, Toronto home prices have gone up over one-third, since the time I bought, 6 years ago this month. That means even if prices were to drop by one quarter, the valuation of my house would just be the same as what I paid for it 6 years ago.

P.S. Happy 8000th post in this thread to the next poster!

Good for you, Eug. But good for the market? Would you still buy -- and would you still have the financial capacity to buy, given the mortgage tightening -- today? We bought are second place about the same time as you, and sold last June. Do you think we captured most of the run, or did we sell way too early? I'd love to hear your opinion of where we sit today.

 

[interested]

August brings two milestones for me:

1) Teranet has officially reached the 150 point mark, which means prices are now 50% higher (using their calculations) than they were in June 2005.
2) With the latest index of 150.2, Toronto home prices have gone up over one-third, since the time I bought, 6 years ago this month. That means even if prices were to drop by one quarter, the valuation of my house would just be the same as what I paid for it 6 years ago.

P.S. Happy 8000th post in this thread to the next poster!

This is just below a 6% compound rate of return / year. A bit high but not crazy escalation (vs. the US sunshine states which went up 20% compounded yearly over 6 years from 2000 yo 2006) . Those who expect the same massive drops based on this may be disappointed. If the US Sunshine dropped 60% from tripling experienced, I would be hard pressed to believe anything more than 20- 25% from the present values but it may not follow proportionately.

 

[cdr108]

This is just below a 6% compound rate of return / year. A bit high but not crazy escalation (vs. the US sunshine states which went up 20% compounded yearly over 6 years from 2000 yo 2006) . Those who expect the same massive drops based on this may be disappointed. If the US Sunshine dropped 60% from tripling experienced, I would be hard pressed to believe anything more than 20- 25% from the present values but it may not follow proportionately.

i don't believe any reasonable person who's bearish about TO condos has ever thought we'd experience US-style crash of 50%.

i hear conflicting figures regarding the current average psf (resale and pre-con) for dt TO units (excluding true luxury and Y/B projects) but i still believe that current prices are 30-35% too high

 

[interested]

i don't believe any reasonable person who's bearish about TO condos has ever thought we'd experience US-style crash of 50%.

i hear conflicting figures regarding the current average psf (resale and pre-con) for dt TO units (excluding true luxury and Y/B projects) but i still believe that current prices are 30-35% too high

I would buy the concept of more of a drop on the high end and new construction. My suspicion is we will not see 30% drop from current unless there is a major black swan event. Barring that, I don't think it will happen.

Should be fun to watch. About the only thing I know for sure is that I won't be right. However, I don't know if I will be wrong by an under or overestimate.

The other issue will be that when real estate drops, I expect the stock market will be going hand in hand and money may well sit in cash or sidelines but it will be hard to avoid decreases in one's assets in my view.

To your point about pricing and conflicting reports: From the Star an article today:

Despite widespread uncertainty in the condo market over the past year, and even recent warnings from the Bank of Canada that the Toronto market is oversupplied, the average index price per square foot of a new condo was up in the second quarter of 2013 by 2.7 per cent, to $539 per square foot, according to the Urbanation report.

Even resale condo sales, which started slumping dramatically in early 2012, have been picking up steam, according to Urbanation.

The 4,689 resale transactions recorded this year to the end of June were 46 per cent higher than the fourth quarter of 2012 and just seven per cent lower than the second quarter of last year.

The average resale price per square foot for the Toronto CMA hit a record $413 in the second quarter, after two quarters of decline.

 

[rbt]

Timing of the crash is important.

A 25% decrease today is a different beast than a 25% decrease in 2009 when this thread started. Everybody who purchased when this thread was created likely won't have to worry about being under water on their mortgage. If they were renting, they are probably well ahead of where they were.

Same applies today. If the crash doesn't appear until 2016 (US recessions seem to occur every 7 to 9 years; 2016 is a ripe time for one), then buying today might be a good idea for people currently renting.

As an investment or gamble (price speculation), certainly not, but for a first time buyer currently renting at $1700/month, it's worth considering.

 

[interested]

From the National Post today:


Housing market still running hot Add to ...

TARA PERKINS - REAL ESTATE REPORTER

The Globe and Mail

Published Sunday, Aug. 11 2013, 6:05 PM EDT

Last updated Sunday, Aug. 11 2013, 6:09 PM EDT







The surprising resilience of the country’s housing market is renewing concerns that it could be overshooting.

Housing starts, sales and prices are once again defying expectations, one year after Finance Minister Jim Flaherty shocked the market with tighter mortgage insurance rules. The sector is showing such strength this summer that some economists are wondering whether Mr. Flaherty will go further in a bid to stem rising house prices and consumer debt levels.




A for sale sign is seen on the lawn of a Toronto home. The Canadian Real Estate Association says home sales were down in June from year-earlier levels, but higher compared with the previous month.




"There may be some dusting off of potential measures to cool housing,” Bank of Montreal economist Douglas Porter wrote in a research note. He thinks the market could be on the verge of running away again.

Both Mr. Flaherty and economists will have a better sense of where things stand on Thursday, when the Canadian Real Estate Association releases July’s sales figures. Mr. Porter thinks the data will show that the number of existing homes changing hands is 10 per cent higher than this time last year, which would mean that they are “within striking distance of the record highs hit in 2007.”

July data from some local real estate boards appear to back that assumption. Vancouver, for instance, saw a whopping 40.4-per-cent year-over-year increase in sales of existing homes over the Multiple Listing Service, while Toronto posted a still-impressive 16-per-cent gain. Calgary’s sales were up 17 per cent from last year. (Not all markets are showing gains. Ottawa and Montreal each saw sales fall by about 2 per cent year over year).

Toronto-Dominion Bank economist Diana Petramala says sales have now recovered from the changes that Mr. Flaherty made to the mortgage insurance rules. “In Vancouver, sales have recovered to their highest level since 2010,” she notes.

In addition to the changes that Ottawa made to the rules for consumers, such as cutting the maximum length of an insured mortgage to 25 years and doing away with mortgage insurance for homes worth more than $1-million, Mr. Flaherty has been taking steps to curtail the degree to which Canada Housing and Mortgage Corp., and therefore taxpayers, backstop the banks’ activities. He has been worried that ultralow mortgage rates are adding too much fuel to the housing fire.

It’s possible that the market’s current strength is temporary.

Real estate associations and some economists wonder whether the strong sales in June and July were spurred by mortgage rates ticking up, prompting consumers to jump into the market before they rise further. The special five-year closed rate has risen 60 basis points since mid-June, and “home buyers with a preapproved mortgage are likely jumping into the market to take advantage of record-low interest rates,“ Ms. Petramala wrote in a research note. (A basis point is 1/100th of a percentage point.)

One part of the market that isn’t rebounding yet is newly constructed homes. Sales of new condos in Toronto were down 18 per cent from a year ago in the second-quarter, Urbanation, which tracks the Toronto condo market, said last week. And the amount of residential land that developers bought to build houses and condos fell 51 per cent in Toronto, 30 per cent in Vancouver, and 52 per cent in Calgary during the first half of this year, according to RealNet Canada Inc. Developers continue to build an abundance of new houses and condos, even though TD economist Dina Ignjatovic believes there is an oversupply of 250,000 new homes, roughly one year’s worth, that will hit the market in the next two years.

For now, house prices are on an upward trajectory that could reignite talk of a bubble. “After flirting with outright declines for much of 2012 and earlier this year, average home prices were up almost 5 per cent year over year in June, and we suspect the gain was closer to 6 per cent for July, the fastest pace in almost two years,” Mr. Porter wrote.

 

[Riverdale Rink Rat]

Anecdotal evidence only, but I spoke with 3 agents over the weekend, all of whom were putting a house back on the market because the putative buyers couldn't get financing. (All in East York/Leslieville areas.)

Might be a coincidence, but that was a disconcerting coincidence.

 

[interested]

Anecdotal evidence only, but I spoke with 3 agents over the weekend, all of whom were putting a house back on the market because the putative buyers couldn't get financing. (All in East York/Leslieville areas.)

Might be a coincidence, but that was a disconcerting coincidence.

Actually RRR I do not find this disconcerting at all. In fact, I find it reassuring. If the buyers are so borderline the bank is being responsible even if the buyers are not. If on the other hand the banks are withholding financing from people who should easily qualify, that is another story but the suggestion to date has been that financing in Canada has been all too easily.

Why should you, I, the banks and CMHC or other mortgage insurers assume the risks of buyers who are under qualified because they want a home the presumably can't afford? After all, banks will lend at least in Canada to those who can afford it.

Where I have heard anectdotally the problem is mortgages for over Million dollar properties. Frankly, it is not my business when someone wants to buy a $2million dollar property and has $400K to put down....I am just not sure that the banks should be able to download this to CMHC and I am glad that they are no longer allowing this if I understand correctly Flaherty's latest moves. Hence million dollar + homes are languising.

If it is younger undercapitalized buyers at under a Million dollars, maybe they can't afford East York / Leslieville yet and that is for their next move in 5 years or alternatively they buy a lesser home in their primary area.

I do not mean to be harsh but clearly we made funding too easy the past few years and people have forgotten that home purchase is a privilege, not a right. My parents generation saved+++ and then took say a 50% mortgage and were sweating about all the money they owed. Now the attitude if I can make a minimum payment and barely carry, I should have what our parents would have considered a final or 2nd to last home as my first purchase. I am sure I will take some flack for this but it is something that needed correcting and if the correction is happening...so be it.

I appreciate the 3 agents would like their commissions. I also am quite sure that if the interest rates go up and the buyers can't afford the houses they bought, they will be crying foul when they lose their homes. The agents won't care...they will just resell the home and make their commission twice.

 

[drewp]

I agree with you Interested. It is so surprising that buyers pay the bare minimum and think nothing of it. I think when they renew their mortgage the reality of the situation will put them in check. I find with first time buyers (not all) think 25-30 years of paying a mortgage is perfectly fine. This to me has always been strange. I come from an Italian background--paying your mortgage is a priority. I think the younger generations get a hefty down payment from their parents who saved, and saved, and saved, and they enjoy showing off their homes to friends when they are inviting them to their dinner parties. What does change is when these "entertainers" have children, their priorities do change. Because couples are having less children, and later in life, their financial security isn't thought of right away. Once children enter the picture their mindsets drastically change.

In terms of the market, specifically the condo market; things are looking cautiously optimistic. There tends to be more owner occupied units on the market then ever before, which is contributing to a rebound of sorts. Investors are smart right now, because the garbage units that cant sell or being rented, and being rented fast. I think investors realize the safe bet is having someone rent out their units. To sell some of these units doesn't make much sense because they are just not sellable at the prices that make sense to their pockets. Now for those who HAVE to sell it is a different story.

I do believe the July numbers are skewed a bit. Considering last year at this time, the new mortgage guidelines came into effect, plus with all the bubble talk--people were too scared. Now, this year in June, you could get a mortgage a 2.89. So many buyers probably felt pressured a bit to buy. I think August should see a modest increase but not what we saw in July. Sales and prices should increase 3-5%.

The fall market will be interesting to watch!

 

[Eug]

Good for you, Eug. But good for the market? Would you still buy -- and would you still have the financial capacity to buy, given the mortgage tightening -- today? We bought are second place about the same time as you, and sold last June. Do you think we captured most of the run, or did we sell way too early? I'd love to hear your opinion of where we sit today.

You bought too late. Better time to buy would have been 15 years ago. As for good time to sell, I dunno. I'm in it just for my primary home, so I don't plan to sell for a couple of decades anyway.

But yeah, I could buy today but likely would get something a bit smaller. Would I buy today though? I dunno, but since it's for a primary home I'm not as concerned about trying to time the market.

Now it's true that rules have tightened, but what hasn't really is interest rates. I renewed at 2.89% last year for a 5-year fixed. Rates have jumped since then, all the way up to... 3.19%. So, not a huge issue yet.

 

[Riverdale Rink Rat]

You bought too late. Better time to buy would have been 15 years ago. As for good time to sell, I dunno. I'm in it just for my primary home, so I don't plan to sell for a couple of decades anyway.

But yeah, I could buy today but likely would get something a bit smaller. Would I buy today though? I dunno, but since it's for a primary home I'm not as concerned about trying to time the market.

Now it's true that rules have tightened, but what hasn't really is interest rates. I renewed at 2.89% last year for a 5-year fixed. Rates have jumped since then, all the way up to... 3.19%. So, not a huge issue yet.

Good point about rates not really an issue, yet.

As for the buy... our first house purchase was summer 1997 to coincide with the arrival of our first daughter. Can't say it was because of our prescient investment timing, although the daughter might claim she arrived just to give us housing advice...

 

[Kenny]

http://ca.finance.yahoo.com/news/canadian-home-prices-rose-0-7-percent-july-130713257.html

Canadian home prices rose 0.7 percent in July from June: Teranet
ReutersBy Andrea Hopkins | Reuters – 2 hours 26 minutes ago

By Andrea Hopkins

TORONTO (Reuters) - Canadian home prices rose in July from June to an all-time high, but the modest monthly gain suggests the robust housing market may be cooling again, according to data from the Teranet-National Bank Composite House Price Index on Wednesday.

The index, which measures price changes for repeat sales of single-family homes, showed overall prices rose 0.7 percent in July from a month earlier, the fifth straight monthly gain but on the low side of typical summer housing strength.

The index was up just 1.9 percent from a year earlier. Though this was a slight acceleration from June, the 12-month gains of these two months were the smallest since November 2009, the report said.

The report echoes data on both sales activity and prices that suggest Canada's housing market has recovered well after the government tightened mortgage rules in July 2012, causing a sharp slowdown in demand in the second half of 2012.

While some economists still predict a U.S.-style crash, a spring recovery in sales has led some to believe Canada has achieved a soft landing.

"Home prices have rebounded in tandem with the surge in existing home sales in the spring. But despite the nascent recovery in the housing market in recent months - which reflects the typical dynamic of a temporary slowing following the introduction of tighter mortgage regulations - we believe that further upside in prices will be limited," Mazen Issa, Canada Macro Strategist at TD Securities, said in a research note.

He said the recent rise in mortgage rates will reduce affordability, limiting sales and slowing the rate of price rises over the rest of 2013 and into 2014.

The Teranet data showed prices rose in July from June in nine of the 11 metropolitan market surveyed, led by a 2.6 percent rise in Victoria, a 1.8 percent rise in Hamilton, a 1.3 percent gain in Toronto and a 0.8 percent rise in Edmonton. Prices were up 0.5 percent in Calgary, 0.3 percent in Ottawa, Quebec City and Vancouver, and flat in Montreal.

Prices dropped in the month by 0.4 percent in Winnipeg and 0.6 percent in Halifax.

Year-on-year prices dropped in two cities -- Victoria, where they were down 4.0 percent from July 2012, and Vancouver, where they fell 2.0 percent. British Columbia had the hottest housing market going into the late 2012 slowdown.

Compared with July 2012, prices were 6.7 percent higher in Hamilton, 5.9 percent higher in Calgary, 3.8 percent higher in Quebec City, 3.5 percent higher in Edmonton, 3.4 percent higher in Toronto, 3.2 percent higher in Winnipeg, 1.5 percent higher in Halifax, 1.1 percent higher in Montreal and 0.9 percent higher in Ottawa.

Love those teranet numbers...