Real Estate Predictions

[Flux Capacitor]

When do you think the market will turn again? We are the beginning of the down cycle. When do you think prices will climb again? 1 year? 3years? 5 years? !0 year etc.

Please make your predictions and detail why.

 

[fieras]

They won't. This is year zero, there will be no return to the old world. You can't kill what's already dead.

 

[Alvar]

Suze Orman - the U.S. Financial Guru - says we won't be starting to even get out of this mess until 2015. She is a pretty savy cat. Therefore, I say in 2015 things will start to pick up, give or take a year. This truly is like nothing we have experienced in a lifetime.

 

[Observer Walt]

This is year zero, there will be no return to the old world. You can't kill what's already dead.

Fieras, no offense but I am guessing that you are too young to remember the early 90s, or the early 80s, or to recognize the cyclical nature of markets.

Real estate moves in cycles, which usually parallel, or slightly lag, the larger economic cycle. I see no basis at all to claim that "there will be no return" or similar sentiments. When the general economy begins to swing upward, the upward movement of the real estate cycle will follow.

When? Obviously I'm not sure. It may even be late this year, more likely sometime during 2010.

 

[yyzer]

This is year zero, there will be no return to the old world.

hmm...usually when you hear sentiment like that, the market is about to turn.....

I'm with Walt on this one, we may see a turn by yearend, or more likely by 2010...what's an interesting wild card here, is that much of the financial world looks upon Canada as a safe haven right now...that may or may not affect the local R.E. market...

 

[cdr108]

My prediction is prices will decline for another year, then stagnate for at least 3 more years before any noticeable appreciation.

Guess that puts us to 2012/2013.

 

[daveto]

My prediction is prices will decline for another year, then stagnate for at least 3 more years before any noticeable appreciation.

Guess that puts us to 2012/2013.

I'd say 15-20% decrease over the next two years. Then flatten for a while.

If this was an ordinary cycle I would agree with 2012/2013.

But if one views the real estate cycle in the context of the unprecedented global economic situation, I'd say no appreciable move upwards from the bottom until 2015 or later. Even if we avert the crisis in the next couple of years (I doubt it), we will still have a large government debt bill to pay.

 

[cabbagetowner]

They won't. This is year zero, there will be no return to the old world. You can't kill what's already dead.

don't worry it only really takes a decade to forget the past. the next condo speculators and flippers are now just finishing up highschool. this one's bad but it's not the last. it's always the "big one" and it's always "different this time". the more things change the more they stay the same.

i'd be cautious about entering the market this year. re market corrections are measured in years not quarters. people calling the bottom now are a little premature. i would think the west (vancouver, edmonton, calgary) will take some time. toronto will has less to drop. i'm calling late 2010 - 2011 for toronto.

look for an equities rally first. for re, reits will lead the recovery. sit on cash in the meantime there will be some great opportunities coming up.

 

[Therion]

The best comparison to the current economic crisis are the Great depression and the Japanese collapse of 1989-1990. The reason is that these are the only two cases where the financial system collapsed to the same extent as now. The Depression lasted for more than 10 years, and the Japanese economy never recovered to its previous strength. I think most people underestimate the severe nature of situation.

Until lending is unfrozen, house prices won't recover. But how can house prices recover, if there's no one to lend for a mortgage? It's a vicious circle, at least in the U.S. Canada usually follows the U.S. by about two years, with regards to housing.

 

[Chromeboy007]

Until lending is unfrozen, house prices won't recover. But how can house prices recover, if there's no one to lend for a mortgage? It's a vicious circle, at least in the U.S. Canada usually follows the U.S. by about two years, with regards to housing.

Right. That's what the TARP and the stimulus are for. No matter how much public opinions are against them, I'm all in favor of actively stimulating the economy to get things moving again.

 

[cdr108]

Right. That's what the TARP and the stimulus are for. No matter how much public opinions are against them, I'm all in favor of actively stimulating the economy to get things moving again.

Hasn't anyone heard of a business cycle ???
The global economies had about 10 years of growth.
Don't you think it's about time to give it a breather ?

 

[terrafirma]

I like to keep things simple. The City of Toronto average price peaked in April 2008 at was $446,781. At the end of January this number was $364,416. That's a $82,365 drop or 18.44% drop from the peak. I recongize the limitations of the average vs. the median number but it is still a worthwhile and reliable comparison imo. It is the DJI AVERAGE that we track so closely after all! It will be interesting to see what the final numbers look like for February. The TREB would never post that City prices have already dropped 18.44% from the peak because it would incite a mutiny and the local papers wouldn't unilaterally spark that debate either for fear of cannibalizing their dwindling advertising customers in the industry.

I predict that average prices drop further from the January number and by April 2009 the y/o/y drop will exceed 20% and the headlines will start appearing in the dailies and in cocktail conversations. From there it's anyone's guess but someone around the 2003-2004 price level sounds reasonable to me because that's when prices started to really get out of hand.

 

[Bentley]

Right. That's what the TARP and the stimulus are for. No matter how much public opinions are against them, I'm all in favor of actively stimulating the economy to get things moving again.

Thank god you're not an economist. TARP and the stimulus have done, and will continue to do nothing. Actually, they make things worse.

Toronto real estate prices will continue to drop for the foreseeable future. The relationship between incomes and prices have diverged so much that they have to readjust. Canada may not have had the catalyst the US had, but the fact remained that prices were too high. Residences became a commodity when they should serve a utilitarian function. A roof over ones head.

As far as Toronto is concerned, there was and still is a huge building boom. 300 projects underway I think. That's a lot of condos being built. With a weakening economy, increased unemployment, and a huge influx of supply in the next 2 or 3 years, I expect prices to come down significantly. Right now, people are still in the disbelief stage. They don't want to drop their prices to reasonable levels which is why there are so many stale listings on the MLS. This summer we'll see those prices come down quite a bit I think. Developers may also consider dropping their new construction prices quite a bit. No developer wants to sit on 30 or 40 unsold units in their buildings, and since things are only going to get weaker in the next few years I expect them to get really aggressive in trying to unload their inventory.

As a point of reference, I'd look for king west new construction to get down to the 350/sf level. Freed condos at 500+/sf is a joke.

 

[simuls]

I recongize the limitations of the average vs. the median number but it is still a worthwhile and reliable comparison imo...The TREB would never post that City prices have already dropped 18.44% from the peak because it would incite a mutiny and the local papers wouldn't unilaterally spark that debate either for fear of cannibalizing their dwindling advertising customers in the industry.

I predict that average prices drop further from the January number and by April 2009 the y/o/y drop will exceed 20% and the headlines will start appearing in the dailies and in cocktail conversations. From there it's anyone's guess but someone around the 2003-2004 price level sounds reasonable to me because that's when prices started to really get out of hand.

A few things...

1) There is absolutely nothing worthwhile or reliable about using a non-weighted average price to convey price statistics as is shown quite clearly when you look at the massive difference between them. There has undoubtedly been a price drop, but when weighted for each market, number of high end vs. lower end homes sold, etc., then the difference from peak to now is more in the realm of 7-8% - a full 50-60% less than the "average" and statiscally extremely significant if we are trying to compare apples to apples.

2) Local papers HAVE been doom and glooming for the last 6 months about the end of the real estate boom and using inaccurate statistics like non-weighted averages to their full effect, so I haven't seen any sort of fear of cannibalizing going on.

3) I agree that prices will fall a further. However, I don't know what cocktail parties you go to, but it's already been a subject of every one I've been to for the last six months. You're right about it being anyone's guess, but again, when looked at from income vs. RE price index, Toronto, even at today's prices is still affordable for the average income Torontonian and only, for about 8 months (June '07 - Feb '08), was above the affordability line. It's a very different situation in Alberta/BC.

As for a prediction...a correction like the US simply will not materialize as there is nowhere near the foreclosure rate and won't be, but I do think Toronto's RE will lose value until mid-2010 - a correction that will put it, in a properly weighted median of about 12-15% from peak (Jan. '08). It will remain that way thru 2012, then slowly ramp up again with 2008 prices sometime by 2015.

I just got back from a week in Florida and I can tell you that there is some serious trouble coming our way and we've been lucky thus far to avoid it, but, I also really believe that this is the opportunity Toronto's been waiting for to truly be labelled a world class city (which we are most definitely not right now). Already everyone from the New York Times to the Atlantic Monthly are writing about how Canada's the only solvent banking system in the world and countries are starting to send their people here to learn what we do. If we grasp this opportunity and the investment that can come along with it, in 10 years, Toronto will be a very very different place...and I'm typically a cynical optimist

 

[terrafirma]

A few things...

1) There is absolutely nothing worthwhile or reliable about using a non-weighted average price to convey price statistics as is shown quite clearly when you look at the massive difference between them. There has undoubtedly been a price drop, but when weighted for each market, number of high end vs. lower end homes sold, etc., then the difference from peak to now is more in the realm of 7-8% - a full 50-60% less than the "average" and statiscally extremely significant if we are trying to compare apples to apples.

I disagree completely.

I'm just using the realtor stats that are routinely reported. How do you come up with your stats above? Are you using the Teranet data? The average price is just that- the average price. Average monthly sales price across the whole City of Toronto. It was down 18% in January from April. That is exactly the kind of data that the realtors flaunted month after month as prices rose through the housing boom. Now that prices are falling I believe it is fair to use the same statistical method to evidence the massive decline.

2) Local papers HAVE been doom and glooming for the last 6 months about the end of the real estate boom and using inaccurate statistics like non-weighted averages to their full effect, so I haven't seen any sort of fear of cannibalizing going on.

The papers have reported the end of the housing boom, not the beginning of the housing market crash. When we see 20%+ drops in average prices panic will be tangibly felt I believe.

3) I agree that prices will fall a further. However, I don't know what cocktail parties you go to, but it's already been a subject of every one I've been to for the last six months. You're right about it being anyone's guess, but again, when looked at from income vs. RE price index, Toronto, even at today's prices is still affordable for the average income Torontonian and only, for about 8 months (June '07 - Feb '08), was above the affordability line. It's a very different situation in Alberta/BC.

Less than Alberta/BC does not mean that it kept up with income. A friend in Leaside purchased a house for $225k in 1999 and sold same house for $600k in 2007. Does incomes nearly triple in that period? Toronto was in a smaller housing market bubble, but bubble no less.

As for a prediction...a correction like the US simply will not materialize as there is nowhere near the foreclosure rate and won't be, but I do think Toronto's RE will lose value until mid-2010 - a correction that will put it, in a properly weighted median of about 12-15% from peak (Jan. '08). It will remain that way thru 2012, then slowly ramp up again with 2008 prices sometime by 2015.

It already has lost value! Significant amounts.

I just got back from a week in Florida and I can tell you that there is some serious trouble coming our way and we've been lucky thus far to avoid it, but, I also really believe that this is the opportunity Toronto's been waiting for to truly be labelled a world class city (which we are most definitely not right now). Already everyone from the New York Times to the Atlantic Monthly are writing about how Canada's the only solvent banking system in the world and countries are starting to send their people here to learn what we do. If we grasp this opportunity and the investment that can come along with it, in 10 years, Toronto will be a very very different place...and I'm typically a cynical optimist

Toronto is a fantastic city! I love Toronto very much! We don't need labels to define us. The amazing energy and the spirit of the people here are enough to make this a special place. As far as the banking system goes, we have survived for one simple reason- we are essentially a closed country with an oligopoly of banks that stunted competition from foreigners and thus were able to prosper and make it more difficult for private business to succeed. The system that is so envied is called Socialism!