Real Estate Predictions

[TrickyRicky]

While I think we can all agree prices will continue to fall this year I can't really speculate how far. There are so many people counting on a strong spring-summer sales season that I think will not materialize knocking the legs out of lingering notions of a quick recovery. Real estate recovery will come in all it's glory but this recession will be a beast if I can venture a guess. I suspect the recovery will be a very long 5-10 year grind timed to the benefit of the boomer echo genereation when they are in their late 20's early 30's.

If we do see real estate recovery early (1-3 years) I think it will be a false bounce and we will be back into stagnation again. There are too many factors suggesting this will be a long grinding slog even if you believe that Canada is in an exceptional position (which I think is a dangerously mistaken conviction).

 

[simuls]

Terrafirma, not to be rude, but you remind me of the first year Harvard grad student that Matt Damon had to dress down in Good Will Hunting. Canada's banking system a "socialist" structure? That type of generalized extrapolation is laughable.

Using a non-weighted average (like the realtors did during the run up) also makes it seem likes there is more of an extreme shift than there actually was. That's why, when you take a weighted average for both the run up and the cool down we're in, it shows that Toronto's "bubble" (and there was never a bubble in Toronto by any stretch of the imagination, I'm just using your term to keep it simple) was far far far more muted than almost anywhere else in the country. In fact, it's quite realistic to make the argument that Toronto had been undervalued for much of the previous decade and was just catching up.

As for labels, we might not need them, but the rest of the world does or they won't know what to make of us and then why they should invest in us. I love Toronto too (and I'm a western Canadian!) and think the world is missing out, we should stop trying to be New York, etc., and be "the best we can be". I was simply pointing out that this is our opportunity to do so and become a major world player.

 

[Johnzz]

Well said Simuls! I fully agree with you.

 

[w.ll.am]

With the banks being rated some of the safest in the world whether actually true or not it will stimulate enough investment to offset a major downturn which should reflect in real estate.

Prices for homes below the 500k mark have as yet been unaffected as well in the Toronto area. My Father-in-law is a land developer so I get some info from him.

 

[Observer Walt]

^ I wouldn't agree unreservedly that properties under $500K are unaffected, but you do actually raise a good point, which can be easily forgotten. These lower-priced properties have dropped somewhat, but not as much as those in a range of, say, $500K or 600K, up to about $1.5 million. These "move-up" houses have suffered much more, and, I think, will continue to do so. People who already have houses are reluctant to move up at present, and are just staying put.

I can remember the last big downturn in the first half of the 1990s. The same was true then. Everything went down in value, but the higher-priced properties went down much more (by percentage) than the more moderately-priced stuff.

Statistics certainly have their place, but we need to remember that we don't have just one real estate market in Toronto. There are many sub-markets, and they don't all act the same way.

 

[Shtopor]

Nice smooth talking Simulus, but a house which cost 230K in 1998 became
570K in 2006. You can talk all your crap out about statistics but there is no way wages went up as much during that period. So you still think affordability is OK? lol, you must be a bitter seller. Keep going what else , sound banking system is Canada? How about 75 Billion of toxic assets bought by our goverment
at taxpayers money? So much about great banking.
What does matter is most of ppl have no money for 20% downpayment, making pool of buyers greately reduced. With 0% down that pool was all canadians who was stupid enough to dive into 0/40. That pool of buyers will be reduced further by builders who will dump their properties at firesale prices in short order.
Btw why noone talks about deflation? Look ppl are willing to work for less just to stay at work, I mean comon its everywhere u look - all facts are against RE price appreciation. Exept 0% prime. But as I said u need to find somowne with downpayment to get nice variable rate. Good luck.

 

[AKS]

I think the market prices are pretty expensive. But if you take into consideration inflation, it doesn't seem as bad as it sounds. I read awhile ago here a posting about the cost of revitalizing the waterfront. The quoted cost doing it by Robert Fung compared to the new quote skyrocketed. Makes me wonder if they should have done it years ago rather than wait. Anyhow, like the song "if I had a million dollars, I'll be rich". Well, a million dollars won't get you very far these days.

 

[w.ll.am]

Nice smooth talking Simulus, but a house which cost 230K in 1998 became
570K in 2006. You can talk all your crap out about statistics but there is no way wages went up as much during that period.

Average house price 1999: $211,723
Average house price 2008: $374,449

That seems like a decent jump. Especially if they were undervalued at start and slightly overvalued by end.

So you still think affordability is OK? lol, you must be a bitter seller. Keep going what else , sound banking system is Canada? How about 75 Billion of toxic assets bought by our goverment
at taxpayers money? So much about great banking.

As I said above whether or not the truth is we have sound banking the media in all other countries have pumped our banking system up as the safest so in effect that will make our system safe.

What does matter is most of ppl have no money for 20% downpayment, making pool of buyers greately reduced.

Err...Are you talking about pool of buyers for new condos? Because buyers can still do first time purchase at 5% down and others are 10%. While condo sales are greatly up people do still buy other homes and existing condos.

With 0% down that pool was all canadians who was stupid enough to dive into 0/40.

This should be grandfather claused in some way for people who received this. If you were approved for this and can't be approved for any other type of mortgage you should be renewed into the same mortgage.

That pool of buyers will be reduced further by builders who will dump their properties at firesale prices in short order.

Firesale by builders is pure speculation. Some building will have some units left... how many? No one knows at this point. The London on the Esplanade has 26 units left out of 447. That about 5%. That's not going to make much of a difference but it's anecdotal as it's just one sampling.

links for statistics:
1999
http://www.torontorealestateboard.com/consumer_info/market_news/mw1999/mw9901.pdf
2008
http://www.suttonrealty.com/blogs/s...or-the-real-estate-price-climb-in-canada.aspx

 

[cdr108]

Average house price 1998: $290,000
Average house price 2008: $374,449

That doesn't seem that much of a jump. Especially if they were undervalued at start and slightly overvalued by end.

I could not confirm where you got your 1998 average price from so I went to the source, TREB ...

More details can be found here:
http://www.torontorealestateboard.com/consumer_info/market_news/mw2003/index.htm

January 1999:
GTA averaged $211,723; median price was $185,000.
http://www.torontorealestateboard.com/consumer_info/market_news/mw1999/mw9901.pdf

February 1999:
GTA averaged $221,354; median price was $188,000.
http://www.torontorealestateboard.com/consumer_info/market_news/mw1999/mw9902.pdf

 

[w.ll.am]

Thanks CDR I guess my source wasn't dated properly. Correcting my post now.

 

[simuls]

What is this Good Will Hunting week? Sheesh!

Shtopor, I agree that statistics have to be viewed with a critical and skeptical eye, but with that in mind they're the best indicator we have and the only way to track markets.

I'm not denying that your house exists - real estate is a micro market with certain specific pockets appreciating at a far greater rate than the average - that's how supply/demand works, but the average price for a home (and I cringe using a non-weighted average but will keep it simple) in 1998 AND 1987 (adjusted for inflation to 2009 - and remember that 1998 was pretty much bottom market) was $260 000. 11 (and 20) years later in 2007 at the top of the market it's $395 000 (2009$). In fact, if we want to go back further, the average price of a home in Toronto in 1974, yes 1974, was $240 000 (2009$). So tell me, is a $155 000 appreciation over 33 years really extreme? It's 1.52% a year, above inflation.

The next question is, have 1974 wages increased at this rate? I didn't think they had, so I took a look. According to census Canada, the Average Family Income in Toronto in 1974 was $14 150 or $64 782 (2009$). The AFI in 2005 - the most recent census data available - is $100 694 or $108 000 (2009$) or 1.56% a year, above inflation. So, surprisingly, not only has income kept pace with the price of homes, it's exceeded it. On top of this, we would have to adjust for taxes, mortgage rates in either year, etc. But as a general guide, this will do.

Let's see, I think w.ll.am dealt with your other points elegantly.

I would encourage you to look at these webpages as it might do you some good to read up before espousing positions that have little to back them up.

http://www.rbc.com/economics/market/pdf/house.pdf
http://www.torontohomes-for-sale.com/4a_custpage_2578.html
http://www.torontorealestateboard.com/consumer_info/market_news/mw1998/mw9812.pdf
http://www.torontorealestateboard.com/consumer_info/market_news/news2008/nr010708.htm
http://www.ccsd.ca/factsheets/fs_avgin.html
http://www12.statcan.gc.ca/english/...006&Theme=81&VID=0&VNAMEE=&VNAMEF=&GID=777180

 

[cdr108]

Also, information from the 2006 census indicates the median income for families in and around Toronto was $75,829 — a decrease from the 2001 census, when it was $77,693 when adjusted for inflation.

 

[Granny]

Yikes! Shtoper!

"So you still think affordability is OK? lol, you must be a bitter seller."

I've been reading Simuls comments which he backs up with real stats. Funny,
I couldn't pick up any bitterness vibes at all. Just some clear and valid points worth considering.

On the other hand after reading your post I'm sensing 'bitter' in a major way. You may a have point too. It sounds like the end of modern western civilization as we know it may very well be at hand.

 

[simuls]

You're correct in pointing out the median cdr108. They're better numbers to use all around but since I had trouble locating median income stats for 1974 and it was averages in the housing market that we started with, i kept it that way for simplicity's sake.

 

[cdr108]

I agree and understand simuls. I think many on here can provide a balanced approach to values, while there are extremes on either end saying it's too much or too low.

Even comparing median year-over-year (m-o-m) doesn't take out the differences resulting from the makeup of the properties sold b/c single family homes comprising of semis and detached were the main units sold 10, 20, 30 years ago and condos made up a VERY small %.

Today, condos sales are >50% of the market and their sizes are also much smaller than units 10 years ago, etc.

I got interested in RE more than 10 years ago (1998) and I recall looking at a new development at Richmond/Sherbourne (313/323 Richmond by Tridel). So I use that as a constant comparison like Shiller-Case which tracks the same properties over time.

The list prices were under $200 PSF and they are currently selling for ~$400 PSF. To me, that puts TO at about 20% overpriced currently.