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The Housing Market needs to crash.

lol. I was thinking more like urbanization... more people moving to cities. I'm not convinced there's any bubble. Sure, prices have been rising fast, but there's no huge stock of empty inventory on the market, and rental vacancies are very low. As long as rental prices are stable or rising then I don't see a problem with oversupply.

Just because housing is becoming less affordable doesn't necessarily mean that we're in a bubble. Unaffordable housing is certainly an issue, but by itself it is not evidence of a bubble.
 
I think the rate of appreciation for the next 5 years is debatable, some say it will flat-line and be inline with inflation, others say this boom will continue.

What I can tell confidently say, with historic precedence, that there will not be a significant price adjustment. Take a look at the late 80's. It took 4 years for homes to drop 20%, and that was with an interest rate of 18%+ percent.

I don't see anything like that in the near, or mid term (forgoing a catastrophic financial breakdown).

And IF that sort of adjustment does happen, the majority of individuals WON'T be able to afford to buy during the down market anyways. Take a look at the states, most Americans still can't afford homes, even with rock bottom prices.
 
I agree with all said in this post. And the last sentence especially. Those waiting for the big correction think they will be there to take advantage. The reality is IF a big correction occurred, those expecting to take advantage will be unable to do so.
js97 said:
I think the rate of appreciation for the next 5 years is debatable, some say it will flat-line and be inline with inflation, others say this boom will continue.

What I can tell confidently say, with historic precedence, that there will not be a significant price adjustment. Take a look at the late 80's. It took 4 years for homes to drop 20%, and that was with an interest rate of 18%+ percent.

I don't see anything like that in the near, or mid term (forgoing a catastrophic financial breakdown).

And IF that sort of adjustment does happen, the majority of individuals WON'T be able to afford to buy during the down market anyways. Take a look at the states, most Americans still can't afford homes, even with rock bottom prices.
Click to expand...
 
Mithras said:
I don’t think it IS a bubble. The 15 year CAGR for Toronto home prices is 5.2%, the 10 year is 5.2%, and the 5 year is 5.3%. If you put that in real terms the 10 year CAGR is 3.3% and the 5 year is 3.7%. (Everything is Feb-Feb to be apples to apples).

In comparison the 10 year CAGR for house prices for the following cities are:

Victoria – 6.4%
Vancouver – 7.7%
Calgary – 6.5%
Edmonton – 7.0%
Winnipeg – 9.3%
Montreal – 6.5%
Greater London UK – 4.0%
Central London UK – 8.2%
Paris – 4.1%
Greater New York – 1.0%
Manhattan – 3.6%
Gasoline Prices at the pump – 7.1%
Gold Price – 16.7%

I look at those numbers and say Toronto’s 5.2% increase is pretty darned steady. In real terms it’s 3.3% y/y growth. It’s not much higher than Manhattan, Greater London or Paris and they have all had massive price corrections. Even with the massive price correction, Central London is still appreciating at a much greater pace. Gas is getting expensive much faster as has gold. Toronto has appreciated in value slower than most of Canada. Almost everything gets more expensive over time and some things will almost always outpace the CPI. House prices are usually one of those things.
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How about Seoul, Tokyo, Osaka, Singapore, Hong Kong, Chicago, Los Angeles, Berlin, Sydney, Washington, Dallas, Houston and San Francisco and Madrid? I wouldn't be surprised if the global cities you picked are among the ones that have seen larger price increases. I think the fact that Greater New York is only up 1.0% is telling though, when you're talking about Toronto home prices, is that the GTA or Toronto proper? It's well known that housing in the core of many cities is appreciating faster than in the suburbs, as is the case with Central London or Manhattan, but that's a separate issue.

I think Canada as a whole is probably in a bit of a bubble now (doesn't mean it will burst, hopefully just deflate), although the economics of Alberta and Winnipeg seem to have improved (and I think Montreal's too), so not that surprising that housing prices would have gone up more than in Toronto. And I think Vancouver housing prices have stopped increasing for a bit now.

Toronto may have a lot of millionaires, but it has a ton of million dollar homes too. It's not just Rosedale now, I would say most of what's within ~2km of the Yonge subway is worth $1m+, as well as many million dollar homes in parts of Etobicoke, Mississauga and much of Oakville. Not to mention some of the larger tract homes and countryside estates. Around 14% of real estate listings on mls.ca are $1m+, I don't know what the percentage is for the entire housing stock, but having 100,000 millionaires doesn't necessarily justify the current prices.

To me, if housing prices are rising faster than inflation, that suggests either the market was not as wealthy in the past as it is now, or housing was more undervalued in the past compared to now.

I'm not convinced housing would necessarily continue to be unaffordable if the real estate market either deflated or crashed. I think the housing in the US could have become affordable if they weren't trying to prop it up.
 
Memph said:
How about Seoul, Tokyo, Osaka, Singapore, Hong Kong, Chicago, Los Angeles, Berlin, Sydney, Washington, Dallas, Houston and San Francisco and Madrid? I wouldn't be surprised if the global cities you picked are among the ones that have seen larger price increases. I think the fact that Greater New York is only up 1.0% is telling though, when you're talking about Toronto home prices, is that the GTA or Toronto proper? It's well known that housing in the core of many cities is appreciating faster than in the suburbs, as is the case with Central London or Manhattan, but that's a separate issue.

I think Canada as a whole is probably in a bit of a bubble now (doesn't mean it will burst, hopefully just deflate), although the economics of Alberta and Winnipeg seem to have improved (and I think Montreal's too), so not that surprising that housing prices would have gone up more than in Toronto. And I think Vancouver housing prices have stopped increasing for a bit now.

Toronto may have a lot of millionaires, but it has a ton of million dollar homes too. It's not just Rosedale now, I would say most of what's within ~2km of the Yonge subway is worth $1m+, as well as many million dollar homes in parts of Etobicoke, Mississauga and much of Oakville. Not to mention some of the larger tract homes and countryside estates. Around 14% of real estate listings on mls.ca are $1m+, I don't know what the percentage is for the entire housing stock, but having 100,000 millionaires doesn't necessarily justify the current prices.

To me, if housing prices are rising faster than inflation, that suggests either the market was not as wealthy in the past as it is now, or housing was more undervalued in the past compared to now.

I'm not convinced housing would necessarily continue to be unaffordable if the real estate market either deflated or crashed. I think the housing in the US could have become affordable if they weren't trying to prop it up.
Click to expand...

I didn’t cherry pick, those were the couple of major Financial centres like Toronto. You’re more cherry picking. Toronto has next to nothing in common with Houston or Dallas. Why did you leave off China? Why Osaka? I can’t find German prices but Berlin has next to no correlation to Toronto, you should look at Frankfurt anyways… Germany is pretty slow and steady and much more of a rental market I would expect a sub 2% CAGR. Japan has seen a decline in every facet of its economy. I don’t have the numbers but it’s in decline. I can’t get Madrid by itself, but the Spanish “Capitals & Large Cities” index has a 10 year CAGR of 2.0% and that’s including a largest in living memory price decline. The US has had a huge decline as everyone knows but only Chicago from that group is negative over the past 10 years.

Singapore – 5.3%
Seoul – 6.2%
Shanghai – 14.6%
Hong Kong – 15.1% (Island not including Kowloon or New Territories)
Sydney – 2.8%
Madrid/Major Spanish Cities – 2.0%
L.A. - 2.3% (though between 2001 – 2006 this was 21.1%)
Chicago – -1.1% (this is for the full Greater Chicago CMA, there are areas with double digit growth and parts with double digit negative growth)
San Francisco – 0.7% (between 2001-2006 this was 15.4%)
Washington – 2.6% (between 2001-2006 this was 19.7%)

Anyway you cut it, over the past 10 years Toronto has seen a price increase that isn’t out of place in the world market. It’s one of the world’s financial centers, it’s one of the largest cities in North America.

I personally think that Toronto house prices will flatten after this spring surge and over the next few years go more in line with inflation (close to 0% real appreciation). Node by node this might change and I think anything in the “Old City of Toronto” or within walking distance of a subway or streetcar will continue to see 3.0-4.5% price appreciation / year.
 
There may also be a condo bubble. According to Diane Francis of the Financial Post, The condo bubbles in Toronto and Vancouver are caused by foreign speculation and are making housing unaffordable. This creates financial risk for Canadians in terms of government-insured mortgages. But there’s another issue of vital concern to taxpayers.

There are three times more condo high-rises being built in Toronto than in New York City and seven times more than in Chicago. This boom not the market at work but is manipulation by “hot money†from abroad.

“I have come across something I find astonishing, and which amounts to systemic tax fraud by investors, mostly foreign, on a massive scale,†wrote an investor involved in the industry.

He explained how it works: 1. Foreigners sign an agreement of purchase for a condo unit, or for 50 at a time, and put down a 5% deposit. This buys a right to purchase the unit later at a fixed price. In financial markets, this is known as a derivative.

2. Many developers include in the agreement of purchase the right to “assign†this right to buy at a fixed price. In financial markets, this is called creating a futures market. This assignment of a right to buy at a fixed price turns buyers into speculators (unless they want to move in or rent out the unit) who are set up to flip the units for a profit as prices are pushed upwards.

3. Some developers and intermediaries are in the business of helping speculators flip their rights and pocket a fee for doing so. For instance, Mr. X from Asia pays $15,000 for the right to buy a $300,000 condo. Then, when the price of similar units rises to $400,000, he can assign the right, get his deposit back and make the $100,000 difference. There is a speculation frenzy going on that makes prices escalate so rights can be bought and resold over and over again before a building is completed.

4. The paperwork for these agreements is kept in-house, and my source said one intermediary told him that there are no T-5s issued to the speculator or to the Canada Revenue Agency, something that stock and futures market intermediaries must do so taxes can be paid on the $100,000 trading profits. Instead, the profits vanish, possibly along with the paperwork, and taxes paid will be by the end user if they buy, rent out the unit and make a capital gain down the road.
 
Mithras said:
I didn’t cherry pick, those were the couple of major Financial centres like Toronto. You’re more cherry picking. Toronto has next to nothing in common with Houston or Dallas. Why did you leave off China? Why Osaka? I can’t find German prices but Berlin has next to no correlation to Toronto, you should look at Frankfurt anyways… Germany is pretty slow and steady and much more of a rental market I would expect a sub 2% CAGR. Japan has seen a decline in every facet of its economy. I don’t have the numbers but it’s in decline. I can’t get Madrid by itself, but the Spanish “Capitals & Large Cities” index has a 10 year CAGR of 2.0% and that’s including a largest in living memory price decline. The US has had a huge decline as everyone knows but only Chicago from that group is negative over the past 10 years.

Singapore – 5.3%
Seoul – 6.2%
Shanghai – 14.6%
Hong Kong – 15.1% (Island not including Kowloon or New Territories)
Sydney – 2.8%
Madrid/Major Spanish Cities – 2.0%
L.A. - 2.3% (though between 2001 – 2006 this was 21.1%)
Chicago – -1.1% (this is for the full Greater Chicago CMA, there are areas with double digit growth and parts with double digit negative growth)
San Francisco – 0.7% (between 2001-2006 this was 15.4%)
Washington – 2.6% (between 2001-2006 this was 19.7%)

Anyway you cut it, over the past 10 years Toronto has seen a price increase that isn’t out of place in the world market. It’s one of the world’s financial centers, it’s one of the largest cities in North America.

I personally think that Toronto house prices will flatten after this spring surge and over the next few years go more in line with inflation (close to 0% real appreciation). Node by node this might change and I think anything in the “Old City of Toronto” or within walking distance of a subway or streetcar will continue to see 3.0-4.5% price appreciation / year.
Click to expand...
Correct me if I'm wrong, but the initial arguement was that Toronto is an important financial centre and other world financial centres have seen their real estate values appreciate significantly as well, so Toronto is not in a bubble. However, many world financial centres (Chicago, San Francisco, Madrid, Sydney) have real estate markets that did as well as Toronto's because they had somewhat of a bubble (some more than others)...

It's true that Japan's economy hasn't been doing that well for a while (not an issue I'm that familiar with though, and it seems per capita GDP growth is not that low in Japan compared to Canada). However, China's GDP per capita growth has been far beyond that of Canada's, especially in cities like Shanghai, so it's a far worse place to compare to than Japan imo.

In terms of cities that are comparably developed to Toronto, with a comparably important financial sector (ie relatively important, but not hyper important like New York or London's and doesn't dominate the local ecomomy, Toronto also has significant technology and manufacturing), maybe the best cities to compare to would be:

Toronto 5.2%
Boston
San Francisco 0.7%
Madrid 2.0% (roughly??)
Paris (4.1%)
Frankfurt
Sydney (2.8%)
Amsterdam
Copenhagen

However, if our real estate values are so dependent on the success of the financial sector, that makes me rather uneasy. Despite all the money printing and big bailouts, and very low interest rates on all the debt, 5.5 years in, things are still looking shaky. Next time there is a hick-up, the various governments are going to have a harder time to make it go away, since there's only so much you can borrow, and if interest rates go up, that will be very painful for those in debt. Although Canada does seem less vulnerable than other countries, the overall outlook for the financial sector doesn't look so good if you ask me.
 
Memph said:
Correct me if I'm wrong, but the initial arguement was that Toronto is an important financial centre and other world financial centres have seen their real estate values appreciate significantly as well, so Toronto is not in a bubble. However, many world financial centres (Chicago, San Francisco, Madrid, Sydney) have real estate markets that did as well as Toronto's because they had somewhat of a bubble (some more than others)...

It's true that Japan's economy hasn't been doing that well for a while (not an issue I'm that familiar with though, and it seems per capita GDP growth is not that low in Japan compared to Canada). However, China's GDP per capita growth has been far beyond that of Canada's, especially in cities like Shanghai, so it's a far worse place to compare to than Japan imo.

In terms of cities that are comparably developed to Toronto, with a comparably important financial sector (ie relatively important, but not hyper important like New York or London's and doesn't dominate the local ecomomy, Toronto also has significant technology and manufacturing), maybe the best cities to compare to would be:

Toronto 5.2%
Boston
San Francisco 0.7%
Madrid 2.0% (roughly??)
Paris (4.1%)
Frankfurt
Sydney (2.8%)
Amsterdam
Copenhagen

However, if our real estate values are so dependent on the success of the financial sector, that makes me rather uneasy. Despite all the money printing and big bailouts, and very low interest rates on all the debt, 5.5 years in, things are still looking shaky. Next time there is a hick-up, the various governments are going to have a harder time to make it go away, since there's only so much you can borrow, and if interest rates go up, that will be very painful for those in debt. Although Canada does seem less vulnerable than other countries, the overall outlook for the financial sector doesn't look so good if you ask me.
Click to expand...

My argument was that Toronto is a major financial center who has more in common with the other major financial centers of the world and less correlation to smaller Canadian centers. I think that’s true. Toronto is now the 3rd largest city in North America (after Mexico City and New York). It’s the 10th largest office market in the world. In terms of being dependent on the financial sector, sorry to alarm you but the TSX is the 7th largest exchange in the world (NYSE, NASDAQ, TSE, FTSE, Hang Seng, Shanghai, TSE) That’s New York (x2), Tokyo, London, Hong Kong, Shanghai & Toronto. After that is Frankfurt, Sydney & Mumbai. Toronto is home to 4 of the top 10 strongest banks in the world. So yes, while Toronto has a strong manufacturing sector (with nearly 1 billion sq.ft. of industrial space) it’s heart is the FIRE sector (Finance, Insurance & Real Estate).

Cities like Washington, Beijing & Berlin are large but very government oriented with little correlation to Toronto. Cities like Copenhagen, Boston and Amsterdam are nice, but don’t have the size or clout of Toronto. Mumbai & Seoul are still too insular and lack some international financial influence. So while there are bigger centers in terms of population, office size, and financial clout, Toronto is in that “World Financial Centers” mix. I would rank them New York, Tokyo, Hong Kong, London, Shanghai, Toronto, Frankfurt, Paris, Sydney, Singapore, Chicago.

So you have Toronto which over the past 5, 10, & 15 years has been appreciating in price at just over 5% a year.

NYC at 1.0% (3.6% on Manhattan)
Tokyo is roughly 0.6% (you should read up on Japan’s economy, deflation, recession, heartache…)
Hong Kong at 15.1%
Shanghai at 14.6%
Toronto at 5.3%
Frankfurt is 4.4% from 2007 to now (this is much lower than the 10 year but I don’t have hard numbers only graphs)
Paris is 4.1%
Sydney is 2.8%
Singapore is 5.3%
Chicago is -1.1%

All of the cities that have lower number have seen massive price reductions over the past 4 years. Still, they are not too far off of Toronto’s numbers. So Toronto, despite being a financial center, despite being one of the largest cities on the continent, despite having a strong, healthy and large financial sector which drives its economy is roughly in line or a little bit above most of with its peers (without having too much of a price reduction) and is appreciating in price slower than much of the rest of Canada.

I fail to see how that is a bubble.
 
Interesting Chicago has seen a reduction. With the President/Mayor connection, you would think their economy/real estate would be doing better.
I love that city!
 
js97 said:
Interesting Chicago has seen a reduction. With the President/Mayor connection, you would think their economy/real estate would be doing better.
I love that city!
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The Lincoln Park, Oz Park, Lakeshore, Loop areas have all seen high single to low double digit growth rates over the past couple of year while the poorer south side has been very hard hit.
 
Mithras said:
So you have Toronto which over the past 5, 10, & 15 years has been appreciating in price at just over 5% a year.

.............

I fail to see how that is a bubble.
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Adjusted for inflation after ten years an annual 5% price increase would mean housing is 43% more expensive in Toronto than 10 years ago. Un-adjusted the increase is 63%. On the other hand wage growth has been growing slowly. Sometimes even falling ................ http://www.toronto.ca/demographics/pdf/2006_income_and_shelter_costs_briefingnote.pdf
 
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