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Baby, we got a bubble!?

interested said:
Kenny,
The quote posted I don't believe was by me or if it was, it is out of context. This does not represent my view for the record. I agree with your conclusion however there are bubbles and bubbles. 70% in 10 year hardly compares to 500% in Ireland in 12 or 300% in Florida from 2000-2006.

I believe if I posted this I was referring to either a longer than 10 year period or alternatively 3% which economist say is sustainable. What will happen is if house prices don't rise, more income will go towards housing and perhaps less people will buy. The whole thing may implode but even this 3% I could justify.

That said, I agree with you that 70% of 10 years is not long term sustainable but I have always maintained this position. Perhaps you could refer me to which of my posts I put this in?

Thanks.
Click to expand...


it was actually in the post contributed to Jamie Johnson at Remaxcondosplus' January report, so it was JJ's words, not interested.

JJ's assertion that 3% per year are sustainable by economists in the long term is partially true, as that usually includes inflation, while JJ excluded it in his calculations.
in addition, his choice of building/unit for comparision is ideally selective as older buildings (77 Harbour Square is 25+ years old) tend to appreciate less than newer (<10 years old) products.

50% in 10 years is long term sustainable, 70% not so much; but my observations of pricing of dt Toronto units (in C1, C2, C8, C9) has been increases of 100-150% over the past 10 years.
 
Toronto Condo Market imo will not crash but at worst stay stagnant for the long run. As long as there are condo renters/first time condo buyers around investors will be safe. Every year there are thousands of high school students that become university students and new immigrants coming into Canada.

Thats why Toronto has not stopped letting a crazy number of condo's from being built over the last 5 years.

The biggest thing condo owners/investors have to worry about is how the shape of the job market is going to look in the upcoming years.The business sector is near optimization and soon Toronto should concentrate on how to attract more tourists from across the world.
 
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Interested,
I agree with cdr - prices went up 100%+ over the last 10 years ... both downtown and most suburbs. Not sure where the 70% is coming from. Big difference...

yaz16,
can you please provide examples of countries that had 100%+ increases over 10 years (during which period personal debt levels reached record levels, savings are at 3% average, and interest rates were at record lows 1-3%)
that " at worst stayed stagnant for the long run"?
 
yaz16 said:
Toronto Condo Market imo will not crash but at worst stay stagnant for the long run. As long as there are condo renters/first time condo buyers around investors will be safe. Every year there are thousands of high school students that become university students and new immigrants coming into Canada.

Thats why Toronto has not stopped letting a crazy number of condo's from being built over the last 5 years.

The biggest thing condo owners/investors have to worry about is how the shape of the job market is going to look in the upcoming years.The business sector is near optimization and soon Toronto should concentrate on how to attract more tourists from across the world.
Click to expand...

Link to a news item in Wednesday's The Star.

http://www.moneyville.ca/article/947053--canadian-condo-market-in-oversupply?bn=
 
Ka1
One comment about the moneyville article; At the end, housing attitude remains bouyant in Canada.
Let's not forget that can turn on a dime. For eg. in 2008 suddenly sales and bearish sentiment hit.
To a degree because housing especially condos in the core have investors who view it as such, it becomes
subject to much more fluctuations in price and volumes than previously when it was really shelter only. Like other
commodities; it prices can be quite volatile.

Redfirm:
70% was the price increase over 10 years of older buildings. They have not increased as much as the newer ones. Ten years ago
the premium on new over resale condos was minimal. Now it is $100/sq.ft. This accounts at least for some of the disparity.
 
KA1 said:
Link to a news item in Wednesday's The Star.

http://www.moneyville.ca/article/947053--canadian-condo-market-in-oversupply?bn=
Click to expand...

everything in that article points to a bubble.

the Scotiabank economist Adrienne Warren acknowledges the current outstanding stock of unsold new homes is higher than average, especially multi-unit dwellings, yet she expects prices to go “sideways” for the next four or five years ?!?!

what happened to the first thing one learns in ECO 101 ... supply/demand ?!?
when supply is greater than demand, prices trend downwards.

too bad BoC Governor Mark Carney didn't have the balls to gradually increase rates today.
all he did was perpetuate easy access to free money.
 
In fairness to Carney, he already has a C$ that is hovering around $1.03 USD. Each 1 cent rise is estimated to reduce inflation by I believe 1/5% if I recall correctly. He really has a problem as he doesn't want to spur the C$ even higher with the problems on the Canadian economy.

I think Carney will in April lay the groundwork if he has the 1st quarter GDP numbers showing continued recovery for a June increase.

I note incentives being advertised on new so I don't think there is particular upward price pressure now but certainly it is very rich and the fundamentals for investing do not make sense. Hence if this would equate to a bubble definition, then cdr you are absolutely right.
 
I'd like to address two words that we keep seeing more and more these days: SOFT LANDING. Remax, Royal Lepage, TREB, most bank economists, etc. are constantly saying - no bubble in Canada, just a soft landing. Oil prices are up - oh, no worries, soft landing. Interest rates will go up - oh, no problem, soft landing. Disproportion between income and r/e prices - no problem, soft landing. Record personal debt levels - who cares, soft landing ....

Problem is - what does that mean? Is there a definition? Average Joe would probably assume they mean - prices will increase at a lower pace or stay where they are.

Or do they mean: prices won't go down 25% within short time period - it may take 12-18 months ...

To me both scenarios are the same - bubble. If you bought your condo for, say, $400K and it will be valued at $300K at some point in the future - you lost 25% and that means r/e bubble was present. Whether you lost those 25% over
3 months or 9 months doesn't mean one is bubble and the other is "soft landing". (sure one is more shocking than the orher...)

I hope people can read between the lines. Signs are not good. I hope I'm wrong. I have a family and would always chose stability over any short-term gain that my son will be repaying one day.

But in my line of business (tax accountant) I see what's going on. Forget averages. Think those marginal 15-20% of our population that are leveraged to the bone. If personal debt avrg is $150K, that means for every person with no debt there's one with $300K. There's your weak link. What happens to them decides whether we have big bubble or small bubble ... or should I be politically correct and call it .... soft landing?
 
Redfirm,
You are describing the economic term of those at the margin.
The problem as witnessed in the US was that first it was those at the margin but as the prices kept dropping, more and more people approach the margin.
I believe what they are referring to with soft landing is that prices slowly deflate, and not a 25% deflation. This is of course just my interpretation. I also assume
with soft landing they are referring to it occurring in a slow fashion allowing people to accommodate to it as opposed to a precipitous drop which is more difficult to
react to. Either way, it will be painful. I just hope for price stagnation for a while or slight decreases and that not too many people are at the "margin".
 
I think what they mean by "soft landing" is that prices will stay the same over the next 5 years. They're basically saying what they want to happen.
 
Kenny,
Other than those with no skin in the game who are hoping for a "crash" to get in, the majority of the population and certainly the 70% owners do not want any price decrease, let alone a soft landing. The one thing everyone would fear would be a "hard landing"; and by this I mean a precipitous, major drop of the order of 20% or more over say a year.
 
I guess I too would like to believe the "lie" if the lie is that there will not be a hard crash.

I can state that the market (whether real estate or stock or bond markets) can act irrationally for very prolonged periods of time. Perhaps that in itself proves "Wizard's First Rule".

However, back to the thread at hand. Is real estate overvalued....yes in my view. Is it a bubble however. I guess that depends on one's definition of a bubble. Every overevaluation even 1% could be considered a small bubble. So technically yes. The question is more practically, at what point does a bubble become dangerous and in likely territory of popping. Clearly there are those who feel we are already there.

I guess time will tell.
 
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