Baby, we got a bubble!?

[CN Tower]

We are seen as a resource based economy which has been strengthening our dollar for the last few years, similar to Australia. Expectation is for the price of commodities to continue to go up this decade, which is good for our economy, and hence our dollar.

For international investors that want a place to park money out of their country, one of their best options is to invest in hard assets in countries with strenthening currencies. So Canadian real estate is in particular favour right now. The expected increasing volatility of some of the key currencies going forward, such as the Euro and the US dollar makes cdn dollar denominated assets all the more appealing. And in fact, the Chinese Yuan is tied to the US dollar, so it is very smart for Chinese to invest money over here IMO.

In fact, those Chinese (for example) that have waited are finding prices a lot more expensive now, as prices have gone up, AND, the purchasing power of the Yuan compared to the Cdn dollar has gone down, so the procrastinators have been hit twice. Conversely, those Chinese that bought here a few years ago have been very happy with their returns.

I disagree. Seems counter logic to buy overpriced assets that yield sub-risk adjusted yields just to speculate on a currency. $ CDN is in a pretty tight band vs $ US. You won't see $1.10 US= $1 CDN or Canadian economy will collapse.

Most of currency movement is behind us now. Foreign money is here seeking shelter from unstable Communist regimes.

 

[interested]

I disagree. Seems counter logic to buy overpriced assets that yield sub-risk adjusted yields just to speculate on a currency. $ CDN is in a pretty tight band vs $ US. You won't see $1.10 US= $1 CDN or Canadian economy will collapse.

Most of currency movement is behind us now. Foreign money is here seeking shelter from unstable Communist regimes.

I would echo this logic. The only way resources here can go up significantly is if there is an uptick in the US economy. Then the USD should gain strength as well. If the US continues to falter, the Canadian economy cannot continue to "boom".

The comparison to Australia must be looked at in context. Australia supplies to the Asian countries were things are still growing though recent numbers in China may suggest that may be slowing. We are tied more closely to the US. Australia to China.

The other issue is that while currently in favour, Canada is not a reserve currency and our market simply too small to compare to Euro, USD or the Yuan if it is allowed to become a major currency. Similar logic drives up the Swiss Franc and it has appreciated vis a vis the Euro. Again, as soon as stability returns to Euro land if it in fact does, expect the Swiss Franc to lose value.

 

[myfive]

I disagree. Seems counter logic to buy overpriced assets that yield sub-risk adjusted yields just to speculate on a currency. $ CDN is in a pretty tight band vs $ US. You won't see $1.10 US= $1 CDN or Canadian economy will collapse.

Most of currency movement is behind us now. Foreign money is here seeking shelter from unstable Communist regimes.

Here vs....???

If the currency movement was truly all behind us there would not be so much concentration in Australia and Canada.

And not to Speculate on currencies...those are your words. If they wanted to speculate on currencies they could trade currencies on Forex. More of a movement to safe haven currency, stable economy, decent political leaders etc....

Also..re your comment on yields...if they go to the US and the currency gets carved in half those would be nasty yields! All relative. This is what's going on whether you agree with it or not...that's another point to make.

 

[interested]

I just heard Jarislowsky of Fraser Jarislowsky, the money managers today.

His feeling is the release of the oil reserves and likely more oil production by the Saudi's is because it is clear according to him that Mr. Bernanke has realized that QE2 has not worked and the reality is that the developed countries (the USA and countries in Europe)have a major problem which can only be attacked by austerity and a lowering of the living standard; that it cannot be solved by "printing money".

I believe if I recall correctly he said Canada has gone from 30% manufacturing to 13% and to maintain that and recover, the Canadian dollar which acts as a petro currency will devalue. It was his believe the governments will act to force down oil prices because in countries such as the Phillipines, food costs have gone from 50 to 80% and this is not sustainable if there is to not be mass starvation. He suggested the USD will actually exceed the C$ again in the not too distant future. He also said that the only way to resolve this is by increased savings in the USA and Canada again.

I clearly don't know if he is right, but he is an extremely well respected money manager. I can recall that the price of oil collapsed after the last recession and if there is continuation or no progress, perhaps China will survive and continue to use commodities at present rates or maybe it won't if there is less and less of a market for it's goods.

Finally, I believe CN Tower's premise was "Foreign money is here seeking shelter from unstable Communist regimes."

 

[Glen]

If they wanted to speculate on currencies they could trade currencies on Forex. More of a movement to safe haven currency, stable economy, decent political leaders etc.....

The PRC restrcits captial flows.

 

[cdr108]

The PRC restrcits captial flows.

in theory, yes.

obviously, people are getting around that, otherwise the huge amount of money leaving PRC wouldn't exist

 

[Eug]

House goes for $605000 (40%) over asking

Total reno goes for $70000 under asking

 

[ILuvTO]

House goes for $605000 (40%) over asking

Total reno goes for $70000 under asking

Hey Eug, did you read the one comment posted on each article? If not, I'll copy and paste here.

wow, talk about misleading deceptive sales practice and headline !

the fact that this property was listed under $1.5 million was a joke and done to create interest and a bidding war.

consider the following nearby house that was listed in August 2008 during the recession:

MLS #C1449052 – C03 – 516 VESTA DR,TORONTO, Ontario, Canada – $2,995,000

Brand New Lower Forest Hill Village Home. Near Completion. Natural Stone Exterior W/Limestone Detailing. 3935 Sf Plus Fin.Bsmt W/Walk-Out.Lorne Rose Creation.Magnificent Finishes. Incredible Millwork/Cabinetry And Built-Ins Throughout. Spectacular Cu

another somewhat deceptive headline ... it went for more than $65K under ask and took longer than 17 days if the full history of the property were disclosed.

more like $215K under ask and on the market for 77 days:

January 6, 2011 - MLS #C2012567 – C10 – 311 BROADWAY AVE, TORONTO, ON – $1,295,000

This Detached Custom Built North Toronto Home Is Perfect For Family Living. It Features An Open Concept Main Floor, Spacious Bedrooms, 4 Bathrooms, A Spacious Finished Lower Level, A Large Tiered Deck, South Facing Back Yard, Private Drive With Parking For 4 Cars, And Much More. Finishings Are Top Quality, Including Vaulted Ceilings, Uses Of Marble And Granite, Custom Kitchen With Centre Island, French Doors, High Grade Halogen Pot Lights & Premium Flooring…


re-list on February 9, 2011 - MLS #C2032841 – C10 – 311 BROADWAY AVE, TORONTO, ON – $1,295,000

This Detached Custom Built North Toronto Home Is Perfect For Family Living. It Features An Open Concept Main Floor, Spacious Bedrooms, 4 Bathrooms, A Spacious Finished Lower Level, A Large Tiered Deck, South Facing Back Yard, Private Drive With Parking For 4 Cars, And Much More. Finishings Are Top Quality, Including Vaulted Ceilings, Uses Of Marble And Granite, Custom Kitchen With Centre Island, French Doors, High Grade Halogen Pot Lights & Premium Flooring…


3rd time the charm on March 9, 2011 - MLS #C2052289 – C10 – 311 BROADWAY AVE, TORONTO, ON – $1,149,900

 

[Eug]

No kidding. It is Forest Hill after all.

We touched on this a couple of pages ago.

http://urbantoronto.ca/forum/showthread.php/10523-Baby-we-got-a-bubble!?p=531196#post531196

 

[CN Tower]

Also..re your comment on yields...if they go to the US and the currency gets carved in half those would be nasty yields! All relative. This is what's going on whether you agree with it or not...that's another point to make.

myfive,

You contradict yourself. You earlier suggested that it's not a currency play but here suggest that an investment today at $1 CDN=$1.02 US will yield an impressive return in the future. I'm not sure. And if I were Forex is indeed a simpler and more liquid method to execute that trade.

Often overlooked is simple concept of Risk/Return. Forget about any leverage. Go out a buy a brand new condo today pre-sale, factor in all costs- purchase price, LTT, legal, etc. Simple accouting exercise. Now, go try and rent it out and keep that sucker rented 100% of the time, no vacancy, no bad tenants, no empty months. Pay all your repair and maintenance bills, leasing commissions, etc. Do it for 5 years forward from today.

Do you honeslty think you'd make more than a 2% annualized return?

 

[mig174]

I just heard Jarislowsky of Fraser Jarislowsky, the money managers today.

His feeling is the release of the oil reserves and likely more oil production by the Saudi's is because it is clear according to him that Mr. Bernanke has realized that QE2 has not worked and the reality is that the developed countries (the USA and countries in Europe)have a major problem which can only be attacked by austerity and a lowering of the living standard; that it cannot be solved by "printing money".

I believe if I recall correctly he said Canada has gone from 30% manufacturing to 13% and to maintain that and recover, the Canadian dollar which acts as a petro currency will devalue. It was his believe the governments will act to force down oil prices because in countries such as the Phillipines, food costs have gone from 50 to 80% and this is not sustainable if there is to not be mass starvation. He suggested the USD will actually exceed the C$ again in the not too distant future. He also said that the only way to resolve this is by increased savings in the USA and Canada again.

I clearly don't know if he is right, but he is an extremely well respected money manager. I can recall that the price of oil collapsed after the last recession and if there is continuation or no progress, perhaps China will survive and continue to use commodities at present rates or maybe it won't if there is less and less of a market for it's goods.

Finally, I believe CN Tower's premise was "Foreign money is here seeking shelter from unstable Communist regimes."

QE2 was too small to make an impact. There should be another stimulus.

 

[interested]

There probably will be some form of stimulus though they will try and mask it without calling it QE3. Unfortunately, it clearly has not worked so far and somehow this is just buying time in the hope that business will pick up the slack. Consumers are already too stretched and the reality is there are going to have to be some tough decisions made going forward; read a gradual decline in benefits provided by government and a lowering of the standard of living.

I personally fear that Bernancke and the other world leaders don't know how to get out of this cycle we are presently in. They have succeeded in the short term to inflate assets such as the stock market but the jobless rate is stubbornly high and printing more money is just not a long term solution.

 

[mig174]

I think they do. However, it is not in their interest. The current impasse, as I see it, is caused by the tension between creditors and debtors. The way to get out of the current mess is to increase demand, which will put pressure on business to expand and invest the piles of cash they're sitting on. That can only be done by allowing the middle and lower classes to spend more, which means more government spending to create jobs, create incentives to start small businesses, tax breaks for middle class, etc. This means more debt, both on the part of the government and on the part of the middle and lower classes.

Stimulus spending to pump up the economy in this way will mean greater than normal inflation for a while. That is NOT good for creditors. Essentially, the money they are owed becomes devalued. Deflation, a likely result of austerity measures, is what they are after. This is also the reason businesses sit on the trillions in cash without investing - it might be worth more later on. Given that it's the creditors (big banks, etc.) that are the richest institutions, they are bound to be much more influential in the legislative arena than the middle and lower classes. Thus, the austerity agenda, which benefits the creditors over the rest of the citizenry, is more likely to win out in the end.

This happened before - in the mess after 1929. The situation was a little different, to be sure - but the lessons remain. In that case, US was the biggest creditor, with them lending money to the victorious European powers and Germany, which also owed reparations to Britain and France. Britain, France, and the US all went off the gold standard (the latter two reacting to Britain, if I recall correctly), essentially inflating their currencies. Germany did not. Their debts multiplied. Faced with a more protectionist US in 1933, they simply defaulted on their loans, quickly followed by the British and the French. US creditors were fucked.

Similar logic may play out here. More people will default on their loans if austerity came to pass. The gamble, I think is, what number is 'more'?

 

[interested]

Actually I don't fully agree with the reasoning with why banks are sitting on the money. The banks have a lot of exposure to real estate, Greek bonds, other nation bonds etc. They are building up their balance sheets by borrowing from the fed at 0.25% and investing it right back at 2-3% effectively robbing all the American taxpayers of the difference in the spread. There is little or no incentive for the banks to take on any risk.

I do not claim to remember the causes of the mess from 1929 nor the recession from 1932 onwards. I know your last comment about austerity is the principle being applied by the European Union with regard to Greek debt. Greece will default in one form or another but there is so much loans in particular from France, Germany, but also other countries that they are worried that a sudden default will destabilize the banks and possibly create "another Lehman moment".

Of course every government virtually around the world uses inflation to devalue the amount of its future debt. This is not new. I agree that the institutions (not sure they are technically the richest as in fact I would argue alot of the US banks are in fact insolvent if they would truly mark to market the value of all the real estate they are still carrying that they have not devalued...what they do is "estimate the write off which is why you are not seeing the mass foreclosures" since this would result if they put all the shadow inventory into the system and force everyone out in it becoming apparent to all that the system is bankrupt. Hence, the "engineering" of the financial data.

 

[TrickyRicky]

This thread is primarily about the condo market, a market I personally would not touch at the moment, or largely ever for that matter. However, with respect to "foreign investors" I think the notion that foreign investors are chasing returns is not a full read of the situation. I think it would suprise people how many of these investors see Canada as a minor personal or investment hedge play and who would be quite content to generate zero financial returns on their investments here.

This is by no means an argument to support the validity of the volume of units being built right now in Toronto. I fully believe in the underlying demographic and cultural trends that are driving a growth in the condo and particularly downtown Toronto condo market; however, I also fully believe that the market is dangerously overbuilding at the moment.