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Baby, we got a bubble!?

I think everyone is focusing on pricing too much. Has it occurred to anyone that constrained supply is the principle reason for increasing prices. Once you see an increase in supply, pricing will level off or even fall. Demand is lower from the records set in 2007. Remember, their is alot of slack in production and one shouldn't expect interest rates to rise to quickly. Central Banks will not tighten money supply(increase rates) until you see jobs created. Having said this, I would not purchase at today's pricing. But talk of a bubble is premature. Bubbles can last for many years, you will not know we are in one until after it bursts. One last thing, Greenspan talked about irrational exuberence in 1996 (tech stocks). The tech bubble burst (4yrs after his comments)at the end of the first quarter in 2000.
 
EXgeMMy said:
Is this the start?

http://www.theglobeandmail.com/report-on-business/ottawa-to-tighten-mortgage-rules/article1469160/
Click to expand...

Yes. I think this will stablize the market a little.

Keep in mind that these rules will primarily target buyers with low downpayment (or low income). So basically, people out there, with good income (or 20% downpayment) still can buy and lock the current low interest rates. So that segment of the market will still keep the housing market moving. But at more realistic level!

I think in the coming weeks we will see the banks dropping rates even more. [RBC just lowered their posted rates for variable/closed]
 
The market is on fire everywhere I look.... but it doesn't seem sustainable. I have to sell my Cabbagetown house in the next 6 months.. I'm wondering if I should do it sooner than later...
 
I'm not sure a house in cabbagetown has much to worry about, although if it were me, I'd sell first thing in May.

As for the new mortgage rules, the real crux of what they will do has to do with the investment market. Now, unless you have 20% down, you're not allowed to buy an investment property and that's what's been driving this most recent condo surge. I wonder, considering sooooooo many of the new condo's coming online within the next 18 months are investment (i think 40%), if this will force people to sell. Maybe they bought 4 units at 10% down and now need 20% to close the transaction - what will this do? Is the change grandfathered? How can they grandfather something like that when nothing has technically been bought or sold?
 
simuls said:
I'm not sure a house in cabbagetown has much to worry about, although if it were me, I'd sell first thing in May.

As for the new mortgage rules, the real crux of what they will do has to do with the investment market. Now, unless you have 20% down, you're not allowed to buy an investment property and that's what's been driving this most recent condo surge. I wonder, considering sooooooo many of the new condo's coming online within the next 18 months are investment (i think 40%), if this will force people to sell. Maybe they bought 4 units at 10% down and now need 20% to close the transaction - what will this do? Is the change grandfathered? How can they grandfather something like that when nothing has technically been bought or sold?
Click to expand...

Those are very good questions Simuls, if these new rules are not grandfathered then quite a bit of "speculators" who bought with 5-10% down on condos will definately get burnt. This will in itself affect the market. Lets wait and see.
 
Its based on market value. Example if you put 10% down on a $300K pre construction project and its worth 400K at the time its registered you wont be required to come up with a bigger down payment or a mortgage (whether its grandfathered or not). Think about it you have $130K in equity at the time its registered.
 
Jim Flaherty appears to be a trailing indicator. There is no recession and now there is no housing bubble.
 
cityboy said:
Its based on market value. Example if you put 10% down on a $300K pre construction project and its worth 400K at the time its registered you wont be required to come up with a bigger down payment or a mortgage (whether its grandfathered or not). Think about it you have $130K in equity at the time its registered.
Click to expand...

I understand your point, but I'm pretty sure that is not the case here: Require a minimum down payment of 20 per cent for government-backed mortgage insurance on non-owner-occupied properties “purchased for speculation '.

http://www.yourhome.ca/homes/reales...6148--buying-a-new-home-gets-a-little-tougher

I don't think the rules will allow you to use the equity built up in a "pre-construction" home to offset the new downpayment requirement. Remember, this is for people who buy more than one property for investment purposes.
 
simuls said:
I'm not sure a house in cabbagetown has much to worry about, although if it were me, I'd sell first thing in May.

As for the new mortgage rules, the real crux of what they will do has to do with the investment market. Now, unless you have 20% down, you're not allowed to buy an investment property and that's what's been driving this most recent condo surge. I wonder, considering sooooooo many of the new condo's coming online within the next 18 months are investment (i think 40%), if this will force people to sell. Maybe they bought 4 units at 10% down and now need 20% to close the transaction - what will this do? Is the change grandfathered? How can they grandfather something like that when nothing has technically been bought or sold?
Click to expand...

If the contract was signed prior to April 19, the terms of the deal are grandfathered.
(as per the last paragraph at the following link )
http://www.fin.gc.ca/n10/data/10-011_1-eng.asp


"These adjustments to the mortgage insurance guarantee framework are intended to come into force on April 19, 2010. Exceptions would be allowed after April 19 where they are needed to satisfy a binding purchase and sale, financing, or refinancing agreement entered into before April 19, 2010. "
 
daveto said:
If the contract was signed prior to April 19, the terms of the deal are grandfathered.
(as per the last paragraph at the following link )
http://www.fin.gc.ca/n10/data/10-011_1-eng.asp


"These adjustments to the mortgage insurance guarantee framework are intended to come into force on April 19, 2010. Exceptions would be allowed after April 19 where they are needed to satisfy a binding purchase and sale, financing, or refinancing agreement entered into before April 19, 2010. "
Click to expand...

I think this was prudent as it will not force alot of people, at least initially to liquidate which should not destabilize the market which is what Mr. Flaherty is clearly trying to avoid. That said, what do people think. Will this work at slowing down growth/ result in a slow decrease of prices or will it make for a more significant precipitous drop. Do people believe that the up to 40% investors talked about are buying with5% down. I would tend to think that that would more likely be the first time buyers rather than people investing who might have perhaps a bit more equity than the traditional first time buyer but I guess I could be wrong. As an investor, I put in significant equity into my purchases but I realize that doesn't make for the best returns. However, I would think there are alot of investors who just prefer to be a landlord and accept a guaranteed monthly cheque instead of investing in a very volatile stock market or view it as another pillar of a diverse portfolio (consisting of bonds/stocks/cash/ perhaps some commodities and real estate). Am I way off base with these thoughts or are there alot of gamblers out there who are buying 5 properties with 5-10% down. I would think this would be ( and hope it is ) the minority of investors or rather gamblers as I would view them.
 
I would consider this as the market is hot now. One can never pick the top or the bottom unless one is very lucky. If you have a desirable property and are looking to sell in the next 6 months, I would consider placing on the market now with a longer close to match where I was planning to go to. Assuming you are going to another property, the other one if purchased already will have gone up along with this property so you are making money on that one. If you are going to buy only after selling, then I would not place it on the market now as if you are wrong it will be more expensive to get back in and I would not be getting greedy trying to make it at both ends. To quote Confusius(I hope spelled correctly). Man who sit between 2 chairs fall through middle.
 
cityboy said:
Its based on market value. Example if you put 10% down on a $300K pre construction project and its worth 400K at the time its registered...
Click to expand...

Slow down there cowboy! Who says prices will rise 33% from pre-sale to registration? Just because it may have occurred in the past gives us no reason to believe it will happen again. This is precisely the kind of recklessness that Jimbo is trying to curtail. It leads to a dangerous oversupply of product, eventually.
 
CN Tower said:
Slow down there cowboy! Who says prices will rise 33% from pre-sale to registration? Just because it may have occurred in the past gives us no reason to believe it will happen again. This is precisely the kind of recklessness that Jimbo is trying to curtail. It leads to a dangerous oversupply of product, eventually.
Click to expand...

I agree totally. i hope there are not too many "cowboys" relying on the same thing.
 
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