Baby, we got a bubble!?

[Wooba]

It seems that they teach different economics at U of T, where I went to, than in other universities, perhaps, like Windsor.

Not too many years ago a small group of mostly unknown economists were warning of a global financial crisis. The majority of other economists, including those who went to "good schools" scoffed at them. Perhaps because they contributed to the factors that caused it.

I've been reading this thread for a long time and you used to be a valuable, contributing member of it. More recently your postings have been increasingly condescending and arrogant. At least twice in recent weeks I've seen another user call you a troll. Well earned.

 

[KA1]

Not too many years ago a small group of mostly unknown economists were warning of a global financial crisis. The majority of other economists, including those who went to "good schools" scoffed at them. Perhaps because they contributed to the factors that caused it.

I've been reading this thread for a long time and you used to be a valuable, contributing member of it. More recently your postings have been increasingly condescending and arrogant. At least twice in recent weeks I've seen another user call you a troll. Well earned.

Wooba, I have been called things worst than 'troll'. Considering the source, you learn to ignore these type of comments.

However, your comments are another matter. They are well taken.

I am going to take hiatus for sometime -- few days/week and come back, as you have described, '..a valuable, contributing member.'

 

[interested]

A few comments on the previous few posts from various people:

Macookie: I agree with your comment about interest rate rises leading to lower real estate prices. That said, I believe that inflation in fact usually results in higher real asset prices (such as real estate). I am not saying even with inflation prices will rise since in my estimation as you have also suggested...prices are too high at present.

I do not personally believe unless there is a major shock to the economy that we will see the 2001 prices you are suggesting. If that happens, as I have previously said, there will be blood on the streets. Not just that of speculators, but also of reasonably capitalized long term responsible people. Also, I suspect there will be massive job losses and a downward spiral of the economy...much like in the US. This is a very major correction you are calling for...I would place it in amongst the "worst case scenario" grouping. It is possible but I think not very likely.

Eug: I would beg to disagree with the comment that you made that prices can continue to rise...not because it is wrong because you may well be right. I think however that this would not be a good thing but rather a bad one. I truly hope that prices now stop rising for a while to allow things to get back into balance. From your comments, it is clear I believe, and I hope I am not misinterpreting you, that you feel prices are "lofty". Further price increases only add to the imbalance. Hence in my view, I would suggest that ideally, prices stabilize or drift down marginally so as to increase affordability (after all we should remember that investors/speculators aside...the main reason for real estate is shelter by the majority but a priviliged small group with additional disposable income) as this is the proper socially responsible end result.

In defense of Ka1....it appears to me that the motives being assigned to Ka1 are not appropriate. Most of us writing have taken the view that there should be a correction. Ka1 takes the opposite view. I do not believe that he has said we should be buying at this point in time. In fact, he has made it clear that he bought in 2008 for personal use at Aura. The reality and objectively we can all agree is that prices are in fact higher "on paper" and I emphasize this for all of us with Precon real estate not yet received. Whether this in fact turns out to be the case when received...we will see.

 

[interested]

Oh... you can be beautiful and smart... you just have to be prepared like the virgins that brought enough oil with them to last through the night as they waited for the bridegroom. As well, you have to have a bit of a contrarian point of view... so that you don't follow the sheeple and false profits (aka specs and KA1) that will lead you astray... as they lured you to consume a condo or two... and last but not least we don't forget that the money changers in the temple, occasionally need to be tossed out. I do believe Jesus taught us one important lesson... which was to love our neighbours... and more so without debt.

My bet still is... we will see lower housing prices by the end of 2015.

Mccookie:

You can be smart and beautiful and probably are both.
Personally, for sure I know I am not beautiful.
I keep working on the other part but every time I think I am smart or getting smarter something happens to remind me that I am not.
Does not mean I won't keep working on it though.

 

[macookie]

It seems that they teach different economics at U of T, where I went to, than in other universities, perhaps, like Windsor.

You don't need income to be able to afford a condo or a house in Toronto. You need money, your parents money or foreign money from places like Vancouver. You seem to have missed the news item of a few weeks ago that a house in Yonge and Finch area was sold for $ 416,000 above the asking price. That was with parent's money.

I guess it will take some additional time for you to get used to the fact that it is in Toronto that you are living now

Yes, $416K over asking, I read it, and thought... wow... it's interesting that some children that don't earn money themselves (like the guy in the Parable of the Prodigal Son) are likely to be completely foolish with it.

Did your economic professor teach you that our government sometimes steps into and disrupts markets with social policy? As such, you need to plan a few steps ahead to see the future... I doubt we see CHMC requesting larger down payments or shorter amortization periods as those are today's talking points... I believe what's not talked about are things that might happen including... non-resident property taxes, the potential for changes in the income tax code to restrict the deduction of property taxes from income producing rental properties, and/or limits on the number of homes a single person can own. As well as, CHMC capping the size of a mortgage a Canadian can have.

Plus, I'm sure you don't need a lesson about supply and demand, where as, if supply exceeds the demand, prices will fall. And you learnt that when the prices are raising... people buy more thinking the price is going up (gotta get it today)... but hoping the price fall and suppliers being more to stock to the market, hoping to profit... (hoping to buy other supplies) and eventually the equilibrium of bring to much to gorge on... results in prices falling. So even if you add in the extra foreigner's cash that the RE agents now claim represent less than 15% of today's market... we are reaching towards a point of too much supply... add in higher interest rates, affordability issues for a majority of Canadians who have to "earn" income without parental help... and you have BIG issues.

But, thank goodness you went to a BIG name Canadian school in Toronto and can see a future in which you can purchase a home without income... but that assuming... you actually graduated from U of T.?... since anyone can claim they went there to as the grounds are a nice free place walk around... Maybe, I have a different perspective because I went (a lesser expensive route by going to) college in Ontario, prior to attending a U...

 

[interested]

Yes, $416K over asking, I read it, and thought... wow... it's interesting that some children that don't earn money themselves (like the guy in the Parable of the Prodigal Son) are likely to be completely foolish with it.

Did your economic professor teach you that our government sometimes steps into and disrupts markets with social policy? As such, you need to plan a few steps ahead to see the future... I doubt we see CHMC requesting larger down payments or shorter amortization periods as those are today's talking points... I believe what's not talked about are things that might happen including... non-resident property taxes, the potential for changes in the income tax code to restrict the deduction of property taxes from income producing rental properties, and/or limits on the number of homes a single person can own. As well as, CHMC capping the size of a mortgage a Canadian can have.

Plus, I'm sure you don't need a lesson about supply and demand, where as, if supply exceeds the demand, prices will fall. And you learnt that when the prices are raising... people buy more thinking the price is going up (gotta get it today)... but hoping the price fall and suppliers being more to stock to the market, hoping to profit... (hoping to buy other supplies) and eventually the equilibrium of bring to much to gorge on... results in prices falling. So even if you add in the extra foreigner's cash that the RE agents now claim represent less than 15% of today's market... we are reaching towards a point of too much supply... add in higher interest rates, affordability issues for a majority of Canadians who have to "earn" income without parental help... and you have BIG issues.

But, thank goodness you went to a BIG name Canadian school in Toronto and can see a future in which you can purchase a home without income... but that assuming... you actually graduated from U of T.?... since anyone can claim they went there to as the grounds are a nice free place walk around... Maybe, I have a different perspective because I went (a lesser expensive route by going to) college in Ontario, prior to attending a U...

I think the bolded statement is the crux of the whole matter.
Reality is interest rates/mortgage rates have dropped for 30 years...driven up prices. When there were problems, we introduced longer amortizations, open mortgages, 95% and even 100% financing. Every "social engineering" trick in the book to keep the market going.
I am sure governments will think of others that I can't imagine. Bailing out the silly who buy at the margin today with no hope of ever being able to tolerate any change to their situation. I hope they don't do this last one but that said, I would never have thought I would have seen the government moves that I have seen since 2008 to present. So there is no end in my view what governments/politicians/central bankers won't do to try and avert disaster. My concern, eventually you pay the piper, and the more social engineering, the less likelihood of an orderly solution when that day comes.

 

[cdr108]

It seems that they teach different economics at U of T, where I went to, than in other universities, perhaps, like Windsor.

You don't need income to be able to afford a condo or a house in Toronto. You need money, your parents money or foreign money from places like Vancouver. You seem to have missed the news item of a few weeks ago that a house in Yonge and Finch area was sold for $ 416,000 above the asking price. That was with parent's money.

I guess it will take some additional time for you to get used to the fact that it is in Toronto that you are living now

imo, foreign money does not a local market make.

a few SFH will be sold higher than the norm b/c daddy has an unlimited bank account, but the majority of the inventory has to be sold to the local population, where income and rents are relevant (unless you're a developer accumulating properties to raze and build up).

the other point brought up was parents money (ie. baby boomers and The Silent Generation).

although there is alot of money there, the majority of that is tied into their primary residence. unless one sells or takes a mortgage, the equity cannot be tapped.

secondly, unless those parents are in perfect health or die suddenly, they will need home/nursing care.
that can be expensive and quickly deplete savings, which means the primary residence needs to be sold.

as an aside, with the upcoming waves from The Silent Generation and baby boomers, there will be more inventory.

 

[interested]

Not sure I follow this cdr:
Are you saying that baby boomers will leave their homes, go to nursing homes or require other care, and the Silent Generation won't be buying with the parents money as it won't be there, so that there will be more inventory on this basis?

 

[cdr108]

Not sure I follow this cdr:
Are you saying that baby boomers will leave their homes, go to nursing homes or require other care, and the Silent Generation won't be buying with the parents money as it won't be there, so that there will be more inventory on this basis?

the Silent Generation is the generation born from 1925–1945, so they are the parents of baby boomers.
currently, they range in ages from 67 to 87 years old and they are the ones that will leave their homes, go to nursing homes, etc and that will require $$$. any money left over will be distributed to a larger pool of ppl (ie. several children/grandchildren, etc)

the BB generation was born following World War II, from 1946 up to 1964, and they are a huge demographic.
currently, they range in ages from 48 to 66 years old.

the Silent Generation have/will have to sell soon and the BB sometime there after within the next 10-20 years.
it is highly acknowledged that generations following the BBs (ie. X, Y, Z, and AO) have declining birth rates which barely match the death rates.
IMO that translates to higher supply and less demand.

 

[interested]

Thank you very much for that explanation. I am showing my ignorance; I was aware of BB, X, Y, and Z.
I had never heard of the Silent generation or the AO.

I will suggest one slight consideration for you.

I understand the premise you are putting forth. I am not sure if you were on this forum many years ago and if I am repepating myself, I apologize.

I had the pleasure of actually meeting Professor David Foote, the author of Boom, Bust and Echo.

A very interesting and knowledgeable man.

I am not sure I buy fully the premise that all these subdivision homes will become redundant. The reason I say this as I look to more established longer country cycles for example Europe where it is not uncommon to have multiple generations live in 1 house and also to have the home transfer intergenerationally.

I think as we become a more multicultural society, and if it is correct that while some of the "silent generation" will transfer wealth, a significant portion will not only not transfer over assets but in fact rely on their BB children to help support them. You know doubt are familiar with all the talk of the sandwich generation where baby boomers are taking care of/ helping their adult children in some cases with their children(grandchildren) as well as their parents.

Much of the silent generation I believe may have already sold their homes or maybe adult children will move back in with their parents to take care of them.

Also, there is talk of families at present becoming smaller the other way. Previously 22-25 year old girls in particular would live at home but now they are purchasers of condos in the downtown core.

My point is that there are some trends that do not seem to be playing out exactly as they have in the past in Canada and perhaps we need to look outside our borders to better understand what may happen in the future. That said, if we continue to construct, I believe your premise that there will be higher supply and less demand may prove correct.

I think that it has been shown that people like to stay where they have been. Health care availability will make certain subdivisions desirable but may make small town Ontario less so. Certain cookie cutter mansions in less desirable neighbourhoods may have problems later on but communities which are somewhat larger, have health care, and are self contained, I think may in fact do quite well.

 

[macookie]

Not sure I follow this cdr:
Are you saying that baby boomers will leave their homes, go to nursing homes or require other care, and the Silent Generation won't be buying with the parents money as it won't be there, so that there will be more inventory on this basis?

What he is saying is that... as a baby boomer... you likely have a parent that still owns a house. He/she (silent old generation, still in there homes) will move to a nursing home... (aka available house)... new inventory. But, that house money is going to be need to pay for that expensive nursing home. Because as a boomer, you won't have time to care for an aging parent because you want to enjoy downtown living and golfing and your trips to your cheap Florida condo.

As, the boomer start getting older... more supply will become available. And if young people can't afford to move up the property latter, because entry level (aka condo) are unaffordable... who is going to buy all these expensive houses in the future, without some kinda of fancy social policy??? ... but, maybe in the future... People in Toronto won't need income to purchase a home, because corporations will provide housing just like Foxconn to provide services to foreigners that eventually will own us because of our collectively large debts.

 

[Eug]

the BB generation was born following World War II, from 1946 up to 1964, and they are a huge demographic.
currently, they range in ages from 48 to 66 years old.

In large part, this generation already has paid off homes. With regards to macookie's comment, selling a home is a pretty good way to finance a nursing home stay, esp. if the person has a defined benefit pension plan like so many older people have.

the Silent Generation have/will have to sell soon and the BB sometime there after within the next 10-20 years.

These homes are also generally already paid off too.

it is highly acknowledged that generations following the BBs (ie. X, Y, Z, and AO) have declining birth rates which barely match the death rates.
IMO that translates to higher supply and less demand.

This ignores the impact of the immigrant population, and the fact Toronto's population has been steadily increasing, not staying flat.

Eug: I would beg to disagree with the comment that you made that prices can continue to rise...not because it is wrong because you may well be right. I think however that this would not be a good thing but rather a bad one. I truly hope that prices now stop rising for a while to allow things to get back into balance. From your comments, it is clear I believe, and I hope I am not misinterpreting you, that you feel prices are "lofty". Further price increases only add to the imbalance.

Yes, I feel prices are already lofty, but I also don't think it would necessarily lead to the end of the Toronto real estate world if price increases kept pace with inflation in the next five years.

 

[interested]

I agree Eug if rates increased at 2%/year over the next 5 years that might be tolerable. I think we would both agree however that given that over the long term numbers tend back to the mean, I still think some correction would be likely. Now, of course, if the economy picks up, productivity improves (something it has been slow to do over the past decade in Canada at least), no major traumatic events occur, then perhaps 2%/year growth would work.

I would point out that if average prices of Resale are say $550: 2%/year compounded brings us to $595/sq.ft. after 4 years and $607/sq.ft. after 5 years. That does not approach the $650 to $700/sq.ft. of most downtown projects, many of which do not even include the parking at that price.

 

[cdr108]

In large part, this generation already has paid off homes. With regards to macookie's comment, selling a home is a pretty good way to finance a nursing home stay, .

we already said that.

esp. if the person has a defined benefit pension plan like so many older people have.

i disagree that many of the silent generation have a defined benefit pension plan. what % has them?

These homes (BB)are also generally already paid off too.

there have been several studies that many BB will retire with a mortgage.
this bank study indicatesd 39% of those planning to retire in the next 3 years still have a mortgage.
Also: 'While most boomers feel they'll be able to retire mortgage-free, 35% say it's not likely they will be able to pay down their mortgage because other living expenses make it hard to do so.'

http://www.newswire.ca/en/story/856...e-mortgage-free-but-many-are-cutting-it-close

http://opinion.financialpost.com/20...retire-debt-free-by-63-boomers-more-doubtful/

This ignores the impact of the immigrant population, and the fact Toronto's population has been steadily increasing, not staying flat.

in the past 10 years, TO population has grown by only <135 K; in GTA by 900K resulting in an annual growth rate of 0.2%; that includes births AND immigration = roughly 13.5K per year in TO and 90K per year in GTA.
http://en.wikipedia.org/wiki/Demographics_of_Toronto

 

[cdr108]

just some anecdotal info:

a friend of mine just sold his 2 1/2 storey semi by dufferin/dundas for $836K. it's a mid-range reno done in the past 5 years.
he wasn't planning on selling until a house down the street sold for similar - $200K over the asking.