Baby, we got a bubble!?

[Eug]

This also sets up for intergenerational tensions. It is questionable if industry other than government can/will still be able to pay this going forward so especially late boomers may not get all the benefits they expect or were promised.

As for government, you can see that the rest of the "real economy" is being asked to pay DBB for workers when the majority have to plan for their own retirement. So they fund not only their retirement, but subsidize the "employees" of government. I would suggest that over time, the estimate average 20% higher wage/benefit in the government over private industry will have to be reigned in.

I appreciate Eug you said you are in the healthcare field in Ontario and a member of a DBB of government but I think we can both agree that while you personally are the recipient of an enrichment that is not fairly shared in society (and in so being are fortunate ), in the longer term that cannot continue unless the country as a whole gets much wealthier as there will resistance and demand eventually for change.

You may be right about the future of defined benefit pension plans, but the original discussion was specifically about the baby boomers, and their impact on the detached home market. IIRC, the statement was made that these baby boomers can't afford their retirements and are going to have to sell their detached homes in order to finance their retirements.

I said that while that may be true in certain cases, largely that won't be true, mainly because most of these homes are either already paid off or else will be paid off in the first few years of their retirements. Add in the bonus of having a large amount of baby boomers with defined benefit pension plans, and this scenario of a baby boomer retirement crisis in the near term just doesn't fly with me.

 

[urbandreamer]

The problem with this thread is it doesn't really reflect the average Canadian household. I wish owners of single family homes or owner/occupier condos would post their thoughts. As it stands it's like the 1% talking to the 5%.

It is the herd's sentiment that matters.

 

[CN Tower]

http://www.theglobeandmail.com/life...sing-boom-go-bust-greed/article2402051/page1/

Interesting article/interview with Ben Jones (one of the early predictors of the US housing bubble) in today's G&M.

Six months ago, I launched a new venture called the Joshua Tree Fund, which will invest in foreclosed houses. As of today, I don’t have anything bought because I don’t think the prices are low enough yet. I’ve got too many crazy Canadians bidding against me.

Now, I don’t want to discourage anyone from buying a house, but when I read things about Canadians using home-equity money to leverage up 100 per cent to buy houses in Arizona – well, we’ve all seen the damage that leverage can do. They’re not only putting the cash that they’re bringing here at risk, they’re borrowing money against their own houses in Canada. They’re actually contributing to the inevitable collapse of the bubble in Canada.

Not only is Bubble Ben a hypocrite, but he's a failure at his hypocrisy.

Let me get this straight- boy starts his own fund to invest in distressed property, can't compete the pros, so he goes back to predicting widespread chaos, in markets he's probably never even visited.

Sorry Ben, you're not credible.

Meantime the pros are out there pounding the streets, buying houses, improving them, selling to end users for a small, hard earned profit. I know a few such people actually. They work hard finding deals. They generate employment for contractors and local real state industry workers- agents, appraisers, lawyers, etc. they deliver returns to their shareholders. They help stabilize local markets aiding in the recovery.

Ben is a jealous fool and he does not understand our markets.

 

[Riverdale Rink Rat]

Not only is Bubble Ben a hypocrite, but he's a failure at his hypocrisy.

Let me get this straight- boy starts his own fund to invest in distressed property, can't compete the pros, so he goes back to predicting widespread chaos, in markets he's probably never even visited.

Sorry Ben, you're not credible.

Meantime the pros are out there pounding the streets, buying houses, improving them, selling to end users for a small, hard earned profit. I know a few such people actually. They work hard finding deals. They generate employment for contractors and local real state industry workers- agents, appraisers, lawyers, etc. they deliver returns to their shareholders. They help stabilize local markets aiding in the recovery.

Ben is a jealous fool and he does not understand our markets.

Seriously? He's talking about a US fund that can't buy at his ROI projections, because of Canadian buyers using their Canadian RE to leverage into US positions. That's exactly parallel to his 2004-7 call in the US. You may not agree with him, but you cannot dismiss him.

 

[interested]

^^^
Canadians are buying mainly in 4 markets: Arizona and Florida, and to a lesser degree Nevada and possibly California.
It is true that as Canadians we are probably ascribing a Canadian multiple which is inappropriate to US cities and transposing the fact that we consider there to be value in some US locations because by Canadian standards they are currently cheap. That may well be a fallacious argument. However, it is not just Canadians, especially in the South Florida market. Remember, South Florida went up 300% in 6 years from 2000 to 2006. It is back at 2003-2004 prices. Will it go fully back to 2000 prices or lower....maybe. But I doubt it. The reason....Baby boomers. A lot of people will be retiring to the South Florida market and the wave of baby boomers is just now retiring with many more to come. So South Florida, at least on the ocean, I believe will and already has not only stabilized but started to increase in price. However, recall it is down by at least 50-60% from the peak.

Also, in South Florida, one has money from Europe, Russia, South America etc. While this may disappear, the real estate is South Florida for 2nd homes is relatively so cheap for ocean front that it is cheaper for a European to come to Florida for 3 months of winter than to buy a comparable property in Europe. Now perhaps Southern Spain has so much overbuilding that may no longer be the case. I am just pointing out that I think the Ocean front "retirement" condo market there may be different than other cities or more inland in Florida. Arizona has some similarities but less so. Not sure about Nevada and Southern California has always been a very expensive and market that people seem to want.

As for Ben's thoughts, I agree that there are parallels and the most important point in the article is China. There is massive speculation there and the government has been reigning in Chinese speculating. What has happened is the result has been to look outside China. I refer to it as exporting their inflated real estate prices if you believe Chinese real estate is overvalued which I do.

That said, I agree also with CN Tower however that it is hypocritcal to say it is a bubble and then in the next breath state it is not distressed enough that I have a fund and can't invest. It may go lower but he may also miss the boat. It is very tough to predict the bottom or the top. And there remains the possibility that Canada will not deflate or deflates to a smaller controlled degree which may allow Canadians to keep these 2nd homes despite his predictions. Also, despite lax mortgage rules, we have had some bad lending but not Ninja loans on a widespread basis.

 

[Wooba]

The problem with this thread is it doesn't really reflect the average Canadian household. I wish owners of single family homes or owner/occupier condos would post their thoughts. As it stands it's like the 1% talking to the 5%.

This is one of the best posts I've seen on here is so long.

 

[interested]

^^^
I see from the Casa2 thread that apparently it is sold out?
that will have been really fast.

Does this not remind people of Bloor 1 when it was Bazis and the prices just jumped from $300K to $500K overnight. Does this not sound like a bubble to others.

Wooba, I am a SFH owner. By I agree with UD on this. I believe those posting as a rule are "better healed" investors/purchasers than the other "5%" referred to in UD's quote.

 

[Eug]

The problem with this thread is it doesn't really reflect the average Canadian household. I wish owners of single family homes or owner/occupier condos would post their thoughts. As it stands it's like the 1% talking to the 5%.

It is the herd's sentiment that matters.

I'm an owner of a single family home too, after previously owning a condo townhouse which was my primary home. I have never in my life owned an investment property. I will say that I am better off financially than the average though.

---

BTW, it's interesting reading the comments in the real estate sections of The Star and The Globe and Mail. The comments are almost universally negative, with the gist of them being that anyone buying a home in today's market is a complete moron, regardless of the reason they're buying. The interesting part of this is that people have been making these exact same comments for over half a decade now. Actually it's probably longer, but I only started reading these comments a little over half a decade ago.

One almost wonders if some of these are those who simply missed out, so are screaming more loudly about the impending doom in the faint hope it will happen sooner rather than later so they can say I told you so.

 

[interested]

^^^
Eug, real estate has always been cyclical. It seems to go in 60-70 year cycles major. Then there are mini cycles in between.
So there will be corrections for sure if the past predicts the future and I would suggest anyone who ignores the past does so at their own peril.

Since also just like on this forum the same people keep posting on The Star and Globe and Mail sites, one gets the same views expressed again and again.

I think UD does have a point in that we are reading from those who are more interested and are generally more vested and there are also the few who may be screaming loudly in the faint hope that the impending doom will occur but the vast majority probably have not even thought about it concluding the price is the price and that is it. That "silent majority" is really what is important to predict future trends since if they decide one way or the other to change their attitude, it will have a significant effect.

 

[Eug]

Jack's comment from the beginning of this thread still seems appropriate, and is from someone who seems to have bought a relatively low priced condo to live in.

Can I ask you what else your crystal ball tells you about the economy and where we are headed in the next 3-5 years?
The fact of the matter is that you sound like the same person who told me the 765 sq.ft I signed for in 2005 @ $220k was overpriced and that prices will correct and I'll get it cheaper. People are no longer waiting for the market to come to them but getting in now, with whatever means they have.
I agree prices are nuts, however, to predict what will be in 3-5 years is nuts, as in today's economy you can't predict accurately what will be tomorrow.
I am willing to bet that nobody here was able to predict the frenzy in today's market late 2008 or early 2009, which was only 8 months ago, so please don't come out and tell me you know prices will be down 20% within 5 years. Even if you are right, how much will they increase between now and then?
Any guesses?
I'm not saying your wrong, however, I'm not saying your right. We're all aware that the market is very often driven by emotion and not always logic.
My 2 cents.

Jack

 

[interested]

^^^
Eug, Jacek is absolutely correct with his comment.

However, extrapolating this further is exactly what puts us into bubble territory and at risk for a correction. The comment that "people are no longer waiting for the market to come to them but getting in now, with whatever means they have" suggests to me they have thrown caution and rational thought to the wind.

I am not saying they won't be proven right...in fact I readily acknowledge I have been in the "wrong camp" on this one. But it has not been for lack of trying to reason or ponder the problem. Also, I have made decisions which I appreciate, understand the risks, and while I will be hurt, I will not be crying if there is a major correction on this forum or anywhere else and blaming others (the banks, the government, the mortgage lenders etc.) for the fact that I may be in over my head and made decisions to get in now at whatever means I presently have with no ability to compensate for a rise in interest rate which may/may not happen or other unexpected event.

that said, I do sympathize with Jack and others and I am happy they bought when they did. My concern is as expressed before, the further we get out, with prices at $650-700/sq.ft. and 3% interest rates....who do you sell to when/if interest rates go back to historical norms...rents don't cover....the economy perhaps falters....some other event happens. Do you then say "the taxpayer....read me and others" have to bail you out because you chose to gamble and could not cover anymore? This is when I lose my sympathy....especially when the "investor" is sitting on 10 properties with 20% equity and refinancing everything allowing for today's rates without consideration of the "what if scenarios". For the person putting a roof over his head, so long as he puts in reasonable equity...whatever that is... is in for the long term....I have understanding for the logic to jump in.

One further thought, my first home we took basement furniture from my parents home that became our family/living room. There was no question of "SS appliances and granite". Washrooms in which to ballroom dance. You get my gist. My simple point is young people have to appreciate they cannot have everything now and today, despite the advertisements and credit card company's continued attempts and the marketers to tell everyone they deserve everything "today".

 

[Eug]

650 to 700 is a gross overestimate of average pricing in Toronto, at least for re-sale. I haven't been following pre-con closely though.

 

[interested]

^^^I was referring to PRECON in the core Eug.

 

[daveto]

Not only is Bubble Ben a hypocrite, but he's a failure at his hypocrisy.

Let me get this straight- boy starts his own fund to invest in distressed property, can't compete the pros, so he goes back to predicting widespread chaos, in markets he's probably never even visited.

Sorry Ben, you're not credible.

Meantime the pros are out there pounding the streets, buying houses, improving them, selling to end users for a small, hard earned profit. I know a few such people actually. They work hard finding deals. They generate employment for contractors and local real state industry workers- agents, appraisers, lawyers, etc. they deliver returns to their shareholders. They help stabilize local markets aiding in the recovery.

Ben is a jealous fool and he does not understand our markets.

Huh?

You might want to re-reread the article about "Bubble Ben". Perhaps you were in a hurry when you read it the first time and missed a page or two?

 

[greenleaf]

I speak as one who is (and I am completely stunned by this) apparently a member of the 6% in Canada (according to an Oct 2011 Maclean's household income calculator). However I also live in downtown Toronto, and according to reported household income levels in a recent city of Toronto report on people living downtown, my household is merely a member of the 30% here. I cannot afford to buy a family sized condo in downtown Toronto.

We bought pre-con in Jan 2007 and then sold a month after we closed with the builder in July 2010. We could only buy pre-con in the first place because we borrowed money from a family member and then paid them back while the condo was being built (one of us was in grad school at the time). When we sold, we made a very decent profit. Since then, we have saved about 30% of our take home income each month.

We currently have great, steady jobs. And despite buying and selling and saving with (what is to me) a substantial amount available for a down payment, we still cannot afford to buy in downtown. We don't even want a SFH or a semi. We don't have a car and do not even want a parking spot. Just a family sized condo. We don't even want a new one. Old and unrenovated is fine.

Perhaps I am being unreasonable, unrealistic, or my expectations are too high.

With all that said, we're happy renting now and have a great large apartment at a very affordable rate. We would buy, but the numbers just don't add up. Prices need to drop about 25-30% before it begins to make sense to buy to us. It feels that something is amiss if even we can't afford it.