Baby, we got a bubble!?

[realist123]

With our current interest rates stagnant, and appear to be stagnant in the near future, I can't see market prices going anywhere.

That being said, a price drop could be oberved if sellers ACTUALLY listed their homes at reasonable prices, as opposed to over-inflated million dollar price tags that seem to be standard in the core.

Interest rates are only one part of the equation. Lets look at what we know.

1) The Fed has pledged to keep interest rates at current levels until at least 2015*
*: If inflation appears, and is well beyond 3% per year, they will be forced to hike.

2) The Fed is now printing 40 billion per month, without an end date, per QE3. QE1+2 resulted in icreased asset prices, in stocks and commodities.

3) New housing construction represents over 7% of Canadian GDP

4) Sales of new condos are down. A lot.

5) Prices are still going up, albeit at a slower pace.

6) China is slowing. A lot.


So lets connect the dots.

Lower Sales of New Condos -> Less condos constructed -> Weaker econonmy -> lower GDP -> Bank of Canada keeps interest rates low. -> Banks lose more on bad loans -> Tighter lending -> Lower housing prices.

China slows -> Less demand for Canadian resources -> weaker C$ -> Foreign investors begin losing on their C$ investments (purely FX loss here) -> Sells investment to repatriate funds -> Lower housing prices & Weaker C$

Fed prints a wackload of cash -> ????? (we're in uncharted territory. They are trying to avoid a Japan like economy with little growth for a decade. Can it be done? No idea. Nobody knows). It will either: A-> Works! Economy stimulated -> jobs & consumption increase -> C$ weakens -> Canadian exports increase -> Good for housing prices.
Or B-> Inflation -> US economy goes to shit again, this time without any monetary stimulis available -> USD weakens -> Canadian exports drop -> Bad for everyone. Stagflation.

One path to good things, a few to bad. What will happen, no idea. But it doesn't look good.

 

[TrickyRicky]

The reality on Main Street:

Property has been un-buyable in all classes for 16 months already as an investor

Tenants are staying put, vacancies are dropping, rents are rising

Crazy condo investors and young families are swimming in debt

Traditional and institutional investors are swimming in cash because there is nothing to buy that makes sense

 

[daveto]

If this trend continues, just wondering what are the predictions until we see significant price drops showing up in the monthly stats?

If you look at the 2008 stats, sales drops preceded price drops by 4-5 months. This is the 2nd month of severe sales contraction, so perhaps another 2-3 months. I'll say also that it would be very unusual for sales to contract this severely and then reverse direction. In 2008, they had the option of lowering interest rates. This time around, I guess they could try reversing course on all the mortgage changes, but that seems unlikely.

 

[Eug]

If you look at the 2008 stats, sales drops preceded price drops by 4-5 months. This is the 2nd month of severe sales contraction, so perhaps another 2-3 months.

Interestingly (for me anyway, but probably not for anyone else), I had put an arbitrary time limit of three years on forecasting of significant pullbacks. As of next month, this thread is 3 years old.

In the meantime, the Teranet index has gone up from October 2009 with a value of 118.27 to August 2012 (latest data) to a value of 148.39, an increase of more than 25%.

IOW, prices would have to drop by over 20% just to reach October 2009 levels again, when this thread started.

 

[daveto]

I agree with you Eug. The recent and/or leveraged buyers are at heavily at risk.

 

[CN Tower]

Depositing rent cheques and finding tenants isn't difficult in my experience. Call a plumber, call a furnace guy. Worth mucking about for a >10% return, plus positive cashflow each month. My stock portfolio takes time to manage too.

If that's truly all you believe is involved in property management then you are in for a brutal awakening kid.

 

[UserNameToronto]

If that's truly all you believe is involved in property management then you are in for a brutal awakening kid.

Been letting out property for 2 years already, and so far it's mostly just been cashing rent cheques each month (touch wood). But thanks for your concern, grandpa.

 

[TheKingEast]

If that's truly all you believe is involved in property management then you are in for a brutal awakening kid.

What else is involved? I mean, I know there are other little things...

I have been leasing out property for years and all I've had to do is cash rent cheques, so enlighten me on this "brutal" awakening that's right around the corner.

 

[ducati0000]

What else is involved? I mean, I know there are other little things...

I have been leasing out property for years and all I've had to do is cash rent cheques, so enlighten me on this "brutal" awakening that's right around the corner.

exactly..those saying the owners of units is going to take a hair cut probably dont own properties themselves.I rented out my units at full price in less than a week with multiple offers.My brutal awakening is when my Tassimo machine isnt working when I wake up and have to walk over to the nearest Starbucks for my fix.....

 

[neubilder]

If that's truly all you believe is involved in property management then you are in for a brutal awakening kid.

Been renting out property for 10 years and it's been a walk in the park (with my tenant). If you're a slumlord on the other hand then it could indeed be a nightmare.

 

[CN Tower]

Been renting out property for 10 years and it's been a walk in the park (with my tenant). If you're a slumlord on the other hand then it could indeed be a nightmare.

My comment has nothing to do with renters and everything to do with property management. My assumption of an allowance for bad debts/vacancy would accurately reflect the possibility of having to deal with a bad tenant. I was also referring to a house (vs owning a condo unit where the condo management company deals with all issues but will blindside you with fee increases and special assessments) where you routinely experience plumbing, heating, electrical landscaping, water, snow removal, etc. issues. Furthermore, turnover costs can be quite high as well and are rarely calculated accurately. Painting, time to prep the unit, advertising it, showing it, etc. Again, it's not exactly cancer research but it requires effort and time and if buddy thinks he can get away with looking after an older home with only couple hours a month then he's dreaming but I suppose amateur hour does tend to attract the uninitiated. My long winded rant (talk about wasting time!) was intended to illustrate that a proper financial model for an investment must contain an accurate estimate of all costs. Property management is a cost whether you value your time or not.

neubiler- the term slumlord is highly offensive to the less fortunate individuals who reside in lower income housing. If all such residents were responsible and demonstrated the same level of self-respect and care that you put into your personal residence or investment then no slums would there be.

 

[Kenny]

What else is involved? I mean, I know there are other little things...

I have been leasing out property for years and all I've had to do is cash rent cheques, so enlighten me on this "brutal" awakening that's right around the corner.

The key is being careful with your tenant selection. Things can go downhill if you pick the wrong person.

http://www.thestar.com/news/gta/article/1261214--tenant-from-hell-moves-on

 

[Eug]

The key is being careful with your tenant selection. Things can go downhill if you pick the wrong person.

http://www.thestar.com/news/gta/article/1261214--tenant-from-hell-moves-on

Wow. That scares the bejesus out of me. That's why I didn't want to become a landlord. Actually not even that. Just having to deal with a borderline tenant (not a crazy one like that) would be enough to swear off it forever.

 

[PinkLucy]

You can do all sorts of background checks and still end up with a problem tenant. Crap happens. I was a commercial landlord for 25 years. Most of the time, things were fine -- collect the rent, renew the lease, etc. -- but every now and again there'd be issues like plumbing emergencies, heating failures and so on.

 

[neubilder]

neubiler- the term slumlord is highly offensive to the less fortunate individuals who reside in lower income housing. If all such residents were responsible and demonstrated the same level of self-respect and care that you put into your personal residence or investment then no slums would there be.

My use of the term slumlord is with respect to landlords, not tenants, and it refers to the nature of the relationship between the landlord and the tenant, not the cost of the housing. Slumlords exploit individuals that have few choices and do the bare minimum to keep the rent rolling in. "If you don't like it some other poor sucker will take it" is the general attitude of a slumlord, whether it's a property management company or an individual. Slumlords and nightmare tenants go hand in hand because it is a mutually contemptuous relationship.

It is possible to provide lower income housing without being a 'slumlord'. I owned and rented out a large house (that I designed and built) for years that was very affordable and also a great place to live. People were excited to live there - I never had to look for tenants because once good tenants were in there they would find friends to replace themselves. Six years without a vacancy. Even if the rent is cheap, if the accommodations are clean, uplifting, have good light, decent ceiling heights, are properly maintained, and offer a level of dignity to the tenants, then the term slumlord doesn't apply.