detroitbootybass
Active Member
Care to post the article for those of us that can't read it (it's behind a paywall)?
Thanks!
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Baby, we got a bubble!?
- Thread starter simuls
- Start date
Care to post the article for those of us that can't read it (it's behind a paywall)?
Thanks!
greenleaf
Senior Member
Sorry, nope. I don't think it's fair to the writer or the publisher.
daveto
Active Member
Paywalls are easy to get around. Just go to your cookies, search "theglobeandmail" and delete the cookies. (google this if my instructions are unclear)
I've posted the article below. The measure is for the carrying costs of an average priced detached bungalow, including property taxes and energy costs, with a 25 year mortgage at the published 5 year rates and a 25% downpayment.
Note that apart from the disconnect of the assumptions to reality, it also doesn't reflect land transfer costs, and higher transaction fees. The latter two items would add 3-5% to the affordability index (my guess, not from the article)
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The question of whether Canada’s housing market is a bubble or not hinges on how affordable it is to buy a home.
Gulp. Rising home prices and mortgage rates suggest trouble ahead, but that’s only half the problem. Bubble or not, houses are being priced out of reach for first-time buyers and households with income levels at or even a little above average. It may be time to redefine what we mean when we say houses are affordable.
More Related to this Story
Affordability hardly seems a problem when you look at home sales. The Canadian Real Estate Association reported on Monday that sales were down 2.6 per cent in May on a year-over-year basis, but prices were up 3.7 per cent. The numbers were strong enough that the association increased its sales forecast for 2013.
And yet, there is clearly some stress on affordability, which is reported on in depth by Royal Bank of Canada’s economists every three months. As RBC points out in each report, lenders typically qualify borrowers by checking whether mortgage payments, property taxes and heating costs account for no more than 32 per cent of gross household income. In the first quarter of 2013, this package of housing costs consumed a low of 30.4 per cent of average household income in Edmonton for a detached bungalow and a high of 82.3 per cent in Vancouver. Nationally, housing costs ate up 42.5 per cent of the average household’s income.
Looking for a house in the city, Mr. and Ms. Average Canadian? Perhaps a condo is more realistic, or a nice rental. “Households in the middle of the income distribution would not meet the guidelines of 32 per cent for a bungalow,†said RBC senior economist Robert Hogue.
The condo market is comfortably affordable on a national basis, with 28.1 per cent of the average household’s income consumed by housing costs. But two-storey houses were at 48 per cent nationally, with Vancouver coming in at 87.2 per cent, Toronto at 62.7 per cent and Edmonton, the most affordable of the six cities measured by RBC, at 34.4 per cent.
Bungalows, the middle path between condos and two-storey homes, are above long-term average affordability levels, but apparently not critical. “We found that when [bungalow] affordability gets above 44.5 per cent, it’s usually followed by a housing price correction of 5 per cent or more,†RBC chief economist Craig Wright said.
Truth is, affordability hasn’t changed much at all in recent years. Individual cities like Vancouver and Toronto are well above their long-term averages, but those averages themselves are way above 32 per cent. In Toronto, for example, the average-priced bungalow has eaten up 48.7 per cent of gross household income on average since RBC started measuring affordability back in 1985; the comparable recent number is 53.8 per cent.
Affordability hasn’t worsened dramatically in recent years because low interest rates have offset rising house prices. More of the mortgage rate increases we saw last week would threaten this balance, and so would the price increases many cities saw in May. But let’s put that aside for the moment because the existing state of affordability is tenuous enough already.
RBC’s data show that to qualify to buy the average-priced two-storey home in Toronto and Vancouver in the first quarter, a couple would need gross annual household income of $132,100 and $156,200, respectively. Ottawa’s not far behind at $92,500, while the national number was $87,800.
A handy measuring stick for income levels is Statistics Canada’s annual income of Canadians report, which shows a median level of $84,410 for two-parent families with kids in 2010, the most recent year for which there’s data. Over all, the median level of household income was $64,900, which is well short of what RBC says is necessary to buy the average bungalow on a Canada-wide basis.
It’s not just households of average means or less who have affordability issues. Young adults just starting out in the work force are having trouble finding jobs with sufficient salary to pay back their student loans and move out of their parents’ home, never mind buy a house in a major city. Smaller communities are more affordable, but they’re not usually where the jobs are.
RBC’s affordability numbers look somewhat harsher than you’ll find in real life because they use posted five-year mortgage rates, not the much cheaper discounted rates that most people pay. On the other hand, RBC projects a down payment of 25 per cent, which is difficult to save in most bigger cities. The lower your down payment, the bigger your mortgage.
None of this changes the fact that at today’s price levels, houses are evolving into a luxury item in some cities. With the recent increases in both prices and mortgage rates, houses become even more out of reach. The answer to declining affordability just might be the big price decline everyone’s afraid of.
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How affordable is housing?
Royal Bank of Canada's housing affordability measure takes a quarterly look at what percentage of median pre-tax household income is needed to pay the cost of a mortgage on an average-priced detached bungalow, plus property taxes and utilities. Lenders deem a house to be affordable if the associated costs account for no more than 32 per cent of the borrower’s gross income. Here are affordability numbers from the first quarter of 2013.
recharts
Banned
I am trying to understand that too.
I am trying to be honest and post my stats in advance of TREB's data.
I published my numbers last night, I was short of time and there might be some mistakes. I am going to check this evening.
in the little time that I had today I checked TREB's numbers and they are not consistent with each other.
Here are the results
http://recharts.blogspot.ca/2013/06/i-am-sorry-but-wtf.html
If you check what they pretend that were the YoY changes in sales, the numbers do not add!
That is one side of the problem
The other side is the striking small difference between my average prices and their average prices for three segments: SFH, Semis and Condos
It is impossible that, in a rising market as they pretend this is, you have the same averages for so different sales numbers (mine and theirs)
My suspicion is that they "tuned" the numbers to mask REALLY BAD sales numbers for this first half of the month.
They can easily compensate in the next half on them month if the things continue to get worse.
For Townhouses their stats are messed up as they do not explain in which category they put Condo Townhouses.
Last month they seemed to have put them all under Townhouses category. That explains why my numbers do not match theirs
All in all I think that the market is moved where I predicted and what BoC is afrad of may become true soon.
The condos barely advanced in price while the sales are down big time. This will affect the entire market and the economy.
daveto
Active Member
TREB publishes "preliminary" sales figures. However, these typically include about 5% of deals that fall through for one reason or another.
However when they compare the YOY changes, they compare the current months preliminary data with the prior years final data. (ie final=after the 5% of deals fall through)
That is the source of the discrepancy you'd noted about TREB's data. It is certainly misleading, and and will always overstate the YOY sales by approx 5%.
recharts
Banned
I don't think you got my point.
I will try again
If a year ago they said they sold 100 houses
And this year they say they sold 105 houses and 5% of the deals fal through this is one thing that I am going to note later
for now I will publish that I registered a 5% increase in sales
If insted I say I sold 105% and I pretend that the increase was 7% that is a lie
In other words the effect of the 5% will be seen later but at least for now the two numbers 2012 and 2013 sales are fixed and TREB's maths should not differ from anybody else's maths.
Take the YoY change in SFH sales for 416:
2012 625
2013 577
THAT IS -7% decrease NOT -4% as they reported
daveto
Active Member
I understood your point. But you have not understood mine. The section I have bolded above is the source of the confusion.
The 2012 sales figure you quote is preliminary (before the 5% decrease from the sales that fall through)
The 2013 sales figure you quote is also preliminary.
And the YOY change of the two preliminary figures is indeed -7% as you state.
However TREB's stats for the YOY change is Current Year Preliminary vs Prior Year FINAL. And that is -4%.
daveto
Active Member
I understood your point. But you have not understood mine. The section I have bolded above is the source of the confusion.
The 2012 sales figure you quote is preliminary (before the 5% decrease from the sales that fall through)
The 2013 sales figure you quote is also preliminary.
And the YOY change of the two preliminary figures is indeed -7% as you state.
However TREB's stats for the YOY change is Current Year Preliminary vs Prior Year FINAL. And that is -4%.
Note that they do not publish the Detached mid-month Final stats, only the Preliminary. However if you look at the GTA Final Sales of of 4412, you will note that is approx 5% lower than the GTA Preliminary Sales of 4597 (as published in 2012). See the following two links to compare.
http://www.torontorealestateboard.c...market_updates/news2012/nr_mid_month_0612.htm
http://www.torontorealestateboard.c...market_updates/news2013/nr_mid_month_0613.htm
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recharts
Banned
Holly cow!
I never paid attention to that detail
I never suspected that they can be that dishonest. And I thought that they go back and fix this sort of reports when they finally have the final numbers.
Either way
if I compare the unadjusted 2013 numbers with the unadusted 2012 numbers
or
if I compare the adjusted 2012 with the adjusted 2013 I should get approximately the same differences
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nativejack
New Member
recharts: take a look at the excel chart picture in this post and it will clear up everything http://www.torontocondobubble.com/2013/04/toronto-home-sales-are-lower-than-being.html
recharts
Banned
That is false and misleading. I wonder why nobody goes after them.
This should be denied by law.
Thanks a lot for the article, I will link it in my post
interested
Senior Member
Thank you Nativejack.
This is very informative.
Unfortunately the only reason I can come up with for the methodology change is a "deliberate attempt" to mislead. Is there a more benign explanation? Also, the timing is very suspect.
The classic statement of lies, damn lies, and statistics comes to mind. I wonder when/if some disgruntled very wealthy investors lose a lot of money sue saying they relied on deliberately false data provided by TREB or CREA or other real estate borards and misrepresentation of numbers by TREB and their agents.
This is very informative.
Unfortunately the only reason I can come up with for the methodology change is a "deliberate attempt" to mislead. Is there a more benign explanation? Also, the timing is very suspect.
The classic statement of lies, damn lies, and statistics comes to mind. I wonder when/if some disgruntled very wealthy investors lose a lot of money sue saying they relied on deliberately false data provided by TREB or CREA or other real estate borards and misrepresentation of numbers by TREB and their agents.
Eug
Senior Member
So, final stats come later. What's the big deal?
interested
Senior Member
Eug, by comparing apples to oranges final data to preliminary before allowing the non closings or cancelled sales to be eliminated from the current period sales allows for artificial inflation of the true market sales data..
For comparison sake, I note Treb and others point out right away that there was 1 selling day less during a current period so sales are under reported. They tend not to make much of an issue when there is 1 extra selling day. Here I would suggest Treb would be the screaming if the true sales are 2-4% higher than reported rather than under reported.
I get they are in the business of supporting their sales and industry but it is sad that an industry resorts to "fudging" the numbers. I won't say it is out and out lying but it is getting pretty close in my view.
Similar to mutual fund companies who choose the bottom of the market and then draw a line to the top of the market and report the returns as being much better than what virtually any "real" investor gets. It may be true but it is deliberately done to to misrepresent the true facts.
Please appreciate that most of the public is not well versed in many topics and reads the data and assumes it is an honest representation of the true facts. Just I guess a sad reflection of our whole society in my view.
For comparison sake, I note Treb and others point out right away that there was 1 selling day less during a current period so sales are under reported. They tend not to make much of an issue when there is 1 extra selling day. Here I would suggest Treb would be the screaming if the true sales are 2-4% higher than reported rather than under reported.
I get they are in the business of supporting their sales and industry but it is sad that an industry resorts to "fudging" the numbers. I won't say it is out and out lying but it is getting pretty close in my view.
Similar to mutual fund companies who choose the bottom of the market and then draw a line to the top of the market and report the returns as being much better than what virtually any "real" investor gets. It may be true but it is deliberately done to to misrepresent the true facts.
Please appreciate that most of the public is not well versed in many topics and reads the data and assumes it is an honest representation of the true facts. Just I guess a sad reflection of our whole society in my view.
js97
Senior Member
A BOC focused on exports growth and a continued 2 % target inflation rate = interest rates are going no where.... unless our success and export growth creates enough inflation for the BOC to 'dampen' that growth... No immediate damper on the housing bubble from the Monetary side?
http://www.theglobeandmail.com/repo...ience-as-recovery-takes-root/article12667079/
http://www.theglobeandmail.com/repo...ience-as-recovery-takes-root/article12667079/