nrb
Active Member
Agreed. All this talk of a soft landing is wishful thinking. Historically, soft landings don't exist. They're just a pre-crash stage.
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Baby, we got a bubble!?
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Agreed. All this talk of a soft landing is wishful thinking. Historically, soft landings don't exist. They're just a pre-crash stage.
interested
Senior Member
Unless there is a large increase in interest rates or as someone aptly pointed out, instability in Canada (Quebec Election, sovereignist win and talk of referendum...especially if it looks like the PQ could win a referendum ( a lot of ifs ) that would create the hard landing.
If interest rates just creep up I don't think unless there is a big jump we will see a very hard landing.
In 1989 Toronto condo market...rents were not very different than now but interest rates were 13%.
Negative carrying charges were closer to $1000/month than the $200/month now. There was capitulation after 3 years so it may not appear as a hard landing if the negative cash flow went to $300 or $400/month as it might take 6-8 years for capitulation.
Of course, it may not follow the same course at all as previous...but in my experience, history has a tendency to repeat itself.
kEiThZ
Superstar
The market is hot until it isn't.
I have distinct memories of the last crash because my family arrived in Canada in 1991, smack in the middle of the recession only to watch the bottom of the economy fall out. The owners of the house of the basement we were staying in abandoned the house to a bank foreclosure and absconded with a few months of rent that my father had paid them. The bank let us stay there for a few more months. Horrible.
But of course, most GTA residents have arrived after that crash and don't remember the bad times. They've only ever known a boom. And as such history is due to repeat itself.
Agree with nrb. No such thing as a soft landing. Because seller psychology takes root. When your home isn't selling, you cut the price to get the sale. That forces your neighbour down the street to cut his price so that he can sell. And so on. Historically, what you see is a sharp drop (say 10%) followed by another few years of slow depreciation, followed by a gentle climb back.
The GTA condo market will show everyone how bubble popping mechanics work this year.
The SFH market I'm not so sure about. There is actually a shortage of good SFH. But condos? With that amount of speculation? Done.
I have distinct memories of the last crash because my family arrived in Canada in 1991, smack in the middle of the recession only to watch the bottom of the economy fall out. The owners of the house of the basement we were staying in abandoned the house to a bank foreclosure and absconded with a few months of rent that my father had paid them. The bank let us stay there for a few more months. Horrible.
But of course, most GTA residents have arrived after that crash and don't remember the bad times. They've only ever known a boom. And as such history is due to repeat itself.
Agree with nrb. No such thing as a soft landing. Because seller psychology takes root. When your home isn't selling, you cut the price to get the sale. That forces your neighbour down the street to cut his price so that he can sell. And so on. Historically, what you see is a sharp drop (say 10%) followed by another few years of slow depreciation, followed by a gentle climb back.
The GTA condo market will show everyone how bubble popping mechanics work this year.
The SFH market I'm not so sure about. There is actually a shortage of good SFH. But condos? With that amount of speculation? Done.
kEiThZ
Superstar
Interest rates don't just creep up. Historically, the BoC when it does raise rates makes it a quarterly tradition that lasts 8-10 quarters. What do you think 25 basis points each quarter for 10 quarters would do to real estate in this country?
Of course, I'd be less worried about the BoC raising rates than bond prices going up and tanking RE on fixed mortgage pricing. Which is bound to happen. Our economy is not growing. Other parts of the world are. Nobody is going to buy Canadian bonds at a discount.
interested
Senior Member
KeithZ,
I was just trying to point out that I am not so sure it will be a sudden hard landing as the economics are somewhat different when you are talking about 13% mortgage rates vs. 3%.
Interesting article in Today's Globe: TO ME THIS SOUNDS LIKE IF TRUE THAT LOW INTEREST RATES WILL CONTINUE....A LOT LIKE JAPAN. R/E PRICES CRASHED THERE AS DID THE YEN, STOCK MARKET ETC. HOWEVER, THEN THEY WALLOWED. I THINK THE DEVELOPED WORLD MAY JUST WALLOW. SO WILL PRICES DROP ON R/E, YES IF WE DO A "JAPAN" BUT IF WE JUST CHUG ALONG SLOWLY WITH SUBPAR GROWTH, NOT SURE HOW THE ECONOMY, NOT JUST R/E WILL REACT.
Slower growth may be new norm as population ages: Poloz Add to ...
TAVIA GRANT
The Globe and Mail
Published Tuesday, Mar. 18 2014, 12:06 PM EDT
Last updated Tuesday, Mar. 18 2014, 12:57 PM EDT
56 comments
Changing demographics and ripples from the global financial crisis are putting the brakes on economic growth, the Bank of Canada’s governor said Tuesday.
The long-term shift of an aging population means growth will be slower than historic norms, which in turn will keep interest rates lower “than we are used to,” he said.
"We continue to believe that the world economy is healing, and that Canada will benefit in the form of stronger exports” which should fuel more investment and new business creation, central bank governor Stephen Poloz said in a speech Tuesday at the Halifax Chamber of Commerce.
That should lead to a sustained growth for Canada. However, “the demographic forces that are in play suggest that the growth trajectory that we converge on after the recovery period will be slower than our historical trend,” he said in a speech, entitled “Redefining the Limits to Growth.”
Taken together, demographics and the “hangover” from the financial crisis “are pulling in the same direction, putting limits on our growth possibilities,” he said.
That’s partly because an aging population tends to save more – rather than spend – to build wealth as people approach retirement. Many of those savings are going into homes, which does little to boost productivity.
Canada is already seeing the impact of a boomer generation that’s exiting the work-force, and the central bank expects that by next year, labour’s contribution to the potential growth of the economy will be half what it was in 2007. “That’s the labour story, in a nutshell, and it is slowing us down.”
In the near term, first-quarter economic growth “will be on the soft side,” Mr. Poloz said, weakness that likely stems from an unusually cold winter. Core inflation has ticked higher in recent months, though looking past the monthly volatility, consumer prices appear to be running at about 1.2 per cent.
He also said the possibility of secular stagnation – where economies perform well below normal for a long period of time with persistently weak labour markets – “needs to be taken seriously.”
He characterized the post-recession period as one of “prolonged lacklustre economic growth,” both in Canada and around the world, with the global economy has been growing at only two-thirds the pace of growth in the four years before the downturn.
He called the improvement in productivity in Canada in the second half of last year “very promising.” Momentum is building in the United States, which will help exports and alleviate uncertainty, which in turn should help investments.
The central bank’s outlook for the next few years “is that uncertainty will continue to dissipate, boosting investment and new firm creation, and then productivity growth is expected to outpace its 30-year average,” Mr. Poloz said.
The Bank of Canada said in January it expects GDP growth of 2.5 per cent this year and next, picking up from 1.8 per cent last year.
I was just trying to point out that I am not so sure it will be a sudden hard landing as the economics are somewhat different when you are talking about 13% mortgage rates vs. 3%.
Interesting article in Today's Globe: TO ME THIS SOUNDS LIKE IF TRUE THAT LOW INTEREST RATES WILL CONTINUE....A LOT LIKE JAPAN. R/E PRICES CRASHED THERE AS DID THE YEN, STOCK MARKET ETC. HOWEVER, THEN THEY WALLOWED. I THINK THE DEVELOPED WORLD MAY JUST WALLOW. SO WILL PRICES DROP ON R/E, YES IF WE DO A "JAPAN" BUT IF WE JUST CHUG ALONG SLOWLY WITH SUBPAR GROWTH, NOT SURE HOW THE ECONOMY, NOT JUST R/E WILL REACT.
Slower growth may be new norm as population ages: Poloz Add to ...
TAVIA GRANT
The Globe and Mail
Published Tuesday, Mar. 18 2014, 12:06 PM EDT
Last updated Tuesday, Mar. 18 2014, 12:57 PM EDT
56 comments
Changing demographics and ripples from the global financial crisis are putting the brakes on economic growth, the Bank of Canada’s governor said Tuesday.
The long-term shift of an aging population means growth will be slower than historic norms, which in turn will keep interest rates lower “than we are used to,” he said.
"We continue to believe that the world economy is healing, and that Canada will benefit in the form of stronger exports” which should fuel more investment and new business creation, central bank governor Stephen Poloz said in a speech Tuesday at the Halifax Chamber of Commerce.
That should lead to a sustained growth for Canada. However, “the demographic forces that are in play suggest that the growth trajectory that we converge on after the recovery period will be slower than our historical trend,” he said in a speech, entitled “Redefining the Limits to Growth.”
Taken together, demographics and the “hangover” from the financial crisis “are pulling in the same direction, putting limits on our growth possibilities,” he said.
That’s partly because an aging population tends to save more – rather than spend – to build wealth as people approach retirement. Many of those savings are going into homes, which does little to boost productivity.
Canada is already seeing the impact of a boomer generation that’s exiting the work-force, and the central bank expects that by next year, labour’s contribution to the potential growth of the economy will be half what it was in 2007. “That’s the labour story, in a nutshell, and it is slowing us down.”
In the near term, first-quarter economic growth “will be on the soft side,” Mr. Poloz said, weakness that likely stems from an unusually cold winter. Core inflation has ticked higher in recent months, though looking past the monthly volatility, consumer prices appear to be running at about 1.2 per cent.
He also said the possibility of secular stagnation – where economies perform well below normal for a long period of time with persistently weak labour markets – “needs to be taken seriously.”
He characterized the post-recession period as one of “prolonged lacklustre economic growth,” both in Canada and around the world, with the global economy has been growing at only two-thirds the pace of growth in the four years before the downturn.
He called the improvement in productivity in Canada in the second half of last year “very promising.” Momentum is building in the United States, which will help exports and alleviate uncertainty, which in turn should help investments.
The central bank’s outlook for the next few years “is that uncertainty will continue to dissipate, boosting investment and new firm creation, and then productivity growth is expected to outpace its 30-year average,” Mr. Poloz said.
The Bank of Canada said in January it expects GDP growth of 2.5 per cent this year and next, picking up from 1.8 per cent last year.
Eug
Senior Member
Of course there is. Whether it actually happens or not this time around is a different question.
Anyhow, the optics of this also depends when you bought too. Remember that the sky-is-gonna-fall arguments started over a decade ago.
TO_Guy
New Member
I don't pretend to know any more than anyone here but speaking to my own experience of looking for a sfh in the North York area last year, I would say that, at least in that subset of a subset of the market, demand outstrips supply greatly and any kind of a correction would be muted, I believe.
Case in point, we had 3 failed bids before we managed to close on a house - the first house there were 11 bidders, the second house 17 and the third house, the seller rejected everyone and re-listed for 100K more. It sold about a week later.
Affordability is relative. For many wealthy immigrants, the prospect of rising interest rates does not faze them as they require little to no financing. Many of the people I encountered at these bidding wars are no doubt still looking and they will continue to drive up the prices in the foreseeable future.
Case in point, we had 3 failed bids before we managed to close on a house - the first house there were 11 bidders, the second house 17 and the third house, the seller rejected everyone and re-listed for 100K more. It sold about a week later.
Affordability is relative. For many wealthy immigrants, the prospect of rising interest rates does not faze them as they require little to no financing. Many of the people I encountered at these bidding wars are no doubt still looking and they will continue to drive up the prices in the foreseeable future.
TorontoMike$$
Active Member
The Bank of Canada has lowered their 5 year rate to an all time low of 4.99%. This is the "qualifying rate" used by banks to qualify clients for mortgages.
I have also seen the 2.94% 4 and 5 year mortgages being offered again. Fixed rates are moving down folks.
I have also seen the 2.94% 4 and 5 year mortgages being offered again. Fixed rates are moving down folks.
Eug
Senior Member
To be fair, most of the warning signs out there are for the condo market.
Most acknowledge that the sfh market is still very tight.
I've noticed the banks seem to have a fire sale most spring seasons these days. Dunno if it's just coincidence, but I don't think so. I think it's to compete for the lucrative spring market. But then again, my 2.89% 5-year rate was in the dead of winter at the end of 2012.
marsh
Active Member
my two cents - I think the fact that rates are so low - while good for home buyers - is a sign of the overall weakness of the economy - i think we are in for a period of low/slow growth and interest rates will remain low - I can't even see a PQ election driving up interest rates. There does seem to be a dichotomy between single family homes and the condo market. I think people keep hearing that there is a limited supply of single family homes and see the fact that prices keep going up and read about all the ridicuolous bidding wars and think they have to get a home at all costs..I don't know how they afford it but they must be mortgaged to the hilt unless they have help from family members. I personally am worried about the condo market- I live near Bay and Bloor and I literally surrounded by massive condo towers going up within a 5 minute walk and I wonder where all of these people are to fill these condos? Also the bulk of the condos are small 500 square feet (or smaller)- meant for single people or possibly couples - but the current condo boom is doing nothing to alleviate the fact that people with families need alternative solutions to traditional single family homes which are becoming increasingly unaffordable for people. Even if people are having smaller families, these condo designs are not family friendly. I personally think this is a huge urban planning problem in the making.
At some point the two markets intersect - a person with condo who wants to move up into single family home or semi detached wont be able to do so if they cant sell their condo for a decent price. The other big factor is how much foreign investment there is in the condo market - I know this has been debated before - all I can say is my personal opinion is that I think there is a lot. As long as these overseas investors see Canada as a safe haven (and their own home economies continue to grow - and China should cause some concern on this point), I think the condo market will be bouyed to a certain extent so their won't be any crash - but things can turn on a dime. I think this year will be an interesting one give all the new condos coming on to market. I hope their won't be a crash because that would have catastrophic effects through the economy - no one will benefit.
At some point the two markets intersect - a person with condo who wants to move up into single family home or semi detached wont be able to do so if they cant sell their condo for a decent price. The other big factor is how much foreign investment there is in the condo market - I know this has been debated before - all I can say is my personal opinion is that I think there is a lot. As long as these overseas investors see Canada as a safe haven (and their own home economies continue to grow - and China should cause some concern on this point), I think the condo market will be bouyed to a certain extent so their won't be any crash - but things can turn on a dime. I think this year will be an interesting one give all the new condos coming on to market. I hope their won't be a crash because that would have catastrophic effects through the economy - no one will benefit.
KA1
Senior Member
I have heard about this statement many a times -- especially since 2008
Let's see as to how the Universe unfolds this year.
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James
Senior Member
With regards to condos being purchased by foreign investors, acknowledging that this has been brought up many times already before, I'm curious as to why people believe there is a large proportion of condo units being bought by foreign investors and not locals? Is this based on individual observation? On heresay? On some independent report? I'm not disputing it but rather trying to get verification for my own curiosity.
Eug
Senior Member
Probably more than 25% are investors, but not necessarily just foreign investors. The numbers also include domestic investors.
Investors own less than a quarter of Toronto condominiums: CMHC
About 23 per cent of Toronto’s condo stock was being rented out by investor-owners in 2012, the federal housing agency says in its annual Canadian Housing Observer review, released Wednesday, which places a special focus on the national condo market this year, revealing some interesting details.
But the review only looks at condos rented via the MLS system and doesn’t include investor-owned units just sitting empty or rented via free websites like Craigslist or word-of-mouth.
“We think the number is closer to 50 per cent,” says veteran Toronto development consultant Barry Lyon. “The data they (CMHC) are using has some shortcomings. It’s only part of the story.”
Mathieu Labarge, CMHC’s deputy chief economist, acknowledged that “to complete the picture there’s a need for data,” and it simply doesn’t exist.
Nobody seems to know exactly where buyers, or their money, is coming from, why they are buying and how they intend to use the condo.
“What we have in terms of hard facts is what we released. We have round tables with the (condo development) industry on a regular basis and what we get is that investment activity remains limited.”
Local housing experts, economists and realtors also lack hard numbers, but anecdotal evidence suggests at least 40 per cent of Toronto’s condo market is investor owned and that the number is even higher — as much as 90 per cent — in some downtown skyscrapers close to transit lines.
TO_Guy
New Member
I think the demand for single family homes stems from necessity (i.e. immigrant families, couples/families outgrowing their condos) not from fear of missing the bandwagon but I digress. Like I said, affordability is relative. Someone from an Asian metropolis such as Hong Kong or Beijing is not going to blink twice spending $1M on a 2500sf house when they pay the same for a 500sf apartment back home. I moved here from Vancouver so I can attest to some of that sentiment.
kalvinone
Active Member
also because a lot of the marketing material is for overseas... you can tell because they talk about foreign investment deposits which are different from local deposits.