Baby, we got a bubble!?

[KA1]

Talk of a real estate bubble has now migrated to the commercial sector. Read all about in today's (Monday) The Globe and Mail.

Oh Boy.

At least, we now can breathe easy for a while

 

[James]

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.

Considering that the study only looked at rental properties listed on MLS, I would absolutely agree that their 25% figure should be higher. The 40% figure is probably in the proper range. So assume that 40% are investors. I surely can't see more than half of that group being foreign investors, however even if we use that estimate, that would surmount to 20% of condos being foreign owned. To me, that really doesn't justify the impression out there that foreign investors are buying up all the condo units in Toronto. I'm still trying to validate the theory of foreign investors overwhelmingly inflating the condo market.

 

[kEiThZ]

Combine that knowledge with this:

http://www.macleans.ca/economy/money-economy/living-beyond-our-means/

Canadians are tapped out. Certain markets (Halifax, Montreal, Ottawa, Victoria) have already crashed. Yet, delusional Torontonians (including many of my family and friends) think it's different here. Part of me might actually enjoy the schadenfreude and saying, "I told you so" to my dumbass relatives who think investing at market peak is a great idea.

People forget that the US bubble essentially popped in one year. It kept going in 2006. Until it didn't in 2007. The same will happen here. This year or the next. I used to be skeptical. At this point, I think it's a virtual certainty. Timing is the only thing that nobody can pin down.

 

[TheKingEast]

Combine that knowledge with this:

http://www.macleans.ca/economy/money-economy/living-beyond-our-means/

Canadians are tapped out. Certain markets (Halifax, Montreal, Ottawa, Victoria) have already crashed. Yet, delusional Torontonians (including many of my family and friends) think it's different here. Part of me might actually enjoy the schadenfreude and saying, "I told you so" to my dumbass relatives who think investing at market peak is a great idea.

People forget that the US bubble essentially popped in one year. It kept going in 2006. Until it didn't in 2007. The same will happen here. This year or the next. I used to be skeptical. At this point, I think it's a virtual certainty. Timing is the only thing that nobody can pin down.

I can go back 4 years ago in this thread and read the same "sky is falling" stuff. I don't know when the end will happen, but there's no article or stat that is going to convince me to think one way or the other. What we're experiencing is unprecedented so I'm not going to predict as if I know what the hell's going on. I still don't understand why people compare other cities markets with Toronto or the US with Canada.

 

[CN Tower]

I still don't understand why people compare other cities markets with Toronto or the US with Canada.

I quite agree TKE. The reason for it generally comes from non-market participants who crow aimlessly about how smart they are but really don't take any risk. So they miss out on the huge runs and concomitantly avoid the downturns. It gives them a sense of false superiority by feeling they are better than their peers who are active and engaged. Generally the voices from the crowd are actually very intelligent minds but that does not make them successful investors or business people. The most successful I know are not the brightest but the ones who have been able to leverage trust of the people who can write the biggest cheques to support their ideas and there business plans and reward themselves exponentially to their investors.

Investing is all about being opportunistic and managing risk, not avoiding it altogether. Toronto has many unique characteristics that define its market. It is very different from most cities and the best evidence of that is the sheer volume of condo sales that the city has seen from the early part of last decade. No where else compares and there is something unique about that reality. 20,000 annual condo sales is unheard of anywhere else on this continent.

Notwithstanding, when does the party end and the trend reverse and what will cause it? My guess is that the investor visa program will have a very strong impact here on both pricing and volume of sales and unless the Conservatives have some sort of alternative program that they are promoting we will see the tide turn quickly in this market.

The market here is pretty mature though so I have a hunch that the real investors in the sector will be content to receive their steady returns from their units regardless of the vagaries of the mark to market value of the property much like investors in blue chip dividend paying equities ignore the stock price for the most part and focus on the dividends. If they focus on the yields and not the day to day movements in prices they will be relatively content. If rents start to fall and the investors start to actually have to feed their units we might see some real problems. As a whole I don't think the condo investor segment is really that leveraged but my info is rather anecdotal as this isn't my area of direct expertise.

Time will tell but I expect a big slowdown in volume to continue and pricing to flatten out for the near term.

 

[cdr108]

Fed's Plosser sees end-2016 funds rate at 4%, not 3%

http://www.marketwatch.com/story/fe...ds-rate-at-4-not-3-2014-03-25?dist=lcountdown

By Greg Robb

WASHINGTON (MarketWatch) -- Charles Plosser, the president of the Philadelphia Federal Reserve Bank, on Tuesday clarified his interest rate forecast, saying he sees the federal funds rate at 4% at the end of 2016. Earlier in an interview on CNBC, Plosser said he projected the funds rate at 3% at the end of 2016. But CNBC said that Plosser contacted the network after the interview to amend his forecast. He said he sees the funds rate at 3% at the end of 2015, instead of his earlier comment of "two-something," CNBC said. Plosser is a voting member of the Fed's policy committee this year.

 

[Bruno Republic]

I can go back 4 years ago in this thread and read the same "sky is falling" stuff. I don't know when the end will happen, but there's no article or stat that is going to convince me to think one way or the other. What we're experiencing is unprecedented so I'm not going to predict as if I know what the hell's going on. I still don't understand why people compare other cities markets with Toronto or the US with Canada.

I've been hearing it for ten years now. I mentioned to an acquaintance that I was thinking of buying a condo. "Oh, the market's going to crash, and you'll lose all your money" he snapped back.
That was in 2004. Needless to say, I'm glad I didn't listen. I sold it last year for 70% more than I paid for it, and even that's with the unit not appreciating much due to a number of reasons, and me willing to let it go for less rather than leave it on the market for months trying to get a bit more.

Ever since then, on any online news article about real estate article I've seen, are dozens of comments of people who are convinced that a massive market meltdown is imminent, and yes, it's happening for sure, this is just the first warning, it's really happening now, we'll see the devastation in a matter of weeks, here it comes, all the wicked speculators who inflated property values are gonna lose their shirts!!!1 First they said we would follow the US, just two years later, because it's not "different" here. Then a bunch of them were absolutely convinced that the market would collapse five years after the first zero down/40-year mortgages came up for renewal, as if millions of people bought with that sort of financing (in reality, very few did). Then some cited changes in the Chinese economy and real estate market as "proof" that the collapse was imminent. They also all seemed to believe that the vast majority of sales were to speculators and investors, and that downtown TO was filled with finished but vacant highrises. The slightest trend downward was ample evidence that the collapse was coming. Any positive trends were dismissed as deceptive propaganda by the real estate industry.

And then there are the infantile, predicatable remarks: "Pop goes the bubble because the bubble goes pop!" "Get out now while you can, the market's got nowhere to go but down!" "Once the dust settles, I'll be buying foreclosed property for what it's really worth, which is pennies on the dollar" "gullible people throwing money away on WORTHLESS condos deserve what they get"

If I had a nickel for every time someone claimed the market was on the verge of imploding, I could buy half of Vancouver.

 

[TO_Guy]

I've been hearing it for ten years now. I mentioned to an acquaintance that I was thinking of buying a condo. "Oh, the market's going to crash, and you'll lose all your money" he snapped back.
That was in 2004. Needless to say, I'm glad I didn't listen. I sold it last year for 70% more than I paid for it, and even that's with the unit not appreciating much due to a number of reasons, and me willing to let it go for less rather than leave it on the market for months trying to get a bit more.

Ever since then, on any online news article about real estate article I've seen, are dozens of comments of people who are convinced that a massive market meltdown is imminent, and yes, it's happening for sure, this is just the first warning, it's really happening now, we'll see the devastation in a matter of weeks, here it comes, all the wicked speculators who inflated property values are gonna lose their shirts!!!1 First they said we would follow the US, just two years later, because it's not "different" here. Then a bunch of them were absolutely convinced that the market would collapse five years after the first zero down/40-year mortgages came up for renewal, as if millions of people bought with that sort of financing (in reality, very few did). Then some cited changes in the Chinese economy and real estate market as "proof" that the collapse was imminent. They also all seemed to believe that the vast majority of sales were to speculators and investors, and that downtown TO was filled with finished but vacant highrises. The slightest trend downward was ample evidence that the collapse was coming. Any positive trends were dismissed as deceptive propaganda by the real estate industry.

And then there are the infantile, predicatable remarks: "Pop goes the bubble because the bubble goes pop!" "Get out now while you can, the market's got nowhere to go but down!" "Once the dust settles, I'll be buying foreclosed property for what it's really worth, which is pennies on the dollar" "gullible people throwing money away on WORTHLESS condos deserve what they get"

I had a nickel for every time someone claimed the market was on the verge of imploding, I could buy half of Vancouver.

How do you like a post on UT?

 

[CN Tower]

I've been hearing it for ten years now. I mentioned to an acquaintance that I was thinking of buying a condo. "Oh, the market's going to crash, and you'll lose all your money" he snapped back.
That was in 2004. Needless to say, I'm glad I didn't listen. I sold it last year for 70% more than I paid for it, and even that's with the unit not appreciating much due to a number of reasons, and me willing to let it go for less rather than leave it on the market for months trying to get a bit more.

Ever since then, on any online news article about real estate article I've seen, are dozens of comments of people who are convinced that a massive market meltdown is imminent, and yes, it's happening for sure, this is just the first warning, it's really happening now, we'll see the devastation in a matter of weeks, here it comes, all the wicked speculators who inflated property values are gonna lose their shirts!!!1 First they said we would follow the US, just two years later, because it's not "different" here. Then a bunch of them were absolutely convinced that the market would collapse five years after the first zero down/40-year mortgages came up for renewal, as if millions of people bought with that sort of financing (in reality, very few did). Then some cited changes in the Chinese economy and real estate market as "proof" that the collapse was imminent. They also all seemed to believe that the vast majority of sales were to speculators and investors, and that downtown TO was filled with finished but vacant highrises. The slightest trend downward was ample evidence that the collapse was coming. Any positive trends were dismissed as deceptive propaganda by the real estate industry.

And then there are the infantile, predicatable remarks: "Pop goes the bubble because the bubble goes pop!" "Get out now while you can, the market's got nowhere to go but down!" "Once the dust settles, I'll be buying foreclosed property for what it's really worth, which is pennies on the dollar" "gullible people throwing money away on WORTHLESS condos deserve what they get"

If I had a nickel for every time someone claimed the market was on the verge of imploding, I could buy half of Vancouver.

A vast over simplification of anything but a simple situation. Intelligent minds looking for enlightened discourse delve deeper into the dynamics at play than binary 'market good/market bad' hyperbole.

Analysts have pointed out valid opinions on the market for a decade. The performance of the market doesn't negate the validity of the opinions or the extent to which many housing analysts with non vested interests made quite plausible points.

Truly when the actual yield on a risk asset hovers around 2% when properly adjusted for all appropriate costs it doesn't take a blow hard like Garth Turner to observe that a correction in pricing is ultimately over due. My contention remains that without the external demand from money laundering sources across the globe a 2% yield, below the cost of capital is not sustainable.

 

[kEiThZ]

I still don't understand why people compare other cities markets with Toronto or the US with Canada.

Because economic principles don't suddenly suspend application when you reach the GTA or Canadian border.

Look at the growth of the FIRE (Finance, Insurance, Real Estate) sectors in Canada. We've survived the Great Recession by trading houses to each other on increasing leverage and debt. That's not sustainable by any measure.

I've been hearing it for ten years now. I mentioned to an acquaintance that I was thinking of buying a condo. "Oh, the market's going to crash, and you'll lose all your money" he snapped back.
That was in 2004. Needless to say, I'm glad I didn't listen. I sold it last year for 70% more than I paid for it, and even that's with the unit not appreciating much due to a number of reasons, and me willing to let it go for less rather than leave it on the market for months trying to get a bit more.

I bought my condo in Ottawa in 2007. 2004 was a different world. Here's a really simple test for you. Given your income today, would you be able to get into the market and buy the same condo you live in today? Somehow, I doubt that your income has risen by 70% since 2004.

In 2004, I would have said the party was getting started. In 2007, I was skittish but bought anyway. And that was at 5% rates for a fixed. Today, people can barely afford to jump in at 3% fixed. Using US definitions, a good chunk of our mortgage market (all who buy with CMHC) would be considered sub-prime. The idea that is any where sustainable beyond another year or two beggars belief. We are at a point where people can't afford homes at some of the lowest rates in history. When rates rise (and they will given the way our dollar is going.....), the party will come to an end rather quickly when pre-approval limits start falling. And if rates don't bring them down, incomes not keeping pace with housing costs most certainly will.

I'd say this probably applies to a good proportion of the GTA's families:
http://www.theatlantic.com/business...aking-people-live-paycheck-to-paycheck/284586

 

[kEiThZ]

Investing is all about being opportunistic and managing risk, not avoiding it altogether. Toronto has many unique characteristics that define its market. It is very different from most cities and the best evidence of that is the sheer volume of condo sales that the city has seen from the early part of last decade. No where else compares and there is something unique about that reality. 20,000 annual condo sales is unheard of anywhere else on this continent.

I imagine, people in Miami had similar sentiments at the height of their bubble.

Notwithstanding, when does the party end and the trend reverse and what will cause it? My guess is that the investor visa program will have a very strong impact here on both pricing and volume of sales and unless the Conservatives have some sort of alternative program that they are promoting we will see the tide turn quickly in this market.

The whole idea about foreign investors buying up condos to me is sketchy at best. If that was the case, why our monetary balances all a kilter? And why are Canadians so in-debted if it's the foreigners buying up all the real estate? The reality is that with 70% home ownership rates, it's Canadians doing most of the buying and selling.

The market here is pretty mature though so I have a hunch that the real investors in the sector will be content to receive their steady returns from their units regardless of the vagaries of the mark to market value of the property much like investors in blue chip dividend paying equities ignore the stock price for the most part and focus on the dividends.

Right. And with condos where they are today, there's a realistic possibility that a lot of buyers are cash flow negative if they've got only 20% in. Their return on equity is most definitely miniscule too.

If they focus on the yields and not the day to day movements in prices they will be relatively content. If rents start to fall and the investors start to actually have to feed their units we might see some real problems. As a whole I don't think the condo investor segment is really that leveraged but my info is rather anecdotal as this isn't my area of direct expertise.

The famous Warren Buffett quote comes to mind. To paraphrase, "you don't really know who's naked until the tide goes out."

Time will tell but I expect a big slowdown in volume to continue and pricing to flatten out for the near term.

And then there are the infantile, predicatable remarks: "Pop goes the bubble because the bubble goes pop!" "Get out now while you can, the market's got nowhere to go but down!" "Once the dust settles, I'll be buying foreclosed property for what it's really worth, which is pennies on the dollar" "gullible people
throwing money away on WORTHLESS condos deserve what they get"

This I actually agree with. The reality is that when most bubbles pop, there isn't some huge 30% drop. It's usually a small drop (say 10%), followed by a long slide. Heck, there might even be a short rally in there (bull trap). Certainly this was the case in the early 90s. Prices didn't recover from the drop in 1990/1991 till 97/98. So pennies on the dollar? No. But a small drop, followed by a long slide? Very probable.

 

[kEiThZ]

Fed's Plosser sees end-2016 funds rate at 4%, not 3%

http://www.marketwatch.com/story/fe...ds-rate-at-4-not-3-2014-03-25?dist=lcountdown

By Greg Robb

WASHINGTON (MarketWatch) -- Charles Plosser, the president of the Philadelphia Federal Reserve Bank, on Tuesday clarified his interest rate forecast, saying he sees the federal funds rate at 4% at the end of 2016. Earlier in an interview on CNBC, Plosser said he projected the funds rate at 3% at the end of 2016. But CNBC said that Plosser contacted the network after the interview to amend his forecast. He said he sees the funds rate at 3% at the end of 2015, instead of his earlier comment of "two-something," CNBC said. Plosser is a voting member of the Fed's policy committee this year.

The way our dollar is going, rates will be up here faster. Unless the BoC and government are okay will devaluing our dollar substantially.

 

[CN Tower]

The whole idea about foreign investors buying up condos to me is sketchy at best. If that was the case, why our monetary balances all a kilter? And why are Canadians so in-debted if it's the foreigners buying up all the real estate? The reality is that with 70% home ownership rates, it's Canadians doing most of the buying and selling.

Because they're not foreigners under the investor visa program. They are rich immigrants who buy their citizenship and then buy condos for themselves and family once they arrive.

If investor visa program goes so may these buyers.

Re: Miami, they built on spec without substantial pre selling because construction lenders threw money at them. It was never like that in Toronto. Not pre credit crisis, not now. Always substantial sales pre construction with non refundable deposits and firm sales contracts with real buyers.

Apples to oranges.

 

[canuck63]

new member here from Vancouver, bc
You have me worry, we're in the market for a condo for my kid who will start at York this Sept. we're looking in the Downsview area, is it worth an investment or should I just rent him a condo instead?

BTW , still cant figure how to post a new thread, help please?

 

[PinkLucy]

You can't post a new thread until you have been here for a bit