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Baby, we got a bubble!?

TheKingEast said:
Stopped reading after "Sotheby's"
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That info is contrary to the whispers I've heard on the street from reputable brokers.

Yes, Sotheby's is known for listing units at wildly inflated prices hoping to land a clueless offshore whale who doesn't bother to do his due diligence.
 
I have heard that the high end is in demand but not at the prices of new product.
What is apparently in demand are larger units 1500 to 2000 sq.ft. in better buildings though not necessarily new product at above $800/sq.ft.. At$600/sq.ft. these resale units are in the Million dollar+range and there are not a lot of good listings like that available...hence why the prices may be going up.

I do agree with 2 things though: 2 parking spots for those who are boomers downsizing and still working or want to lead individual lives despite being married and also maintenance fees. In some of the new luxury product $1/sq.ft. maintenance x 2000 sq.ft. has people looking carefully, especially when they factor in taxes. Most newer product is smaller as the market for the larger units is "thin".
 
^^^
Yes. Just figuring out when is what is difficult.
And if it is a major meltdown, there will be a massive wealth transfer from those extended presently and those sitting patiently or rather impatiently on the sidelines.
 
Fitch warns on housing
Along with a new report today showing Canadian home prices still rising comes a warning from a credit rating agency that the government may have to intervene in the housing market yet again.

Fitch Ratings, which has believed for some time now that the residential real estate market is overvalued to the tune of about 20 per cent, warned that heavy consumer debt levels have “made the market more susceptible to market stresses like unemployment or interest rate increases.”

The credit rating agency doesn’t believe the jobless level is going to spike, but it doesn’t see interest rates easing further, either.

“Both property sales and building permits for residential construction have picked up in recent months,” Fitch said in today’s report.

“Home prices also continue to be supported by historically low interest rates and a lack of supply in the major metropolitan areas; these factors have propped up affordability and drive demand.”

Fitch noted the many steps Canadian policy makers have taken over the past few years to “mitigate some of the risks,” including those from the government, the banking regulator and Canada Mortgage and Housing Corp.

“However, the long-term impacts remain unclear, and policy makers may be required to take additional steps over the short term to engineer a soft landing.”

The Fitch report came just a new reading of Canada’s housing market showed prices continued to rise in June, though lagged for what’s generally expected in that month.

Prices rose 0.9 per cent from May, according to the Teranet-National Bank house price index released today, and climbed 4.4 per cent from a year earlier.

Last month’s increase was “substantial,” according to the statement, though was the second slowest for the month of June over the last decade.

Compared to last June, the rise of 4.4 per cent was the slowest in six months.

Calgary again led the country, with a jump of 8.1 per cent from a year earlier, while Toronto and Vancouver each recorded gains of 6.1 per cent.

National Bank economist Marc Pinsonneault expects prices to continue rising, though with “weakness east of Toronto being dwarfed by generally healthy market conditions elsewhere.”

Over the course of the year, prices indeed fell in Halifax, Quebec City and the Ottawa area.

Canadian economists generally believe the market is heading toward the hoped-for soft landing.

“With the housing market having now shaken off the winter blues, prices are continuing to rise at a solid pace,” said senior economist Randall Bartlett of Toronto-Dominion Bank.

“That said, the continued deceleration in price growth on a year-over-year basis may be an indication that the Canadian housing market is becoming more balanced,” he said in a research note today.

“We expect to see the cooling trend continue through the end of 2015. This view is premised on rising prices encouraging strong growth in new listings while the number of newly-competed housing units remain elevated, both of which will boost supply and weigh on prices. At the same time, interest rates are likely to grind higher in Canada, resulting in reduced affordability.”
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http://www.theglobeandmail.com/repo...canada-may-have-to-act-again/article19584589/
 
The "when" is the million dollar question. As with all markets, real estate goes up and it goes down. It rallies and then it corrects. Trying to predict when it corrects is as impossible as predicting exactly when it's going to boom.

The challenge is: how long do you wait and at what correction do you jump into the market? When you do, how many others will be there, also having waited, and now ready to bid on those undervalued properties?

How much appreciation will have gone by before the correction? When the correction happens, will it be enough to offset the wait? Assume the market increases year over year at a rate of 5%. You'd need a 22% correction to make that 5 year wait cost-neutral (in the simplest of terms, of course, as we're not including carrying costs, opportunity cost, inflation, etc.). This means a house currently worth $700,000 would need to drop to $546,000 for that 5-year hold to make sense.

I'm not a real estate pumper nor am I a real estate bear. I just try to approach it in a rational and practical manner.
 
James:
I have been accumulating slowly. I occasionally sell but I am not intending selling no matter what.
Those who buy to live I think this is a foolish game.
Those who buy to invest have other issues: If one owns a property for many years, there is recaptured depreciation and capital gains as well as the selling costs. This can eat easily 30% if one has held a property for a couple of decades. Then with 70% left despite the value achieved on sale, can one invest that 70% as well as the return one is getting on the existing property.
So, other than recently purchased property which one can make a profit on and assuming you know when to sell...the big "if" equivalent to your "when" it is difficult.
Other issues are that as one gets older (my case) one gets to the point of wondering if one still wishes to be a landlord.

However, I have not purchased anything in 4 years and am accumulating a bit of money and if there were a 25% correction I will look at the economics and if the fundamentals make sense, I may buy again.
Buying real estate based soley on capital appreciation is speculation in my view and not investing. Investing necessarily requires calculations of returns and risk/reward.
 
James said:
The "when" is the million dollar question. As with all markets, real estate goes up and it goes down. It rallies and then it corrects. Trying to predict when it corrects is as impossible as predicting exactly when it's going to boom.

The challenge is: how long do you wait and at what correction do you jump into the market? When you do, how many others will be there, also having waited, and now ready to bid on those undervalued properties?

How much appreciation will have gone by before the correction? When the correction happens, will it be enough to offset the wait? Assume the market increases year over year at a rate of 5%. You'd need a 22% correction to make that 5 year wait cost-neutral (in the simplest of terms, of course, as we're not including carrying costs, opportunity cost, inflation, etc.). This means a house currently worth $700,000 would need to drop to $546,000 for that 5-year hold to make sense.

I'm not a real estate pumper nor am I a real estate bear. I just try to approach it in a rational and practical manner.
Click to expand...

I think your assumption that you're losing out on returns by not investing now is misguided. You can invest in other asset classes and get a return while you wait for the market to correct. For example, investors were better off in the S&P 500 than most Canadian real estate over the past 5 years. Equity investors are actually ahead of real estate investors, despite the great returns on real estate.
 
DearSummer said:
I think your assumption that you're losing out on returns by not investing now is misguided. You can invest in other asset classes and get a return while you wait for the market to correct. For example, investors were better off in the S&P 500 than most Canadian real estate over the past 5 years. Equity investors are actually ahead of real estate investors, despite the great returns on real estate.
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This is a bit disengenuous. Sure, those who got in in 2009 or 2010 are better off. How many were smart enough to get out in 2008 before the 50% downdraft....not many.
Real estate at most was down 15% in 2008 to 2009 and very transiently. So this logic works well if your timing was 2009 and very poorly if it was 2008.
 
interested said:
This is a bit disengenuous. Sure, those who got in in 2009 or 2010 are better off. How many were smart enough to get out in 2008 before the 50% downdraft....not many.
Real estate at most was down 15% in 2008 to 2009 and very transiently. So this logic works well if your timing was 2009 and very poorly if it was 2008.
Click to expand...

A dollar invested anytime in the past 5 years had a better chance of a good return in the S&P 500 than real estate. Obviously you can cherry pick dates to show whatever you want, but U.S. equities have outperformed Canadian real estate by any reasonable measure over the past 5 years. The point is that people aren't "missing out" on returns in real estate while they wait for a crash. There are plenty of asset classes doing as well or better than Canadian real estate.
 
DearSummer said:
A dollar invested anytime in the past 5 years had a better chance of a good return in the S&P 500 than real estate. Obviously you can cherry pick dates to show whatever you want, but U.S. equities have outperformed Canadian real estate by any reasonable measure over the past 5 years. The point is that people aren't "missing out" on returns in real estate while they wait for a crash. There are plenty of asset classes doing as well or better than Canadian real estate.
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I concur. However, choosing the past 5 years is choosing a point when the stock markets had halved. Of course, the simple recovery means a 100% increase.
As someone who was invested in the market pretty much since late 1990's, I watched personally my portfolio go down by 55%. I fortunately did not sell. Today comparing it to what I held then correcting for some sales/purchases I would say I am up over 2009 trough by about 33%.
I would suggest that since 2008-2009 my real estate holdings are also up by about 30%.

That said, I was not trying to cherry pick but your example of the past 5 years chose the absolute bottom of the stock market.
I do agree that people are not missing out on returns in real estate while they wait for a crash.

The problem will be I suspect that there is a good chance that not only real estate but the stock market will correct downwards pretty much at the same time. This is the problem....many asset classes are moving in tandem....falling at the same time and rising at the same time.
 
^^^
One other point DearSummer.
You chose US equities and state they out performed. Correct for C$ escalation and the outperformance is not nearly as good though recently the C$ has gone down.
I have a wonderful ability to predict the past with perfect certainty. How many went into the US market at the exclusion of the Canadian market...and how many hedged the currency.
This is brilliant in hind sight but tougher to predict going forward.
 
interested said:
^^^
One other point DearSummer.
You chose US equities and state they out performed. Correct for C$ escalation and the outperformance is not nearly as good though recently the C$ has gone down.
I have a wonderful ability to predict the past with perfect certainty. How many went into the US market at the exclusion of the Canadian market...and how many hedged the currency.
This is brilliant in hind sight but tougher to predict going forward.
Click to expand...

Just an example as it's how I (luckily) chose to allocate most of my assets. Any saavy investor, Canadian or not, should have much more invested in the U.S. than a small, undiversified market like Canada.

Obviously nobody knows the future, whether it be equities or real estate. I think your earlier point about asset classes moving in tandem (due to excessive liquidity in the market) is spot on. We could easily see real estate and equities fall together just as they have risen together over the past 5 years.

I am not saying that equities are a better investment than real estate going forward (I wish I knew!), but they have been for the past 5 years. This is something that gets lost in this thread sometimes when people talk about great real estate returns have been. They've been great, but most asset classes have been.

My advice for times like these is to diversify and price in risk because it seems most of the market isn't.
 
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