Baby, we got a bubble!?

[interested]

Those of you calling for a 30-35% drop...do you currently own homes and/or investment properties? Or are you renting until the time is right? I'm just curious to see what steps you have taken to protect yourselves from the crash. If I knew for a fact that prices would drop 35% I'd sell any property I had and rent for a while until we hit the bottom then invest again. I'm sure this is a plan for many but would like to hear from the board members.

I'll take a stab at this. First, I am not calling for a 30-35% drop but do believe 10 to 20% is not only possible but likely. With regards to my own home this is a non issue for me. As Ka said, I need a place to live and it is really a nice academic discussion but I would not displace myself for the sake of possibly capitalizing on a drop in the market. Furthermore, factor in all the costs of moving, land transfer, realty fees, moving trucks, redecorating/furnishing a new space, rent expenses and 10% is easily eaten up.

With regard to investment property, the strict rule should be: does the investment make sense today and if not, it should be disposed of. However,there are tax implications to these decisions and one looses a certain amount of equity if there has been escalation. then there are all the fees. As well, to me, real estate is part of a balanced portfolio and so long as one has enough equity, has rent to meet expenses, it will be held. As well, what would you do with the money. Stock market is very choppy and risky. bond yields are minimal. One could hold cash. There are other investments. I view it as part of a balanced portfolio.

so the answer JayBee is: No I will not be selling my investment properties. I will however not be buying more investment properties in the present environment and i fully expect the 2 that I bought in 2007 and 2008 may well go back to the purchase price if not even 5% lower. this is of no real concern as I expect to have a fair amount of equity and very little mortgage which even reduced rents will carry.

However, I am a long term investor, not a short term speculator. However, given that real estate is a long term investment financed through short term money, the long bull in the bond market with declining rates is likely over, so capital appreciation will be less of a reason to buy but rather cash flow and if low rates of cash flow are acceptable, real estate can be justified on a continuing basis.

 

[KA1]

http://www.theglobeandmail.com/repo...fall-for-first-time-this-year/article1640760/

Link to an article in today's The Globe and Mail

 

[myfive]

As an aside, I heard through a sales person in AURA sales office that a good number of individuals walked away from their purchases and lost 1 or 2 quarterly installments they had paid. Better to lose some money now rather than loose a bundle later. This was in March 2008.

Can you say DUMB!!! That building is a goldmine...i think purchasers will be exstatic with their unit appreciation by the time that is built. We have to assume there were personal circumstances at work there. Nobody in their right mind would walk away from that project because they are expecting a price correction. That is laughable!!

Edit added: I see you say March 2008. What happened is that they lost the rest of their deposit money in the stock crash. Should have been in GIC's or something if they needed the money for their condo payments.

 

[urbandreamer]

Really? A gold mine? Nonsense, I think it will be a Ryerson and UofT student residence! As in 4 students per condo to make the rent affordable. It will be a nightmare to live in.

 

[myfive]

Really? A gold mine? Nonsense, I think it will be a Ryerson and UofT student residence! As in 4 students per condo to make the rent affordable. It will be a nightmare to live in.

silly speculation. That is the best project going on in the city right now IMO. Anyone that got in on that one can just sit back on cruise control and reap the profits later. I've been kickin' myself for missing out on it. Don't know how i did or what i was thinking. (Maybe i just didn't have any money at the time...lol)

(1 bloor is pretty awesome as well but prices are much much higher than what they paid at AURA)

 

[JayBee]

silly speculation. That is the best project going on in the city right now IMO. Anyone that got in on that one can just sit back on cruise control and reap the profits later. I've been kickin' myself for missing out on it. Don't know how i did or what i was thinking. (Maybe i just didn't have any money at the time...lol)

(1 bloor is pretty awesome as well but prices are much much higher than what they paid at AURA)

I agree, Aura's a nice little investment. I remember at one point they were selling fully furnished suites.

 

[myfive]

I agree, Aura's a nice little investment. I remember at one point they were selling fully furnished suites.

Wow. Heh Jaybee, do you (or anybody) know what the units we're selling for in terms of price per sq. ft wihen it opened? Just curious

edit: for the unfurnished units

 

[Johnzz]

Low $500's/sqft originally...

 

[KA1]

Wow. Heh Jaybee, do you (or anybody) know what the units we're selling for in terms of price per sq. ft wihen it opened? Just curious

edit: for the unfurnished units

$ 500 sq ft for VIP agents preview. A few weeks later,$ 550 sq ft for owners of units in RoCP1 & 2; must have gone up subsequently for general public. Executive floors -- starting at floor 56-- were around $ 700 per sq. ft. Sub-penthouse were even higher. These were the fully furnished suites. By the way, penthouse is still for sale. Price is cheap. Only $ 17.5 million. And that is in Canadian dollars. That makes it a 'bargain'.

 

[KA1]

I agree, Aura's a nice little investment. I remember at one point they were selling fully furnished suites.

These were sub-penthouse units marketed, mainly, to UK/oveseas residents

 

[KA1]

Really? A gold mine? Nonsense, I think it will be a Ryerson and UofT student residence! As in 4 students per condo to make the rent affordable. It will be a nightmare to live in.

Why it took you so long to make your usual post? Why? O Why?...

 

[myfive]

$ 500 sq ft for VIP agents preview. A few weeks later,$ 550 sq ft for owners of units in RoCP1 & 2; must have gone up subsequently for general public

Thanks KA1/Johnzz.....the $500 is a real nice price!

 

[KA1]

http://www.theglobeandmail.com/repo...xt-for-canadas-housing-market/article1641460/

Link to an interview in today'sThe Globe and Mail with Mr. Paul Gauthier, senior TD economist on "what next for Canada's housing market". A very ineresting reading indeed

 

[myfive]

http://www.theglobeandmail.com/repo...xt-for-canadas-housing-market/article1641460/

Link to an interview in today'sThe Globe and Mail with Mr. Paul Gauthier, senior TD economist on "what next for Canada's housing market". A very ineresting reading indeed

I like this question. Typical of the emotion we see on this board. I think overall his answers are close to what i would say for GTA except that i tend to empahisize purchasing quality projects in the best locations and looking for market price distortions that occurr when everywhere goes up.

[Comment From GuestGuest: ]
The housing market like the stock market has historically been running on cycles (ie 7 years). Did we miss one, or is a sharp downturn in housing prices coming shortly?
Friday July 16, 2010 12:51 Guest
12:53 Pascal Gauthier: How fast worries have turned. In 2008, folks were nervous about a US style downturn, then worries turned 180 degress to bubble phobia. Now back again to worrying about a crash. It's not impossible - but the data doesn't suggest it's likely. The market is coming off the sugar of satisfying pent-up demand, ultra-low rates and anticipation of new mortgage insurance rules and harmonized taxes in BX/ON

 

[interested]

Remember 1 thing: Who writes up most of the mortgages? Answer: Banks.
Who is carrying alot of mortgages on their books: Banks.
Who is ultimately responsible and will suffer if there is a marked downturn with major writedowns of their net asset base: Banks. (as well as CMHC: Read Government ie. the taxpayer).

My point is Mr. Gauthier would be deemed irresponsible and possibly be in serious trouble if he said: I think there will be a crash and all you coming to us for mortgages should not do so or purchase now.

I am not suggesting his prediction is not correct that the market data does not suggest it is likely. I in fact think this is a very rosy view and not the actual reality. However, how could you expect him to say anything else.

Just today, in the paper: US consumer sentiment is in decline. China's stimulus is now almost over and the economy is not expanding as well as previously hoped. Europe: possibly France and Belgium bonds are the next to have problems (after the PIIGS countries). Interest rates in the US will stay low for a protracted time now.

My point is while Canada has successfully navigated the world problems so far, if the economy fails to pick up shortly in the world, expect commodity prices to drop, and without the housing which has been driving the economy so far to a large degree in Canada, it too will have to follow suit.

all this said, I agree that bubbles overinflate, but a bit of fear and the deflation of the housing market may happen more severely than one thinks (even allowing for the fact that no matter what it will not be a US style burst) in my view.