Baby, we got a bubble!?

[good_times]

People could want to sell if prices start to drop based on the expectation that they will drop further, so might as well try to cut your losses and swap for a less expensive house or rent for a bit. Not sure how big of a segment of the population would think that way, but surely some would. And of course people would avoid upsizing or entering the market if they're renters, which would also cause prices to drop further.

It would probably affect condo investors who are renting their units, and those buying new SFH's as investments.

 

[ccdd]

My parents live in an area where their home values jumped 30% in the past 12 months. They are convinced it will pop. The house has been paid off years ago, but is there any way to take advantage of that value now with the assumption that it will disappear soon? Ie: take out a massive home equity line of credit and put it in US stocks?

 

[TheKingEast]

My parents live in an area where their home values jumped 30% in the past 12 months. They are convinced it will pop. The house has been paid off years ago, but is there any way to take advantage of that value now with the assumption that it will disappear soon? Ie: take out a massive home equity line of credit and put it in US stocks?

So because their area went up that means all areas are jumping by that %. Contrary to popular belief there are many areas that are increasing by 1-2%. The bubble will pop it's just a matter of when. Your parents area jumping by that much which I find hard to believe doesn't mean anything really.

 

[James]

Some of TREB's March 2016 statistics:

​

Detached Houses
City of Toronto / $1,174,358 average / $900,000 median
Toronto West / $936,676 average / $781,483 median
Toronto Central / $1,863,704 average / $1,570,000 median
Toronto East / $808,968 average / $725,000 median

Semi-Detached Houses
City of Toronto / $817,611 average / $742,000 median
Toronto West / $684,949 average / $635,000 median
Toronto Central / $1,025,231 average / $900,000 median
Toronto East / $774,972 average / $735,000 median

Attached/Row/Townhouse
City of Toronto / $872,9832 average / $768,500 median
Toronto West / $713,952 average / $699,000 median
Toronto Central / $1,223,315 average / $995,000 median
Toronto East / $635,191 average / $607,944 median

Condominium Apartment
City of Toronto / $416,251 average / $368,000 median
Toronto West / $346,056 average / $328,000 median
Toronto Central / $464,888 average / $404,950 median
Toronto East / $303,094 average / $271,500 median

Source: http://www.trebhome.com/market_news/market_watch/

 

[jangnam]

I'd be worried if prices were escalating compared to pre-recession ones.
Yes, "massive" bubble. Watch for the average condo/house price in the GTA to drop to $120K/$220K in 6 months

 

[narduch]

I'd be worried if prices were escalating compared to pre-recession ones.
Yes, "massive" bubble. Watch for the average condo/house price in the GTA to drop to $120K/$220K in 6 months

No way.

That only happens if there is a massive collapse of the economy.

 

[homelessgeneration]

If there is a huge crash in Toronto my theory is Condo's will be the crash. Houses are pretty safe.

These rotting buildings that cost 100's or in rare cases 1000's per month in maintenance, plus yearly taxes that are bound to go up. I have no idea how young people can jump into a 30 year commitment on a piece of property that also basically carries a rent that will raise.

So many people that are awful with money. Just because you can make the monthly payments now doesn't mean you can 1 year, 5 years, or even 6 months from now...

 

[mig174]

so if older condos go bust the newer ones will see more demand

 

[homelessgeneration]

so if older condos go bust the newer ones will see more demand

The problem is with high fees.

They have bad resale value, that can be observed even today. It's harder to sell a condo than a house. Who would buy an older condo when you can get into a preconstruction with a reputable builder for a discount or just bite the bullet and get a starter home for a few $ more?

People don't want to take on a 2000$/m mortgage on top of 500$ for hot water and a gym they never use.

So my question is once you are stuck in a highrise and these shiny new eyesores become old rustic eyesores. What happens when people can't afford the fee's to upkeep them? Or what if heaven forbid people start losing their jobs?

I honestly see many of these downtown condos becoming run down ghettos. Maybe I'm way out of line thinking that, but I doubt many of these units to the highest standard of build quality.

Or they will all become glorified run down apartments from foreign money capitalizing on a low dollar.

 

[Migos]

The problem is with high fees.

They have bad resale value, that can be observed even today. It's harder to sell a condo than a house. Who would buy an older condo when you can get into a preconstruction with a reputable builder for a discount or just bite the bullet and get a starter home for a few $ more?

People don't want to take on a 2000$/m mortgage on top of 500$ for hot water and a gym they never use.

So my question is once you are stuck in a highrise and these shiny new eyesores become old rustic eyesores. What happens when people can't afford the fee's to upkeep them? Or what if heaven forbid people start losing their jobs?

I honestly see many of these downtown condos becoming run down ghettos. Maybe I'm way out of line thinking that, but I doubt many of these units to the highest standard of build quality.

Or they will all become glorified run down apartments from foreign money capitalizing on a low dollar.

Interestingly, pre-sale condos are actually more expensive than resale in many cases now. It doesn't make any sense given the risk of buying pre-con but it's the reality in Toronto now. I think it reflects the attitudes of millenials who want to buy the fancy new condo with shiny appliances, cool amenities, big glass windows, etc. You also have a lot of investors who have bought into the idea that flipping a pre-con condo is a can't-lose situation given the historical profitability.

That said, I agree with the rest of your post. Condos are a depreciating asset in my view, same as houses. The only real estate that increases in price is land, which you don't really own in a condo.

 

[mig174]

probably a good bunch of condos are not built with longevity in mind.

however, in this era of CB intervention, lax foreign investment laws and cheap CAD, I doubt we will see much of a crash, esp in high-demand areas (e.g. downtown Toronto, anywhere on Bay corridor especially). Remember that for foreign buyers, Cdn real estate is now at a 30% discount.

second, the highest priority of the Trudeau govt will be stopping the bleeding in Canadian economy caused by fall in energy prices. Expect to see more CAD devaluation and cheaper money, as well as more employment (deficit-financed and the debt will need to be inflated away) and higher nominal wage growth and hopefully healthy inflation. Any "crash" will essentially be a "flatlining" of RE prices while the rest of the fundamentals catch up. Otherwise, the spillover effects will cause much bigger problems and the liberals will be done. It's do or die time for them. And you can see they aren't afraid to take some risks with their budget.

 

[ksun]

Remember that for foreign buyers, Cdn real estate is now at a 30% discount.

You mean every foreign buyer makes USD? Don't forget the Euro zone, Russia etc, against which the CAD hardly depreciated 30%. Not sure about the middle east.
Why do you assume all investors have nothing but USD in their banks?

 

[mig174]

people with enough cash to invest in RE in far-away countries usually hold significant portions of their portfolio in USD or USD securities... it would be foolish not to given US economy and fiscal policy in recent times.

 

[Migos]

You mean every foreign buyer makes USD? Don't forget the Euro zone, Russia etc, against which the CAD hardly depreciated 30%. Not sure about the middle east.
Why do you assume all investors have nothing but USD in their banks?

Foreign investment is primarily coming from China. 1 CDN used to be 7 Yuans...now it's less than 5 Yuans. It has also depreciated significantly against both the Euro and USD, which would make up most of the other investors.

 

[mig174]

And the Chinese have been fleeing this drop: http://www.bloomberg.com/news/artic...utflows-climb-to-estimated-1-trillion-in-2015

most of that money is probably already in USD.