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Baby, we got a bubble!?
- Thread starter simuls
- Start date
daveto
Active Member
Is this a discussion board, or just a collection of links?
Sigh.
Sigh.
simuls
Senior Member
Personally, I don't care that much about national RE numbers (I do care about national and international economic numbers) as everyone knows that RE is a very very local game. Even Regional are irrelevant and to some extent, given my own concerns only deal with Toronto and condos, so is the 905. I'm not saying there aren't some connections but it's the numbers that I'm interested in. All of these links both for and against are good to read but aren't really furthering this discussion. By this time next week we should have August numbers and maybe then we can actually DISCUSS what they might mean.
daveto
Active Member
Toronto RE price moment has been very similar to the national numbers over the past 10 years.
A while ago (about 50 pages ago) one of the bulls on this thread explaining the special qualities which support the Toronto market. I asked if that then meant that he would agree that the RE for the rest of Canada was overvalued(because it lacked those special local qualities), and he never answered.
I think that RE is partially local, but that macro-economic variables also add an element of uniformity on a national basis.
A while ago (about 50 pages ago) one of the bulls on this thread explaining the special qualities which support the Toronto market. I asked if that then meant that he would agree that the RE for the rest of Canada was overvalued(because it lacked those special local qualities), and he never answered.
I think that RE is partially local, but that macro-economic variables also add an element of uniformity on a national basis.
Condo George
Active Member
look for August numbers to be down again, but look for downtown numbers to buck the trend somewhat. This is my market, I work it everyday. From what I can see, supply is shrinking contrary to what most think. I know alot is coming to market soon, but absorbtion has been very good so far and the HST July 1 never brought down the house as most were telling me last yr.
I think Spring of 2011 will be clear of the supply, again I am not comparing condos in the burbs or at Kennedy and 401 etc. I never get calls from international investors telling me they want burbs. They want Bay and College, University Ave, Yonge and Bloor, Yorkville , York and Bremner etc.
Sim.....buy at Yonge and Front
I think Spring of 2011 will be clear of the supply, again I am not comparing condos in the burbs or at Kennedy and 401 etc. I never get calls from international investors telling me they want burbs. They want Bay and College, University Ave, Yonge and Bloor, Yorkville , York and Bremner etc.
Sim.....buy at Yonge and Front
EXgeMMy
Active Member
Million Dollar Journey posted a nice write up about real estate in general today. It should be noted the writers there are all about being frugal.
http://www.milliondollarjourney.com...MillionDollarJourney+(Million+Dollar+Journey)
**
The Downside of Owning REITs
Posted: 26 Aug 2010 04:30 AM PDT
This is written by our resident real estate guru Rachelle.
In many of my past columns I have discussed the problems of buying real estate in our current market. I have mostly decried that current prices, even at today’s interest rates, are too high to make a profit. I have also warned of the dangers of investing without including proper expenses such as property management, vacancy and maintenance expenses. I have said that it is possible to find properties that can be considered investments but the search will be long and arduous especially if you are buying in the larger centres such as Toronto.
Many investors want to invest in real estate but do not want to deal with the problems associated with owning property directly. Real estate is far from passive. Many people, FrugalTrader included, have bought and then subsequently sold their properties because of this. Let’s face it… you work, you’re tired and an extra rental house or two requires working some more, on evenings and weekends, when you’d rather be watching a movie and having a beer. The other problem with the extra work is that you’d make more at a minimum wage job. All in all it’s not worth it for many.
The Exit of Experienced Investors
In the last few year there has been an exodus of small landlords cashing out. I had one gentleman, a landlord for 20 years, tell me that it just didn’t make sense anymore. He could sell his house for $600,000 plus or rent it for $1600 per month with all the risks associated with bad tenants. There just wasn’t enough profit in the business and too much appreciation of the properties to maintain a rent/price ratio. For many longtime landlords this was the equivalent of winning a lottery. The skewing of the rent/value ratio is a sign of a out of balance real estate market.
The REIT Solution
One solution I hear over and over is why bother with buying my own properties when I can just buy a REIT? Usually this would work. You could profit from the asset class with out having to actually own and maintain and rent anything. You could watch your movies and have your beer in relative peace, however, there are problems with this strategy.
The REIT Problem
One of the major problems when buying REIT’s is the lack of control. When buying you make a number of assumptions that you may not be aware of such as the value of the assets they hold and the benefits of professional management. When you buy a share, that money is used to purchase real estate assets and they use the money generated by those assets to pay you a distribution. You have to trust that they are doing a good job and are not using Hollywood Accounting.
REIT’s Are Not Protected From The Real Estate Market
If you consider the indicators and the recent news that there are significant problems with the valuation of real estate in today’s market, you also have to consider that REIT’s will also take a severe hit if valuations of real property fall. I had lunch with a mortgage broker who works for a major pension fund a few weeks ago and she was saying that it is common place for REIT’s to have a 75% loan to value ratio on their properties. Some of these REIT’s claim they have a much lower loan to value ratio of 50%. She sees their mortgages so I’m inclined to believe her.
Lemming Behaviour affects the Stock Market
Even REITs with great, stable portfolios will not escape a real estate market adjustments. Once market sentiment turns and the fear takes hold, prices on REIT shares will go down. If the value of their assets fall then their ability to remain liquid and refinance will take a severe hit. Many industries are dependant on prices of real estate going up. Employment takes a hit along with building materials suppliers. The economy as a whole suffers.
Deleveraging
My very first property management job was in a multi res building that had changed hands 6 times as the real estate market deleveraged. As values fall companies must sell off assets to keep their loan to value ratios intact. Of course other potential buyers are also affected by the same market values and experience the same problems and a plummeting effect occurs. Lenders ask for more security as they suspect that prices may go down even further.
So Should You Buy A REIT?
Go ahead and buy if you think the real estate market fundamentals are healthy. If you think that current valuations of real property are too high, don’t buy REITs as an alternative…they’re just as vulnerable. They are listed on the stock market but the values of their assets are linked to the real estate markets. REITs are buying in the same real estate market as you are. They have even more pressure on them to buy than you do, every quarter they have to prove that they are wisely investing shareholders money, they can’t sit around with piles of cash even when they should.
What are your thoughts on current REIT valuations? Would you buy at these levels?
About the Author: Rachelle specializes in renting property on behalf of landlords and is the blogger behind Landlord Rescue. She also works with investors to find good investments in Toronto and surrounding areas. Her passion is bringing multi res properties back from the brink and maximizing profitability. Check out some of her other real estate posts on MDJ.
http://www.milliondollarjourney.com...MillionDollarJourney+(Million+Dollar+Journey)
**
The Downside of Owning REITs
Posted: 26 Aug 2010 04:30 AM PDT
This is written by our resident real estate guru Rachelle.
In many of my past columns I have discussed the problems of buying real estate in our current market. I have mostly decried that current prices, even at today’s interest rates, are too high to make a profit. I have also warned of the dangers of investing without including proper expenses such as property management, vacancy and maintenance expenses. I have said that it is possible to find properties that can be considered investments but the search will be long and arduous especially if you are buying in the larger centres such as Toronto.
Many investors want to invest in real estate but do not want to deal with the problems associated with owning property directly. Real estate is far from passive. Many people, FrugalTrader included, have bought and then subsequently sold their properties because of this. Let’s face it… you work, you’re tired and an extra rental house or two requires working some more, on evenings and weekends, when you’d rather be watching a movie and having a beer. The other problem with the extra work is that you’d make more at a minimum wage job. All in all it’s not worth it for many.
The Exit of Experienced Investors
In the last few year there has been an exodus of small landlords cashing out. I had one gentleman, a landlord for 20 years, tell me that it just didn’t make sense anymore. He could sell his house for $600,000 plus or rent it for $1600 per month with all the risks associated with bad tenants. There just wasn’t enough profit in the business and too much appreciation of the properties to maintain a rent/price ratio. For many longtime landlords this was the equivalent of winning a lottery. The skewing of the rent/value ratio is a sign of a out of balance real estate market.
The REIT Solution
One solution I hear over and over is why bother with buying my own properties when I can just buy a REIT? Usually this would work. You could profit from the asset class with out having to actually own and maintain and rent anything. You could watch your movies and have your beer in relative peace, however, there are problems with this strategy.
The REIT Problem
One of the major problems when buying REIT’s is the lack of control. When buying you make a number of assumptions that you may not be aware of such as the value of the assets they hold and the benefits of professional management. When you buy a share, that money is used to purchase real estate assets and they use the money generated by those assets to pay you a distribution. You have to trust that they are doing a good job and are not using Hollywood Accounting.
REIT’s Are Not Protected From The Real Estate Market
If you consider the indicators and the recent news that there are significant problems with the valuation of real estate in today’s market, you also have to consider that REIT’s will also take a severe hit if valuations of real property fall. I had lunch with a mortgage broker who works for a major pension fund a few weeks ago and she was saying that it is common place for REIT’s to have a 75% loan to value ratio on their properties. Some of these REIT’s claim they have a much lower loan to value ratio of 50%. She sees their mortgages so I’m inclined to believe her.
Lemming Behaviour affects the Stock Market
Even REITs with great, stable portfolios will not escape a real estate market adjustments. Once market sentiment turns and the fear takes hold, prices on REIT shares will go down. If the value of their assets fall then their ability to remain liquid and refinance will take a severe hit. Many industries are dependant on prices of real estate going up. Employment takes a hit along with building materials suppliers. The economy as a whole suffers.
Deleveraging
My very first property management job was in a multi res building that had changed hands 6 times as the real estate market deleveraged. As values fall companies must sell off assets to keep their loan to value ratios intact. Of course other potential buyers are also affected by the same market values and experience the same problems and a plummeting effect occurs. Lenders ask for more security as they suspect that prices may go down even further.
So Should You Buy A REIT?
Go ahead and buy if you think the real estate market fundamentals are healthy. If you think that current valuations of real property are too high, don’t buy REITs as an alternative…they’re just as vulnerable. They are listed on the stock market but the values of their assets are linked to the real estate markets. REITs are buying in the same real estate market as you are. They have even more pressure on them to buy than you do, every quarter they have to prove that they are wisely investing shareholders money, they can’t sit around with piles of cash even when they should.
What are your thoughts on current REIT valuations? Would you buy at these levels?
About the Author: Rachelle specializes in renting property on behalf of landlords and is the blogger behind Landlord Rescue. She also works with investors to find good investments in Toronto and surrounding areas. Her passion is bringing multi res properties back from the brink and maximizing profitability. Check out some of her other real estate posts on MDJ.
interested
Senior Member
The question I still pose is: let's say we agree for a moment that real estate will stagnate or drop as opposed to increase.
I keep asking the question as I am sure many investors are asking the same thing. Where do you put the money. Stock market has been flat ( oh sure you can day trade and maybe make money but most don't).
Bonds will increase in value if interest rates fall or further quant. easing but it is difficult to know this will happen and it seems the risks of a slight increase in interest rates are greater than the gain from a fall.
Invest in different currencies? A bit of a mugs game.
My point is that I think with everything looking shakey, money has to be somewhere. You can sit on cash and gold but it doesn't bring in anything and you may make alot but you may not. Certainly, you are not "paid to wait".
So I think balancing a portfolio with some of a number of asset classes is perhaps the answer, unless you have a good feel for what is going to happen and more importantly have figured out where to place your money.
I keep asking the question as I am sure many investors are asking the same thing. Where do you put the money. Stock market has been flat ( oh sure you can day trade and maybe make money but most don't).
Bonds will increase in value if interest rates fall or further quant. easing but it is difficult to know this will happen and it seems the risks of a slight increase in interest rates are greater than the gain from a fall.
Invest in different currencies? A bit of a mugs game.
My point is that I think with everything looking shakey, money has to be somewhere. You can sit on cash and gold but it doesn't bring in anything and you may make alot but you may not. Certainly, you are not "paid to wait".
So I think balancing a portfolio with some of a number of asset classes is perhaps the answer, unless you have a good feel for what is going to happen and more importantly have figured out where to place your money.
Condo George
Active Member
Aggressive investors sit in short term deposits for one month and then get antsy to put it to work! Gold seems to be the play for now, alot of my guys playing gold have their hands into core condos and are not selling. They dont time the market on condos.
CN Tower
Banned
Hold onto your cash or find short term mortgage debt for some higher yield.
CN Tower
Banned
From one bubble right on to the next eh Bubble George?
interested
Senior Member
I tend to agree. Certainly one should not be levering oneself (which of course R/E is unless you are a cash buyer.)
Sitting on cash and CD's. Mortgage debt short term may be reasonable as well provided you know the debtor. I would be hesitant to get mortgage funds.
Gold: Keep a little bit for the "end of the world" but really it doesn't make alot of sense. And this to is fickle. Could skyrocket or bottom out very quickly. I view this if one is investing in it to a large degree as speculating, not investing.
George, I realize you are not saying you are doing this. One can make alot of money due to volatility if one is prepared to sit in front of a computer screen as a full time job guessing on gold or the like. That said, I really view this as speculation, a full time job as a trader, but not "investing". Closer to gambling in my estimation. Which is why I will never be rich (but hopefully not broke either).
Sitting on cash and CD's. Mortgage debt short term may be reasonable as well provided you know the debtor. I would be hesitant to get mortgage funds.
Gold: Keep a little bit for the "end of the world" but really it doesn't make alot of sense. And this to is fickle. Could skyrocket or bottom out very quickly. I view this if one is investing in it to a large degree as speculating, not investing.
George, I realize you are not saying you are doing this. One can make alot of money due to volatility if one is prepared to sit in front of a computer screen as a full time job guessing on gold or the like. That said, I really view this as speculation, a full time job as a trader, but not "investing". Closer to gambling in my estimation. Which is why I will never be rich (but hopefully not broke either).
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daveto
Active Member
Blue chip corporate bonds, bank preferreds, some different currencies, and if you think that equities are heading down, then short the market.
KA1
Senior Member
urbandreamer
recession proof
Why do you need real estate when plenty of stocks make huge moves daily and weekly? The key is to trade, not invest.
interested
Senior Member
This article KA1 almost sounds more like an advertorial.
I think it is interesting. The Oakville project dropped prices by approximately 30%. 3 years since starting: 28 units. They sold 2 and none the month before. I believe but do not quote me on this they are up to 10 units sold.
The house by Mr. Milloy: 2 buyers for a house "at a good price" on a street where very little has come available.
This does not sound to me like a glowing endorsement of the market.
Graywood sounds more positive and if it is true (vs. them just saying this to propel more sales in their current project), this is good news for those of us who are concerned about a market downturn.
Reality is that the real estate market will ultimately be determined by the general economy. Britain just announced some better numbers. The US some worse ones and Bernancke today in the NY Times is quoted saying he will essentially continue to make cheap money available. The stock market got a bounce and perhaps R/E will get a bit more wind behind it but this manipulation at some point will have to stop and when it does, with deleveraging which will have to occur when interest rates eventually rise, it will not be pretty.
That said, anectdotally, I can say that around Oakville where I live there are very few For Sale signs so perhaps people have decided like they did in late 2008 to just not list their houses and not move and maybe condo George's predictions of decreased supply will come to fruition. However, when I looked a the numbers, it suggested to me that while sales were done about 2000, listings were only down about 800. So there were 1200 more listings last month.
August figures should be interesting.
I think it is interesting. The Oakville project dropped prices by approximately 30%. 3 years since starting: 28 units. They sold 2 and none the month before. I believe but do not quote me on this they are up to 10 units sold.
The house by Mr. Milloy: 2 buyers for a house "at a good price" on a street where very little has come available.
This does not sound to me like a glowing endorsement of the market.
Graywood sounds more positive and if it is true (vs. them just saying this to propel more sales in their current project), this is good news for those of us who are concerned about a market downturn.
Reality is that the real estate market will ultimately be determined by the general economy. Britain just announced some better numbers. The US some worse ones and Bernancke today in the NY Times is quoted saying he will essentially continue to make cheap money available. The stock market got a bounce and perhaps R/E will get a bit more wind behind it but this manipulation at some point will have to stop and when it does, with deleveraging which will have to occur when interest rates eventually rise, it will not be pretty.
That said, anectdotally, I can say that around Oakville where I live there are very few For Sale signs so perhaps people have decided like they did in late 2008 to just not list their houses and not move and maybe condo George's predictions of decreased supply will come to fruition. However, when I looked a the numbers, it suggested to me that while sales were done about 2000, listings were only down about 800. So there were 1200 more listings last month.
August figures should be interesting.
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