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Baby, we got a bubble!?

simuls said:
Sales to listing ratio is 81% in downtown condos (balanced market is 20%). Last time it was like that was just before the big bust in '89.
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Balanced market is actually betwen 0.4 and 0.6. Check it out for yourself at RBC.

Why now?

-We had record level of immigration in 2000 and 2001, these immigrants are now buying making demand higher (Statcan)
-Home renovation tax credit is causing record spending on home renovations. People are staying put vs moving out (CMHC Renovation and Home Purchase report)
-Low interest rates are spurring more first time home buyers to buy (RBC)
-Recession is causing fewer people to list (people don't want to move up during uncertain times) (CMHC)


Expect listings to up and the ratio subsequently go down next year as the supply of condos get released, people start listing their homes and as the pool of first time buyers able to afford gets lower. Prices will go up 2%-3%
 
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is it worth spending 450k on a new condo right now?

or are the prices going to drop or keep going up? I know its hard to answer, there is so many different angles and factors to consider.
 
clarkean said:
In most cases these are over inflated due to the new practice by real estate agents of inflating the price so that the buyer can have enough for a down-payment etc. I'm sure we all know a real estate agent/buddy who does that.
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How does inflating a price help a buyer afford the down payment? I don't get it, makes no sense...
 
Epi said:
How does inflating a price help a buyer afford the down payment? I don't get it, makes no sense...
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That was my first thought. We must be missing something. Also downtown, $450k will buy you less than 1000 sq. ft. It will not buy 2000 sq. feet anywhere except maybe somewhere in the 519 hinterland.
 
we all know U.S. started or planed to start printing bills - inflation is already ahead. To avoid deficit Canada may/have to follow printing bills too. So, to keep your savings $$$ (if you have any) the most value from inflation, the golden rule - to save commodities as much as you can.

Oil? Rice? Gold? or real estate?

Interest rate is being predicted not as low as current from next year. However it will not go up too far because Canada can not afford the expensive dollars.

The above is one of the primary reasons why the market is unusually hot at this season. The other reason is people wanted to buy from one/two years ago finally decided to jump into the pool (eg. like a couple of my friends) but there is no enough good supplies around.
 
Thanks for posting both the RBC report and the article by Pasalis. A couple of big contradictions emerge.

1. What accounts for the different sales-to-inventory charts in the RBC and the article by John Pasalis in the Toronto Real Estate News? Are they using different listings data perhaps? Pasalis calls it sales-to-inventory, but RBC calls it sales-to-listings. Maybe they are different metrics.

2. why does the RBC report claim a balanced market is between .4 and .6 sales to inventory, while Pasalis claims it is between .15 and .25? big difference if they are indeed the same ratios.

Re affordability measures in the RBC report--Rather than reporting these "snapshot" affordability measures based on rates today only, wouldn't it be more informative to produce a multi-year affordability measure reflecting the risk of rates increasing (i.e. a moving average based measure). Perhaps an upper and lower confidence interval of the 10-year affordability range taking into historical data on interest rates. Otherwise, a clearer affordability measure (one reflecting longer term reality) is completed masked by the changing rates, which are not also on the graph.

Does anyone know if economists have produced such measures? I would like to see those.
 
Ponyboy,

Good observation. The sales-to-inventory I use in my analysis looks at the total number of sales in a given month divided by the total number of homes available for sale in that month - independent of when a home was originally listed for sale. So the inventory number I use in my calculations includes houses that were originally listed for sale in a previous month.

The RBC report looks at the total number of sales divided by the total number of new listings coming on the market in that month. So their sales-to-new listings ratio for November would only include houses that were originally listed for sale in November.

I prefer to use the sales-to-inventory ratio for a number of reasons. The main reason is that I feel it does a better job of representing the market dynamics in any given month. Houses take on average around thirty days to sell. If we see a big increase in new listings in October, many of the houses will spill over and still be available to buyers in November. The Sales-to-inventory ratio I use captures these spill over effects, the sales-to-new listings ratio does not.

Having said that, I do think it's important to look at both measures to really get a sense of what's going on in the market today.

To answer your second question, the ratio I use is lower because the denominator in my ratio (total inventory) is always going to be larger than the denominator in RBC's ratio (new listings).

Hope that answers your question.

John Pasalis
 
ponyboy said:
Thanks for posting both the RBC report and the article by Pasalis. A couple of big contradictions emerge.

1. What accounts for the different sales-to-inventory charts in the RBC and the article by John Pasalis in the Toronto Real Estate News? Are they using different listings data perhaps? Pasalis calls it sales-to-inventory, but RBC calls it sales-to-listings. Maybe they are different metrics.

2. why does the RBC report claim a balanced market is between .4 and .6 sales to inventory, while Pasalis claims it is between .15 and .25? big difference if they are indeed the same ratios.

Re affordability measures in the RBC report--Rather than reporting these "snapshot" affordability measures based on rates today only, wouldn't it be more informative to produce a multi-year affordability measure reflecting the risk of rates increasing (i.e. a moving average based measure). Perhaps an upper and lower confidence interval of the 10-year affordability range taking into historical data on interest rates. Otherwise, a clearer affordability measure (one reflecting longer term reality) is completed masked by the changing rates, which are not also on the graph.

Does anyone know if economists have produced such measures? I would like to see those.
Click to expand...


You can do it yourself. RBC breaks down everything so you can use the data to figure it out.

Hey John, good to hear from you. Great point about the RBC info
 
TD bank recently published a Resale Housing Outlook report (see here)



TD comments if the real estate market is in a bubble.

Conclusions:

* On a national level, they feel that prices are overvalued 12% based on market fundamentals (incomes, job growth etc).
* Most of pent up demand from the sales crash last year should be clear by now
* From next year on we should see the market return to growth based on fundamental drivers (or catch up over the next 3 years as incomes are expected to go up).
* They don't expect prices to fall, in fact their fear is prices may continue to rise.

Yes the market overshot, and people have been taking advantage of rates to get into the market. As more supply comes online in the market (finished condos, and people looking to put homes on the market for sale) and as supply of buyers falls prices should level off to a lower growth rate.

As of today, this is no bubble.
 
Rental vacancies have been creeping up (according to the most recent ReMax report, rentals were down 30% in Nov'09 vs Nov'08) causing prices to drop. Current 1 bedroom condos downtown are renting for 10% less now vs. 1 1/2 years ago. As a report posted elsewhere on UT stated, incentives such as free parking and 1 month free rent are not uncommon.

I'm concerned that the massive amount of completions we have coming online will shoot this vacancy rate through the roof and cause many investors to realize they simply can't make money renting their units and will throw them on the market to sell causing a steep increase on the supply side at the same time as interest rates are increasing sharply in the second half of the year, causing a steep decrease in the demand side. I think things might be lining up for a nasty collision course.

Can anyone suggest another likely outcome? I don't want this to happen as I've skin in the game, I just haven't heard a convincing argument to the contrary yet that's backed up by hard numbers.
 
With all the new condos coming on-stream within the next 12 - 18 months, things are going to get ugly In Toronto, particularly downtown. Those who are over-paying now for some of these pre-construction developments are going to get burned, especially if mortgage rates climb. Classic Bubble. Even if the economy improves, there is just too much product. Greed, thy name is man. Mr. Madoff, do you have anything to say ... ?
 
I actually think there is a shortage of good product in the core....heard its a bitch to find a decent two bedroom on resale.

North York, Etobicoke...now that's another story. I consider those locations riskier investments.
 
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