Baby, we got a bubble!?

[interested]

One further thought, my comment about real estate being local is that it is a bit difficult to compare Sudbury to Ottawa to Toronto. Even within the city and closer to the core, unless Toronto goes the way of Detroit, I believe the core will not suffer as much. Yes, there will be a steep correction but I believe that would just result in people living in the suburbs taking advantage to move into the city (to save gas and time). So, I think the burbs (and I am one of the suburbanites) have more risk than say mid town Toronto.
Downtown I think is unique and has a distinct appeal.
The core is "different" I believe in Toronto than other markets. I am not saying it can't get blindsided and prices drop significantly, I just believe there is probably enough 20-40 year olds and perhaps older people (60+) who if afforded the ability to live in the Core at reasonable prices compared with todays prices would take advantage of it, thereby limiting the downside of the Core, if not in valuation, in duration of the time to recovery compared to other areas.

 

[TCW]

http://www.ctv.ca/generic/generated/static/business/article1980072.html

The IMF also had interesting things to say about the housing market, given the pressure in the United States and elsewhere. Citing Canada, Greece and Japan, the group noted that "house price contractions" are continuing but are "short of being categorized as price busts."

 

[klb86]

Foreign property buyers restrictions needed?

A prominent Vancouver businessman and former city councillor says it's time to debate restricting foreign ownership of residential properties as a way to cool down Vancouver's hot real estate market.

Peter Ladner says Vancouver's home prices are out of control, and with China and Australia already restricting foreign ownership, Vancouverites should at least examine whether the idea makes sense.

"Ironically, many of the people driving up the prices are coming here from mainland China where soaring real estate prices have caused the Chinese government to introduce new limits on foreign purchases of residential or commercial property in the country," he wrote in a recent article published in Business in Vancouver.

Ladner says he isn't isn't taking a position on the issue, but he wants a debate. He notes there has been virtually no public research on the level of foreign ownership in Metro Vancouver and its effect.

But he says prices are forcing people raised in Metro Vancouver to move elsewhere and preventing others from moving to the area.

"If our prices are being driven up by people who are simply investing in our community and not living here, there are a whole lot of problems that result," Ladner told CBC News.

"You end up with a resort community that is unlivable despite our reputation as one of the most livable cities in the world."

Ladner notes across Canada, that PEI, Manitoba, Saskatchewan and Alberta already have various laws in place the restrict the non-residents' rights to buy land.

Vancouver leads with unaffordable housing

Tsur Somerville of the UBC Sauder School of Business says the debate over foreign ownership would be nothing new.

"If you go back to the 1980s, and the worry about Hongcouver, and all these kinds of things, Vancouver has been through this story before and I think most people think this city is better off now than it was in 1987," said Somerville.

Vancouver has the highest housing prices in Canada, the greatest price increases, and the World's less affordable housing prices, according to recent figures.

Some of the most rapid price increases around Metro Vancouver have been in Richmond where the price for a detached home has climbed 20 per cent, or about $215,000 over the past year to above the $1-million mark.

Realtor have attributed the rapid price increases to a sudden influx of mainland Chinese buyers, but in recent months many realtors have noted mainland Chinese buyers have been active in many of the region's other more expensive markets, such as the Westside of Vancouver and the North Shore.

http://www.cbc.ca/news/business/sto...-ladner-residential-restrictions.html?ref=rss

 

[cdr108]

... hope that prices may just stay level as they did from 1992 to 1996 and allow some catchup of per capita GP. This would be a lot less disruptive to everyone than a boom/bust cycle which unfortunately appears to be the way things usually play out.

i'm sure you're aware that the leveling of prices from 1992 to 1996 occurred after the bust of 1989/1990.

although R/E may be local, price appreciation has been national and as daveto alluded to, part of the rise has been cheap financing and relaxed rule changes to CMHC over the past 15 years, which coincided with the gradual upswing in sales and prices.

 

[cdr108]

Foreign property buyers restrictions needed?

http://www.cbc.ca/news/business/sto...-ladner-residential-restrictions.html?ref=rss

i'd agree with putting restrictions on foreign buyers. if they're so flush with cash, it wouldn't matter to them.
so many other countries have done it because they already know the potential of a further frothier R/E market than it currently is, with the resulting damage.

only the R/E agents and developers would cry foul and their profits would have to come down to a level where the local market could sustain the prices, which has already been priced out.

it's a shame the federal gov't has been more concerned with propping up the R/E industry and fooling people into believing they're / we're richer and better off than we are than be frank.
otherwise, Canada will have another generation of house poor individuals still paying off a 30-40 yr mortgage well into retirement years, assuming they don't lose the property in foreclosure first because the mortgage payments will have gone up when interest rates rise.

 

[interested]

From the Globe and Mail today.

House prices for major Canadian cities
Published Tuesday, Feb. 01, 2011 11:06AM EST
Last updated Friday, Feb. 25, 2011 3:10PM EST

Teranet-National Bank House Price Index measures house prices in six Canadian cities, and eliminates variations based on the type of properties sold (for example, during downturns, smaller properties tend to trade more, pulling down the average price more quickly than house prices are actually decreasing). It includes only houses that have been sold more than once.
7 comments

this is interesting data as teranet as pointed out shows properties that have been resold. If one looks at TO and it was 75 as a starting point in 2000, it is 125 in 2011. This means prices on the same home resales has gone up 66% or 6%/year. Is this sustainable. Not historically but it is not quite as bad as the numbers from average houses being quoted with a doubling in the same time frame. What has happened I believe is the mix of product has changed.

cdr: You are of course correct in pointing out that 1992-1996 was after a huge bust. I was a bit suprised by the data because my recollection was massive increases from 1985-1989. Then continuous drops to 1992 thought the data suggests it was relatively flat from 1990 to 1998 whereas I recall flat to 1996 and then prices starting to slowly rise again.

daveto, cdr and I are all on the same page when it comes to the reasons of why prices have so far defied reason and corrected. However, I still hope rather than severe drops we experience levelling of prices for a number of years as this would be a lot less traumatic than a boom/bust scenario.

 

[KA1]

My 2 cents worth.

This thread was started by simuls on November 2, 2009 who was worried about 'massive bubble' in R/E prices.

Now 3096 posts later, nothing has happened. Instead of a bubble busting, prices have been going up and up.

It is my considered opinion that nothing like ' bubble bust' will happen. What will happen is that a few % points up and down for a while. However, the thread has given various individuals an activity to pass the time and not get bored.

 

[Eug]

Personally, I'm not sure if those graphs are necessarily indicative of what prices should be, but nonetheless I think they serve as a warning sign.

However, they do illustrate one very interesting factor. Even back in 2005 people were saying home prices were overvalued, and by other measures (not just the GDP comparison), they might have had a point, vs. historical trends. Still, prices have gone up 25% in Toronto since then. If you look at that graph, you'll see that the 2010-11 trend price is almost exactly where actual prices were in 2005.

So, if prices normalize to the trend in 2012, people who bought in 2005 may actually still be ahead, at least in nominal dollars. That would mean dropping 25-30% in 2012. If prices drop closer to my predicted 10-15%, people who bought in 2005 will be truly ahead, even after accounting for inflation.

Basically all those graphs say is that by some measures, at least compared to historical trends, home prices are high. It doesn't say if prices will normalize back to the trend. However, like others I personally think they will probably do that, but what that graph also doesn't say is how. Flatlining or small decreases (0-10%) are very real possibilities, but that over a number of years would be just be as effective to normalize to the curve.

 

[interested]

Ka1,
I hope you are right.
This is one area where I hope I continue to be wrong. I still think at some point fundamentals will kick in.
Remember the joke from Jamie Johnson. All those of us with IQ's of 75 are seriously debating where the real estate market will go.

 

[CN Tower]

My 2 cents worth.

This thread was started by simuls on November 2, 2009 who was worried about 'massive bubble' in R/E prices.

Now 3096 posts later, nothing has happened. Instead of a bubble busting, prices have been going up and up.

It is my considered opinion that nothing like ' bubble bust' will happen. What will happen is that a few % points up and down for a while. However, the thread has given various individuals an activity to pass the time and not get bored.

Haha, it is an entirely innocuous hobby indeed.

I agree with KA1 but qualify my opinion with, 'so long as China continues to boom'. If China experiences any kind of recession both Toronto and Vancouver will be hard hit.

 

[redfirm]

QUOTE FROM INTERESTED: "what is interesting is to see the number of comments and the gyst of the comments to the Globe and Mail article referred to in post 3084.

Alot of people not on this forum supporting it. Whether it is just those who want prices to come down or not, it certainly is heavily weighted by people who believe that the correction will come and likely be severe. That said, there is not a lot new in the article or different from what a number of us have maintained."

Correct observation. It seems that most of the people commenting on this topic (on this and many similar threads) are those with, lets say, pesimistic views. It seems that the other "side" doesn't care much. Do they read these articles at all?
You would think that those who borrowed the most would be the first to provide their insight .... I, for one, would be very interested to hear it. I'd like to be cheered up and converted!

 

[MAU]

Now 3096 posts later, nothing has happened. Instead of a bubble busting, prices have been going up and up.

Gravity will assert itself eventually, one way or another. The bigger the bubble, the bigger the bust.

 

[Eug]

QUOTE FROM INTERESTED: "what is interesting is to see the number of comments and the gyst of the comments to the Globe and Mail article referred to in post 3084.

Alot of people not on this forum supporting it. Whether it is just those who want prices to come down or not, it certainly is heavily weighted by people who believe that the correction will come and likely be severe. That said, there is not a lot new in the article or different from what a number of us have maintained."

Correct observation. It seems that most of the people commenting on this topic (on this and many similar threads) are those with, lets say, pesimistic views. It seems that the other "side" doesn't care much. Do they read these articles at all?
You would think that those who borrowed the most would be the first to provide their insight .... I, for one, would be very interested to hear it. I'd like to be cheered up and converted!

Actually, the comments have been predominantly negative AFAIK for the past decade for articles like that one.

It would seem the most vocal are the most negative, and I'm not sure why. My cynical view is that perhaps it's because those who have been waiting to buy in are those who are watching things like hawks, waiting for the prices to plummet so they can scoop up the cheap buys.

Remember, some have been waiting for the fall since the late 1990s or early 2000s. It has not come. It may come eventually, but in the meantime those who have already bought have already moved on in their lives.

--

Nah, I don't completely believe that either, but nonetheless I think there may be a shred of truth to it. In the various forums I've been in where people discuss this, there are several who are extremely vocal about how a huge crash is coming, and then we find out they've been sitting on the sidelines for years waiting for their crash, watching as their savings become less and less significant compared to rising prices.

Yeah, maybe they'll be right eventually, but hey, it must be aggravating being a doom-and-gloomer only to see home prices increase 66% in a decade.

 

[daveto]

My 2 cents worth.

This thread was started by simuls on November 2, 2009 who was worried about 'massive bubble' in R/E prices.

Now 3096 posts later, nothing has happened. Instead of a bubble busting, prices have been going up and up.

It is my considered opinion that nothing like ' bubble bust' will happen. What will happen is that a few % points up and down for a while. However, the thread has given various individuals an activity to pass the time and not get bored.

In May of 2008 I was planning on buying in the fall, and was entirely bullish about real estate.

I stumbled across a few forums (this and others) and was introduced to the arguments of the various housing bears, which I quickly dismissed as a bunch of jaded and impoverished renters Then I began to consider their arguments and analysis and two months later, in July, I was a fully confirmed housing bear.

KA1, you say that the alleged housing bubble hasn't burst, but I say that it did indeed burst and did so in spectacular fashion at the end of 2008.

I freely admit that I never anticipated the unprecedented government intervention around the world (ranging from unprecedented deficit financing, unprecedented quantitative easing, and plummeting bond rates). Indeed, those have provided an 11th hour reprieve for the standard 25% housing price correction.

But consider this analogy...

A man smokes in bed every night, and is warned that eventually he will burn his house down and endanger his family.
He laughs at the doom and gloomers.

But one day, his house does indeed catch fire due to his recklessness. However, fortunately, the fire department arrives just in the nick of time and extinguishes the fire and saves his home.

In response to this opportunity to change his ways, he instead just scoffs at the doom and gloomers and their failed prediction and promptly returns to his old habit of smoking in bed before he falls asleep each night.

The story is not yet ended.....

****

If someone has investment properties, that's their choice. If they are overweighted in that asset class, and can't handle a 25% drop in the price of that speculative asset, then they've behaved in a reckless manner and will get no sympathy from me.

I'm an actuary, and there's a reason why my company isn't out there buying residential condos as "investment properties". It the same reason why the banks don't go out and use the money they have to buy residential condos as investment properties.

I'm not being a hater. I'm just being a good samaritan.
My 2 cents.

 

[KA1]

Gravity will assert itself eventually, one way or another.

There was a time when a house in the Bloor & Bathurst area was sold for $ 21,200.00. A comparable house on the same street was listed at $ 21,700.00 a few months later. All the neighbours were screaming -- this kind of price increase will never stick. It did and some.

You 'spring chickens' have a lot to learn about gravity yet.