Baby, we got a bubble!?

[interested]

I agree.

I don't think we "close off the foreign investment".

That would not be smart long term. That said, we need to get a grip on this now rather than looking back in 3 years when it is that much worse.

CNTower, you and I are back on the same page once again.

 

[WanderLust]

NYC's about to experience the sonic boom of a bubble getting pricked ... because the dust from the robo-signing scandal has settled and now the banks are going to unleash the tsunami of back-logged foreclosures.

http://www.nypost.com/p/news/busine...cYLJgFLXI?utm_medium=rss&utm_content=Business

Anyway, it wasn't that long ago that I recall a bunch of news items and media footage of Europeans snapping up luxury Manhattan condos because they thought that the price drops they had seen happening in the city (this is just a couple short years ago), combined with their Euro being quite high compared to the USD (which isn't the case anymore, actually the Euro could soon be in a free-fall...), made for bargains that just couldn't be ignored.
I wonder if those same Europeans still think they got 'bargains' in Manhattan ?

 

[daveto]

April numbers show a 4% increase in condo prices year over year. We couldn't wish for anything more stable.

If it was 4% consistently, then yes that would be stable. But it has not been so.

Putting it another way, you're confusing the difference between speed and acceleration/deceleration.

Or looking at it another, much more dramatic way...
If someone jumps feet first off a building, then the moment their feet first touch the ground they are "standing" on the ground, but clearly not in a stable position.

 

[cdr108]

NYC's about to experience the sonic boom of a bubble getting pricked ... because the dust from the robo-signing scandal has settled and now the banks are going to unleash the tsunami of back-logged foreclosures.

http://www.nypost.com/p/news/busine...cYLJgFLXI?utm_medium=rss&utm_content=Business

Anyway, it wasn't that long ago that I recall a bunch of news items and media footage of Europeans snapping up luxury Manhattan condos because they thought that the price drops they had seen happening in the city (this is just a couple short years ago), combined with their Euro being quite high compared to the USD (which isn't the case anymore, actually the Euro could soon be in a free-fall...), made for bargains that just couldn't be ignored.
I wonder if those same Europeans still think they got 'bargains' in Manhattan ?

depends if they paid in cash or needed a mortgage.

if they paid in cash with high Euro, depending how much the Euro has dropped vs US$ since buying and the decline in the purchase price, etc, they could be up/down/or flat ... lots of variables.

if they are using borrowed funds, then possible double whammy with R/E value and currency losses.

 

[rbt]

if they are using borrowed funds, then possible double whammy with R/E value and currency losses.

Isn't it more common to get the mortgage in the same currency you purchase the real-estate in to avoid this? That is, have an american bank mortgage the property?

 

[cdr108]

Isn't it more common to get the mortgage in the same currency you purchase the real-estate in to avoid this? That is, have an american bank mortgage the property?

yes, but you still have to pay by converting Euros to US$ to pay the monthly mortgage payments

 

[ILuvTO]

Don't close off the market to foreign investment. That's suicide. It's hard to argue that there arent enormous benefits to allowing foreign investors the opportunity to park thei capital in Canada's best markets Just enforce the tax laws better.

Why is that so hard?

April numbers show a 4% increase in condo prices year over year. We couldn't wish for anything more stable.

Sure, foreign investment is a wonderful thing. But when that investment starts fuelling speculation and makes the local market unaffordable for locals, or it forces locals to spend a greater portion of their net income servicing their mortgage debt, how good is it? Does that not then offset the new construction jobs and other benefits created? I think so.

Sometimes you can have too much of a "good" thing.

 

[brockm]

Sure, foreign investment is a wonderful thing. But when that investment starts fuelling speculation and makes the local market unaffordable for locals, or it forces locals to spend a greater portion of their net income servicing their mortgage debt, how good is it? Does that not then offset the new construction jobs and other benefits created? I think so.

Sometimes you can have too much of a "good" thing.

The only reason this is even problem is because the markets are awash in cheap credit, which create the conditions for speculators to thrive. If Carney took rates to 3.5%, do you think the speculators would keep bidding up properties, or do you think the market would implode? I know what scenario I'd bet on.

 

[interested]

The only reason this is even problem is because the markets are awash in cheap credit, which create the conditions for speculators to thrive. If Carney took rates to 3.5%, do you think the speculators would keep bidding up properties, or do you think the market would implode? I know what scenario I'd bet on.

Given that ILuvTO was talking about foreign investors, and further if we are dealing with the issue that they are in a fair number of cases "cash buyers" if you believe some of the other posts/articles, and also that they are looking for capital preservation in a more stable environment....I am not sure the conclusion you are betting on is correct.

It would be more relevant to those who are thinking of keeping the properties who are located in Canada who will need a mortgage. However, since I believe this latter group represents the majority, it will have an effect for sure.

 

[brockm]

Given that ILuvTO was talking about foreign investors, and further if we are dealing with the issue that they are in a fair number of cases "cash buyers" if you believe some of the other posts/articles, and also that they are looking for capital preservation in a more stable environment....I am not sure the conclusion you are betting on is correct.

It would be more relevant to those who are thinking of keeping the properties who are located in Canada who will need a mortgage. However, since I believe this latter group represents the majority, it will have an effect for sure.

I'd double down and say my theory is correct. Even if foreign investors represented 25% of the market, that wouldn't be anywhere close to being enough to keep prices up in a rising rate environment. Ultimately, the prices are set at the margins. It even 10% of the demand were to disappear from the market, prices would nosedive.

Not to mention that in a situation like that, the foreign investors are likely to be one of the early segments to get out.

 

[interested]

I'd double down and say my theory is correct. Even if foreign investors represented 25% of the market, that wouldn't be anywhere close to being enough to keep prices up in a rising rate environment. Ultimately, the prices are set at the margins. It even 10% of the demand were to disappear from the market, prices would nosedive.

Not to mention that in a situation like that, the foreign investors are likely to be one of the early segments to get out.

Agree on both counts.

The question which no one tracks in Canada (which I find incidentally unbelievable) is how much is foreign investors. If it truly represents less than 3% it won't be too bad (even at the margin though there would be a decrease for sure)....30% potentially disastrous.

In condos in downtown TO I am sure it is much higher than in SFH in Toronto. Still, I really have no clue as to how much the actual number is.

 

[CN Tower]

The only reason this is even problem is because the markets are awash in cheap credit, which create the conditions for speculators to thrive. If Carney took rates to 3.5%, do you think the speculators would keep bidding up properties, or do you think the market would implode? I know what scenario I'd bet on.

Brock,

I believe the BoC overnighht rate is 1%. You're suggesting he raise it 250 bps. If he did the Canadian dollar would probably jump 5 cents in a week, Canadian bonds of shorter duration would probably sell off causing Canada's debt service costs to skyrocket, the overall economy would absolutely crater, probably go into a deep recession within a few months and borrowing costs across the country would skyrocket. Businesses rely on credit to operate in case you weren't aware.

So ya, you'd feel like a real vindicated superstar watching a few small time condo flippers get burned, meanwhile everyone around you would be suffering, the entire country, and quite likely you'd be out of job.

Amazing the self-focused attitude of some here. Is it jealousy, envy, frustration, or ignorance? Do tell. We can argue all day whether prices are getting too high but your position seems to be that the government should punish everyone to do something that the free market will eventually do on its own, all for what exactly? So that you can buy a condo for $300 per square foot? Enlighten me please.

Vancouver does seem to be a problem but in Toronto it appears the new condo inventory is being absorbed by the rental market. So if all the building stopped on a dime because foreign buyers were shut out, aside from the widespread destruction across all areas of the real estate industry- from real estate lawyers to architects, engineers, marketing and ad firms, brokers etc- prices would probably drop a lot initially but then, after a few years, we'd probably just see very few new building being built all targeted to end users at similar prices that we're seeing today. The rentl market would probably skyrocket and single family home prices would likely flatline.

Above assumes Toronto continues to attract 80,000 new immigrants annually and the Greenbelt regulations aren't overturned.

 

[Kenny]

We still don't have any hard facts about foreign investments in real estate. It's all pure speculating, rumours and hogwash.

Imho, a lot of the investors are recent immigrants. But I can't substantiate that except through anecdotal evidence, which is almost useless.

 

[urbandreamer]

Check out the Q1 Urbanation report. It's scary.

 

[interested]

Market Overview

The 6,070 new condominium apartment sales in Q1-2012 were the highest of any first quarter on record for the Toronto CMA, however the average of 18.0 sales per project was lower than Q1-2011 (18.3), Q1-2010 (20.4) and Q1-2002 (23.6). Another record was set in Q1-2012 for active projects (338) and total active universe (84,698 units).
New Condominium Market

A total of 29,059 new condominium units have sold over the past 12 months in the Toronto CMA. Trepidation among players in the industry has never been higher, but neither have sales, with the 6,070 new sales in Q1-2012 setting a new record for the first quarter.
The Resale Condominium Market

Although the resale condominium universe continues to grow each quarter, reaching 219,019 units in Q1-2012, quarterly volume has not grown exponentially with market size. A total 3,888 resale transactions occurred in the first quarter, a 2.5% drop from Q4-2011 (3,987 resales) and 1.6% lower than Q1-2011's 3,952 resales.
Future Condominium Projects

As many as 42 projects and 11,109 units could launch in Q1-2012, with 27 of those projects located in the '416' area. As many as 35,000 units could come to market in 2012, which would represent a high for the Toronto CMA (over last year's total of approximately 28,000).



At some point with us hitting new highs year after year there has to be plateauing or even falling:

the numbers to me say the following: Sales the highest of any first 1/4 on record. But too many projects as evidenced by falling % of sales, more new condos coming on line this year.

Resales are plateaued which implies either there is not product or more likely there are not end users moving. Means likely more than ever it investor/speculators driving PRECON.

Also, the rush to market of product with possibly upwards of 35000 new units and Trepidation referred to suggests to me developers are rushing to market as they know the end has been reached. (The last kick at the cat as it were... no disrespect to my feline friends.) There may be another couple of percentage points to be had but those buying this year and last year are late to the party in my opinion and will not make any money. Whether they lose money remains to be seen. I believe they will.