Baby, we got a bubble!?

[interested]

Wow,
Look at this listing.
I know some people are caught but a sign of things to come.
If one could afford the approximate $1000/month tax (my plug figure) and $2179 / month condo fees:
2123 sq.ft. for $695/sq.ft.
Granted it is a big unit and expensive to run but still....views to the lake.
33rd floor in The Ritz.
I appreciate this is a huge unit and the running costs prohibitive. Remember, this is an asking price.
What a bargain for someone, or at least so it would appear.

http://www.realtor.ca/PropertyDetails.aspx?&PropertyId=12190315&PidKey=-793015341

 

[ILuvTO]

Article from today's Globe and Mail. It is based off a report from Royal LePage. Interesting to read Phil Soper's comments. Surprised that they even released this report. I bolded an underlined a couple of interesting comments from Soper.

Canada's housing market at 'tipping point'

http://www.theglobeandmail.com/repo...using-market-at-tipping-point/article4402077/

Housing at turning point
Canada's housing market is now at a "tipping point," with some cities still showing strong growth and others cooling down, Royal LePage says.

It also comes amid fears of overheating in some regions, notably Toronto and Vancouver, and moves by the federal government to slow the fevered pace of borrowing among Canadians who have embraced record low interest rates.

"We have had three years of solid house price appreciation in almost all regions of the country," chief executive officer Phil Soper said in the report.

"Confidence in Canada's real estate market is sound, but home prices cannot grow faster than salaries and the underlying economy indefinitely," he added.

"Some regions have reached or perhaps even exceeded the current upper level of price resistance as buyers have embraced an era of historically low mortgage rates."

Average home prices rose in the second quarter of the year at an annual pace of between 3.3 per cent and 5.5 per cent, Royal LePage said, projecting an overall increase by the end of this year of 3.2 per cent compared to 2011.

The average price of a typical two-story house rose 4.7 per cent to $408,423 in the quarter, bungalows 5.5 per cent to $376,311, and condos 3.3 per cent to $245,825, according to the study.

Toronto, St. John's, Winnipeg, Saskatoon, Halifax and Regina, showed strong gains, and that's expected to continue in Toronto and Winnipeg for now.

New mortgage rules that came into effect Monday are expected to hit first-time buyers in particular, Royal LePage said, noting that group accounts for up to half of the market.

"The most recent set of mortgage changes, the fourth in four years, is also the most aggressive," Mr. Soper said. "The cumulative impact of these new regulations has created a significantly higher hurdle for young buyers seeking their first home and comes at a time when the market was slowing of its own accord."

Mr. Soper described the timing of Finance Minister Jim Flaherty's latest move as "unfortunate."

Toronto-Dominion Bank also sees the housing boom likely ending next year, with "more pronounced declines" in British Columbia and Ontario, according to a study released yesterday.

"The expected housing pause will reflect stricter regulations on mortgages and lending and what we expect to be a gradual rise in interest rates," said economists Derek Burleton and Jacques Marcil.

Separately today, Canada Mortgage and Housing Corp. said construction starts across the country climbed in June, largely because of condo development in Quebec and British Columbia.

Housing starts rose to an annual rate of 222,700 from 217,400 in May, the agency said. The moving average, which shows the trend, was at 218,500.

"The monthly increase posted in June was mainly attributable to multiple urban starts in Quebec and British Columbia," said CMHC's deputy chief economist, Mathieu Laberge. "The rate of starts, however, remains close to the six-month average. CMHC still expects the pace of housing starts to moderate as the year progresses."

The CMHC report suggests that home construction will play a role in overall economic growth in the second quarter, said Emanuella Enenajor of CIBC World Markets, and "the current low rate environment is continuing to support already elevated housing construction activity, namely in the condo/multi-family segment."

But observers don't see it lasting at that pace.

"The condo boom extended into June it seems," said senior economist Krishen Rangasamy of National Bank Financial.

"So much so that residential construction is likely to contribute to GDP in Q2 (overall housing starts are up 56 per cent annualized in that quarter, roughly four times the pace seen in Q1). That said, we seriously doubt that builders will be able to maintain the tempo. The new mortgage rules that came into effect in July will bite into demand as will the slower moving economy, offsetting the benefits of low interest rates. Expect a moderation in residential construction in the second half of 2012."

 

[interested]

^^^
I read this article and had to laugh.
Confidence is sound.....really??? How can you say that just after you have reported huge drops in sales. Oh yeah, he has to say that. He represents the real estate industry. Can you imagine if sales had remained stable or risen, I guess we would have to be overconfident. There is nothing in these numbers that suggest this conclusion other than wishful thinking and propaganda.


the line I liked was that it was unfortunate that the finance minster dropped the mortgage rate duration to 25 years. I would suggest it was unfortunate that he increased it in the first place. Of course for all of us the excesses will have to be rung out.

I also saw on TV where they were interviewing a relatively young guy (mid 30's I would guess) who was not going to be able to buy a million dollar condo now because of the new rules. All I could think about was "what are you doing buying a million dollar condo if you are financing so tightly that you can afford it with 30 year amortization periods and record low interest rates and not with 25 year amortization periods. Why are you not looking at an $800K condo, already a hugely expensive proposal. I could not help but think that the sense of entitlement for this young guy to be unhappy that he can't buy with mainly borrowed money a $1 million condo. When I saw that, I realized that Flaherty was right to at least correct the wrong he made because it is exactly this thinking that imploded the US and other markets.

 

[interested]

From the Post similar article slight different spin/comments.

http://business.financialpost.com/2012/07/10/canadas-housing-market-at-tipping-point-royal-lepage/

Canada’s housing market at ‘tipping point’: Royal LePage

Garry Marr Jul 10, 2012 – 7:36 AM ET | Last Updated: Jul 10, 2012 12:36 PM ET
National Post

National Post

Most of the major cities tracked by Royal LePage showed increases from the first quarter of 2012 and the second-quarter of 2011.



Confidence in Canada’s real estate market is sound, but home prices cannot grow faster than salaries and the underlying economy indefinitely

At least one real estate company says the housing market is not quite dead yet.

Royal LePage Real Estate Services says 2012 will finish with average home prices, up 3.2% and slightly ahead of its 2.8% growth forecast earlier this year.

But the report suggests Canada’s residential real-estate market appears to be at a tipping point, with some areas likely too expensive for buyers at the current levels.

“We have had three years of solid house price appreciation in almost all regions of the country,” said Phil Soper, chief executive of LePage Real Estate. “Confidence in Canada’s real estate market is sound, but home prices cannot grow faster than salaries and the underlying economy indefinitely. Some regions have reached or perhaps even exceeded the current upper level of price resistance as buyers have embraced an era of historically low mortgage rates.”

He said that changes to mortgage rules introduced by Finance Minister Jim Flaherty over the past four years will keep some people on the side-lines, particularly first-time buyers who account for up to half of the transactions.

Mortgage rules changed yesterday: Do you know how?

Flaherty’s latest changes were announced last month and went into effect on Monday.

“The cumulative impact of these new regulations has created a significantly higher hurdle for young buyers seeking their first home and comes at a time when the market was slowing of its own accord. The timing of this intervention was unfortunate,” Soper said.

Starting Monday, lenders can now only issue home equity loans up to a maximum of 80% of a property’s value — down from 85%.

The maximum amortization period also drops to 25 years from 30 years — giving borrowers less time to repay the debt in full.

In addition, the federal government is capping the maximum debt ratios for households and limiting government insurance to mortgages on homes with a purchase price of less than $1-million.

The tightening, announced by Finance Minister Jim Flaherty June 21, was Ottawa’s latest attempt to slow down the accumulation of debt of Canadian households, which reached a record 152% of income in the fourth quarter of last year.

Andrew Barr/National Post

Central bank governor Mark Carney has been warning for several years that some Canadians are getting in over their heads with debt, and that they could face problems once interest rates — which sit at historic lows — start rising or if there is a second economic crisis.

Flaherty has tightened mortgage insurance rules four times since 2008. Following each move, national average resale housing prices declined, only to regain the lost ground and continue climbing, according to data from the Canadian Real Estate Association. Canadian home prices increased 19% from the start of 2007 through April.
Advertisement

The new rules could also take the heat out of a Toronto real estate market where average prices have surged by a third to $516,787 from five years ago and there are more skyscrapers under construction than any city in North America.

Mr. Soper says that when national average home values do soften, history has shown it will only be for brief period.

“Following a period of significant price appreciation, Canadian real property prices tend to flatten versus decline, until the economy catches up to the new price norms,” says LePage in a news release.

The company noted the last notable drop in prices nationally took place in 2008 and it lasted only 11 months. Before that, there was a period of over 16 years without a significant decline.

The longest period of national average price decline since 1980 took place in 1995 and lasted for 14 months.

My thoughts: Finally even the real estate firm is acknowledging that fundamentals are out of whack and historic low rates have encouraged a lot of people to buy to the extreme of their means.
The comment about first time buyers. I would suggest they have been dealt a disservice by being able to buy with 30-40 year amortizations and whether they will be able to withstand the 25 year adjustment just indicates they should never have bought at the price point they did in the first instance. I fear for those individuals. At least maybe we will save the rest of the first time buyers from potential problems.

As far as the downturn, Canada skirted the downturn which is why the real estate did not plummet. It went down 5-15% or so based on where in the country but recovered quickly because Canada's banks held up well and Canada started better positioned than other G7 countries. The 16 year growth (continuous) is great. No mention of 1989 to 1996price drop and dragging on the bottom to get back to 1989 price in 2001(at least in Toronto) so 12 years of absolute no growth is "short lived".

the suggestion that since 1980 which occurred in 1995 the decline lasted 14 months at least as far as overheated markets like Toronto is misleading I believe and certainly does not match my recollection of 1989 as I posted above..

 

[ILuvTO]

^^^ All good points interested. I am happy that the RE industry is starting to recognize that fundamentals are out whack, but still laugh at their suggestions that the market is sound, and that we should expect only a minor blip. These people have bad memories (1989 specifically). Correct me if I am wrong, but was there not also another RE drop in the late 70's or very early 80's?

Regarding your comment about the upset 30 something that can no longer afford his million dollar condo... he is a total fool. He is one of the many people who truly lack basic budgeting and financial skills along with any modicum of common sense. It is these people who have contributed to the current price run up. Couple this with extremely greedy people speculating in the condo market, and this is the end result.

 

[James]

It's articles like the following on the CBC that make me question whether people really get the reason why we have these new mortgage rules. Some are perceiving this like they have to beat these new regulations so that they don't fall "victim" of the government's plan. "We must beat the system and secure this 30-year 5% down CMHC insured mortgage before they get us!" This is the very reason why people are in financial trouble. If only everyone would wake up and acknowledge that these tighter lending rules are here to help those who would otherwise stretch themselves too thin, they would welcome it instead of attempt to "get in" before it's too late.

http://www.cbc.ca/news/canada/british-columbia/story/2012/07/06/bc-mortgage-deadline.html

Home buyers scramble before mortgage rules change

Just 2 days remain in which 30-year amortizations will be allowed

CBC News

Posted: Jul 7, 2012 10:01 AM PT

Last Updated: Jul 7, 2012 10:57 AM PT

The clock is ticking on Canada's mortgage rules.

Come Monday, insured 30-year amortizations will be a thing of the past, and the shift means many buyers are scrambling to find a home and seal a deal this weekend, before time runs out.

As part of an attempt to cool the housing market and reduce household debt, the maximum amortization on government-backed mortgages will be 25 years.

“It will mean some people will not be able to buy into the market, some people will buy less into the market,” Finance Minister Jim Flaherty said in announcing the new rules last month.

Bruce and Denise Perrett, of Port Coquitlam, B.C., got married last year and wanted to buy a house, but they weren’t in a rush.

That all changed when the couple heard Ottawa was tightening mortgage rules.

For the Perretts, locking into a 30-year term as opposed to 25 years meant an extra $300 a month that could go to strata fees or property taxes.

They sprang into action and called their mortgage broker.

“She was right on it, she got us the approval and the next day we were rolling,” said Denise Perrett. “Then we found out we had to have an accepted offer by [July 9] and then we panicked and called our realtor.”

The new rules limit buyers’ purchasing power, said mortgage advisor Milka Lukacevic.

Deadline stress

For every $100,000 it's about a $60 difference, and in an expensive market like the Lower Mainland, every penny counts.

But Lukacevic says the rush to take advantage before the rules change can carry a lot of stress.
Bruce and Denise Perrett managed to get an accepted offer under the deadline. (CBC)
“You can't necessarily — because the rules changed in a matter of weeks — go out and find something just to try and get it on a 30- year.”

The Perretts spent 48 hours looking at homes and put an offer that was accepted last week on a property in Maple Ridge that has everything they want.

The best part is that they qualify for a 30-year mortgage.

“We probably wouldn't have been able to afford to mortgage a house, or at least not the house we wanted, if we hadn't jumped on it,” Bruce Perrett said.

~~~

 

[cdr108]

Bruce and Denise Perrett, of Port Coquitlam, B.C., got married last year and wanted to buy a house, but they weren’t in a rush.

That all changed when the couple heard Ottawa was tightening mortgage rules.

For the Perretts, locking into a 30-year term as opposed to 25 years meant an extra $300 a month that could go to strata fees or property taxes.

They sprang into action and called their mortgage broker.

“She was right on it, she got us the approval and the next day we were rolling,” said Denise Perrett. “Then we found out we had to have an accepted offer by [July 9] and then we panicked and called our realtor.”

The new rules limit buyers’ purchasing power, said mortgage advisor Milka Lukacevic.

Deadline stress

For every $100,000 it's about a $60 difference, and in an expensive market like the Lower Mainland, every penny counts.

But Lukacevic says the rush to take advantage before the rules change can carry a lot of stress.
Bruce and Denise Perrett managed to get an accepted offer under the deadline. (CBC)
“You can't necessarily — because the rules changed in a matter of weeks — go out and find something just to try and get it on a 30- year.”

The Perretts spent 48 hours looking at homes and put an offer that was accepted last week on a property in Maple Ridge that has everything they want.

The best part is that they qualify for a 30-year mortgage.

“We probably wouldn't have been able to afford to mortgage a house, or at least not the house we wanted, if we hadn't jumped on it,” Bruce Perrett said.

~~~

the greater fool ...

 

[interested]

the greater fool ...

I agree unfortunately. If they would not have qualified, and I have read that the shrinking from 30 to 25 years is effectively a 1-2% increase in interest rates, they are just at the margin if interest rates go up 1-2%, they could not afford the house. Add that if the house price should fall, they will likely have to sell at renewal time. Let alone that what happens if their situation changes...other unexpected expenses or job loss or other event. I doubt they would have 3 months of savings based on the way the article is written. Let's hope that I am wrong.

 

[littlemissJJ888]

I agree unfortunately. If they would not have qualified, and I have read that the shrinking from 30 to 25 years is effectively a 1-2% increase in interest rates, they are just at the margin if interest rates go up 1-2%, they could not afford the house. Add that if the house price should fall, they will likely have to sell at renewal time. Let alone that what happens if their situation changes...other unexpected expenses or job loss or other event. I doubt they would have 3 months of savings based on the way the article is written. Let's hope that I am wrong.

People really have a messed up way of thinking. Just because the government will let me take out $2,000,000 to buy a home and repay over 100 years, does that mean I can afford it when I make an average Canadian household income of $60,000?

The mobs will loan you anything just to keep the money flowing.

 

[interested]

^^^
Hi littlemissJJ888

I agree with you. We have previously on the forum discussed the fact that people feel entitled to everything and everything now even if it is bought with 80% credit. We are marketed to death with "you deserve it". Need a new bed....no money....no problem we will sell it to you now and you pay in 1 year only. Want a car, why settle for a 2nd hand used car. Get a BMW....it is only 2% or whatever financing and you can project your pseudowealth.

Please understand, when it comes to housing, I believe people should be able to reasonably expect a decent roof over their head. Just not sure that if I just graduated University within the past 5 years,work downtown, have student loans still that I should be buying a CMHC insured mortgage so that I can live downtown in 500 sq.ft. with SS appliances, granite counter tops, and hardwood floors and marble/granite. At the same time, I do this with CMHC assuming all the risk for getting today what others saved for for many years. Reality is all of us can want the moon and the stars but is it reasonable for us to work on the assumption of "what can I afford to carry" as opposed to what can I realistic afford to buy? It is not just new grads and young people but baby boomers doing the same thing. I am shocked when I hear of "wealthier people" who are 60 years old, good high paying jobs, who have a 1 million mortgage on a 2 million dollar home. I don't get a million dollar mortgage at 60 years of age still. It is not that they have millions more, but say another $1 million in investible assets. So the home in reality is their total net worth. Why not live a little more reasonably... who are we trying to impress?

 

[cdr108]

Why not live a little more reasonably... who are we trying to impress?

themselves and the Jones, Smiths, Khans, Singhs, Chans, Lees, Nassers, Hakims, etc

I also saw on TV where they were interviewing a relatively young guy (mid 30's I would guess) who was not going to be able to buy a million dollar condo now because of the new rules. All I could think about was "what are you doing buying a million dollar condo if you are financing so tightly that you can afford it with 30 year amortization periods and record low interest rates and not with 25 year amortization periods. Why are you not looking at an $800K condo, already a hugely expensive proposal. I could not help but think that the sense of entitlement for this young guy to be unhappy that he can't buy with mainly borrowed money a $1 million condo. When I saw that, I realized that Flaherty was right to at least correct the wrong he made because it is exactly this thinking that imploded the US and other markets.

sometimes i wish the news would do follow up stories on people like this.

100% sure he will be declaring bankruptcy in 10 years if he actually does go thru with buying the $1 MM condo.

 

[interested]

sometimes i wish the news would do follow up stories on people like this.

100% sure he will be declaring bankruptcy in 10 years if he actually does go thru with buying the $1 MM condo.

This is exactly what Mr. Flaherty has realized and why he is trying to prevent a housing collapse. In the meantime, a lot of people in the past few years got mortgages they could ill afford. It has worked out so far well for them as they have built up equity due to upward market forces but that can quickly reverse as we saw briefly in TO from Sept 2008 to summer 2009 and if that happens again what was a "gift" will turn out to be an albatros.

As for the guy, I doubt he would want to be interviewed if he had bought the $1mill condo and it went to $800K which is certainly possible.

 

[brockm]

This is exactly what Mr. Flaherty has realized and why he is trying to prevent a housing collapse. In the meantime, a lot of people in the past few years got mortgages they could ill afford. It has worked out so far well for them as they have built up equity due to upward market forces but that can quickly reverse as we saw briefly in TO from Sept 2008 to summer 2009 and if that happens again what was a "gift" will turn out to be an albatros.

As for the guy, I doubt he would want to be interviewed if he had bought the $1mill condo and it went to $800K which is certainly possible.

The idea he's going to facilitate a soft landing is laughable. It presumes the bubble is small and nascient. It is not.

I think the condo market in Toronto is in for a 20%+ correction. I then expect people to blame capitalism and greed like always. And then they'll demand even more government control over credit markets. Even though, it's government control over credit markets (interest rate fixing) and risk subsidization (CMHC) which is causing this problem to begin with.

 

[interested]

The idea he's going to facilitate a soft landing is laughable. It presumes the bubble is small and nascient. It is not.

Brockm: while you may well be right and a hard landing is unavoidable, I still think Flaherty is doing the right thing trying to deflate things going forward. Would you rather he just leave things be. At least some people at the margin today will be spared from themselves. And if a little less air is in the balloon, that can only long term help.

I would have liked though it will never happen to see a politician come out and say in hind sight, I now appreciate I made a mistake by extending the mortgages and we must correct this. The trouble is people (voters) don't reward honesty and 90-95% of the voting population is ignorant of many issues anyhow. I am sure if we went out of this forum and asked how many people realize it was Flaherty who increased the limits in the first place from 25 to 40 years and then brought back, far less than 1/2 would even be aware.

 

[brockm]

Brockm: while you may well be right and a hard landing is unavoidable, I still think Flaherty is doing the right thing trying to deflate things going forward. Would you rather he just leave things be. At least some people at the margin today will be spared from themselves. And if a little less air is in the balloon, that can only long term help.

I would have liked though it will never happen to see a politician come out and say in hind sight, I now appreciate I made a mistake by extending the mortgages and we must correct this. The trouble is people (voters) don't reward honesty and 90-95% of the voting population is ignorant of many issues anyhow. I am sure if we went out of this forum and asked how many people realize it was Flaherty who increased the limits in the first place from 25 to 40 years and then brought back, far less than 1/2 would even be aware.

I think we should float interest rates and scrap the CMHC.