Baby, we got a bubble!?

[rbt]

Such as?
I work in construction and I can't think of anyone that has skills for other careers, other than working at home Depot.

There are a lot of things to build which are not condos. As Eglinton gets started there will not be a shortage of most jobs for people willing to work underground.

About the only group left out would be drywallers; perhaps a few can learn to tile.

 

[Wooba]

There are a lot of things to build which are not condos. As Eglinton gets started there will not be a shortage of most jobs for people willing to work underground.

About the only group left out would be drywallers; perhaps a few can learn to tile.

You grossly over estimate the amount of labour needed for that project or grossly under estimate the amount of labour that has been involved in the housing boom. I know tons of guys are not working today. I shudder to think what it will be like during a major slow down.

 

[rbt]

You grossly over estimate the amount of labour needed for that project or grossly under estimate the amount of labour that has been involved in the housing boom. I know tons of guys are not working today. I shudder to think what it will be like during a major slow down.

The housing sector isn't completely dead; in fact, sales for the last 3 years were average (2011/2012 were high, 2013 is low). Since most projects take 3 to 4 years to complete, the effects of 2013 slow sales haven't really been seen yet by anybody except perhaps excavation crews.

Are you sure they were working in condos and not townhomes? What has fallen significantly (down 50%) and would have had a huge impact by now are falling row/townhome construction permits in the GTA.

Condos simply take longer to get through the pipeline.


Total building permits issued are down between 5% to 10% over last year. That's not a whole lot considering the past few years were extraordinary.


Are your friends very low-down on the seniority totem pole? Or impacted by seasonal weather? Freezing temperatures were late to appear the last few years; but 2013 is fairly average (30 year) temperature wise.

 

[Wooba]

The housing sector isn't completely dead; in fact, sales for the last 3 years were average (2011/2012 were high, 2013 is low). Since most projects take 3 to 4 years to complete, the effects of 2013 slow sales haven't really been seen yet by anybody except perhaps excavation crews.

Are you sure they were working in condos and not townhomes? What has fallen significantly (down 50%) and would have had a huge impact by now are falling row/townhome construction permits in the GTA.

Condos simply take longer to get through the pipeline.


Total building permits issued are down between 5% to 10% over last year. That's not a whole lot considering the past few years were extraordinary.


Are your friends very low-down on the seniority totem pole? Or impacted by seasonal weather? Freezing temperatures were late to appear the last few years; but 2013 is fairly average (30 year) temperature wise.

There's no seniority in my union. There just simply isn't enough work to have everyone work steady right now.
I work in the ICI and highrise sector. I work on pretty much anything other than houses. In my trade (electrical) the housing guys usually don't mix with the ICI/Highrise guys and there's plenty of ICI guys that won't do highrise. There's guys out of work right now although I couldn't give you exact percentages. My point being that once the current crop of condos are built, unless there is more building going up after then things will not be looking good for all the trades. And a handful of projects, even if they are high profile are not going to help the hundreds, possibly thousands of guys looking for work. I know guys that were not able to find a trade related job for close to 3 years in the early 90s. I sure as hell hope I don't have to face a work shortage like that!

 

[interested]

I know from having spoken to developers a lot of them were putting projects on hold in the 2nd quarter and delaying some launches to the 3rd and 4th quarter. Also, I was told a few projects were being pushed back to 2014 Spring....I suppose that plan can change as well depending on the market.

 

[rbt]

My point being that once the current crop of condos are built, unless there is more building going up after then things will not be looking good for all the trades.

Agreed. I know a few brokerage owners that were encouraging their agents to bank at least half of their income over the last few years. The ones that didn't are hurting right now.

It surprises me that the trades are already feeling the pinch though; I expected that to appear in another year or so.

And a handful of projects, even if they are high profile are not going to help the hundreds, possibly thousands of guys looking for work. I know guys that were not able to find a trade related job for close to 3 years in the early 90s. I sure as hell hope I don't have to face a work shortage like that!

Well, the near complete lack of short-term transit/highway improvements to downtown will certainly help keep the downtown market active. There are still a ton of fed-up commuters out there looking for an alternative and it only takes a small percentage to prop up resale pricing to make investors take interest in building new stock.

This will continue until the banks go through a round of layoffs. A US recession will probably occur soon (every 7 to 9 years) which could impact bank revenues. If banks layoff both the condo market and the commercial markets will come to a complete stop.

If revenues aren't impacted, (I have a fair amount of bank stock, this is my hope), then downtown condo sales will probably creep back up again sustaining 20 to 30 starts per year at ever larger sizes. The big stuff with solid designs in prime locations has been selling better than the smaller/cheaper stuff on side streets. Something needs to add capacity downtown and it's not transit, highway, or cycling. Trams will give a bit but added density seems to be the short-term solution.


I wish you and the other trades luck. My family got out of the gravel business very recently as they felt it was at the peak and the ones who knew it best wanted to retire.

 

[interested]

Agreed. I know a few brokerage owners that were encouraging their agents to bank at least half of their income over the last few years. The ones that didn't are hurting right now.

It surprises me that the trades are already feeling the pinch though; I expected that to appear in another year or so.



Well, the near complete lack of short-term transit/highway improvements to downtown will certainly help keep the downtown market active. There are still a ton of fed-up commuters out there looking for an alternative and it only takes a small percentage to prop up resale pricing to make investors take interest in building new stock.

This will continue until the banks go through a round of layoffs. A US recession will probably occur soon (every 7 to 9 years) which could impact bank revenues. If banks layoff both the condo market and the commercial markets will come to a complete stop.

If revenues aren't impacted, (I have a fair amount of bank stock, this is my hope), then downtown condo sales will probably creep back up again sustaining 20 to 30 starts per year at ever larger sizes. The big stuff with solid designs in prime locations has been selling better than the smaller/cheaper stuff on side streets. Something needs to add capacity downtown and it's not transit, highway, or cycling. Trams will give a bit but added density seems to be the short-term solution.


I wish you and the other trades luck. My family got out of the gravel business very recently as they felt it was at the peak and the ones who knew it best wanted to retire.

To the first bolded point: the older veterans, usually brokers have been in the business have seen the cyclical nature of real estate and know you "plan for a rainy day". This is why I get so upset when I read that the Canadian government may be back in surplus by 2015 and the talk is to allow income splitting for those with kids under the age of 18 which will cost $2.5 billion annually and a doubling of the TFSA. Of course these are just election promises and whether or not they are carried out who knows. I wholeheartedly agree with giving families a break. However, if I just got my debt under control personally, my first step would not be to introduce structural spending. It would be to lower my debt. I would benefit personally from a doubling of the TFSA. While I think that would be nice it is a handout to those of us fortunate enough to be able to use it. Already there is massive RRSP extra room and I suspect extra TFSA room that most people can't use. Just passing the burden onto further generations.

Bolded point 2: There have always been fed up commuters. I get it. My generation (early boomer) moved to the suburbs in many cases because we could not afford the home we wanted in the city. I get it that McMashions are not what people necessarily want but even townhomes in the city are expensive for most young families. So I am not sure this is markedly different now but maybe advertised more and as such keeping it more front and center. Still not sure it means the new echoboomers who for the first time are going to outnumber the boomers are going to think differently than their parents when it comes to raising families. I just don't know honestly what will happen.

Point 3; I agree there are always recessions every 7-9 years or thereabouts. However this has been an odd cycle. Typically there is quite a boom and growth after a recession. With 2008 we had recessions around the world though Canada got off better. However it was at the expense of ballooning the deficit. Even more so in the US and now Japan with Q.E. or equivalents.
Governments with the mass amount of money have altered "normal patterns". We have not had much of a growth despite it...a tepid 1-3% around the world with massive stimulus which one might argue would have been flat growth without it. I personally do not believe the governments know how to get out the mess that QE is causing and suspect that the withdrawal will be very slow and we see neither boom nor bust for quite a few years. I think the governments will try to "engineer" out of any recession by adding Q.E. and deal with greater than 2 or 3% growth with slowly removing it. They have committed to this path now and it is a problem to see how to get out of it. I am not saying recessions are a thing of the past...just that they may not follow the same as previous patterns.

 

[Mellisa Lopeze]

If you have any property? Now is the time to sell. One of two things will happen in the comming year - prices will stagnate, or they will drop down. There is absolutely no reason to expect today's momentum to sustain.

 

[rbt]

If you have any property? Now is the time to sell. One of two things will happen in the comming year - prices will stagnate, or they will drop down. There is absolutely no reason to expect today's momentum to sustain.

So you are selling your property and renting an equivalent?

 

[klb86]

Meanwhile.....

TORONTO, November 18, 2013 -- Greater Toronto Area REALTORS® reported 3,131 residential transactions through the TorontoMLS system during the first two weeks of November 2013. This result represented a 21 per cent year-over-year increase compared to 2,582 sales reported during the same timeframe in 2012. Over the same period, new listings were down by more than four per cent.

"The results for mid-November indicate that GTA households remain comfortable with the costs of home ownership," said Toronto Real Estate Board President Dianne Usher. "If not for the persistent shortage of listings for most home types, we would likely be experiencing an even higher level of sales as more buyers would be able to make a deal on a home meeting their needs."

The average selling price for November 2013 mid-month transactions was $538,708, representing an 11 per cent increase compared to $485,988 in 2012.

"More buyers competing for a smaller number of listings has translated into an accelerating pace of price growth. This theme has been most prevalent in the low-rise market segment, including single-detached and semi-detached houses and townhomes. However, it is important to note that the condominium apartment market has also become tighter," said Jason Mercer, TREB's Senior Manager of Market Analysis.


Average selling price during the first 2 weeks of November in the 416 - $598,924 up 15.5% Y/Y Sales up 23% Y/Y

Average selling price of condo during the first 2 weeks of November in the 416 $395,865 up 14.4% Y/Y Sales up 19.8% Y/Y

 

[NorthYorkEd]

The real estate companies and those with a vested interest in keeping the market agitated can say what they want and spin their (non-independently verified) numbers any which way to support it. Of course, it is always a good time to buy, and you'd better do it now before being priced out forever. It's different this time. Housing can only go up. And so on.

Anyone with a passing interest in economics, an eye towards history, and the examples seen in other countries, are wise to proceed cautiously when it comes to purchasing residential real estate. Debt levels are historically high, incomes are stagnant, and the relationship between housing prices and incomes have diverged as never before seen in history. There is nothing foolish about choosing to wait on the sidelines to see which way the wind is going to blow.

The asking price for 2-bed/2-bath condos in our area is currently $420-470K. I simply will not pay it, when the average rental cost is equal to carrying about a $340K price tag (using the "Rule of 15" formula). This allows to live where we want to without the potential headaches of condo boards, maintenance fees, and property taxes, and continue kicking in a nice chunk to our investment portfolio each month, which will probably yield much better returns than housing equity for the next few years, if predictions for a flat or declining market are accurate.

There is a time to rent and a time to buy. For us, right now, it makes much more sense to rent and wait for another year or two while padding our more liquid financial vehicles. I don't think buying real estate is the no-brainer it has traditionally been.

[Edit: The "Rule of 15" formula gives a ballpark to work with when determining rent vs. ownership costs. Simply multiply annual rent x 15 and compare it to the asking price of similar properties. If there is a large disparity between the result and the selling price, it can indicate the market is overpriced or overvalued.]

 

[Riverdale Rink Rat]

http://www.cbc.ca/news/business/canadian-housing-21-overvalued-ratings-agency-says-1.2432265?cmp=rss

Fitch weighs in w/ a 21% overvalued call. In one respect, you could say that Vancouver (especially), Calgary, and Toronto are overvalued (particularly for detached) and everywhere/thing else is OK(ish).

 

[James]

http://www.cbc.ca/news/business/canadian-housing-21-overvalued-ratings-agency-says-1.2432265?cmp=rss

Fitch weighs in w/ a 21% overvalued call. In one respect, you could say that Vancouver (especially), Calgary, and Toronto are overvalued (particularly for detached) and everywhere/thing else is OK(ish).

At the same time, Fitch Ratings also anticipates a "soft landing" despite areas being overvalued by up to 26%. They also go on to note that with no indication of an immediate interest rate spike or employment collapse, a hard crash is unlikely. It will be interesting to observe just how much a correction will truly affect individuals in the Toronto real estate market.

 

[nrb]

At the same time, Fitch Ratings also anticipates a "soft landing" despite areas being overvalued by up to 26%. They also go on to note that with no indication of an immediate interest rate spike or employment collapse, a hard crash is unlikely. It will be interesting to observe just how much a correction will truly affect individuals in the Toronto real estate market.

That report is a comical example of how the pie in the sky "EVERYTHING IS GOING TO BE FINE" conclusions of these "analysis" hardly bear out from their premises:

It noted a downturn in the housing sector will also impact jobs, as companies have scrambled to build new homes and push construction to record levels in recent years.
With a high level of employment and individual net worth tied to the value of the housing stock, a housing downturn could have serious consequences for the overall economy.

Skip ahead 2 paragraphs AND:

the agency said there are several factors that will lessen the impact on the Canadian economy, including the overall low levels of unemployment

Wait, didn't they just write that a downturn will have a huge impact on jobs because of the boom in employment in construction and finances? Next they're saying there won't be a hard crash because there's a low level of unemployment right now?

Do I have to spell this out so these people can connect the dots?

 

[daveto]

I've been away from the board for awhile.

As a long time bear, I have to acknowledge that the enduring stickiness of prices & sale volumes suprises me. At the same time, from a value investing perspective my conclusions remain unchanged about the unsustainability of prices and the long term harm to our economy.

While we may have avoided (thus far?) a hard landing, and while we may even avoid it altogether, there seems to be evidence of the adverse effects on our economy.

There have been many studies undertaken showing that elevated rates of home ownership impede economic growth as workers lose their mobility, and similarly that elevated real estate prices above the true value of accomodation leads to impaired and inefficient allocations of resources & capital that harm the economy

Reports such as the following link, and the ongoing stagnant growth predictions from the BofC, illustrate that all is not well.
http://www.thestar.com/news/queensp...port_paints_grim_picture_of_ontario_cohn.html

It may be that we will indeed be economically digesting this real estate gorging over a period of the next 20 years, instead of a more cleansing purge of 5 years. My position remains the same either way - ensure that you are propertly diversified and suitably liquid, relative to whatever RE purchases you undertake.