Baby, we got a bubble!?

[KA1]

http://www.bbc.co.uk/news/business-26445106

Australians are being priced out of housing market.

Read all about it.

Can we be far behind?

 

[TheKingEast]

The GTA housing market is strong.

The GTA new condo market is very weak.

I'd say the resale condo market is weakening as well. I take a look at MLS daily (for the last 5-6 years) more specifically at 1 and 1+1 condos in the downtown core. I was hard pressed to find anything above 600sqft <$400K just 6-10 months ago. Now I'm seeing a lot more units <$400K. This makes me question why people are buying pre construction when the prices in some cases are above resale.

 

[cdr108]

if you're going to compare Japan's low interest rates, then you should also looked at what happened to their R/E and how that collapsed too !

A similar phenomenon is occurring here in the UK (and many other cities globally). Housing shortage + low interest rates = high price increases. London property prices are up 10% in the last 6 months alone.

Those calling for higher interest rates near term are completely misguided. Global interest rates will likely remain low for at least another 10 years. Just look at the debt dynamics in Japan.

 

[interested]

if you're going to compare Japan's low interest rates, then you should also looked at what happened to their R/E and how that collapsed too !

cdr
I appreciate your comment but I am not sure the collapse there follows here.
Their stock market and property market became severely overvalued. Both collapsed.

They had massive debt( granted held mainly by the Japanese ), an older population and entered a deflationary decade or 2 even.

While interest rates according to Johnzz are not going to go up for a while (may well be correct since I cannot figure out how governments get themselves out of the addiction of low interest payments just as consumers will have to adjust), he is not saying that interest rates will go to zero here and we get deflation...just that we will not see inflation. 10 years however is a long prediction time and a lot can happen.

 

[cruzin4u]

It is getting out of hand again, but this is what happens when you have immigration, good job growth, shrinking supply, they need a home to live in.

Also, look what happened to stocks and funds as an alternative investment. Russia Ukraine anxiety, what was it before that Italy, Cyprus, Greece worries, I would much rather be in real estate that be controlled by something that happens on the other side of world driving down my values.

I am not sure about the "good job growth" comment. In what sector is there growth? Judging from these stats, there have been thousands of layoffs in the last few months.

Heinz - (Posted November 14, 2013) : 740 layoffs
Encana of Calgary - (Posted November 22, 2013) : 800 layoffs
Potash Corp of Saskatchewan - (Posted December 3rd, 2013) : 1,045 layoffs
Kellogg's - (Posted December 10th, 2013) : 500 layoffs
Canada Post - (Posted December 11, 2013) : 6,000 to 8,000 layoffs
Bombardier - (Posted January 21, 2014) : 1,700 layoffs
Sears Canada - (Posted January 15, 2014) : 1,600 layoffs
Sears Canada - (Posted January 29, 2013) : 624 layoffs
Best Buy / Future Shop - (Posted Januay 30, 2014) : 950 layoffs
United Airlines (Canadian Operations) - (Posted February 20, 2014) : 240 layoffs

This doesn't include Staples Canada, which will be laying off a significant amount of people.

I am not hating on real estate, as I have made some decent money off it the past few years - but I just can't get my head around the pricing. In the past, there were those locations that constantly demanded high pricing, but now it seems that every single home is priced to the max. It's sad to see young couples/first time home buyers having to head as far as Whitby just to be able to have that "dream" home. And then there's all these bidding wars for homes that, often times, need loads of work. I guess some people are content on living in a dump just to have a home? Perhaps I just don't understand the logic.

I know it's a great market for real estate agents, as they are making some great $$$ off sales. Who is setting the pricing of the homes? It's almost as if people are asking whatever they feel like. I guess if people are buying these overpriced homes, why not set the bar high? I guess I may be jealous I can't afford an $800K home or maybe I'm just not that crazy enough. Who knows

 

[Glen]

In the last twelve months Toronto has lost more than 20,000 Jobs while the rest of the CMA has gained more than 77,000. http://www1.toronto.ca/static_files...s/Economic indicators/economic_indicators.pdf

 

[Condo George]

Does anyone recall what the forecasters etc were saying last year about the housing market......

http://business.financialpost.com/2014/03/05/toronto-home-prices-february-2014/

 

[cruzin4u]

Does anyone recall what the forecasters etc were saying last year about the housing market......

http://business.financialpost.com/2014/03/05/toronto-home-prices-february-2014/

So, houses are overvalued. These articles just keep proving that.

A house in my area sold in July 2011 for $636,000. It's now listed for $799,000. Absolutely nothing has been done inside between 2011 and now. That's an increase of $163,000 in 2 1/2 years.

Are you saying that in another 2 1/2 years, this very same house will be going for $1 million? And if so, how do you justify that?

We all know house prices are hitting record numbers, but there will be a down turn.

 

[interested]

So, houses are overvalued. These articles just keep proving that.

A house in my area sold in July 2011 for $636,000. It's now listed for $799,000. Absolutely nothing has been done inside between 2011 and now. That's an increase of $163,000 in 2 1/2 years.

Are you saying that in another 2 1/2 years, this very same house will be going for $1 million? And if so, how do you justify that?

We all know house prices are hitting record numbers, but there will be a down turn.

I think that is what everyone is talking about on this site.
We all know real estate is cyclical. Figuring out when the end of the cycle occurs and the beginning of the next cycle happens and what the down amount is....that is the million dollar question.

Maybe in 2 years in goes down....for how long...in 2008 it was 9 months here and 15% vs. US where it was 4 years and depending on the area up to 60%. In Toronto selling and rebuying at the top of 2008 and the bottom of 2009 even if perfectly timed after expenses would not have netted anyone very much and required perfect timing. I think one can see the problem with predicting...In the US it would have netted with correct timing the individual a lot of money.

 

[TheKingEast]

In the last twelve months Toronto has lost more than 20,000 Jobs while the rest of the CMA has gained more than 77,000. http://www1.toronto.ca/static_files...s/Economic indicators/economic_indicators.pdf

It's very worrisome. I wonder how many jobs have been created in that time. Toronto is an interesting city. The house prices are sky high and do not jive with salaries. Cut out a bunch of investors and it's no wonder the housing market is struggling.

 

[TheKingEast]

I am not sure about the "good job growth" comment. In what sector is there growth? Judging from these stats, there have been thousands of layoffs in the last few months.

Heinz - (Posted November 14, 2013) : 740 layoffs
Encana of Calgary - (Posted November 22, 2013) : 800 layoffs
Potash Corp of Saskatchewan - (Posted December 3rd, 2013) : 1,045 layoffs
Kellogg's - (Posted December 10th, 2013) : 500 layoffs
Canada Post - (Posted December 11, 2013) : 6,000 to 8,000 layoffs
Bombardier - (Posted January 21, 2014) : 1,700 layoffs
Sears Canada - (Posted January 15, 2014) : 1,600 layoffs
Sears Canada - (Posted January 29, 2013) : 624 layoffs
Best Buy / Future Shop - (Posted Januay 30, 2014) : 950 layoffs
United Airlines (Canadian Operations) - (Posted February 20, 2014) : 240 layoffs

This doesn't include Staples Canada, which will be laying off a significant amount of people.

I am not hating on real estate, as I have made some decent money off it the past few years - but I just can't get my head around the pricing. In the past, there were those locations that constantly demanded high pricing, but now it seems that every single home is priced to the max. It's sad to see young couples/first time home buyers having to head as far as Whitby just to be able to have that "dream" home. And then there's all these bidding wars for homes that, often times, need loads of work. I guess some people are content on living in a dump just to have a home? Perhaps I just don't understand the logic.

I know it's a great market for real estate agents, as they are making some great $$$ off sales. Who is setting the pricing of the homes? It's almost as if people are asking whatever they feel like. I guess if people are buying these overpriced homes, why not set the bar high? I guess I may be jealous I can't afford an $800K home or maybe I'm just not that crazy enough. Who knows

We're pretty much on the same page. The prices are just silly now. I thought the prices were outrageous 3 years ago and now they're even worse. Seeing people stretch themselves to purchase a 600 square foot cheaply built box for $400K is a joke. Agents and investors keep thinking there is more room for appreciation. I just don't see it. I don't know when the downturn is coming but it's not too far off IMO. I'll be selling and renting before that happens.

 

[interested]

We're pretty much on the same page. The prices are just silly now. I thought the prices were outrageous 3 years ago and now they're even worse. Seeing people stretch themselves to purchase a 600 square foot cheaply built box for $400K is a joke. Agents and investors keep thinking there is more room for appreciation. I just don't see it. I don't know when the downturn is coming but it's not too far off IMO. I'll be selling and renting before that happens.

And when may ask is that happening?

 

[cruzin4u]

We're pretty much on the same page. The prices are just silly now. I thought the prices were outrageous 3 years ago and now they're even worse. Seeing people stretch themselves to purchase a 600 square foot cheaply built box for $400K is a joke. Agents and investors keep thinking there is more room for appreciation. I just don't see it. I don't know when the downturn is coming but it's not too far off IMO. I'll be selling and renting before that happens.

And that's probably it, people believe these prices are still a "bargain" and that their investment will continue to appreciate. I don't buy that, but hey - I could be fooled.

I use to think that if the home was nicely renovated inside, it would warrant a high price - but it seems all that is out the window. What I find especially sad, when viewing listings, is how a good amount of these homes do not even have furniture. The owners have over extended themselves with such high mortgages, that they do not even have adequate furniture. I know everyone has their reasoning for owning real estate (good school districts and so forth), but this kind of pricing is not justified.

 

[detroitbootybass]

We all know real estate is cyclical. Figuring out when the end of the cycle occurs and the beginning of the next cycle happens and what the down amount is....that is the million dollar question.

As long as borrowing rates are kept artificially low, the normal cycle is disrupted.

What I'm wondering is this: When interest rates start to go back up, what affect will that have on the cycle itself? Will it just continue as if it was never interrupted (and back to a normal seven year range) or will the long period of low rates have another negative consequence (foreseen or, as of yet, unforeseen)?

 

[interested]

Condo prices in GTA likely to fall about 8% over next 2 years: report Add to ...

TARA PERKINS - REAL ESTATE REPORTER

The Globe and Mail

Published Monday, Mar. 10 2014, 10:37 AM EDT

Last updated Monday, Mar. 10 2014, 11:03 AM EDT
3 comments

Condo prices in the Greater Toronto Area will likely fall by about 4 per cent this year and a further 4 per cent next year, Toronto-Dominion Bank economists predict in a new report.

The report takes an in-depth look at the housing market in Canada’s most populous city, and wades into the debate about just how much damage could be inflicted by the plethora of new condo towers that are sprouting up. It’s a debate that Finance Minister Jim Flaherty is keeping a close eye on, having expressed fears about the number of condos going up as far back as 2012, one of the key reasons why he tightened the mortgage insurance rules.

The report says that new condos are increasingly having trouble competing with older ones, which are generally larger and cheaper. This comes at a time when the high-rise segment is facing excess supply, as about 70,000 units will be completed during this year and next, 9,000 of which are still unsold. There are also fears that people who bought the condos as investments may be planning to sell them once the buildings are complete.

The new home market (as opposed to the market for resales of existing homes) accounts for almost one-quarter of home sales in the Greater Toronto Area, and sales in the new market have plummeted by about 30 per cent from their peak in 2011, says the report, by TD economists Derek Burleton and Diana Petramala. During the same period resale activity has fallen only three per cent.

“There are bound to be some knock-on effects of weaker condo activity to the single family home market, as it could impede potential move-up buyers from taking their next step,” the report says. “However, the strong fundamentals of the single detached home segment should keep it well supported going forward.”

The economists predict that neighbourhoods that have more detached houses should perform better going forward than those with a higher concentration of condo towers.

“Toronto’s skyline of cranes is now about to transform into a skyline of condo buildings,” the report says. “The number of new units scheduled to be completed in the GTA over the next two years is striking at a time when new condo sales are dwindling. Meanwhile, the market for single-detached homes remains drum tight, keeping average resale home price growth in the GTA near 9 per cent year-over-year in February, further igniting fears of a bubble. One market is facing too much supply, while another appears to be heating up.”

The main source of data on Toronto’s existing home market is the Toronto Real Estate Board, which represents realtors in the city, while there are private companies such as RealNet Canada Inc. (which tracks the new home and condo market) and Urbanation Inc. (which tracks new condos) that release research on the new market. Because of that, reports such as this one by TD that look in depth at both markets are rare. RealNet Canada president George Carras has long been arguing that declining sales in the new home market stem more from a lack of supply than a lack of demand, with supply constraints stemming in part from government policies that are designed to contain urban sprawl.

TD’s report agrees that scarcity is a major issue when it comes to detached single family homes in the GTA.

“The existing home market is the overwhelming source for supply of detached houses,” Monday’s report says. “While 43,000 detached homes were sold in the resale market, only 9,900 were newly constructed in 2013, which compares to 22,000 in 2002. And even then, it has been slim pickings. The cost of a single detached family home ($718,000) is high – and largely out of reach for a family earning an average income in Toronto.”

RealNet’s Mr. Carras has been arguing that the abundance of new condos is, in large part, making up for the dearth of construction of detached houses.

“Given the high costs of land, recent changes in government land regulation and a lack of available infrastructure, builders have been incented to produce condos rather than detached homes,” TD says. “For every three condos built, only one detached home is constructed in the GTA.”

It notes that demand for new condos has been stronger in Toronto's downtown core, North York and near the waterfront than in areas on the outskirts of the city.

"The cost of carrying an average priced condo has been exceeding the rent that can be earned on it," the report says. "The combination of static demand and rising inventory of condos is likely to put downward pressure on prices over the next few years."


From the Globe on line:
A couple of thoughts. If correct and the correction is 8% over 2 years....given the costs to sell this is not going to influence any investor. However, more concerning is it might force investors to look at investments that do not carry themselves.

One major point, my understanding is the most Toronto has ever delivered in 1 year is either 15 or 18000 condos. I just do not believe that suddenly we are going to deliver 70000 in the next 2. My suspicion is a lot of those slated for 2014 and 2015 will only get delivered in 2016 and 2017 taking some of the pressure off.