Baby, we got a bubble!?

[James]

An interesting short write-up in the Globe and Mail today:

http://www.theglobeandmail.com/repo...ation-why-thats-a-good-thing/article21531854/

Why we shouldn’t fear a crash in Canada's three hottest housing markets
MICHAEL BABAD
The Globe and Mail
Published Tuesday, Nov. 11 2014, 7:49 AM EST

Housing and demographics
Amid all the hand-wringing over Canada’s housing market comes an interesting finding from BMO Nesbitt Burns: Homebuilding is “largely tracking” demographics in three cities that are the focus of the angst.

“And that’s a good thing,” said senior economist Robert Kavcic.

Mr. Kavcic’s research finds, for example, residential construction starts, while at record levels, has “followed an explosion in population growth” of more than 4 per cent year over year.

“In Toronto, starts are actually at 4 ½-year lows as population growth has cooled,” he added.

“That might be a bit surprising given all of the cranes, but current construction largely reflects the boom in starts during 2012 and 2013 – activity has since slowed meaningfully.”

What this suggests, Mr. Kavcic said, is that there’s no real overbuilding and, thus, no meltdown on the horizon.

As The Globe and Mail’s David Parkinson reports, housing starts across the country declined in October to an annual pace of 183,600, down from September’s 197,400 and well below what economists had projected.

Work on condos, in particular, slowed. And this is expected to ease further, according to Canada Mortgage and Housing Corp.

The focus in Canada is on Vancouver, Calgary and Toronto, where prices are running hot.

Most recently, the Bank of Canada has said other markets are showing signs of a soft landing.

That’s not to suggest that the central bank is saying those three cities are in trouble, but some economists have taken it as a warning. Having said that, no one is calling for a crash.

“Canadian housing is one of those weird areas of economic activity where a downside surprise in the data is generally treated as a positive – indeed, the softer-than-anticipated print is likely a welcome data point for policy makers," said chief economist David Rosenberg of Gluskin Sheff + Associates.

"It indicates that homebuilding is not losing its moorings as the latest reading is generally consistent with the underlying trend in Canadian household formation,” he added , referring to the housing starts.

“Further, the fact that the weakening in activity in October was specifically centered in the condo segment – the area most associated with overbuilding concerns – is likely another welcome development.”

The trend over the past six months is “well above” what’s required to match population growth, noted economist Brian DePratto of Toronto-Dominion Bank.

“Despite robust trend starts, we continue to expect a gradual slowing of Canadian housing activity towards levels supported by demographics (about 180,000 units) by the end of next year,” he said.

“A gradual rise in interest rates, along with the moderate level of overbuilding will help moderate housing activity.”

 

[Condo George]

Home prices rise

The latest measure of Canadian home prices underscores the surge in Calgary, Toronto and Vancouver, but with an added noteworthy element: Toronto is unmatched in one respect.

First, the national measures:

Home prices in Canada rose 0.2 per cent in October from September, according to the Teranet-National Bank house price index released today.

Prices were up in just five of 11 markets measured. And if you strip out Vancouver, the index would have been flat.

The year-over-year reading, though, puts prices up 5.4 per cent in October from a year earlier, again highlighting the hottest markets.

“Over the last seven months, mortgage rates have declined to almost historically low levels,” said senior economist Marc Pinsonneault of National Bank.

“This has stimulated existing home sales and prices,” he added.

“Nationwide, the seasonally adjusted monthly level of sales has exceeded 40,000 units for the last five months, something that has not been seen since April 2010.”

Prices topped the national average in Calgary, with a 9.1-per-cent gain, Toronto at 7.4 per cent, Hamilton at 7.3 per cent, and Vancouver at 6.5 per cent.

“Unsurprisingly, the resale market in these four urban areas is balanced or even tight,” the group said in its report.

Price gains were “more moderate” in Edmonton at 4.9 per cent, Winnipeg at 2.5 per cent, Montreal at 1.1 per cent, Quebec City at 1 per cent, Halifax at 0.4 per cent and the Ottawa area at 0.2 per cent.

Victoria prices slipped 0.1 per cent.

And here’s that added element:

“The composite index has been up from a year earlier for 61 months now, since October 2009. The only one of the 11 markets to match that run is Toronto, though Hamilton comes close with 59 months.”

On a national basis, prices are now “on track” to rise by more than 5 per cent this year, Mr. Pinsonneault said, which would be the best showing in three years after last year’s 3.8 per cent and 2012’s 3.1 per cent.

“House price inflation is now similar to the one observed in the U.S.,” Mr. Pinsonneault said.

“Having said this, regional prices changes differ from one region to the other with market conditions,” he added.

 

[James]

I thought the following Toronto Star article touches on another important factor in the ever-escalating home prices in Toronto.

http://www.thestar.com/business/2014/11/14/the_great_toronto_rebuild.html

The great Toronto rebuild
How the infill and renovation boom is changing city streets, and decimating affordable housing.

By: Susan Pigg Business Reporter, Published on Fri Nov 14 2014

Less than 10 months ago, the house at 145 Galley Ave. was uninhabitable. Now, it is unrecognizable.

The Roncesvalles home was so dilapidated when its elderly owner put it on the market for $649,900 last January, the MLS listing warned open-house enthusiasts to leave the kids at home: “Not for the faint of heart.”

The furnace hadn’t worked in years. The walls were grey from the soot kicked out by kerosene heaters. Windows were missing. The roof was a sieve.
Still, more than 30 folks bid on the house. It sold for $803,649 — more than $150,000 over the asking price.

It’s up for sale again — for $1.5 million.

“This is just in keeping with what’s been happening in the area,” says contractor Michael DeSimone as workers applied the finishing touches, aiming to have it ready for visitors by Dec. 1.

“Ten years ago, this Roncesvalles/Parkdale area was in need of revitalization. These things help in that,” he says, glancing at the stunning transformation.

An unprecedented renovation/restoration/rejuvenation binge is sweeping the streets of the old City of Toronto and having a significant impact on overall house prices, which were yet again up, this time almost nine per cent, across the GTA in October, year over year.

Last April, for instance, a surge of new infill homes in the 416 region was enough to briefly skew the average mid-month sale price of detached homes in the City of Toronto to an unprecedented $1 million. That average has since settled back down to $950,000.

This renovation and rebuilding boom is fuelled by what James McKellar, director of the real estate and infrastructure program at York University’s Schulich School of Business, calls “a major structural shift in the consumer market for housing.”

The desire to live downtown — thanks to worsening commutes, the 2006 provincial crackdown on urban sprawl and a generation of young people keen to live close to the core — is turning Toronto’s single-family home market upside-down.

While condo prices have largely been kept in check by increasing supply, price pressure is only increasing in Toronto’s single-family house market as more folks look to replicate the modern comforts of suburban homes in city neighbourhoods where there’s almost no room left.

“The problem in the single-family market is that the vast majority of Toronto houses were built upwards of a century ago and they have come to the point where the only real value is in the land,” says McKellar.

“What we’re going through now is a regeneration of the city, which may be affecting affordability, but where the benefits far outstrip the negatives.”
The Galley Ave. home is a prime example.

What was just a 2 ½-storey house like many of its neighbours back in January — with treacherously steep stairs to the low-ceilinged top floor — is now a three-storey modernist showcase with what its realtor/owner, Paolo Castellano, boasts is a treetop “master retreat.”

“This Modern, Bright Detached Galley Ave. Dream Home was Reno’d Top to Bottom And Now Has Brand New Everything!!” the MLS listing shouts.

Gone are the classic red brick façade and enclosed front porch that made it look right at home on this stretch of century-old grand dames, just steps from now sought-after Roncesvalles Ave. Cedar stripping has replaced unsightly, peeling paint.

The kitchen, which was such a health hazard that it caused some open-house visitors to gasp, is now a custom-built model of German efficiency.

The place was gutted to its solid brick walls. The roof was raised and the basement was lowered, adding hundreds more feet of livable — and pricey — space. (Castellano refused to allow a tour and has let only a handful of keen potential buyers into what he calls “the construction site.”)

And since even two bathrooms are barely enough for today’s discerning buyer, the house now has four, including a master ensuite.

“This isn’t one of those patch jobs where … you put on lipstick. This house has been completely redone,” says Castellano, adding that more than $400,000 went into the home.

Realtor John Pasalis has watched the rebuilding boom sweep whole pockets of the city, making the postwar bungalow an endangered species in areas like East York and Scarborough’s Hunt Club area near Kingston and Birchmount Rds.

These new builds have a domino effect, turning affordable areas like Leslieville into new urban hot spots where everyone feels the heat: A $650,000 home that is flipped post-reno for $1.1 million becomes the new comparable for every future home that goes up for sale, and also drives up area taxes.

But they are going to remain a major force in Toronto’s single-family home market, even as they continue to decimate the supply of more affordable housing.
“What’s driving a lot of this is people’s desire to live in the city, but they want some of the same amenities as in the suburbs. East York bungalows just aren’t practical by today’s standards, even for a couple,” says Pasalis.

“Builders have to build these houses to cater to that demand.”

Burlington-based real estate consultant Ross Kay worries that city officials haven’t thought through the implications of okaying rebuilds with whole new floors or massive additions that are actually changing the character of streets.

“The City of Toronto is decreasing affordability across all of Toronto because of the trickle-down effect caused by seemingly innocent decisions they are making around infills and renovations,” says Kay.

He argues that the city has the power through its building permit approval process to limit the scope of rebuilding and focus more, instead, on encouraging multiple houses, where possible, on single-home building sites. Creating two semis, rather than one $2 million mega-home, would open the door to more first-time buyers, he argues.

Professor McKellar knows that argument well. A developer is now facing stiff community opposition in McKellar’s Midtown neighbourhood for seeking to raze two bungalows and replace them with four townhomes.

Approval is almost inevitable, says McKellar, given the province’s Places to Grow legislation, passed in 2006, that makes intensification a top priority, with some 40 per cent of all new growth aimed at infill sites.

“It would be silly for the city to step in and say, ‘We want Toronto to look just like it did in the 1940s.’ People have said: ‘We don’t want to live like this any more, in little bungalows with tiny closets.’ ”

The bigger issue is that Toronto’s zoning bylaws, dating back to the 1950s, are desperately in need of an update. That’s lead to what McKellar calls a sort of “let’s-make-a-deal” juggling of developers’ demands and homeowners’ wants.

“What the city needs to do is be clear on what qualities of each neighbourhood it wants to maintain.”

 

[TheKingEast]

I dabbled with buying a house in the Riverdale/Riverside/Leslieville areas. Wasn't looking for any renos or updates. I was wiling to take on fixer uppers. Even a 2 bedroom 1 bath. I moved on to looking at condos as houses in those areas are insanely priced. Everything priced for bidding wars. Everything reno'd as cheaply as possible for a quick sell. In many cases selling for $100K $150K+ above list. No thanks.

 

[James]

^ In certain neighborhoods, like Leslieville, the Beach, Leaside, York Mills and Willowdale, it's practically impossible to find a decent single family home that needs some work for a good price as builders and flippers snatch them up at fairly aggressive prices. The houses that are decent in these same neighborhoods will go for extraordinary prices, leaving buyers beat and frustrated. From what I've seen, land values really are exceeding building value, making the market value of these houses to appear totally disconnected with what you're getting.

 

[TheKingEast]

^ In certain neighborhoods, like Leslieville, the Beach, Leaside, York Mills and Willowdale, it's practically impossible to find a decent single family home that needs some work for a good price as builders and flippers snatch them up at fairly aggressive prices. The houses that are decent in these same neighborhoods will go for extraordinary prices, leaving buyers beat and frustrated. From what I've seen, land values really are exceeding building value, making the market value of these houses to appear totally disconnected with what you're getting.

You're right. There have been some that fell through the cracks and sold for respectable prices in the 500's and 600's. Just not option. What kills me is the houses that are further east in pretty crappy areas that are going for 600K+list. Ridiculous. I think some sellers are flat out delusional. I've been looking for a house or condo and for the most part pricing has been in line. But you'll get the odd seller who sets a ridiculous price, doesn't even clean the unit or repair the problems with it and refuses to budge looking for a fool who will overpay. Yes, it's a seller's market but if your place is sitting on the market for months and doesn't show well...

I'm sitting back with money ready to go waiting for something to pop up. I'd rather a condo as I can avoid a bidding war but I don't mind a house either. I just won't be bidding agains tmyself and paying $750K for a house that was listed at 600K.

 

[Condo George]

TORONTO, November 18, 2014 – Toronto Real Estate Board President Paul Etherington announced that Greater Toronto REALTORS® reported 3,350 sales through the TorontoMLS system during the first 14 days of November 2014. Compared to the same period in 2013, this result represented an increase of 8.3 per cent. Over the same period, new listings were also up, but by a lesser 2.2 per cent. “Both first-time buyers and existing homeowners who decided to change their housing situation continued to make deals on ownership housing across the GTA in the first half of November. This points to the fact that home ownership remains affordable and that buyers remain confident in ownership housing as a quality long-term investment,†said Mr. Etherington. The average selling price for sales during the first two weeks of November was $579,834, which was up by 7.6 per cent compared to the average of $538,755 reported for the same time frame in 2013. The detached market segment led the way in terms of year-over-year price growth, both in the City of Toronto and surrounding regions. “Sellers’ market conditions continued to be experienced for low-rise home types during the first 14 days of November. In many neighbourhoods across the GTA, there are a number of buyers competing for a constrained supply of singles, semis and townhouses. This is why, more often than not, annual average rates of price growth for these home types have been in the high single digits or low double digits this year,†said Jason Mercer, TREB’s Director of Market Analysis.

 

[Condo George]

http://www.thestar.com/business/2014/11/19/condo_demand_in_toronto_remains_high_analysts_find.html

 

[TheKingEast]

The downtown housing market (more specifically Leslieville, Riverdale, Riverside, Beaches, Danforth Village) is an absolute jungle. Almost everything decent seems to be going over asking and well over. Bully offers all over the place. Such an interesting dynamic. People don't seem to care if they're greatly overpaying. Condos are a different story, though. There's a lot of 1 bed stock out there and it's only going to get worse since more supply will be coming on the market over the next couple years. 2 beds are still highly sought after and anything in a nice building/location under $530K is selling rather quickly. I think good sized 2 bedrooms will continue to be popular.

Why is this thread so dead now? Have the doom and gloomers given up? Rates are going to go up so maybe they'll make an appearance shortly.

 

[interested]

The downtown housing market (more specifically Leslieville, Riverdale, Riverside, Beaches, Danforth Village) is an absolute jungle. Almost everything decent seems to be going over asking and well over. Bully offers all over the place. Such an interesting dynamic. People don't seem to care if they're greatly overpaying. Condos are a different story, though. There's a lot of 1 bed stock out there and it's only going to get worse since more supply will be coming on the market over the next couple years. 2 beds are still highly sought after and anything in a nice building/location under $530K is selling rather quickly. I think good sized 2 bedrooms will continue to be popular.

Why is this thread so dead now? Have the doom and gloomers given up? Rates are going to go up so maybe they'll make an appearance shortly.

Hi TheKingEast:

I think part of the reason is that nothing has really changed so there is nothing to report. I don't think the doom/gloomers have given up. I suspect and I am not one of them (but I do believe there has to be some correction though I have never been in the 25%+ camp which would now have to be closer to 40%) that people have concluded one cannot fight what one perceives to be an irrational market.

The correction has not occurred due to 2 events: No black swan and a market awash in money thanks to QE and nowhere else to go.

Incidentally, I just read in the paper that someone just said there were "black Friday" mortage rates. A 5 year at 2.59% fixed and a variable at 2.05% or 0.95% below prime.
I think people need a place to live and after years of waiting are throwing in the towel and paying what has to be paid.

It is always the last at the party to be burnt. Had there not been QE we would in my view have seen a correction long ago. We have not seen in this generation a QE party like what we are seeing and I don't think anyone in their wildest imagination saw that coming or continuing anywhere near as long.

Indeed, if ther had not been a QE, or we in Canada had followed the likes of other economies, we too would have seen our prices crash or significantly lower.

Anyhow, I believe everything that can/could be said has been said and now it will take a new event before the thread revives.

 

[TheKingEast]

Hi TheKingEast:

I think part of the reason is that nothing has really changed so there is nothing to report. I don't think the doom/gloomers have given up. I suspect and I am not one of them (but I do believe there has to be some correction though I have never been in the 25%+ camp which would now have to be closer to 40%) that people have concluded one cannot fight what one perceives to be an irrational market.

The correction has not occurred due to 2 events: No black swan and a market awash in money thanks to QE and nowhere else to go.

Incidentally, I just read in the paper that someone just said there were "black Friday" mortage rates. A 5 year at 2.59% fixed and a variable at 2.05% or 0.95% below prime.
I think people need a place to live and after years of waiting are throwing in the towel and paying what has to be paid.

It is always the last at the party to be burnt. Had there not been QE we would in my view have seen a correction long ago. We have not seen in this generation a QE party like what we are seeing and I don't think anyone in their wildest imagination saw that coming or continuing anywhere near as long.

Indeed, if ther had not been a QE, or we in Canada had followed the likes of other economies, we too would have seen our prices crash or significantly lower.

Anyhow, I believe everything that can/could be said has been said and now it will take a new event before the thread revives.

I think Toronto's an outlier though. If you want to live in a big city in Canada, you're going to Toronto and Vancouver most likely... In Toronto at least I think the way the city is built is why we're seeing people go all out downtown. They are selling their cars and coming down here. Traffic and transit is way too poor here that some people are ditching their houses for condos or smaller houses downtown.

I've been looking at a condo or small house since September now. I only really started considering houses over the last month. The activity in the downtown housing market is eye opening.

Here's an example. This house came on the market a few days ago with offer day set for this Tuesday. It was listed at $499K. At least 15 different people saw the house the day it hit the market. Whowings consisted of 2-3 different agents in the home at the same time. Anyways. It sold with a bully offer for just over $600K.

This is the market we're in. a 2 bed house that needs work is selling in that fashion.

 

[interested]

TheKingEast

I consider myself fortunate that I do not have to purchase at this time. I do worry for my kids however.
That said, I simply will not let them go in at this price (if they will listen to me) at least for new condos.
I would buy a used perhaps, renovated perhaps, or maybe an assignment.

As far as houses in Toronto, I agree, the likelihood of a correction is less....but should interest rates go up, I think you will see a correction.

I read an interesting article saying older individuals in the City are in fact leaving to the suburbs more than suburbian older people going into the City. May be the price point simply makes it unfeasible to go from burbs to Toronto City. But also, may well be that living in the suburbs the congestion is not the same and as one gets older, one does not necessarily want to increase one's pace in life but rather relax more. Anyhow, it was interesting.
I think those in the City who can afford to stay will. I am sure economics is what is driving a lot of people out of the city. They sell in this market and buy in the burbs and pocket a tidy sum.

 

[KA1]

I would like to add my 2-bits worth.

Things are not going to get any better. About 6/9 months ago, Government had scrapped 'investor's immigration visa' program siting abuses in the system -- read: mainly by individuals of Chinese origin from Hong Kong or China. This brought a temporary relief to the prices in Vancouver.

Guess what.

Other countries opened their doors to these abusers. Realizing that Canada is missing on these 'enterprising' individuals,Government is planning to bring back the program again: this time an investment of $ 1.5 mil in a venture fund. What comes next? Money to buy a place to live: Vancouver or Toronto is irrelevant. Market for shoe box/1bedroom condos will be flat. However, market for family size condos will see continuing increase in prices -- well beyond the normal.

As far as SFH are concerned, if you staying away from 'bully' offers now, in a short while, you will not even think of looking at SFH. And I am sure Condo George will agree with me.

 

[interested]

I agree with Ka1 but just because everyone is nicely walking off the end of the cliff, I don't think I would advise doing the same.
SFH's will hold their value better, especially close to the core. But we did see significant drops in prices in 2008.

As far as family size condos increasing in price....I agree here because the SFH will be simply out of reach.

However, unless one is totally stable in their job, cannot be transferred...it is risky to take on a very expensive home. With CMHC not insuring over $1million dollar homes, that puts a bit of a damper on homes continuing upwards.

In Oakville, I hear though would need to confirm that the $2million+ in Old and East Oakville is highly competitive(from a sellers view point) and that given the supply/demand one can be looking at well over a year and closer to 2 years on average to sell.
One has to think that this will work its way down as $2million drops affecting the $1.5-2million homes since now a $2million home may be perhaps had for $1.8 million meaning that the $1.8 million home will probably drop to $1.65-$1.7million and so on.

It has to start at the high end.

 

[urbandreamer]

With the price of oil tanking--a great time to buy oil stocks btw--I believe a large housing correction is starting--in Alberta then spreading back east?