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Real estate market to crash? correction due

urbandreamer

urbandreamer

recession proof
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Looking at the TSX and US market "correction" this week (i'm a trader btw) and knowing there is a direct relationship between bullish sentiment on the stock market and bullish real estate sales, I believe a correction is due both in the resale and new housing construction markets.

I don't want to sound all doom and gloom--I love watching new projects especially Aa designed ones!--but a correction is possible as investors protect their capital.

Discuss.
 
Perhaps a little panic generated by the thought that property prices will plummet will encourage my neighbours to move while they still can.
 
We have heard "doom and gloom" predictions for a number of years now, particularly in regards to the condo market. I will now acknowledge that there is some reason to be concerned. I think any correction will manifest itself in only a few segments, especially housing priced between, say, $1 million and $3 million. This luxury class is purchased disproportionately by those whose fortunes depend directly or indirectly on the stock market (traders obviously, as well as high-net-worth professionals who are heavily invested in the stock market, etc.) We may see a drastic slowing down of redevelopment in neighbourhoods such as Bathurst and Lawrence, where whole streets of old bungalows are being converted to million-dollar housing.

I do not think there will be a correction of any great magnitude, or in fact probably not at all, in most property values. I include the more typical family dwellings and most condo apartment units. "Fundamentals" haven't really changed (immigration to the GTA, the lowest unemployment rate in 30 years, the highly diversified economy in this region).

Watch the median prices for monthly sales in Toronto over the next few months, as published by the Toronto Real Estate Board. These usually show up in the papers about the 5th or 6th day of the following month. My prediction is that they will not decrease at all.
 
There is a time lag with unemployment figures--you'd be surprised at the high number of plant closures in the manufacturing biz--that is the bottom rung in the economy and it will surely move up into the "professions." I personally know over 10,000 people who have been directly affected due to the high canadian dollar; although I believe the dollar is due for a correction as well--.87 by year end highly likely, especially if the market correction continues this Fall in the precious metals market.

As for traders--most of us can take advantage of a bear market--we short stocks etc--so I think the $1 million+ market will pull back mostly due to "emotions" not sound logic. If there is a rout, I fully expect the middle income/middle class (in toronto--$350-$700k homes) household to ultimately feel the "crash" the most; but it will always be the lowest income earners (new condo purchasers? the working class with large debt and mortgage in the outer suburbs?) in the greatest danger of losing their homes.

At the moment, the smart trader is sitting on cash waiting to see if today's crash is the "bottom" or if more selling will occur. Imagine today's TSX action's impact on the housing market: no one buying!

Personally, I believe a bounce is due--oversold conditions on the stock market cause value hunters to buy!--but if selling continues into October, the housing market at all levels will indeed have a major correction. (look at those crazy lineups and quick sell outs of new condos--insane and shows what happens to the greedy--pigs get slaughtered!)

Watching for the next signal,

u_d
 
Real Estate Alive and Well

Real Estate prices and the building industry could soon suffer in Canada, but I'm not so sure. Canadian banks and mortgage brokers didn't provide the same kind of subprime, no money down, interest-only mortgages accessible to people with bad credit that U.S. firms did (still do?). Also, the U.S. is further along in its housing cycle. Demand for homes out West in Canada is huge. In the GTA the condo boom continues, partly because of affordability versus single family homes, and partly because the province's Greenbelt and intensification legislation encourages this kind of building. As far as real estate as a whole goes, high immigration levels in Canada and Toronto in particular -- 100000 people are added to the GTA's population each year -- seem to ensure a steady trend of growth. If you want to see a market screaming for a correction, go to Britain, where housing prices are nearly double ours. Canada seems cheap by comparison.

Having said all this, an article in The Economist last year surmised that even if housing prices stayed flat instead of going down, a recession could result, because so many of us have our money tied up in our homes. Real Estate was a nice place to put money as an alternative to a bank, with interest on savings accounts and other interest rate-governed investments being so low. It's been great with year over year house price increases of 15 - 20 percent in some areas, at least for people who already own homes. It was also a viable alternative to investing in the stock market after the dot com crash. If real estate slows, what's left?

Now that real estate is slowing in the U.S. along with consumer spending, the last way the U.S. economy can be stimulated is through a lower U.S. dollar to boost exports. Governments can't afford further tax cuts and the consumer's credit card is maxed out.

It's tough to imagine the Canadian dollar weakening very much against the U.S. dollar with the U.S. Fed's current weak dollar policy in place, though a weaker Canadian dollar is a card Canada could play to avoid a recession. I hope it doesn't come to that, since a weaker currency encourages us to rely on being cheap instead of high value. To increase our productivity, and therefore our wages, we need to improve the quality and amount of what we produce through innovation rather than cheap labour. Sorry, I'm rambling...

It'll be interesting to see how the real estate market does in Canada over the coming months and what its impact will be on the larger economy.
 
Yes! Although I personally can't stand the majority of them;) I am acquainted with them but certainly wouldn't call them "friends." But, I've met them chatted with them and understand their issues and have given many of them advice--that most haven't had the guts to take. Such is life.

Yes I agree the Canadian $ should in theory keep going up (with Bush in Iraq, blah blah blah) but just when we Canadians get comfortable, the Fed tosses in some tricks....

Either way the real estate and stock market goes, there is always money to be made (I follow individual stocks, individual real estate markets.) Buy low and sell high or buy high and sell higher--I'm more into the former though. Which is why I'll probably buy in untrendy East Hamilton....
 
I'm sorry, but when you answered "yes," were you answering Urban Shocker's question? I guess I can understand that you didn't like a majority of them, but a majority out of ten thousand?
 
Some facts to consider: (please correct any glaring mistakes)

Annual GTA Population Growth- 100,000
Average Household Size- 2.5 people
Annual GTA New Households- 40,000
Annual GTA New Condo Sales- 15,000+

That number seems astonishingly high to me given the size of Toronto relative to other large cities. It would indicate to me that a big chunk (probably close to 50%) of new condo sales are being made by the specuvestor crowd, most likely foreign buyers who perceive new Toronto condo prices to be discounted on a global scale. Sooner or later, I believe, the specuvestor crowd will look to exit the market and we will see listings spike dramatically. Maybe the current credit crunch will be a trigger for such an event, I cannot say for certain. The reality is that while population growth is strong, low cost and widely available financing is what drives the housing market and if the lenders decide to tighten their criteria I believe that non-owner occupied suites would be among the first to get clobbered, along with the luxury segment.

Given that real estate is so illiquid, paper gains could easily evaporate quickly (such has been the case in many US markets where speculation was rampant) and the equity could get wiped out. Toronto is far behind cities like Vancouver and Victoria is regard as our new condo prices are only around $350 per square, however it is the huge number of new projects and the very strong presence of global marketing teams involved in them that worries me the most.
 
It would be interesting to pull up a gta housing market chart and overlay the tsx/dow etc charts. I wonder if sanity in the condo market would prevail--the continual climbing of the "chart"--would indicate a correction is due?

here's what I'd like to see: the big and generally ugly highrises of the gta (50% investor owned?) replaced by owner-occupied 6-10 story urban-style midrises. Parking lots would surely fill up much quicker and a proper, instant streetwall would create a happening nabe.
 
I'd like to see the condo concept expanded to include the existing housing stock of big old downtown homes, which could be subdivided and sold off by floors - like flats in England, for instance. First time buyers here are increasingly excluded from purchasing whole houses and must settle for buying a condo in a new multi-unit building, so entire neighbourhoods of the rapidly gentrifying downtown are off-limits to them as purchasers.
 
facadism of the riverdale and annex victorians? Knock out the innards and roof then add a 6 story Clewesian glass and red brick box? US--Can I buy your neighbour's house after the market crash? I'll buy out the entire street and then do my little facadism! trick.....
 
I wasn't suggesting adding anything to the tops of houses, merely accepting that many people have been blocked from buying them. Houses have been subdivided and turned into rooming houses in the past, many of them are now being returned to their original status as single family homes as neighbourhoods gentrify, and they could just as easily be turned into condo units in the future.
 
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