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Toronto's condo market booms

while there are probably some risks in the market right now, a key difference between 1989 and 2008 is that in 1989 interest rates were high, and headed higher (around 14.5 % if memory serves), and in 2008 they are low and headed lower (what, about 5.75% for a fixed rate 5yr term, and about 4.05% for variable?)....

in March of 1989 everyone was absolutely bullish on real estate, and the newspapers were printing things like "well, it's still cheaper here than in Tokyo"....whereas today, many people are nervous about real estate, and many newspaper articles are bearish..

I don't see a crash like 1989 happening...

and any agent who has been in real estate longer than a month can tell you of open houses they have conducted, even in peak boom times, where almost nobody showed up - it happens all the time..
 
Here's what I see in today's (the latest) Condo Guide: the number of developers offering $10,000 "discounts" is increasing. Last issue I saw maybe one discounted project; in today's, perhaps 5-10 offers. A sign that inventory vs sales is increasing?

As a trader, I have learned markets/individual stocks can tank rapidly, often without much warning...but, there are usually small signs all is not well.

The April 2008 resale numbers should be interesting....

1000 people losing their jobs in Oshawa....400 losing their jobs at Campbells Soup....today. It shall get interesting soon imho.
 
Here's what I see in today's (the latest) Condo Guide: the number of developers offering $10,000 "discounts" is increasing. Last issue I saw maybe one discounted project; in today's, perhaps 5-10 offers. A sign that inventory vs sales is increasing?
Click to expand...

could be, dreamer, good observation...I was just looking through it as well...virtually nothing new to report project-wise...maybe the builders are getting cautious too..

still, as Marty Zweig used to say, pertaining to stocks.."don't fight the fed"..and in this case, our "fed" is lowering interest rates...
 
here's my take, caveat...

imo, there have been three pillars which have driven the great GTA real estate bull market of spring 1996 to the present day:

1.) good economy
2.) low interest rates
3.) immigration

the way I see it today,

1.) economy is still fairly good, but there is some weakness, especially in manufacturing..(as urbandreamer just pointed out)...what may save Toronto a bit is how diversified the local economy is - if manufacturing is soft, hightech and financial industry are strong, etc...

2.) interest rates are still low, and going lower..

3.) immigration is still continuing, and I believe the current federal government is actually in the process of increasing the allowable limits..this could change, of course, if the economy tanked - no reason to move here if the jobs are elsewhere..

Anyways, I see that 2 of the 3 pillars are still strong, and 1, while struggling a bit, has a lot of depth, which may help carry us through..

That's why I believe things may turn out o.k....of course, like they say, we are now "in the twelfth year of a ten year cycle", prices are high, and there is some speculation in the condo market, no question..;)
 
caveatemptor said:
Stable but low interest rates may be able to maintain current prices, all things being equal, but they don't explain double digit price increases.
Click to expand...

Could be a case of developers trying to get the highest price now before the market starts to flatten. That, or builders anticipating increased prices due to higher energy costs. probably a number of things in play.
 
You all have great points, but I would have to say that I think CaveatEmptor is who I agree with the most. He mentioned incomes....currently, the current ratio of average house prices to average incomes is about 5-1 in Toronto. Historically, the ratio has been closer to 3-1. Plus, we now have the majority of insured mortgages at 40-year amortizations. Clearly, another sign of high prices.

The low interest rate point is valid. But, I would be more inclined to assume a normalized mortgage rate (not the current low mortgage rate.) You could at least look at it this way....if rates are at very low levels, there isn't much room for them to go down further (and thus raise real estate values.)

Question for CaveatEmptor: Do you happen to be a fan of Warren Buffett? I noticed that you used a quote that Buffett has recently used- "history does not repeat itself, but it rhymes."
 
caveatemptor said:
http://www.reportonbusiness.com/servlet/story/RTGAM.20080429.wontario0429/BNStory/Business/home

Not so sure about that one yy.

Stable but low interest rates may be able to maintain current prices, all things being equal, but they don't explain double digit price increases.

Everyone knows by now that the bulk of the new condo market is being held up by foreign buying syndicates. I wish I had the evidence to prove this conclusively, (I actually have some private info regarding bulk buying but I'm not at liberty to divulge it) but it's very clear to all concerned that this is the case.

Let's hope that the feds continue to keep the flood gates wide open to eager newcomers looking for a better life, free health care and cheap coffee courtesy of Tim's.
Click to expand...

As regard to foreign buying sydicates....I met with a very well known and respected real estate family a few years back and this is exactly what he told me.
 
yyzer said:
in March of 1989 everyone was absolutely bullish on real estate, and the newspapers were printing things like "well, it's still cheaper here than in Tokyo"....whereas today, many people are nervous about real estate, and many newspaper articles are bearish..

I don't see a crash like 1989 happening...

..
Click to expand...

I disagree. I just read a bunch of articles from late 1988 and early 1989 and they sound EXACTLY the same as today. Back then there were some nervous people, but they were the minority. It is no different today. Of couse, as real estate has been cooling off this year, there are more negative voices. This also happened in March / April of 1989. And you still have lots of people today saying that we are cheaper than London, NY, etc.

One funny point regarding the comparison with cities like NY and London. When someone shows concern that real estate values are crashing in the U.S., the response is that markets are local (and responds in a tone suggesting that you are a complete idiot.) The same people will also give the example that Toronto is a bargain compared to London or NY so therefore we are cheap. Well....is real estate local or not? Make up your mind!
 
This might be a bad question. But, if it starts going down when will we see it start? Any idea?
Thanks
 
APM said:
This might be a bad question. But, if it starts going down when will we see it start? Any idea?
Thanks
Click to expand...

My guess is that when the supply of homes for sale on the market begin to far outweigh the demand. So, I'm thinking before 2009. My question is how far does everyone think prices will fall, and how long before it hits the bottom?
 
I believe Toronto market is vastly overbuilt. The commercial sector is hurting right now, bankruptcies are on the rise, layoffs are ballooning, the speculator condo crowd owns 2/3's of the condos, the bidding wars on older houses have got to stop.

Stop. Did I just see a $130,000 discount? Yes!:D
 
The one third discounts are already happening, according to http://toreal.blogs.com/

Changes in the average resale price in Toronto varied widely by neighbourhood. Toronto pockets where the average price fell include Richview, with a slide of 14.3 per cent, Armour Heights with a 33.8-per-cent tumble, Graydon Hall with a 41.2-per-cent decline and Lawrence Manor with a 21-per-cent fall. In the east end, L'Amoureux fell 7.23 per cent while Leslieville jumped 21 per cent. Price changes were recorded across the price spectrum: In the tony market of Forest Hill, for example, the average price fell 25.1 per cent to $825,439. April 27, 2008 in Toronto Real Estate Update

Source: Globe and Mail, Toronto Real Estate Board
 
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