Real Estate Bubble no longer a theory?

[Nemodigital]

http://www.businessweek.com/ap/financialnews/D8GI5S9G0.htm?campaign_id=apn_home_down&chan=db

Its a short article so not going to bother summerizing. I don't think real estate markets where the economy is red hot such as Calgary will be very much effected but morons like this in Toronto will -> http://toronto.craigslist.org/rfs/144914704.html

Its about time that prices adjusted to reflect true value.

[PrinceMS]

Yes there is a bubble of house market. BUT with so many immigrants coming to Canada (mainly Toronto) and just the way economy works....
In the long run, prices will increase. Only people who cannot afford / sit on house to live through this fall - will be in loss.

[Bullseye]

That's an American article, the real estate market is not a single entity, so it may not really hold true here. It's been stated my times by industry observers that many cities in the U.S. are quite bubble-icious, while Canadian prices are still within historic affordability levels.

I've seen no real sign of a bubble-like activity in the GTA, perhaps with the exception of the condo market. I don't think we're in for any drop in prices, probably just a slow cooling of price growth. I can say that for my city, Burlington, people still seem to be commanding a premium price, and getting it, though not in the levels we saw a year or two ago.

[Nemodigital]

That's an American article, the real estate market is not a single entity, so it may not really hold true here. It's been stated my times by industry observers that many cities in the U.S. are quite bubble-icious, while Canadian prices are still within historic affordability levels.

I've seen no real sign of a bubble-like activity in the GTA, perhaps with the exception of the condo market. I don't think we're in for any drop in prices, probably just a slow cooling of price growth. I can say that for my city, Burlington, people still seem to be commanding a premium price, and getting it, though not in the levels we saw a year or two ago.
Well the thing is that the US economy is deeply connected to real estate, therefore any substantial slowdown could effect us since they are our largest trading partner. I do agree that not to the same magnitude and that it could be localized.

[Noob1ee]

The US don't have as much people migrating into it, than Canada...so the data might not be as accurate if being compared to Canada.

[grant]

Its a short article so not going to bother summerizing. I don't think real estate markets where the economy is red hot such as Calgary will be very much effected but morons like this in Toronto will -> http://toronto.craigslist.org/rfs/144914704.html

Its about time that prices adjusted to reflect true value.

Morons? Sounds like you have jealous issues.

"true value" is whatever people will pay for it. Not whatever you arbitrarily decide.

[Qyee]

Accurate article.
My sis been scouting townhouses in Las Vegas or Palm Springs, Ca in the last month and there are lots on the market. She's been down to see some properties and the real estate agents say the markets been flat the last 6 months - prices stable or decreasing. Lots of units on the markets and speculators trying to unload. And especially in Vegas where it is supposedly the hottest growth city in the States.
Right now you can get a decent 2 bedroom condo in Vegas for the 180,00 to 200,00 range.
In Palm Springs and suburbs still higher, but deals can be had.

Right now the agents and pushing the sale, but she may wait now for a better deal.

[Nemodigital]

Morons? Sounds like you have jealous issues.

"true value" is whatever people will pay for it. Not whatever you arbitrarily decide.
Well its the same thing that happend during the dot.Com bubble with IT stocks being way overvalued by speculators without fundamentals to back it up.

[st7860]

A year ago in Vancouver, there were newspaper stories of people enagaging in....bidding on the front lawn of houses during Open Houses.

[Nemodigital]

That's an American article, the real estate market is not a single entity, so it may not really hold true here. It's been stated my times by industry observers that many cities in the U.S. are quite bubble-icious, while Canadian prices are still within historic affordability levels.

I've seen no real sign of a bubble-like activity in the GTA, perhaps with the exception of the condo market. I don't think we're in for any drop in prices, probably just a slow cooling of price growth. I can say that for my city, Burlington, people still seem to be commanding a premium price, and getting it, though not in the levels we saw a year or two ago.
I am actually looking to purchase a condo within 3-6 months time in Toronto.

[actuary]

I believe the real estate market (and the stock market for that matter) is stochastic. Therefore, there is no successful way to predict the future in the short term.

[deep]

I believe the real estate market (and the stock market for that matter) is stochastic. Therefore, there is no successful way to predict the future in the short term.

What exactly is short term? I would say it's impossible in the VERY short term, easy in the short term, very difficult in the medium term, easier in the long term, and impossible in the very long term. Arguments for each are readily available :)

Any time you have something valued by consensus, such as real estate or stocks, it's not COMPLETELY stochastic. It's easy to identify trends after the fact, but sometimes difficult to see the root causes for those trends, and thus is usually more difficult to identify trends in advance. Impossible? Perhaps, perhaps not.

[actuary]

What exactly is short term? I would say it's impossible in the VERY short term, easy in the short term, very difficult in the medium term, easier in the long term, and impossible in the very long term. Arguments for each are readily available :)

Any time you have something valued by consensus, such as real estate or stocks, it's not COMPLETELY stochastic. It's easy to identify trends after the fact, but sometimes difficult to see the root causes for those trends, and thus is usually more difficult to identify trends in advance. Impossible? Perhaps, perhaps not.

You're right - it is not completely stochastic. However, for me and the average person who lacks in depth information, it might as well be. The truth is, given what I know about real estate and stocks, there is no way for me to accurately predict the short term.

As for what I define as short term, I don't know. I don't think anyone has successfully defined short and long term. 1 day, 1 week - thats all short term. Larger periods are up for debate.

[barold]

I believe there are fundamentals for real estate as there are for equities -- it's jobs (not just job creation, but growth in income). I agree, some places like Alberta will continue to grow economically but Ontario's does not benefit as much from oil riches.

People continue to cite the immigration coming to Toronto. Well, I personally don't see the same level in growth in jobs out there. Take a drive along the lakeshore (in Toronto) and gaze upon the wall of condos under construction there. How many 500 square foot condo dwelling worker bees will be working in Toronto in 2 years time?

People have been pricing their 25 year mortgages based on current level of interest rates - however, in 5 years time (or whenever they have to renew) what will their interest expense on their mortgage be if rate continue to climb. Affordability may be at the lowest level now, at today's interest rates, but take a look at what your mortgage payment would be if you had to renew at 2% higher. I think there would be a double throttling effect on the economy - people buckle down to pay their mortgages, economy stops growing... fewer jobs created...

[hagbard]

Immigration isn't going to keep up with retiring and dying baby boomers. It is bound to fall anyway, and the world wide bubble has already popped. Hot markets, like the one I live in (Victoria) will be hit hard. And the collapse of the US economy will futher fuel a drop in real estate on both sides of the border. We will live in interesting times.
;)

[sparkplug]

People continue to cite the immigration coming to Toronto. Well, I personally don't see the same level in growth in jobs out there.

There were some population stats by province released yesterday.

Alberta a migration 'magnet'
Huge influx will push Calgary to million mark a year earlier
View Larger Image
Wayne Rostad came to Alberta from Ottawa and now works in the oilpatch. "It's hard work, it's long hours . . . but it's the only province I know where you can make a bundle by the time you're 25," he says.
Photograph by : Rick MacWilliam, CanWest News Service
More pictures:
Article Tools
Printer friendly
E-mail
Font: * * * * Kim Guttormson, with files from Eric Beauchesne and Bill Mah, CanWest News Service, Calgary Herald
Published: Wednesday, March 29, 2006
Almost as many people moved to Alberta in the last three months of 2005 as set up house in all the other provinces combined -- the equivalent of six buses arriving in Wild Rose Country every day.

And city officials predict that at this rate, Calgary will reach one million people sometime in 2007 -- a year earlier than previously anticipated.

"We are a magnet destination in the country," said Harry Hiller, director of the Calgary in-migration study at the University of Calgary. "The strength of this is a surprise, but it has been building."

Between Oct. 1 and Dec. 31, 2005, the population of Alberta grew by 25,100 people, according to Statistics Canada. During the same period, the population of all the other provinces and territories increased by 25,369 people.

Alberta's growth was five times the national average and the highest ever recorded in a fourth quarter.

The staggering numbers cement the province's reputation as an economic engine -- and highlight ongoing problems with labour shortages and soaring housing prices.

"Clearly, people don't go to a place where there's no work," Hiller said. "But people are finding it increasingly difficult to compete. They don't have the down payment for a house.

"It makes it more difficult not only to attract, but to retain."

In the final three months of the year, 7,938 people moved from Alberta to other Canadian towns and cities.

Barb Clifford, the city's deputy city clerk and chief returning officer, who co-ordinates the annual city census, said Calgary is on pace to hit a million people next year.

"The (earlier) projection . . . is that we would reach a million by 2008," she said, adding the next census comes out in July. "I think now that will be 2007.

"We were at 956,000 last year. That leaves us 45,000 (to go). We'll absolutely pass it by next year, I think."

Hubert Denis, an analyst with Statistics Canada, said only during the 1979-80 oil boom have there been similar in-migration numbers anywhere in the country.

"Alberta attracts the rest of the country," Denis said. "And nothing is telling us that's going to change."

Most of Alberta's population increase came at the expense of the other provinces.

Whether lured by a red-hot economy, no provincial sales tax or the tease of another round of royalty rebate cheques, more than two-thirds of new Albertans arrived from somewhere else in Canada -- seven out of every 10 people who left Saskatchewan came here, while 64 per cent of those moving from British Columbia landed a province east.

"Speaking from experience, the whole country knows Alberta and Calgary are doing phenomenally well," said Craig Coady, a senior recruiter with David Aplin Recruiting who moved from Halifax in February.

While he likes the city so far, for Coady the big draw was the economy -- both personally and professionally.

His company had tried to get him to move west in 2004, but he declined. However, after a tough 2005 -- and the knowledge the person doing his commission-based job in Calgary was making four times as much -- he jumped when the offer was extended again in early February.

And given that he is trying to fill jobs in the province, the strong economy is definitely a help.

"People know they can be on an upward path more quickly," Coady said. "No one ever says no immediately."

The upward path was the motivating factor for 32-year-old Jason Boulay, who moved from Winnipeg to Calgary at the beginning of March and found the job he was looking for within a week.

"Which is why I didn't have any reservations about moving out," said Boulay, who arrived with his wife and nine-year-old daughter.

The controller for manufacturer Sercel Canada said he felt the city and province would offer more opportunities. While he anticipated his "dream" job would take two months to find in Calgary's booming economy -- he anticipated a five-year plan in Winnipeg -- being employed within a week caught him off guard.

"We're trying to get family and friends out here, just for the opportunities," he said.

Wayne Rostad, 33, hails from the Ottawa Valley and works in the Alberta oilpatch as a mudman, drilling fluids engineer. He's been in Alberta since January.

"I think Alberta's the only province where a guy straight out of high school can get his hands on a driver's licence and a truck and make 80 grand a year," Rostad said in Edmonton during a break from the oilpatch.

"It's hard work, it's long hours. You're away from home a lot, but it's the only province I know where you can make a bundle by the time you're 25."

Hiller said the province is relying on two major pillars -- strong energy prices and the oilsands expansion.

"Add to that a province that does not have debt, that uses its resources to encourage more business in Alberta, more investment in Alberta, and this could go on for a very long time," he said.

Other than Alberta, the only two regions to record a growth rate above the national average were British Columbia, up 0.19 per cent, and Nunavut, up 0.37 per cent, while three recorded below average growth -- 0.09 per cent in Quebec, 0.08 in Ontario and 0.02 in Manitoba -- the Statistics Canada report said.

All four Atlantic provinces lost population in the fourth quarter, as did Saskatchewan, the Yukon and the Northwest Territories.

Don Drummond, chief economist at TD Bank, said that generally speaking a shift in population to a booming region like Alberta, where there are labour shortages and wage pressures, from economically weak regions where there are not enough jobs to go around, such as Newfoundland, is healthy.

The danger, however, is if those weaker regions lose too many people, which reduces demand for services, and in turn could further weaken their economies.

"A critical mass is necessary," Drummond said. "To have a service sector, you need people to service."

kguttormson@theherald.canwest.com

[Bullseye]

People have been pricing their 25 year mortgages based on current level of interest rates - however, in 5 years time (or whenever they have to renew) what will their interest expense on their mortgage be if rate continue to climb. Affordability may be at the lowest level now, at today's interest rates, but take a look at what your mortgage payment would be if you had to renew at 2% higher. I think there would be a double throttling effect on the economy - people buckle down to pay their mortgages, economy stops growing... fewer jobs created...

I agree with your point about fundamentals, the key factor it all boils down to is the affordability index. If wage growth is moving up, and rates are low, house prices will often rise quite a bit, as we've seen in recent years.

I disagree with you about where rates are headed, though, I think they will not go much higher, and will likely even sink back a bit within a year or two. Look at the long term bond markets, that's where the truth lies. The people playing in those markets are much more knowledgable than you or I, and those rates are still very low, indicating they feel that rates will not be going higher in the longer term.

[Nemodigital]

I agree with your point about fundamentals, the key factor it all boils down to is the affordability index. If wage growth is moving up, and rates are low, house prices will often rise quite a bit, as we've seen in recent years.

I disagree with you about where rates are headed, though, I think they will not go much higher, and will likely even sink back a bit within a year or two. Look at the long term bond markets, that's where the truth lies. The people playing in those markets are much more knowledgable than you or I, and those rates are still very low, indicating they feel that rates will not be going higher in the longer term.
At the same time wages haven't been increasing much but all of the elements related to maintaining a house have, such as electricity, water, gas and oil. I think just a slowdown in the job market could spell disaster for those stretched really thin. I know the US currently has a savings rate of 0% or a little in the negative and I believe Canada's is a little higher but not by much. Either way I doubt the folks in Calgary have anything to be worried about :lol:

[Audiogenic]

As long as the government continues to allow over 200,000 immigrants into Canada every year, real estate prices will continue to climb in Toronto and Vancouver (which is where the majority of new immigrants eventually settle after some shuffling).

[Nemodigital]

As long as the government continues to allow over 200,000 immigrants into Canada every year, real estate prices will continue to climb in Toronto and Vancouver (which is where the majority of new immigrants eventually settle after some shuffling).
At the same time those 200,000 immigrants are pretty much here to offset our low birthrate. Canada's population is still growing rather slowly.

[sparkplug]

At the same time those 200,000 immigrants are pretty much here to offset our low birthrate. Canada's population is still growing rather slowly.

Everyone should tell their spouse to engage in reproduction activities with them all weekend for the good of the country.

[Tiberius]

Anyone who thinks there is "no bubble" or that a "bubble burst" is impossible just has their head in the sand. They are akin to the people who claimed there was no dot.com bubble in the stock market.

Humans do NOT learn from history - and as the saying goes... that means they are doomed to have history repeat itself.

There HAVE been past housing bubbles - as recently as the late 80's when MANY people lost tons when that housing bubble burst... and it took over a decade for prices to recover back to breakeven.

The current environment in which the latest large increases in housing values has occurred in abnormal. The economy has thrashed sideways at best for years, incomes have stagnated, the stock market crashed hard resulting in VERY low interest rates....... artificially low interest rates... interest rates that spurred the.... dare I call it... HOUSING BUBBLE that currently exists. NOTHING else can account for the rapid increase in housing prices that has occurred in the past decade except the drastic actions that were taken to keep the American (and Canadian) economies afloat - the insanely low interest rates.

The side effect of those insanely low interest rates were....

- cheap mortgage rates (making more expensive homes more affordable)
- people fleeing the stock market after getting burned in the crash deciding to park their money in real estate instead because it was showing good returns (exodus of money from stocks to housing)
- creative financing options being offered to get people to CONTINUE buying "bubble priced" homes in recent years when they probably shouldn't dare take on the risk and debt load. (interest only mortgages where people aren't paying back any principle, or people stretching very thin to make mortgage payments at current low interest rates... if interest rates go up - all of these people are in deep trouble)

Let's also not forget our link to the States and their economy. Currently, they are devaluing their own dollar, and printing money like crazy. They are also being challenged as the de-facto world currency by the Euro which will result in international banks, companies, and countries holding less American Dollars. American debt also is becomine less attractive to hold as they continue to spend like crazy and run massive deficits year after year putting the country under an incredible debt-load. More and more of this debt is held by FOREIGN interests. The implications could be dire...

Overall - there is no way to definitively predict what the future holds. The main reason for this is that even if a bubble exists, it could continue to grow for years to take it from "bubble boy" bubble size to "hot air balloon" bubble size... it's like saying there was a stock market bubble in 1998... you were correct... but it took another few years and further MASSIVE gains on the stock market before that bubble finally burst. Timing the "burst" is at best a guess.... seeing the stage being set for a burst (or deflation) is not.

If factors force interest rates to keep rising - the burst/deflation will happen. If the American economy take a hit and goes into recession, a burst/deflation will happen. If the international community starts to not want and hoard American dollars, the burst/deflation will happen. If the job market goes soft, the burst/deflation will happen. If, if, if... so many if's...

One of the events WILL occur - housing prices have already flattened and started to fall.... now the only remaining question is - (when) will the stimulus occur that sends people running for the doors causing the rapid fall?

For those who like to fall back on the "some markets" argument... where a local market won't be affected... maybe you'll be right... maybe not...

"Some markets" will fare just fine. An entire province? I doubt it. A city or area where a particular sector is still driving growth... absolutely. But whenever the "growth and wealth driver" is removed from that area - it will tank worse than any bubble because the inflated market was only sustained by a booming employer/sector. This happens all the time in mining towns - real estate costs a fortune when the mine is running and people need to move their to work the mine and they get paid handsomely.... but... if the mine closes... the place becomes a ghost town and you can't give away the house.

I personally see too many factors putting the current housing market at risk. It has single-handedly raced ahead to amazing gains during a time when there has been almost no growth in any other facet of the ecomony. The only stimulus for the housing bubble has been *INCREDIBLY* low interest rates. Let's not be blind to reality and what history has taught us - those incredibly low interest rates will not last forever. You can thank America for creating them right now - and their continued fiscal policies will attempt to keep us from the tipping point to burst the bubble... but... eventually... they will have to pay the price - and if the fall-out is limited to the housing market we should feel relieved.

[Bullseye]

Tiberius - Where have you got the idea that there is been no economic growth in recent years? The economy has been expanding at a fairly healthy pace for a good long while now, averaging a little over 2%, which is considered decent.

You are right that bubbles have happened in the past and will happen again, but I just don't see it happening right now in Canada. Again, look at affordability indexes, compare them with the index back during the late 80's crash, totally different.

I'm still standing by my prediction of a cooled off, but not crashed, housing market. The only thing that would change that opinion is if rates went up another point or higher, but as I also said above, the long term bond market doesn't believe that will happen, and neither do I.

[ecaps]

I think another factor ties to how much investors are now in the real estate market. Quite frankly how much impact will it bring to you as a primary home owner if your property price up or down 30%? The only immediate impact may be the property tax. I just purchased my new home last year and I tend to stay there for maybe 10 years before my next move. Do I really care if there is a bubble or not in the market? I think the bubble will only burst if there are lots of investors buying the property just for profit making by reselling. Since they will have to sell the units in market price it means they need to sell quick and sell low when the market is going down. It will then further push the average price lower. Now it is back to the question of supply and demand. Anyway, Canada's real estate is still considerably low compare to many other major cities like London UK, NY, California, Asia and Europe.

[supergenius]

So it appears I have picked almost the worst time in history to be looking for a house in Calgary. Oh well, at least I'll have some nice scenery to look at from my shack in Calgary rather than the Detroit smog and garbage I can see currently from my shack in Windsor.

[barold]

Good debate here - just to throw two more pennies in:

American (and we are partially guilty as well) consumers stuck in a vicious cycle where we are addicted to cheap consumable goods -- coming from places like China. The Chinese then take this money and subsequently invest it in US treasuries... thereby keeping bond yields down. This is fine, so long as the consumer keeps spending, sending more money overseas...

BUT

what if the Chinese decide (like in tiberius' example) to start investing elsewhere like say Euros. Well, that probably means US long term bond prices will fall, as there are fewer investors buying them. (US fiscal policy and monetary policies are also to blame here, putting forth year after year of record deficits). So bond yields go up. How far up? I don't know, but I'd hazzard to guess that ALOT of US bonds are being bought by foreigners - and therefore a shift in demand by one segment of buyers would have a pretty big effect (remember how much the US public is saving?).

The effect will probably have a compounding effect (and I may be dramatic here) but higher mortgage rates will affect not only housing affordability, but also the 'wealth effect'. An example of such effect would be people who go out and lease that new BMW because their Nortel stock hit another all-time high. Throttling consumer spending will therefore reduce economic growth and therefore the US economy's ability to pay its debts... making their bonds less desirable.

[sleepyguy]

Yeah it's still pretty crazy... a few houses down is selling from us... nothing special (just like our house) for gulp... $445K! crazy... we're gonna list at like $330 or so and have a bidding war. See what happens.

[deep]

Yeah it's still pretty crazy... a few houses down is selling from us... nothing special (just like our house) for gulp... $445K! crazy... we're gonna list at like $330 or so and have a bidding war. See what happens.

You fool! That kind of crazy behaviour is going to push us over the edge! Aaaahhhhhhhh........

Or, good luck with the sale. You choose.

[sparkplug]

Yeah it's still pretty crazy... a few houses down is selling from us... nothing special (just like our house) for gulp... $445K! crazy... we're gonna list at like $330 or so and have a bidding war. See what happens.

Then why not list it for $1? :D

Here's an auction/bidding war that backfired, but the house wasn't located in a desirable part of town:
http://www.canada.com/calgaryherald/news/city/story.html?id=b46f59f7-f164-4323-8d72-a1bb9edf2e4a

[Tiberius]

Tiberius - Where have you got the idea that there is been no economic growth in recent years? The economy has been expanding at a fairly healthy pace for a good long while now, averaging a little over 2%, which is considered decent.

If you want to call low single digit "growth" some great victory.... you should keep it in context and then re-consider.

1) Interest rates were at ALL TIME historical lows to keep the economy from going in to recession! The pitance of growth that was achieved is laughable considering the nearly free money that has been available to people to use to stimulate the economy!

2) If you factor in inflation... there has been no real growth... just keeping pace with inflation - at best

3) If you factor in wages, they have stagnated so money available to people to spend is decreasing while inflation raises the price of consumer goods. This leads to less economic stimulus and hence less domestic economy growth

My reasons for thinking there is a good likelihood of a pullback in the housing market are more varied than I posted - but I'm not here to write a thesis/essay/full-fledged market report/whatever... although I type fast enough that I write much more than I anticipated writing before I know it. Needless to say - much of it is linked to the current economic state of affairs in the United States... we aren't as bad here, but if it starts with them, we will take the hit also.

[Tiberius]

I think another factor ties to how much investors are now in the real estate market. Quite frankly how much impact will it bring to you as a primary home owner if your property price up or down 30%? The only immediate impact may be the property tax.

I absolutely agree that it has minimal impact for people who own their homes, or bought homes they truly could afford (and can withstand interest rate fluctuations, their home's value going down by 40%, etc.)

The biggest problem and issue that would lead to a bubble "burst" or deflation is that so many people have over-stretched to buy homes at the current inflated prices. Many (most) home buyers lately have made one (and often more than one) of the following mistakes:

1) using no downpayment.
2) interest only mortgages
3) buying more house than they can afford (stretching their monthly payment to the very limit they can possibly afford)
4) counting on interest rates staying at the current all time record lows indefinitely
5) buying additional homes as "investments"... often using some of the above points to do so (points 1, 2, and 4 especially)
6) assuming home prices will continue to go up... up... and up... (and in the near term... not long term)... somewhere in there people need to consider (and plan for) the "down" option... it does happen!

[Bullseye]

Tiberius - GDP growth numbers factor in inflation, so it's already accounted for. 2-3% growth is considered pretty good, rates like 8-9% in China are unsustainable in the long term.

Interest rates were not at all time lows, they were at 40 year lows.

Wages are growing, inflation is tame, interest has gone back to neutral levels...things are chugging along quite nicely. Yes, there are some problem areas that could land the economy in trouble, but I don't think it's time for running around saying the sky is falling.

[Nemodigital]

Tiberius - GDP growth numbers factor in inflation, so it's already accounted for. 2-3% growth is considered pretty good, rates like 8-9% in China are unsustainable in the long term.

Interest rates were not at all time lows, they were at 40 year lows.

Wages are growing, inflation is tame, interest has gone back to neutral levels...things are chugging along quite nicely. Yes, there are some problem areas that could land the economy in trouble, but I don't think it's time for running around saying the sky is falling.
Well things are chugging along but how long can you continue with a negative savings rate? http://abcnews.go.com/Business/wireStory?id=1688390

[Tiberius]

Let's hope not Bullseye! ... let's hope not.. ;)

[monomono]

I don't think real estate markets where the economy is red hot such as Calgary will be very much effected but morons like this in Toronto will -> http://toronto.craigslist.org/rfs/144914704.html

What was the posting? It's been deleted now.

[sparkplug]

If you thought Alberta was hot, look at what's happening in B.C. They lead the nation by a landslide.

http://www.cbc.ca/story/business/national/2006/03/30/housing-060330.html

Canada's housing market sizzles on
Last Updated Thu, 30 Mar 2006 14:07:20 EST
CBC News
The average selling price of a resale home in Canada jumped to a record high of $268,215 in February, up 3.8 per cent from January's figure.

Data from the Canadian Real Estate Association (CREA) showed the resale housing market is showing little sign of cooling down.



The $8,000 increase in the average sale price in just one month was the second largest monthly gain in the last 15 years, CREA said. The data were compiled from 41,555 MLS sales last month, up slightly from January's sales activity.

The association said the largest monthly price gains took place in British Columbia, Alberta, and Ontario. In addition to setting a national price record in February, average prices also set records in British Columbia, Alberta, Manitoba and Ontario.

On a year-over-year basis, prices were 12.3 per cent higher. The gains in British Columbia were the most pronounced – the average MLS price was $380,420 in February, up 22 per cent from February 2005. Alberta's average selling price grew more than 21 per cent to $256,125.

"The resale housing market remains tightest in Western Canada," said CREA chief economist Gregory Klump, in a release.

"A shortage of homes available for sale and the continuation of strong resale housing demand in Western Canada are resulting in substantial price increases there," he said.

But Klump predicted that rising interest rates and rising home prices will likely slow the number of sales this year.

The following are average MLS selling prices for each province in February (with February 2005 figures in brackets):

British Columbia: $380,420 ($311,563)
Alberta: $256,125 ($210,519)
Saskatchewan: $125,662 ($120,723)
Manitoba: $142,287 ($120,250)
Ontario: $277,927 ($259,581)
Quebec: $188,056 ($176,360)
New Brunswick: $125,329 ($112,176)
Nova Scotia: $166,320 ($162,206)
P.E.I.: $123,567 ($103,722)
Nfld. and Lab.: $134,085 ($132,044)
Canada: $268,215 ($238,778)

[fakishan]

Well its the same thing that happend during the dot.Com bubble with IT stocks being way overvalued by speculators without fundamentals to back it up.
the value was what you were willing to bet they were. do you understand?
fundamentals for analyzing stock value is a complex system of bull. as long as people believe and follow it, someone will make money ;)

[Bullseye]

Well things are chugging along but how long can you continue with a negative savings rate? http://abcnews.go.com/Business/wireStory?id=1688390

Negative savings rate is definitely not a good thing, but a low savings rate and low interest rates go hand in hand, so it's not really a big surprise. When rates are low, people feel comfortable borrowing, everyone the past few years has been upsizing their homes, renovating, taking advantage of low rate car loans, etc, that's what's sinking the savings rate.

With rates more in neutral stimulus territory now, I'm betting you'll see a rising savings rate in coming years.

[KAN]

I agree with your point about fundamentals, the key factor it all boils down to is the affordability index. If wage growth is moving up, and rates are low, house prices will often rise quite a bit, as we've seen in recent years.

I disagree with you about where rates are headed, though, I think they will not go much higher, and will likely even sink back a bit within a year or two. Look at the long term bond markets, that's where the truth lies. The people playing in those markets are much more knowledgable than you or I, and those rates are still very low, indicating they feel that rates will not be going higher in the longer term.

I agree with you. rates are going down. But of course nothing is certain.

[Tiberius]

We have had 15 (or 16?) straight interest rate hikes from the FED (sure... it's American... but we all know how strong the fiscal link is for us to the U.S.).

People (the market) were expecting these rate increases to stop after the next rate increase - but..........

http://biz.yahoo.com/ap/060328/bonds.html?.v=4

Things have changed. The FED put out the warning that more rate hikes are likely and they won't be able to stop after the next rate hike. The market responded accordingly because it had been expecting the rate hikes to stop at 5% (after the next hike). Now we just have to wait and see what happens....

[hagbard]

Tiberius - GDP growth numbers factor in inflation, so it's already accounted for. 2-3% growth is considered pretty good, rates like 8-9% in China are unsustainable in the long term.

Interest rates were not at all time lows, they were at 40 year lows.

Wages are growing, inflation is tame, interest has gone back to neutral levels...things are chugging along quite nicely. Yes, there are some problem areas that could land the economy in trouble, but I don't think it's time for running around saying the sky is falling.

The sky IS falling.

[Bullseye]

We have had 15 (or 16?) straight interest rate hikes from the FED (sure... it's American... but we all know how strong the fiscal link is for us to the U.S.).

People (the market) were expecting these rate increases to stop after the next rate increase - but..........

http://biz.yahoo.com/ap/060328/bonds.html?.v=4

Things have changed. The FED put out the warning that more rate hikes are likely and they won't be able to stop after the next rate hike. The market responded accordingly because it had been expecting the rate hikes to stop at 5% (after the next hike). Now we just have to wait and see what happens....

The U.S. Feds have had to raise rates higher than anticipated because long term bond yields have stubbornly refused to go up, as they should have by now. This is the 'conundrum' that Greenspan referred to, even the great one himself couldn't explain it. At this point, I think Bernanke is just trying frighten the bond market into responding, not actually fight inflation.

[gei]

With all the new commercial buildings going up in toronto over the next few years, I doubt that market is headed downhill either. Cadillac Fairview seems to think everything is sound.

[grant]

Many (most) home buyers lately have made one (and often more than one) of the following mistakes:

1) using no downpayment.
2) interest only mortgages
...
5) buying additional homes as "investments"... often using some of the above points to do so (points 1, 2, and 4 especially)

Who are you to say these are necessarily mistakes? Any of these tactics can be sound, conventional actions for any business to take if their situation warrants it.

The biggest problem and issue that would lead to a bubble "burst" or deflation is that so many people have over-stretched to buy homes at the current inflated prices.

What exactly is "overstretched"? Obviously people can afford to pay their mortgages when they apply. Banks generally, and CMHC certainly, will not allow someone to borrow more than they can support on 40% of gross income. 40% of income being applied to debt payments is not "overstretched".

If anything is going to "burst a bubble" it will be the same thing as always: the same speculators that have bidding the prices up will change their minds, and instead push prices down.

[Hymac]

The U.S. Feds have had to raise rates higher than anticipated because long term bond yields have stubbornly refused to go up, as they should have by now. This is the 'conundrum' that Greenspan referred to, even the great one himself couldn't explain it. At this point, I think Bernanke is just trying frighten the bond market into responding, not actually fight inflation.

Sorry, but I would disagree with that - the Fed is raising rates to keep inflation in check. Why would they care about the long end of the yield curve? Too many factors/players in the long end and if 15 consecutive rate raises haven't moved LT yields, anothe 1 or 2 won't either.

[Bullseye]

Sorry, but I would disagree with that - the Fed is raising rates to keep inflation in check. Why would they care about the long end of the yield curve? Too many factors/players in the long end and if 15 consecutive rate raises haven't moved LT yields, anothe 1 or 2 won't either.

When central banks are trying to fight inflation, they are more concerned with 3-5 years down the road than they are right now, so it's logical that they would be concerned with long term rates. Why do you think Greenspan and Bernanke are so concerned about long term yields?

[Hymac]

When central banks are trying to fight inflation, they are more concerned with 3-5 years down the road than they are right now, so it's logical that they would be concerned with long term rates. Why do you think Greenspan and Bernanke are so concerned about long term yields?

Bernanke has stated he wants to be more transparent in what the Fed is doing and how they shape policy. They're concerned about the long end, but they know their policy doesn't affect the long end, only the short end. Bernanke actually just had a speech on low long term yields

http://www.federalreserve.gov/Boarddocs/speeches/2006/20060320/default.htm

If you have any research that would indicate this is their goal in raising rates, I 'd be interested in reading it.

[Tiberius]

With all the new commercial buildings going up in toronto over the next few years, I doubt that market is headed downhill either. Cadillac Fairview seems to think everything is sound.

This is flawed logic. Building new units would have the effect of increasing supply and hence lowering prices. (if population stayed the same, the price would fall - absent any other factors... if the population is increasing, the new units would prevent a shortage, once again easing prices).

Considering the hot real estate market, and the increase in the sales price of new units in this hot market - I would wonder if builders are trying to cash in on the hot market and possibly... just possibly... they will over-build - resulting in excess units which will lead to a softer market in the future... (this is the type of straight-forward logic that applied to companies over-hiring in the dot.com boom... like Nortel... everything was roses so they hired and hired and hired... and wound up with WAY too many employees) Or... mortgage lenders coming up with new-fangled ways to help people buy homes who in the past would have NEVER been given a mortgage! (this is based on a pretty flimsy assumption that the home will hold it's value, and that the bad credit risk people will not lose their job and/or otherwise drop the ball and default on the mortgage). It's just flawed logic and policy - born of a HOT real estate market, and the pressure for the lending companies to continue to INCREASE profits at all costs (instead of being defensive and being happy to take the safe and smaller profit from people who actually QUALIFY for mortgage by the old rules).

Ironically, if the mortgage lenders hadn't relaxed the rules (no downpayment required, interest only mortgages, lower hurdles to qualify for the credit in the first place, etc.) the housing market would have already been affected and slowed down! Sooooo... when they do start to feel some pain from the "bad credit" they have given to the public... and they start to tighten up again to protect their a$$ets... it will be a double pinch on the housing market...

[Tiberius]

Who are you to say these are necessarily mistakes? Any of these tactics can be sound, conventional actions for any business to take if their situation warrants it.

Yes, they CAN be used properly... but MOST of the time they are NOT. I'm sure you realize this. People who go "interest only" or "no downpayment" (or both together) are usually either: a) buying a second property as an investment - and counting on the value going up near term, or b) they don't have a downpayment saved (this can be ok if they can make the normal mortgage payments), or c) they can't afford the mortgage payment if they don't go interest only mortgage (they either buy more than they should, or are stretched to even afford the cheapest place on the market), etc.

Very few people using those tools are wealthy and savvy investors with $$ in the bank... AND!! If savvy investors are using those tools - they are doing so knowing full well the risks and rewards. If the market turns on them, they will dump the investment properties to minimize their loss - or they will absorb the loss and ride it out for many years (a long term investment). That is fine and dandy - but it is the minority of people using these more risky financing options IMHO.


What exactly is "overstretched"? Obviously people can afford to pay their mortgages when they apply. Banks generally, and CMHC certainly, will not allow someone to borrow more than they can support on 40% of gross income. 40% of income being applied to debt payments is not "overstretched".

If anything is going to "burst a bubble" it will be the same thing as always: the same speculators that have bidding the prices up will change their minds, and instead push prices down.

Overstretched is what it is... ;) The trend in North American society is to want MORE. People often live beyond their means - this is no different when it comes to their homes. It leaves them vulnerable to any unforeseen events that come along and rock them financially. The trend right now is to loosen standards and allow people to stretch further than ever before financially. Barring continued steady and solid economic conditions across the board, there will be a fallout from this at some point. Just as there will be a fallout from the massive proliferation of credit and debt (in general) at some point...

[mavvee]

Yes, they CAN be used properly... but MOST of the time they are NOT. I'm sure you realize this. People who go "interest only" or "no downpayment" (or both together) are usually either: a) buying a second property as an investment - and counting on the value going up near term, or b) they don't have a downpayment saved (this can be ok if they can make the normal mortgage payments), or c) they can't afford the mortgage payment if they don't go interest only mortgage (they either buy more than they should, or are stretched to even afford the cheapest place on the market), etc.

Very few people using those tools are wealthy and savvy investors with $$ in the bank... AND!! If savvy investors are using those tools - they are doing so knowing full well the risks and rewards. If the market turns on them, they will dump the investment properties to minimize their loss - or they will absorb the loss and ride it out for many years (a long term investment). That is fine and dandy - but it is the minority of people using these more risky financing options IMHO.




Overstretched is what it is... ;) The trend in North American society is to want MORE. People often live beyond their means - this is no different when it comes to their homes. It leaves them vulnerable to any unforeseen events that come along and rock them financially. The trend right now is to loosen standards and allow people to stretch further than ever before financially. Barring continued steady and solid economic conditions across the board, there will be a fallout from this at some point. Just as there will be a fallout from the massive proliferation of credit and debt (in general) at some point...

Nicely said... now tell me how long do I have to wait for prices to fall to pull the trigger on my dream home? It's currently priced at $510K... :D I'm just hoping for a 10-20% correction.. I'm not a greedy guy ;)

[grant]

This is flawed logic. Building new units would have the effect of increasing supply and hence lowering prices.
I don't disagree, but I suspect Gei's point was something like: "Developers are skilled at evaluating the immediate future of real estate, and since they are developing new properties, they must have faith that prices will remain strong... therefore, i agree with their experienced opinion."

[grant]

but MOST of the time they are NOT. I'm sure you realize this.

I would have no idea. I speak to only a tiny minority of home purchasers in Canada. Generally those I do speak to know what they are doing.

However, claiming that these techniques is a "mistake" is unsupported until we see these people losing real money.

Obviously owner-occupiers, and long-term investors, feel their decisions were wise since it enabled them to make the purchase they want. Whatever happens in the "short term" is irrelevant to them since they plan to hold for the "long term".

Speculators may be burned if a sour market leaves them holding the bag.... but in that case, their real mistake would be speculating, not the method of financing they chose. ... having 25% down payment won't make their property more valuable.

The trend right now is to loosen standards and allow people to stretch further than ever before financially.

The debt payment:income ratio limit has been 40% (32% max to mortgage payment) for as long as I can remember. Why was it ok before but now you call it "overstretching"?

[UrbanPoet]

I don't disagree, but I suspect Gei's point was something like: "Developers are skilled at evaluating the immediate future of real estate, and since they are developing new properties, they must have faith that prices will remain strong... therefore, i agree with their experienced opinion."

I always thought they build to get the prices @ the moment, and then eventually they will go down... since real estate prices go up and down gradually. They dont just change over night. usuually over the coarse of years.

[grant]

Nicely said... now tell me how long do I have to wait for prices to fall to pull the trigger on my dream home? It's currently priced at $510K... :D I'm just hoping for a 10-20% correction.. I'm not a greedy guy ;)

While you're at it, tell me next week's lotto numbers. (sarcasm!) :D It is my suspicion we will see a drop in middle 2007.

But if it's your "dream home" then you may want to buy now rather than take risks. I am fortunate that even if I'm wrong about real estate, I am only losing money that was never mine to begin with... my dreams will remain intact...

[grant]

I always thought they build to get the prices @ the moment, and then eventually they will go down... since real estate prices go up and down gradually. They dont just change over night. usuually over the coarse of years.

If the market drops a lot, people may decide to reneg on their contracts (even if they lose their deposits) ... why complete your contract for $95k when you can buy across the street for $80k? Developers really don't want to end up in such a difficult position, especially since it might bankrupt them.

In Shanghai, the pre-sale market has take a huge nosedive, and armies of speculators marched on developers demanding to be released from their contracts. Many will not complete, many can NOT complete (they poured their life savings into the deposit, hoping to flip it later for profit).

So you are right, they sell whatever price they can today, but they need prices to hold steady until the unit is actually sold.

[Nemodigital]

Well definitely this summer market will give a strong indication of the market.

[hagbard]

You guys should check what happened in the Japanese housing market in the 90s to the present if you don't think a housing market can drop like a rock.

[gei]

I don't disagree, but I suspect Gei's point was something like: "Developers are skilled at evaluating the immediate future of real estate, and since they are developing new properties, they must have faith that prices will remain strong... therefore, i agree with their experienced opinion."

Actually that is another thing that I strongly believe in. There are dozens of condo developments slated to begin sales over the next year or so.. obviously the condo developers don't expect any big dip in prices over the next couple of years.. and I would trust their judgements over some thread on rfd.

[gei]

This is flawed logic. Building new units would have the effect of increasing supply and hence lowering prices. (if population stayed the same, the price would fall - absent any other factors... if the population is increasing, the new units would prevent a shortage, once again easing prices).

Obviously you misunderstood me.

A lot of people say that the number of condos going up is unsustainable, as the number of jobs have not increased at the same rate.

What I am trying to point out is that there are many new COMMERCIAL developments going up, which will create many more jobs, which will keep housing demand high.

[Nemodigital]

Actually that is another thing that I strongly believe in. There are dozens of condo developments slated to begin sales over the next year or so.. obviously the condo developers don't expect any big dip in prices over the next couple of years.. and I would trust their judgements over some thread on rfd.
Well keep in mind that from design, financing,building and all the way up to opening is around 3 years. I doubt anyone can predict what will happen in 3 years.

[grant]

You guys should check what happened in the Japanese housing market in the 90s to the present if you don't think a housing market can drop like a rock.

Hey now, it's not like Japan has a shortage of land, like Canada does! :D

[thelefteyeguy]

If the market drops a lot, people may decide to reneg on their contracts (even if they lose their deposits) ... why complete your contract for $95k when you can buy across the street for $80k? Developers really don't want to end up in such a difficult position, especially since it might bankrupt them.

In Shanghai, the pre-sale market has take a huge nosedive, and armies of speculators marched on developers demanding to be released from their contracts. Many will not complete, many can NOT complete (they poured their life savings into the deposit, hoping to flip it later for profit).

So you are right, they sell whatever price they can today, but they need prices to hold steady until the unit is actually sold.


during the last bubble in Ontario. Many new home owner for Condos got their deposit refunded becuase the builder could not achieve a 75% total sale. (As a result, banks dont typically release financing to builders to condo contruction until 75% of the condos are sold)

Deposits are entrusted with lawyers and are also protected by Tarion up to $20,000 (anything higher there is a separate insurance from the lawyers, etc)

[Tiberius]

Obviously you misunderstood me.

A lot of people say that the number of condos going up is unsustainable, as the number of jobs have not increased at the same rate.

What I am trying to point out is that there are many new COMMERCIAL developments going up, which will create many more jobs, which will keep housing demand high.

Once again - flawed logic! Just because it is commercial development, does not mean they are building it on some absolutely sound logic and reasoning. If you build a lot of new commercial real estate, that means there is more available. The same arguments as always apply - more supply = lower rents, etc. If the economy slows down, we'll have tons of empty commercial real estate sitting on the market (which has happened before... and will happen again). The markets work in cycles people. History has shown this and history does repeat itself. We just don't know "when". We don't even know when the tops or bottoms are.... until afterwards.

I wish I had your faith that "builders" were such amazing gurus of future real estate value. Usually they start off building because there is good solid reasoning to do so. If the market stays hot for an extended period and they are making money, they just keep building as fast as they can get the projects going to cash in while the getting is good. They seldom see the end of the hot market coming and usually are left holding the bag on the final projects that are in the works when the hammer falls - but the good ones will have made enough profit on the earlier developments that it all works out. They will then become conservative again while the market generally "sucks"... and wait for things to turn back up again before building new properties, etc. Then the cycle begins again!

[Tiberius]

during the last bubble in Ontario. Many new home owner for Condos got their deposit refunded becuase the builder could not achieve a 75% total sale. (As a result, banks dont typically release financing to builders to condo contruction until 75% of the condos are sold)

Deposits are entrusted with lawyers and are also protected by Tarion up to $20,000 (anything higher there is a separate insurance from the lawyers, etc)

That is great information! It further illustrates that builders are NOT being cautious in this market. They are going full steam ahead. If the market turns on them and the project has not started yet (unable to sell 75% of units) - they pull the plug.

[Nemodigital]

This was on www.yahoo.com front page
http://news.yahoo.com/s/usatoday/20060403/bs_usatoday/somehomeownersstruggletokeepupwithadjustablerates

Are ARM loans popular in Canada?

[sparkplug]

In Canada, ARMs are known as variable interest rate mortgages. They've grown in popularity because of the lower interest rate compared to closed mortgages. I haven't seen interest only mortgages around here.

That Yahoo! article talks about people losing their homes because of ARMs or interest only mortgages. You have to take it with a grain of salt. Quite a few of those people either had no business owning a home or owning such an expensive home.

Some of those people barely qualified for mortgages and even the article expressed that fact. If your finances are so tight that a $300/month increase (for example) in your mortgage payment bankrupts you then you're in the wrong situation from the start. You should've either locked in at a rate you can afford, buy a home you can reasonably afford or not buy at all.

[Nemodigital]

In Canada, ARMs are known as variable interest rate mortgages. They've grown in popularity because of the lower interest rate compared to closed mortgages. I haven't seen interest only mortgages around here.

That Yahoo! article talks about people losing their homes because of ARMs or interest only mortgages. You have to take it with a grain of salt. Quite a few of those people either had no business owning a home or owning such an expensive home.

Some of those people barely qualified for mortgages and even the article expressed that fact. If your finances are so tight that a $300/month increase (for example) in your mortgage payment bankrupts you then you're in the wrong situation from the start. You should've either locked in at a rate you can afford, buy a home you can reasonably afford or not buy at all.
I question if there aren't a fair amount of Canadians in the same situation that bought a house during the last couple of years and were not expecting maintenance fees to inceasing like they have, not to mention the interest rate and the price of gas.

[grant]

That is great information! It further illustrates that builders are NOT being cautious in this market. They are going full steam ahead. If the market turns on them and the project has not started yet (unable to sell 75% of units) - they pull the plug.

This has happened already to at least 1 project in Victoria. The only reasonable explanation is the recent increase in construction costs made it unprofitable.

No builder wants to risk cancelling a project. Even getting it started (renting & building the demonstration unit, hiring staff, architecting, marketing, etc.) costs a decent amount of money, plus it will hurt their reputation.

However in a market like we have today, 95% of units are always sold within the first week, so such a possibility has no bearing on what's happening now.

[sparkplug]

I have a sibling with a variable rate mortgage that has increased 1%. That's roughly another $1500/year based on a $200k mortgage. If that increase forces people out of their home, then they shouldn't have signed up for it in the first place.

On the other hand, house prices have increased in every major urban centre across the country. If you've made 20% or 25% on your house the last two years and are forced to foreclose, you're still ahead of the game. If you put a 10% down payment ($20,000) on a $200k house and it's worth $250k now, you'll get your $20,000 and more back after the bank forecloses you.

I don't have the latest Stats Can inflation indexes, but high gas prices can be absorbed by all except fixed income Canadians. High gas prices have probably increased overall inflation by 5% or less, which can be partially made up by increased wages. It's a hot economy so if you don't get raises then you may need a new occupation. If you're still on the borderline, then I have to say most Canadians' budgets can be trimmed at least 10% by reducing unnecessary expenses. If it was a problem, it would've been a bigger national election issue.

[sparkplug]

Seven stages of a financial bubble. Where are we right now?
http://finance.yahoo.com/columnist/article/richricher/3413

[Bullseye]

Technical analysis of the market - an opposing view to the chicken littles. It's stocks, not houses, but as we know, they two are linked;

Article (http://www.thestar.com/NASApp/cs/ContentServer?pagename=thestar/Layout/Article_Type1&c=Article&cid=1143931815092&call_pageid=970599109774&col=Columnist973792654645)

[sparkplug]

Housing prices as expressed by our mother station, CBC. This says the west is still hot but there may be peaks soon in other areas of the country:
http://www.cbc.ca/story/business/national/2006/04/04/housing-060404.html

[Tiberius]

I have a sibling with a variable rate mortgage that has increased 1%. That's roughly another $1500/year based on a $200k mortgage. If that increase forces people out of their home, then they shouldn't have signed up for it in the first place.

On the other hand, house prices have increased in every major urban centre across the country. If you've made 20% or 25% on your house the last two years and are forced to foreclose, you're still ahead of the game. If you put a 10% down payment ($20,000) on a $200k house and it's worth $250k now, you'll get your $20,000 and more back after the bank forecloses you.

I don't have the latest Stats Can inflation indexes, but high gas prices can be absorbed by all except fixed income Canadians. High gas prices have probably increased overall inflation by 5% or less, which can be partially made up by increased wages. It's a hot economy so if you don't get raises then you may need a new occupation. If you're still on the borderline, then I have to say most Canadians' budgets can be trimmed at least 10% by reducing unnecessary expenses. If it was a problem, it would've been a bigger national election issue.

A couple points about your comments.

Someone who bought 2+ years ago and put down a downpayment (10% or greater) would be in an ok situation - even if the interest rate increase caused them to no longer be able to make their mortgage payments and have to sell their house. True (but still not a good thing!). HOWEVER - what about the people who bought more recently and do not have significant (or any) gains on the value of the home? Also, considering the higher home price they paid to get in in the last year - they also may be stretched a bit thinner... carrying a higher mortgage value, at a higher interest rate, and possibly with less downpayment (or no downpayment).. definitely less % downpayment due to the higher cost of housing. These would be the *first* people to get squeezed if something turns against them.

So... the first wave of people getting squeezed out of the market would occur and this would keep the housing market from rising, and probably start pushing prices down (as interest rates rise and/or the economy slows down, or whatever the catalyst may be). The person who bought 2 years ago would have their mortgage payments rise - but would scrape up the funds to keep paying... for now. Give it another year or two... rates rise more... housing values are falling become of the people who should not have been in the market getting squeezed out... so now the guy who bought the house at $200,000, had it go to $250,000 in value 2 years later (but had their payments rise due to interest rates rising at that point), is now looking at the home value being back to $200,000 and their mortgage payment being up even more - to a point where it may become unaffordable... and at that point that they are forced to sell... the value is back to $200,000 - where they bought it (or lower... or maybe still higher... but almost certainly not at the "peak")

As far as anything being a "national election issue"...... I have yet to see a government pro-actively act on any issue like this. They always seem to be reacting after the fact. Why? Simple. There is no demand from "the people" to do so (in general... voters don't really have a clue what's good for the country, and hence, them), and there is no concrete foundation on which to base making it a political issue (it can be argued either way, and the fallout may occur in 1 year, or 5, or more... so why "make it an issue" unless the "people want it")

[sparkplug]

Technical analysis of the market - an opposing view to the chicken littles. It's stocks, not houses, but as we know, they two are linked;

Article (http://www.thestar.com/NASApp/cs/ContentServer?pagename=thestar/Layout/Article_Type1&c=Article&cid=1143931815092&call_pageid=970599109774&col=Columnist973792654645)

As far as I know, it's resource prices that is driving the stock market right now. The other sectors contribute very little. You can take a chunk out of bank stocks and they won't have the impact that a $2 movement in oil price will do.

I'm going out on a limb to drop some of my stock positions when oil peaks towards $70 and then buy it back when it declines back into the low $60ish range. That can be a 700 point swing on the TSX. I've seen enough movement the last few months to speculate this may happen a couple more times before the summer.

As we approach the May long weekend, I'll reassess the market conditions. For now, I'm thinking high oil, low gas, high gold, solid financials, surprisingly weak consumer goods and I haven't been following manufacturing lately. I own some utilities, but I don't follow it regularly.

[barold]

Technical analysis of the market - an opposing view to the chicken littles. It's stocks, not houses, but as we know, they two are linked;

Article (http://www.thestar.com/NASApp/cs/ContentServer?pagename=thestar/Layout/Article_Type1&c=Article&cid=1143931815092&call_pageid=970599109774&col=Columnist973792654645)


Actually when it comes to crashes, I believe the stock market and real estate returns are somewhat inversely related. The stock market crash of 2001/2002 produced the record low interest rates as well as the flocks of people looking to under-weight their portfolios from equities to another asset class. Real estate happened to be a good (and at the time cheap asset to reinvest their cash).

But if that columnist is correct (and I don't think technical analysis alone can be relied upon) and equities continue to produce positive returns, people will continue to increase their exposure to equities (and underweight other asset classes like real estate).

I don't think either side is absolutely correct I don't think real estate prices will come tumbling down, but rather they will stay flat... for quite some time as interest rate increases will eat up any inflation in asset prices. Personally, I'd put marginal cash into securities & equities at this point in time rather than real estate. My belief is that equities will outperform real estate in the near term.

[jande9]

The debt payment:income ratio limit has been 40% (32% max to mortgage payment) for as long as I can remember. Why was it ok before but now you call it "overstretching"?

Say you have purchased a rental unit as an investment, and you are paying your 32% of income. You put in a tiny downpayment. You have a no interest mortgage (interest is added to the principle for a period of time), so you are losing what equity you have every month.

You don't have any cushion at all. That is definitely "overstretching".

This means you are extremely sensitive to interest rate increases and/or a small dip in the market.

If there is an interest rate increase or a small market dip you may feel that you need to unload that property because you are losing money. If this happens to a number of people at the same time, a lot of properties will dump onto the market at the same time. This will cause the small dip to become a large dip. The large dip can trigger a huge dip.

These very high ratio or no interest mortgages have the effect of increasing the volatility of the market.

[Tiberius]

Although I believe a bubble is forming and the market will turn - possibly drastically.... I'm not so sure we are at the "bursting point".

The fact that so many articles and pundits are warning about the bubble almost seems counter-logical to a bubble being in place. Unless people have already piled in blindly to create the "speculative peak".... the warnings and constant articles and headlines warning about a bubble will serve to calm things down a bit. (a bit) Maybe the bubble hasn't peaked yet... maybe if people see prices hold steady or rise while all of the "warnings" are being sent out... the people holding back on buying will eventually cave thinking there is no bubble and drive the market higher and buy second investment properties (thus finally creating the speculative peak). Maybe interest rates can be kept from rising much more for another year or two...

But then... I still see the shift coming. If not in 1 to 2 years... 5 at most. It really comes down to how the States manipulates things to keep it all afloat - and much of that control has swung to countries like Japan and China. Neither wants to see the States economy tank and housing market tank because it would hurt them. However, why would they want to keep buying American debt at LOW interest rates when the risk is clearly rising to hold that debt? Something has to give... and will give... unless you think the States can continue printing money like crazy and avoiding inflation and keeping interest rates down and keeping the entire world hooked on the American dollar and American debt certificates, etc.... After the dot.com crash the FED saved the American economy by lowering interest rates drastically and printing money like crazy - and then Bush ran up massive deficits and debt for the country... They either managed to sidestep the recession they had coming successfully through these measures (which drove housing prices up like crazy due to the low interest rates)... or... they delayed the economic downturn temporarily - and put more factors in place to make it worse when it does come... ?

[grant]

Say you have purchased a rental unit as an investment, and you are paying your 32% of income. You put in a tiny downpayment. You have a no interest mortgage (interest is added to the principle for a period of time), so you are losing what equity you have every month.

What you have described is negative ammortization mortgage and basically unheard of for investment properties.

If you know any lender that offers such a product please introduce me as I am sure they are very nice people and I would love to have their money.

[Asun]

Bubble? What bubble? There is no bubble, people!

http://thereisnohousingbubble.blogspot.com/

Read it and chuckle a bit.

[Geologic]

Bubble? What bubble? There is no bubble, people!

http://thereisnohousingbubble.blogspot.com/

Read it and chuckle a bit.

lol.. pretty good read. Nice fairy tale.

[grant]

It's very well written. I love how in 2100 people have condos worth $10 billion & appreciating $200 million/year.

[barold]

Now I'm paying off the credit cards with my home equity line of credit (HELOC for those in the business) and not only do I get the good feeling of once again being debt free, but I also get to deduct the cost of the trip from my taxes (in the form of a mortgage deduction).

I love this... HELOC is not debt? He or she can deduct the INTEREST from taxes... not the total cost of the trip... hopefully this 'expert' is not preparing tax returns too otherwise the only real estate his clients will know will be a 5 x 5 patch of conrete (not unlike some of the condos coming onto the market today, I gather).

[dufFWant]

Now I'm paying off the credit cards with my home equity line of credit (HELOC for those in the business) and not only do I get the good feeling of once again being debt free, but I also get to deduct the cost of the trip from my taxes (in the form of a mortgage deduction).

I love this... HELOC is not debt? He or she can deduct the INTEREST from taxes... not the total cost of the trip... hopefully this 'expert' is not preparing tax returns too otherwise the only real estate his clients will know will be a 5 x 5 patch of conrete (not unlike some of the condos coming onto the market today, I gather).

I think it's called sarcasm... :rolleyes:

[sparkplug]

http://www.canada.com/calgaryherald/news/story.html?id=d8498893-8e57-457b-86f1-168dc861d50b&k=85186

'Crazy' market kicks homes past $360,000
Single family house prices 31% higher than last year

Realtor Shanta Knight helped Halifax transplant Brad Downey buy this Martindale home for below market value, a rarity in Calgary.
Photograph by : Lorraine Hjalte, Calgary Herald
Article Tools
Printer friendly
E-mail
Font: * * * * Geoffrey Scotton, Calgary Herald
Published: Thursday, April 06, 2006
Calgary's frenzied housing market hit new territory in March, with prices accelerating and records set across the board, including a $363,370 average price for single-family homes -- 31 per cent higher than a year ago.

"The market is crazy and it's hard to . . . predict where all this is going. I see no end to it," Shanta Knight, a realtor with Re/Max Real Estate (Mountain View) Ltd., said Wednesday.

She said many homes for sale attract multiple offers and sell above the asking price.

The combined average price for a home in Calgary leapt nearly seven per cent in March, hitting $325,481, while the combined median price -- the level where equal numbers of homes were sold above and below the figure -- climbed 6.4 per cent to $285,000.

"If you're not in the market, I suggest you try and get into the market," said Knight. "I worry about the young people, the young families trying to get into the market. Calgary is getting in line with Vancouver and Toronto."

March's combined price was a stunning 30 per cent higher than a year earlier, while the median rose 29.6 per cent in the same time frame.

Still, there are deals to be had, said Brad Downey, a Halifax transplant who with his girlfriend has just purchased a home in Martindale.

"You have to act really quick. We ended up getting a good deal, below market price, and that's pretty rare," said Downey.

"I think the market inflation is beyond what the average person can afford. I don't think it can sustain itself."

However, analysts don't believe Calgary is in a real estate bubble, which, like its namesake, can burst at any time.

"Housing affordability has not deteriorated by much in Alberta, suggesting that the recent ascent of house prices can be more fundamentally supported," said TD Financial Group economist Craig Alexander.

For single family homes, the average price rose to $363,370, up 31.3 per cent from $276,808 a year earlier and up 6.2 per cent in February. The median -- the point at which there are an equal number of homes at higher and lower prices -- was $325,000, up more than 32 per cent over a year and up 6.2 per cent from February.

Marla Nystrom-Smith and her husband recently upgraded from a townhouse in Citadel to a detached home in Evanston. Their townhouse sold in less than two days at more than $10,000 above the list price -- which they'd raised significantly just before listing.

"Our heads were spinning. We were so in shock," said Nystrom-Smith.

Finding the right new home required they be flexible on location and other factors, and be ready to deal, she said.

"If you want to find a home this year in Calgary, you can't be too picky. I got most things that I wanted, but that was just luck."

Calgary's average condo price hit $235,427 in March, up 30 per cent from $181,037 in March 2005 and an increase of 8.4 per cent from February. The median price for condos rose nearly 34 per cent to $212,900 and more than 10 per cent from $193,500 February.

The number of condos sold in Calgary hit an all-time record at 995, an increase of nearly 27 per cent from March 2005 and a gain of 10 per cent from February.

Calgary Real Estate Board president Kevin Clark said Wednesday the real estate market is indicative of Calgary's wealth, fuelled by solid energy prices and overall prosperity.

Buyers are responding to rising incomes and declining relative debt levels, he said.

"What we're seeing is a repositioning of the marketplace that's happened quicker (than expected). The numbers speak to Calgarians, they say Calgarians are very confident with what's going on."

Accelerating prices had no discernible effect on demand, as the number of sales jumped 14.3 per cent during the month and 18.1 per cent from March of 2005 to 3,497, the highest-ever monthly figure.

The number of homes available for sale rose 22.3 per cent in March to 3,949, but remained 5.1 per cent lower than the number of listings in March 2005, which was 4,163. In recent months, listings have dipped as low as 1,563 in December, while March 2005's level represented the high water mark since the beginning of last year.

Sales in 2006 appear to be shifting into higher-priced categories of homes, with sales of homes priced at $500,000 and above in March more than doubling from a year earlier to 326, an increase of 174 per cent.

Similarly, the number of homes selling for $350,000 to $499,999 rose to 785 in March, a near tripling of the 274 seen in the same month a year before, while sales of homes priced between $250,000 and $349,999 rose 48.4 per cent.

In contrast, the number of homes sold in the $200,000 to $249,999 category stayed relatively stable, up five per cent to 638 units, while the volume of homes sold in the $150,000 to $199,000 range fell 39 per cent to 447. Sales of homes priced from $90,000 to $119,999 fell 80 per cent, while those priced between $120 and $149,000 dropped 62 per cent.

While Calgary may boast the hottest real estate market in the country, other cities are also posting gains, Royal LePage Real Estate Services said Wednesday. Nationally, detached bungalows rose to an average $282,059 in the first quarter of 2006, an 11 per cent gain from the first three months of 2005.

Standard two-story homes rose 9.2 per cent to an average $340,956, while standard condos climbed 8.8 per cent to $195,909.

However, "the story in Alberta follows a very different plot line," said Royal LePage president and chief executive Phil Soper.

"With a rapidly advancing economy fuelled by $60 (US) oil, the supply of homes for sale has not come close to meeting demand and as a result prices are marching upwards," said Soper.

gscotton@theherald.canwest.com

[hagbard]

Calgary is the best bet for rasing prices in the short term. Don't count on it lasting.

[sparkplug]

Calgary is the best bet for rasing prices in the short term. Don't count on it lasting.

Calgary started the year at around $300,000 and is up to $362,000 after three months. People only have a finite number of additional money making opportunities in their lifetime, so treat it like day trading and enjoy while it lasts.

[moebius]

People also have a finite amount of money to buy a house. So perhaps, the houses will keep skyrocketing and then noone will be able to live in the city except those that bought earlier or the rich kids. For the rest of us it will be looong commute or moving to smaller cities. In a way, maybe the prices are still going to keep rising in meto areas - I read that Toronto is still not even close to New York level.
To me this looks more like buying Nortel at over 100. You are late in the game.
On the other hand, if you need a house, what's the deal with prices going up or down. You are living in it. As long as you don't overpay for garbage house it should be fine. No?

[sparkplug]

People also have a finite amount of money to buy a house. So perhaps, the houses will keep skyrocketing and then noone will be able to live in the city except those that bought earlier or the rich kids. For the rest of us it will be looong commute or moving to smaller cities.

That is correct, but people aren't at the peak level of affordability yet. A couple weeks ago, Calgarians were spending 37% of their income on housing expenses. This is lower than Vancouver (57%) and Toronto (42%). In fact, Vancouver leads the nation with an average house price of almost $500,000.

You are also correct in identifying small surrounding towns to be growing. Nearby Okotoks, Alberta joined Fort McMurray earlier in the year as centres with a 0% listing rate. Okotoks is forecasting 1500 new residents this year, but new housing completion is about 10 months away. The only homes available are pre-owned, so it's common sense that market is also hot.

In the meantime, I've been buying as many properties as my bank will allow me. I fix them up and then wait until my selling target price is reached. I don't even need to rent them out long term anymore. The last house I bought for investment, the market shot past my target price before I've even taken possession. It's that crazy and it hasn't stopped yet.

Like I said earlier, enjoy it while it lasts. Someone is going to make the money, so it might as well be you. Once it slows, then it's time to move on to the next investment opportunity.

[rf134a]

Nearby Okotoks, Alberta joined Fort McMurray earlier in the year as centres with a 0% listing rate.
What's a 0% listing rate? Is that like a 100% sold rate so there are no available properties for sale?

There are other smaller centres in Alberta that have stupid prices for houses. Whitecourt, Lac La Biche and Cold Lake are just 3. The Redwater Oil Sands project will drive the housing prices in and around Edmonton beyond the insane levels to stratospheric heights. I just can't believe how many people can afford a $700,000 1400sqft condo... it's also strange that no one wants to pay $1,200,000 for a 2000 sqft penthouse but there are a dozen people lining up to buy that $700,000 condo. :confused: :eek:

[vv12]

So what should ppl who are able to afford a house do if there is a bubble? Throw another 15k in water renting an apartment for a year and wait for the house price drop?!

[Nemodigital]

So what should ppl who are able to afford a house do if there is a bubble? Throw another 15k in water renting an apartment for a year and wait for the house price drop?!
Well its not really throwing it in the water. You have to include maintenance, hydro, water and so forth... not to mention taxes when buying a house. Only real estate agents fools say that renting is throwing your money away. Its better to rent then to put 0% down or when you don't know if you want to live at one spot for the next 5-10 years.

[sparkplug]

Young people seeing home dreams evaporate
View Larger Image
Michael Fenning, 28, and his fiancee Christal Duzlemic, 23, are looking to buy their first home, but can't keep up with the price increases.
Photograph by : Mikael Kjellstrom, Calgary Herald
Article Tools
Printer friendly
E-mail
Font: * * * * Sean Myers, Calgary Herald
Published: Thursday, April 06, 2006
Calgary's skyrocketing housing market is causing panicked young buyers to scramble to purchase their first home before prices leap beyond their mortgage approval range.

"It feels like the prices are going up daily," said Ryan Currie, who bought a house in Cranston with his wife less than two months ago. "The house prices are going up so much, we thought if we want a house, we'd better get one now."

Ryan, 25, his wife Gail, 24, and their toddler had a small condominium, but decided to sell it in November so they could buy their first house together. They sold the condo before they found a house and ended up spending two months searching for a place that cost them more than $300,000.

"If we had kept our condo until we found this house, we probably would've made $25,000 to $30,000 more on it by the time we bought the house," said Ryan.

The Curries took on higher monthly mortgage payments than they had planned for, but Ryan says he felt they had to make the sacrifice.

"We sold because we didn't want to be stuck in a small condo with kids because we waited too long and couldn't afford a house anymore," he said.

In March, the average single family home sold for $363,370, a whopping $86,562 more than one year ago, according to the Calgary Real Estate Board. The combined average sale price of all residential units in the city rose by 30 per cent from March 2005.

It took an unconditional offer and $16,000 more than the list price for Kelly Nicholson, 22, to secure her new condominium in Mount Royal on Sunday. She learned her lesson after being outbid on three previous condos.

"On one of them, I bid $8,000 over the list and didn't get it because the top bid went $20,000 over the list," said Nicholson. "One had been on the market for an hour when I went to look at it and there was already a lineup to see it. It was really stressful finding a place. There was definitely a sense of urgency because the longer it took, the higher the prices rose."

These stories don't bode well for Michael Fenning, 28, and his fiancee Christal Duzlemic, 23, who are looking for a house.

"They may still be called starter homes, but they're not going for starter prices anymore," said Fenning who works as a real estate appraiser. "I kind of expected it, but everything is skyrocketing so fast."

Unable to outbid other home buyers, the young couple have decided to try hiring a builder and are now on a five-month waiting list just to get their call returned, after which it will likely take at least a year to build their house -- providing the contractor has a lot to sell them.

"We didn't think it was going to be this crazy," said Duzlemic. "By the time we'll be able to buy something, we won't be able to afford anything."

Elizabeth Rutto, an agent with CIR Realtors, says the prices are moving so fast that she's heard of deals falling through because the buyers have had to bid beyond their mortgage approval.

"It's not just young buyers who are having a hard time right now," said Rutto. "Anyone in the rental market who was waiting until they saved up enough for a down payment are suddenly facing prices way more than they expected and they do not qualify for a mortgage anymore."

At the same time as property values are rapidly inflating, mortgage rates are starting to climb. The prime rate is now 5.5 per cent and could rise to six per cent by summer -- but home buyers say paying a higher interest rate is the least of their concerns.

"Our mortgage demand has been very strong in the past couple months," said Paul Kelly, chief financial officer of First Calgary Savings.

"The mortgage rate, historically speaking, is still very low compared to where it was even 10 years ago. Right now, the consumer is much more concerned with the home value getting away from them than with a rising interest rate."

smyers@theherald.canwest.com

Average house prices across Canada

Standard two-storey home

First quarter 2005 First quarter 2006 change
Vancouver 655,000 757,750 15.7%
Toronto 448,750 465,924 3.8%
Victoria 352,000 399,900 13.6%
Calgary 246,456 322,853 31.0%
Montreal 316,185 315,730 -0.1%
Ottawa 264,429 271,286 2.6%
Edmonton 193,143 244,286 26.5%
St. John's 197,000 203,333 3.2%
Winnipeg 170,813 200,250 17.2%
Halifax 179,667 197,000 9.6%
Moncton 109,000 123,300 13.1%

Detached Bungalow

First quarter 2005 First quarter 2006 change
Vancouver 571,750 668,500 16.9%
Toronto 346,537 368,926 6.5%
Victoria 325,000 352,000 8.3%
Calgary 237,778 311,878 31.2%
Ottawa 270,857 275,887 1.9%
Edmonton 181,857 221,857 22.0%
Montreal 202,857 209,671 3.4%
Winnipeg 181,857 199,886 9.9%
Halifax 162,667 173,333 6.6%
St. John's 137,333 143,667 4.6%
Moncton 117,500 128,000 8.9%

[Tiberius]

So what should ppl who are able to afford a house do if there is a bubble? Throw another 15k in water renting an apartment for a year and wait for the house price drop?!

If you have a knack for investing, you could invest your downpayment and hopefully make enough to pay for the rent costs, and grow the downpayment over time... it's working for me - thanks to the hot stock market and being in the right sectors for the last 6 months. Obviously there is risk involved when investing to make a return larger than current bond and GIC rates though...

Or... buy a place you can comfortably afford and own. If you plan on living in that home for a long period of time - it will work out in the long run. Enjoy the low interest rates.

[grant]

So what should ppl who are able to afford a house do if there is a bubble? Throw another 15k in water renting an apartment for a year and wait for the house price drop?!

Interest, taxes, strata, and insurance fees are just as much "in the water" as rent payments.

[aximrocks]

Housing bubble Watch (http://www.td.com/economics/special/housing_0406.jsp)