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Another real estate bubble?

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  • Dec 17th, 2013 5:22 pm
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Poll: Are we in a 2nd real estate bubble?

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Feb 9, 2003
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poop_on_you wrote:
Aug 26th, 2009 10:03 pm
Where are you seeing the historical data? I would be interested in seeing a comprehensive historical real estate price, income, and population density. If you have those, please post them.
House prices and wages usually keep pace with inflation, since they essentially are inflation. But house prices went up 10%/year between 2000 and 2007.
poop_on_you wrote:
Aug 26th, 2009 10:03 pm
I don't know the population density 20 years ago, but I don't believe it's nearly as condensed as now. If you don't take population density and immigration into account, there are still affordable places right now. Windor is 2.3X, and it's only 4 hours away from Toronto. Toronto has changed a lot in the last 20 years and prices will need to reflect that.
Windsor's unemployment the highest in Canada.

http://www.windsorstar.com/life/Windsor ... story.html

Population density also grew in California, Florida, Nevada, Arizona, Detroit, etc... and they all had price crashes. In fact, the biggest (usually densest) cities in the US were hit the hardest.

poop_on_you wrote:
Aug 26th, 2009 10:03 pm
Again, where are you seeing the data with 1/3 of people on variable rates and 1/5th with fixed? I'd be interested in seeing mortgage type market shares.
http://www.financialpost.com/news-secto ... id=1523462

This article says 28%, and it's from a survey. I read another one that said low thirties, but it's close enough to make the point.

I didn't say 1/5 had a fixed rate, I meant 1/5th of people with 5 year rates come up for renewal in any given year. There are shorter and longer terms, but most people don't take them, and the short terms probably cancel the long, and can be ignored.

poop_on_you wrote:
Aug 26th, 2009 10:03 pm
If you want to compare to the US, Canadian owners still maintained strong equity.
http://www.rbc.com/economics/market/pdf ... n_0209.pdf
http://www.td.com/economics/special/gb0409_housing.pdf
How? and So?

Canadians haven't yet been forced to refinance, we're too early into the crash. Banks have a financial interest in higher house prices, so they'll try and pick irrelevant data that shows that we compare favorably to the US.





poop_on_you wrote:
Aug 26th, 2009 10:03 pm
Post your valuation method.
http://www.oecd.org/dataoecd/6/5/2483894.xls

Check the housepriceratios tab. Long term value is 100. 2008 Price to rent ratio is 75.3% above average, and Price to income ratio is 23% above average. (and it was 30% in 2007, before the 10% price drop.)

Given the typical overswing, 30-50% is a reasonable guess for a price drop from peak.


poop_on_you wrote:
Aug 26th, 2009 10:03 pm
There is no inflation right now, only deflation. Inflation was at -0.3% in June and -0.9% in July.
http://www.canadianeconomy.gc.ca/Englis ... lation.cfm
If you just held cash in the last 2 months, you are richer now.

When you have rising unemployment, there is usually no economic growth and it will be a contraction or deflation, like what we have right now. Stagflation only happens when the government restricts labour market. That's the opposite of what they want right now.

Interest rates will only be raised when BoC feels confident that the economy has recovered or that inflation has been out of control, which is not the case.
Not yet the case. House prices must fall (to some degree) because either the job loss continues or the economy rebounds, which will result in higher interest rates.




poop_on_you wrote:
Aug 26th, 2009 10:03 pm
That is precisely what they are trying to do. They are trying to prevent a crash. A lot of indicators have shown signs of recovery already(though that doesn't mean it will recover). Companies earnings are up. Retail sales are up. I would say the government is doing a fairly good job considering the magnitude of the recession.

I agree, I do think the government is doing a good job managing the recession, I don't think they're doing a good job managing the housing market/bubble.
poop_on_you wrote:
Aug 26th, 2009 10:03 pm
Again, the home owner's equity is not 20:1. It's more like 1/(50%-70%) according to the data I posted. Maybe you are thinking of new buyers.
Even so, where are you getting this info that everybody buying a house right now has 0-5% down payment? It'll be hard getting a house with just a 5% deposit nowadays.
I'm not saying that's what everyone has, I'm using that as the stereotypical new buyer, since most of them have 5% down and most (60%) are on 30/35 year terms.

http://americacanada.blogspot.com/ figure 4. I wish I knew how he was getting this number, cause it seems insanely low.
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Dec 26, 2006
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You had a jump as first time home buyers took advantage of the very low mortgage rates.

Once that pool of buyers dries up, demand will drop again.
The wonderous minds of some RFDers:
nx2k wrote:
Apr 13th, 2009 5:47 am
so let me get this straight
if you did the crime, you should do the time?
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i6s1 wrote:
Aug 26th, 2009 10:54 pm
I'm not saying that's what everyone has, I'm using that as the stereotypical new buyer, since most of them have 5% down and most (60%) are on 30/35 year terms.

http://americacanada.blogspot.com/ figure 4. I wish I knew how he was getting this number, cause it seems insanely low.
Excellent, I've been looking for a chart that showed that Canadians are only putting 6% down, on average. Since this includes, obviously, at least some transactions of people who have reasonable amounts of equity in their homes, the prototypical new buyer has absolutely *no* equity, and relies entirely upon those cash-back scams, and the CMHC fraud that I described earlier.

I know that's a bear website, but lots of other good info. I just wonder what other tricks the government has up its sleeve to 'support' the housing market once they run out of 'buyers' (more like gamblers) at these insanely low levels of equity. Will the government start buying houses for the homeless? Will the government start buying up used houses, and tearing them down (like they are doing with cars in the USA and in Canada, the "kash for klunkers" program)?

Will our government be so wreckless, in their efforts to save the housing industry, that they end up destroying the national treasury trying to prop it up? Why are MP's so blissfully ignorant of the fact that CMHC is ruining the housing market and making housing more difficult and more expensive to buy? Will this be the disaster that destroys the Harper government (even though all of the policy framework was put in place by the Liberals in years previous)?
"I worked with several H1B employees that were/are borderline ********. One of them wanted to spray an electrical patch panel with solvent to see if it would make the “network go faster”". <--- lol (source)
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i6s1 wrote:
Aug 26th, 2009 10:54 pm
House prices and wages usually keep pace with inflation, since they essentially are inflation. But house prices went up 10%/year between 2000 and 2007.
Housing cost is not 100% weighting of CPI and it certainly isn't calculated by the price of the house itself.
http://www.bls.gov/cpi/cpifact6.htm



According to Teranet Index
http://www.housepriceindex.ca/Default.aspx
Jan-2000 67.810
Jan-2009 127.310
That's an increase of 87.7% in 10 years, or an annualized 8.7%.

Where as
http://www.economist.com/specialreports ... id=9972489
"Between 1997 and 2006, according to the S&P/Case-Shiller national home-price index, American house prices rose by 124%. America's was not the frothiest housing market: in the same period prices in Britain went up by 194%, those in Spain by 180% and those in Ireland by 253%. "

US had am annualized 12.4%.


i6s1 wrote:
Aug 26th, 2009 10:54 pm
Windsor's unemployment the highest in Canada.

http://www.windsorstar.com/life/Windsor ... story.html
Exactly my point. Windosr is the Canadian equivalent of Detroit. The cities with higher employment will always cost more. All the people that lost their jobs in small surrounding cities will likely migrate to larger cities to find jobs.


i6s1 wrote:
Aug 26th, 2009 10:54 pm
Population density also grew in California, Florida, Nevada, Arizona, Detroit, etc... and they all had price crashes. In fact, the biggest (usually densest) cities in the US were hit the hardest.
This is not true. Cities with specific industries that are hit the hardest like Detroit and Vegas fell the most, while cities with diversified economies fell the least.
http://www.forbes.com/2009/02/24/housin ... rices.html

New York is still the best performing city
http://www.forbes.com/2009/02/24/housin ... de_11.html
While Vegas is the worst
http://www.forbes.com/2009/02/24/housin ... de_21.html

I would say Toronto is the Canadian equivalent of NYC.


i6s1 wrote:
Aug 26th, 2009 10:54 pm
http://www.financialpost.com/news-secto ... id=1523462

This article says 28%, and it's from a survey. I read another one that said low thirties, but it's close enough to make the point.

I didn't say 1/5 had a fixed rate, I meant 1/5th of people with 5 year rates come up for renewal in any given year. There are shorter and longer terms, but most people don't take them, and the short terms probably cancel the long, and can be ignored.
My mistake. I still want to see the types of mortgage and the amount of average down payment if you have that data.
That article you posted still shows "Canadian homeowners have, on average, 72% equity in their house, compared with 43% for Americans."


i6s1 wrote:
Aug 26th, 2009 10:54 pm
How? and So?

Canadians haven't yet been forced to refinance, we're too early into the crash. Banks have a financial interest in higher house prices, so they'll try and pick irrelevant data that shows that we compare favorably to the US.
People refinance every year. The housing market doesn't just crash suddenly like equity, it's always a slow deterioration. The US decline and foreclosures started in 2006 and was magnified by the global economic recession. Canadian market also started the correction in 2008. It just wasn't as drastic as the US because their fundamentals were much stronger.


i6s1 wrote:
Aug 26th, 2009 10:54 pm
http://www.oecd.org/dataoecd/6/5/2483894.xls

Check the housepriceratios tab. Long term value is 100. 2008 Price to rent ratio is 75.3% above average, and Price to income ratio is 23% above average. (and it was 30% in 2007, before the 10% price drop.)

Given the typical overswing, 30-50% is a reasonable guess for a price drop from peak.
This is interesting. I don't where they got their data. The TREB data shows a 17% increase from 2003 for Toronto, that data shows 32% for all of Canada. But yes the price to rent ratio has definitely gone up in the last few years and it is reasonable cause for concern.



i6s1 wrote:
Aug 26th, 2009 10:54 pm
Not yet the case. House prices must fall (to some degree) because either the job loss continues or the economy rebounds, which will result in higher interest rates.
If the economy rebounds, there will also be more volume in sales.


i6s1 wrote:
Aug 26th, 2009 10:54 pm
I'm not saying that's what everyone has, I'm using that as the stereotypical new buyer, since most of them have 5% down and most (60%) are on 30/35 year terms.

http://americacanada.blogspot.com/ figure 4. I wish I knew how he was getting this number, cause it seems insanely low.
The new buyers account for very little of the entire market. The sales volume is mostly from resale homes. The fact is that Canadian home owner's equity is still at a very healthy level comparing to the US.
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Feb 1, 2006
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'Worst is over for housing markets, Economists say'

http://www.financialpost.com/news-secto ... id=1931246

'"The improvement is consistent with the huge improvement in market conditions in most of the major cities in Canada," which show sales resales rising sharply - up 18% in July alone - and listings on the decline, Mr. Pinsonneault said.'
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It's my understanding from past posts that pitz, i6s1, and VivienM are all renters, is that correct guys? Did any of you cash in on the real estate boom in recent years, or did you rent throughout?

I just want to clarify this, as there has been a lot of talk about bias on the part of bankers, government, and real estate boards, who all allegedly fiddle data to skew it in the favour of a rebounding market, which benefits them.

If there is bias on the other side, due to say, bitterness on missing the boat, I think we should be aware of it.
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Bullseye wrote:
Aug 27th, 2009 8:05 am
It's my understanding from past posts that pitz, i6s1, and VivienM are all renters, is that correct guys? Did any of you cash in on the real estate boom in recent years, or did you rent throughout?
I'm far too young to have been able to buy anything, so that's not really applicable in my case.

If anything, what I'm bitter about missing out on isn't the housing boom, but the now-defunct car leasing 'boom'. That's one thing that crashed right as I wanted to get into it...

Though yes, as somebody who WOULD like to buy housing in the next year or two, it bothers me that it's absolutely impossible to buy anything bigger (and more future proof - I'm a big believer in the idea that you should stay at least 5 years somewhere) than a 1 bedroom condo in Toronto with a single, even reasonably high, income... unless you get a GIANT mortgage with an obscenely long amortization. And if you do get said giant mortgage, and the market implodes like pitz and I are predicting, well, who's the sucker left owing $100-150K more than the condo is worth? Oooops.

Oh, and another thing that bothers me: my savings account now pays a whopping 1.2% (i.e. nothing), but because we live in an era of obscenely cheap debt, it doesn't pay to use that money as a down payment on a car or house or whatever. Thanks, government, for punishing those who try to be financially prudent...
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pitz wrote:
Aug 26th, 2009 7:12 pm
Only true for a purchase-money loan, in certain states. Not true for anyone who refinanced.

Plus when you default on a non-recourse debt in the USA, the lender issues an IRS Form 1099, which is essentially like a T4 or T5 slip in Canada, for the difference. So if you stiff the bank for $200k, you owe the IRS $50-$80k in taxes! Due within a year! (if a borrower can't come up with the money for payments, how the h*ll are they going to come up with it for the IRS?)



Same deal in the USA. The impact of non-recourse is extremely exxagerated. And it doesn't apply to 2nd mortgages (or related derivatives, ie: piggyback loans), nor does it apply to mortgage insurance (the insurer will sue you for any deficiency).



Better, for whom? At least in the USA, there was private sector capital involved in mortgage insurance. In Canada, the losses are going to be explicitly socialized. That means that people who saved their money diligently, put a 20% down payment, pay their taxes, etc., are going to be paying for the misdeeds of the 0% down crowd.



Yup. Its actually worse in Canada because practically every mortgage has to be renewed every 5 years, and tested for solvency/eligibility. Whereas, in the USA, they do 30-year mortgages, so a borrower only goes into default if they miss a payment -- ie: insolvency can be hidden, as long as cash flow remains.

Its just bizarre to think that Canada won't follow the same path as the USA as far as prices are concerned, although the system of supporting banks through this mess is clearly more robust, and well-planned than that of the USA.
Sigh... do you just Google for this stuff?

It's on a state by state basis if purchase money loans are the only ones that are non-recourse. California is one of these states but there are 26 states that have non-recourse mortgage laws (Judicial/non-judicial)

Even given this by and LARGE most people have purchase money loans. There is very little reason to refinance in the US with their 30 year fixed terms. Most people buy a home and never refinance as their principle residence.

Yes the IRS issues a 1099. Again you need to understand the circumstances and the details at a deeper level. The 1099 is for the cancellation of debt income tax for the short-sale/forgiving of the debt. There are exemptions that absolve you of responsibility for this income tax:
1) If the mortgage was for your principle residence up to a value of ~2 million.
2) You are technically insolvent.
This covers most people in the states that are losing their homes. So they might get the 1099 mailed to them but they will not be responsible for it.

You state things like they are facts... but far from it.
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Jun 26, 2009
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hhh wrote:
Aug 26th, 2009 10:18 pm
lol! i wish reality would be that simple. there's absolutely no simple math. if that was the case, than everyone would be real estate or stock investors.
Well of course there are many factors in real estate prices. It's just that none of them justify today's house prices. The only thing that's keeping this sucker inflated is low interest rates. That's why the math is simple. If interest rates rise, there will be nothing left to offset the large increase in interest payments. House prices will fall as a result.

What I should have added to my post, is "If this bubble doesn't pop before then ...". But really, do I need to be so pedantic each post?
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MisterM wrote:
Aug 27th, 2009 9:38 am
Well of course there are many factors in real estate prices. It's just that none of them justify today's house prices.
On that note, what are the preferred valuation methods people here would use to assess 'fair' value on homes? So far, it looks like;

Price/incomes - house prices in relation to average or median income
Price/rent - prices in relation to rents on equivalent homes
Trend - prices in relation to historical price growth trend

Any others?

I'm sure a combination is best, but what about when different methods result in conflicting outcomes? For example, in Halton region (west GTA), prices are roughly 3X income, due to the region having one of the highest average incomes in Canada. I think most here would agree that is a reasonable ratio. But rents are not high enough (or prices low enough) to justify an investor buying a rental property here.
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i6s1 wrote:
Aug 26th, 2009 10:54 pm
http://americacanada.blogspot.com/ figure 4. I wish I knew how he was getting this number, cause it seems insanely low.
So much mis-information in this thread.
That is why you don't trust Wikipedia or random blogs as a source of truth.

[IMG]http://2.bp.blogspot.com/_0YOsyi5WbLY/S ... y+5%25.Bmp[/IMG]

That is the graph in question. The source of the graph is below.

http://www.chba.ca/membersarea/news/com ... s/CMHC.pdf

First thing is they are talking about December 2007 not currently.

Second if you look at the PDF they are not talking about downpayment. They are talking about accumulated equity since purchase. Not total amount of equity. The following pie charts in the PDF illustrate this well. That is why the graph stops at July 07 and is trending towards 0, which would be at DEC 07.

This is what happens when you Google for supporting evidence without vetting the data first. You go on to make poor assumptions based on bad data.
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Jun 26, 2009
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Bullseye wrote:
Aug 27th, 2009 9:57 am
On that note, what are the preferred valuation methods people here would use to assess 'fair' value on homes? So far, it looks like;

Price/incomes - house prices in relation to average or median income
Price/rent - prices in relation to rents on equivalent homes
Trend - prices in relation to historical price growth trend

Any others?
I'd say they're the big ones. These are all good indicators of longer-term value.

One more thing I would also point out, is that real-estate IS a cycle. A person's view of the nature and width of that cycle also affects where they think prices are headed. I look back at the previous 10+ years and all I see is one continuous slope up. IMO that little dip we had earlier this year was not the entire down cycle.
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GonePostal wrote:
Aug 27th, 2009 9:27 am
It's on a state by state basis if purchase money loans are the only ones that are non-recourse. California is one of these states but there are 26 states that have non-recourse mortgage laws (Judicial/non-judicial)
Yup.
Even given this by and LARGE most people have purchase money loans. There is very little reason to refinance in the US with their 30 year fixed terms. Most people buy a home and never refinance as their principle residence.
WHAT???? You are totally, and completely *wrong* on this. Most people refinance whenever interest rates drop a percent or two, because the savings on a 30-year term mortgage are enormous (the duration on a 30-year mortgage is ~15 years!). And pre-payment penalties or 'interest rate differentials' are non-existent or very minimal on the conforming 30-year loans.

Use that "google" tool if you want to see. Refinancing to a lower interest rate is practically a 'way of life' in the USA, and in most cases, because of the way the mortgages have been structured, it makes sense. I take it, you've never watch any sort of American TV in the past few years and seen all those, "Refinance to a lower rate" ads.
Yes the IRS issues a 1099. Again you need to understand the circumstances and the details at a deeper level. The 1099 is for the cancellation of debt income tax for the short-sale/forgiving of the debt.
It also applies to someone who 'walks away' from one of these (relatively rare) non-recourse loans, stiffing the bank for any amount. Yes, the loan itself gets written off (as the bank has no legal ability to pursue a civil claim), but the 1099 still gets issued. Of course, a 1099 in the hands of a bankrupt..doesn't have a lot of meaning, as the person is still going into bankruptcy.
This covers most people in the states that are losing their homes. So they might get the 1099 mailed to them but they will not be responsible for it.

You state things like they are facts... but far from it.
There are some major gaps in your version of the 'facts'. Your claim that people in the USA don't refinance is completely laughable and very easily discredited. Better go "google" something before you come here and completely make things up.
"I worked with several H1B employees that were/are borderline ********. One of them wanted to spray an electrical patch panel with solvent to see if it would make the “network go faster”". <--- lol (source)
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Bullseye wrote:
Aug 27th, 2009 9:57 am
On that note, what are the preferred valuation methods people here would use to assess 'fair' value on homes? So far, it looks like;

Price/incomes - house prices in relation to average or median income
Price/rent - prices in relation to rents on equivalent homes
Trend - prices in relation to historical price growth trend

Any others?
Price of the mortgage backed securities in the free and open market, without government interferance or guarantees. (after all, the security cannot be worth 'more' than the collateral!).

Affordability under traditional criteria for a typical new graduate professional in engineering/accounting/law (no more than 1/3rd income, 25 year amort, @ long-term interest rate average).

Calculated ROE of the downpayment @ 25% being the same as the predicted ROE of the stock market, adjusted for taxes.

Average house costing x ounces of gold, or y barrels of oil, or z years of average labour output.

Minimum required return on a house being the same as the cost of equity capital for local industry. For instance, in Alberta, logically, houses should be very cheap, since the Alberta economy is tremendously volatile and risky, much like they are in Texas?

I'm sure a combination is best, but what about when different methods result in conflicting outcomes? For example, in Halton region (west GTA), prices are roughly 3X income, due to the region having one of the highest average incomes in Canada.
The problem with using the '3X income' rule in a high income environment, is that, all things equal, the high income families have a much higher tax burden (and hence, less percentage of disposible income) to devote towards housing.
"I worked with several H1B employees that were/are borderline ********. One of them wanted to spray an electrical patch panel with solvent to see if it would make the “network go faster”". <--- lol (source)
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VivienM wrote:
Aug 27th, 2009 8:32 am
I'm far too young to have been able to buy anything, so that's not really applicable in my case.

If anything, what I'm bitter about missing out on isn't the housing boom, but the now-defunct car leasing 'boom'. That's one thing that crashed right as I wanted to get into it...
Why not just finance a car at a low rate and put your extra money in something that yields much more than what you're paying in interest. Unless you want a new car every few years, I don't see how leasing would have helped you.

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