Real Estate

Did we just hit the peak of the Toronto RE bubble?

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  • Jun 26th, 2017 9:10 am
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Interest rates aren't going up yuuugely anytime soon.. we're in for 1 or 2 hikes if any in Canada.

Nothing to be concerned about... but if you are, lock in a 5 year fixed @ 2.3x%
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May 18, 2015
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Firebot wrote:
Feb 17th, 2017 1:16 pm
I can find very similar posts like yours back in 2006. People back than was talking of interest rate declines as unsustainable, that we would head back to double digit interest soon. Interest rate is always the boogeyman. There is a very good reason why the US housing market crashed, and the GTA market is not in that state, nor will it really ever be simply because it is far more regulated. We've already experienced big catalysts (2009), and the market not only held, but it came back stronger than ever. As long as people can pay their mortgages and people want to move to Toronto, it will continue. If interest rates were to suddenly hike several points, that is not nothing like you are passing it as, but it's not enough on its own.

The market cannot fall without a catalyst when demand is far outpacing supply.
Granted, the US market came back after 8 years, but again, that was in a falling rate environment; But now that mortgage rates in the US have risen slightly in Q4/16 and Q1/17 due to rising bond yields, the impact has been immediate and significant: New mortgage applications fell 31% y/y in February!

As for a catalyst, as I've said, it can be rising rates, buyers being priced out, etc.. But once sentiment changes, there goes your demand. Right now a large % of buyers are speculators buying on the premise that prices will continue to rise. I know many who are doing it right now and they are buying several properties. They're flippers. Once prices level off, or even fall slightly, a massive portion of your buyers will vanish. That's the really the big catalyst that starts the crash in motion. And at these nosebleed levels, once prices start falling, everyone will rush for the exits all at once, accelerating the decline. That's how all bubbles burst, and it's not different here.
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jonkoktosen wrote:
Feb 17th, 2017 2:24 pm
Granted, the US market came back after 8 years, but again, that was in a falling rate environment; But now that mortgage rates in the US have risen slightly in Q4/16 and Q1/17 due to rising bond yields, the impact has been immediate and significant: New mortgage applications fell 31% y/y in February!

As for a catalyst, as I've said, it can be rising rates, buyers being priced out, etc.. But once sentiment changes, there goes your demand. Right now a large % of buyers are speculators buying on the premise that prices will continue to rise. I know many who are doing it right now and they are buying several properties. They're flippers. Once prices level off, or even fall slightly, a massive portion of your buyers will vanish. That's the really the big catalyst that starts the crash in motion. And at these nosebleed levels, once prices start falling, everyone will rush for the exits all at once, accelerate the decline. That's how all bubbles burst, and it's not different here.
Can we really compare the whole US to a mid-size city like the GTA where a lot of higher paying jobs in Canada are? In the US, I think a lot of people don't make more than $30k (of course there a lot more richer households in the US too since salaries are about the same nominally and they don't have to pay an arm and a leg for housing in most parts of the States).

Yes, there are high paying jobs in other cities too (doctors, public servants, engineers, lawyers, etc.) but not as concentrated as in the GTA.

There's a reason why people are buying in the GTA because they are staying here for a good part of their life unlike in the States were there is a lot more career mobility moving from one State to another, the economy of Canada isn't really diversed enough to spread these higher paying jobs everywhere.
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alanbrenton wrote:
Feb 17th, 2017 2:44 pm
Can we really compare the whole US to a mid-size city like the GTA where a lot of higher paying jobs in Canada are? In the US, I think a lot of people don't make more than $30k (of course there a lot more richer households in the US too since salaries are about the same nominally and they don't have to pay an arm and a leg for housing in most parts of the States).

Yes, there are high paying jobs in other cities too (doctors, public servants, engineers, lawyers, etc.) but not as concentrated as in the GTA.

There's a reason why people are buying in the GTA because they are staying here for a good part of their life unlike in the States were there is a lot more career mobility moving from one State to another, the economy of Canada isn't really diversed enough to spread these higher paying jobs everywhere.
exactly, that's what people don't get.

The only jobs outside of GTA are resource industry. Otherwise everything else in centralized in Toronto, Montreal, Vancouver.
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daivey wrote:
Feb 17th, 2017 3:32 pm
exactly, that's what people don't get.

The only jobs outside of GTA are resource industry. Otherwise everything else in centralized in Toronto, Montreal, Vancouver.
100k immigrations to Ontario each year. Guess where most will end up?

http://business.financialpost.com/perso ... big-cities


Secondary cities like London are great too but not as many jobs out there but if you are making $80k each there, your household will be golden except when shovelling snow in the winter.

I am not even a r/e bull and I think the 5x salary lending guideline is what will keep most good sized detached properties below $2m. No extrapolation will make sense without considering max borowing capacity of households.

Also, let us not forget that were immigrants are coming from, sometimes PRIME property prices are alot more expensive -- China, HK, India, Philippines, Russia, etc.

If interest goes up and that 5x salary decline to 4x or less, we will still some topping off. When we go through a severe recession, the doomsayers will be right but that is a big if. With almost every nation in the world becoming heavily indebted, there is no stigma attached to negative budgets or government borrowing.

Most recessions are a result of significant monetary and fiscal tightening. Leave interest low and there is little risk of widespread corporate or public implosions.
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May 18, 2015
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alanbrenton wrote:
Feb 17th, 2017 3:41 pm
100k immigrations to Ontario each year. Guess where most will end up?

http://business.financialpost.com/perso ... big-cities
From the article:
The median employment income of immigrant tax filers who landed in 2004 was estimated at $16,800 in 2005 (one year after landing). The same cohort’s median income increased to $26,000 in 2009 and $33,000 in 2014.
Clearly, the majority of new immigrants coming into Canada are immediately priced out of the GTA market, and thus have limited impact on current RE prices. It's possible that they save up, and over time increase their incomes to a level adequate to buy in the GTA, but that would imply that those who came here in years past are affecting current prices, not those coming in now or in the near term future.

It's unclear from the median income statistic how many of those immigrants are super rich or wealthy enough to pay cash, but also from the article:
Hogue said it’s unclear to him whether immigrants arriving to Canada today have more wealth and are entering the market more quickly. But the Altus survey found that 19 per cent of people buying new homes in the GTA do not take on a mortgage.
So 81% of all people buying in the GTA do take on mortgages, and that would include Canadian (non-immigrant) first time buyers and trade up buyers. So the number of immigrants who buy all cash must represent only a tiny portion of the market, while the majority of immigrants do not qualify for a mortgage. Ergo, most immigrants coming into the GTA are renters.

Also of note from the same article:
In its take, U.S.-based FitchRatings said current price gains in Canada are not sustainable and predicted an increased likelihood of a correction, noting household debt had exceeded the size of the Canadian economy.
And there's the rub. Ultimately, the fundamentals will reassert themselves... The GTA market is currently nothing more than a debt fueled speculative bubble, and there are limits to what income and debt levels can support. I believe that if we haven't reached that level yet, we are almost certainly on the precipice.
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Nov 5, 2016
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alanbrenton wrote:
Feb 17th, 2017 2:44 pm
Can we really compare the whole US to a mid-size city like the GTA where a lot of higher paying jobs in Canada are?
lol...Do you know how much average household income in GTA? It's under average median total income in Canada!
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justanick wrote:
Feb 18th, 2017 11:44 am
lol...Do you know how much average household income in GTA? It's under average median total income in Canada!
You know that all those with below median income aren't aspiring to be property owners, right? With population densest in the GTA, you will need to clean up your data a bit.

Did you know a lot of affluent enough immigrants declare low income because they are making little in Canada the first few years at least?
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justanick wrote:
Feb 18th, 2017 11:51 am
Guess that Japan's population is over 130M living in a very very very small island compared to Canada. How come their RE could crash?
At one point the city of Tokyo was valued higher than the whole of California. Go figure. Low population growth and almost zero immigration with minimum wage of $7/hour. The rich land bankers gets richer, just like everywhere else there is some demand.

Why not read facts first before pretending to know it all?

This will be my last reply to your questions as they are not mentally stimulating.

I am not a r/e bull but if interest stays low, we can see typical semis stay above $1 m (around 170k household income * 5x lending limit) and detached a bit more than that.

Made a math mistake using 11x factor when it is household income already as pointed by my beloved kashirin and should be 4.5-5.5x.

$2m semis or even detached in 10 years is likely a big feat which even I don't believe will be possible even with rock bottom interest rates.
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May 6, 2015
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Interesting article on the new builds market here:

https://www.thestar.com/business/2017/0 ... price.html

"Maybe this is just the new reality,” said Harrild. “Maybe Toronto is the next New York and we’d better get used to it. Maybe this is just where prices are headed. We’re an international city. People look at us and they envy what we have here.”
[OP]
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rigalpatel wrote:
Feb 24th, 2017 10:26 am
Interesting article on the new builds market here:

https://www.thestar.com/business/2017/0 ... price.html

"Maybe this is just the new reality,” said Harrild. “Maybe Toronto is the next New York and we’d better get used to it. Maybe this is just where prices are headed. We’re an international city. People look at us and they envy what we have here.”
New paradigm!
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alanbrenton wrote:
Feb 24th, 2017 10:52 am
Wow. I knew the 5-5.5x lending criteria has so much to do with even townhomes hitting $700-800k.

Forget detached, the average price for all new low-rise housing in Toronto is past $1 million now
http://business.financialpost.com/perso ... illion-now
Someone predicted that if Trump won, it would be good for RE in Canada... that person is spot on. :lol:
I just like to collect things! ¯\_(ツ)_/¯
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jonkoktosen wrote:
Feb 17th, 2017 2:24 pm
As for a catalyst, as I've said, it can be rising rates, buyers being priced out, etc.. But once sentiment changes, there goes your demand. Right now a large % of buyers are speculators buying on the premise that prices will continue to rise. I know many who are doing it right now and they are buying several properties. They're flippers. Once prices level off, or even fall slightly, a massive portion of your buyers will vanish. That's the really the big catalyst that starts the crash in motion. And at these nosebleed levels, once prices start falling, everyone will rush for the exits all at once, accelerating the decline. That's how all bubbles burst, and it's not different here.
Aren't these people buying several new builds up in let's say Bowmanville, Courtice, etc.? So they can just put a bit of a deposit down.

I don't see how you can do that with re-sales in the six as you won't be able to get multiple funding for existing housing units. Plus need 20% down for non-primary residences.

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