Real Estate

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

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  • Dec 14th, 2017 3:05 pm
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Jr. Member
Dec 12, 2016
132 posts
105 upvotes
Greater Canada
Dedicated to the prophets of RFD who predicted this glorious collapse.
Advocate For The Removal Of Dihydrogen Monoxide (DHMO) From Canada's Water Supply
Member
Jan 19, 2015
423 posts
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Scarborough, ON
Luckyinfil wrote:
Aug 12th, 2017 9:36 pm
Informative high quality thread. Very insightful
Thanks for the compliment. I will post these sections one by one. Still doing the editing. Summer is slow time for me. so got some extra time.
Member
Jan 19, 2015
423 posts
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Scarborough, ON
1 Hatching
With a size of 7,124 square kilometres, GTA occupies less than 0.1% in area in Canada. However, its population is about 18% of Canada’s total and it is home to some of the nation’s biggest corporations and is of vital economic, social and political importance to the whole nation. According to CREA (Canadian Real Estate Association), in June 2017, the national average housing price excluding the GTA and GVA (Greater Vancouver Area) was $394,660. In the GTA, the June 2017 housing average price was $793,915 or about twice the national level. Therefore, even though GTA only has 18% of the nation’s population, its residential property value could be twice that, or 36% of the nation’s total. GTA housing market is an epitome of Canada’s housing market.

Throughout this modest document, I will be using the average housing price as the yardstick in observing price movement in housing. GTA average housing price in June, for instance, would be the summation in price of all the housing units sold in the month of June in the GTA divided by the total number of units sold. Granted, average price is not the most accurate measure of housing price in a region, but it is a very reliable one and is subject to least human manipulation. In some way, it works like the stock market index in measure of stock market price. For instance, if the S & P 500 index drops 20%, it does not mean the value of your stock portfolio also drops 20%, but there is good reason to believe that your stock portfolio might have performed more or less along the line with the index. Similarly, if the housing average price drops 20%, it does not mean the value of your house or any house drops 20%, but there is good reason to believe that their values have performed more or less in line with the average price. The GTA housing data this document uses are all from the website of Toronto Real Estate Board (TREB) regular news releases. The author would like to express gratitude to TREB for making these numbers available for readers.

After the September 11 terror attack and the ensuing recession, the US Federal Reserve lowered interest rate (Fed fund rate) to an all-time low of 1%. The rate stayed at 1% until June 2004. The US residential property market, which had not seen a price down year in more than 20 years, got a strong boost from this ultra-low rate. In 2003, housing prices were rising strongly all over the country especially in California, Florida and Nevada. US housing market had developed into a full bubble by then. With a hot housing market to the south of the border and renewed confidence in Canadian economy, Canada housing market started to move up in 2003 led by the GTA.

Bank of Canada followed the US Fed in 2001 and lowered rate to 2% in 2002, but quickly raised it to 3% in 2003 and then lowered it again to 2% in 2004. Canada’s housing market started its modest upward movement in 2003 and 2004 but mostly stayed stable mainly due to much higher interest rates in Canada. In 2005, the GTA housing average price was $335,907. With Canada fast becoming the economic star in mid 2000s, foreign investors swarmed into Canada. Investment in residential properties was heating up throughout 2005.

However, the US Federal Reserve raised key fed fund rate to 1.25% in July 2004. The Fed continued raising rates quickly to combat rising inflation and high oil price until the fed fund rate reached 5.25% in July 2006. In 2 years’ time, the Fed had raised rates by four percentage points and this directly contributed to the collapse of US housing market two years later. Bank of Canada followed the Fed’s move and raised rate to 4.25% in mid 2006 from 2% in late 2004. These interest rate raises put a damper on GTA housing market in 2006.
Member
Jan 19, 2015
423 posts
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Scarborough, ON
I strongly disagree with the decision of merging my thread with another thread. I am writing about the history of the GTA housing bubble, which is a completely different topic as the back-and-forth bickering of this "bubble thread". Please reconsider.
[OP]
Deal Addict
Dec 5, 2009
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airfarceone wrote:
Aug 13th, 2017 8:15 am
I strongly disagree with the decision of merging my thread with another thread. I am writing about the history of the GTA housing bubble, which is a completely different topic as the back-and-forth bickering of this "bubble thread". Please reconsider.
Because your version of history won't cause any back and forth bickering about "the bubble".
Deal Addict
Feb 22, 2011
1890 posts
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Toronto
Here's an interesting video I think that highlights how houses can be so much more expensive than the average income earner. The bottom half of Canadians own less than 6% of the wealth. There is an obscene economic divide in Canada. Top 10% of people own 60% of financial assets.

Deal Addict
Feb 9, 2009
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rjg4235 wrote:
Aug 13th, 2017 1:16 pm
Here's an interesting video I think that highlights how houses can be so much more expensive than the average income earner. The bottom half of Canadians own less than 6% of the wealth. There is an obscene economic divide in Canada. Top 10% of people own 60% of financial assets.

It's like this all over the world.

Until that changes nothing else will. Socialism cant only go so far to ensure everyone's quality of life will be strong -- but in this world there are people who are far more motivated to do well than others... should those who work super hard have to, in some ways, split their wealth with lazy, unmotivated people? No... in the long-term with inflation the divide will look greater and greater.. the have's will have more than ever and have not's less than ever.
Banned
Nov 27, 2006
2200 posts
436 upvotes
Toronto
Sanyo wrote:
Aug 13th, 2017 3:34 pm
It's like this all over the world.

Until that changes nothing else will. Socialism cant only go so far to ensure everyone's quality of life will be strong -- but in this world there are people who are far more motivated to do well than others... should those who work super hard have to, in some ways, split their wealth with lazy, unmotivated people? No... in the long-term with inflation the divide will look greater and greater.. the have's will have more than ever and have not's less than ever.
maybe... or maybe we become the singularity by then.
Deal Addict
Jul 14, 2002
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Sanyo wrote:
Aug 13th, 2017 3:34 pm
It's like this all over the world.

Until that changes nothing else will. Socialism cant only go so far to ensure everyone's quality of life will be strong -- but in this world there are people who are far more motivated to do well than others... should those who work super hard have to, in some ways, split their wealth with lazy, unmotivated people? No... in the long-term with inflation the divide will look greater and greater.. the have's will have more than ever and have not's less than ever.
Want to create a market mover, 86 families in Canada have the wealth of the bottom 11 million people in canada.
And how do we get there? Look at what is happening to Sears Canada. 43 executives getting a bonus of 7.6 million, while pensions are not paid out for 2,900 workers.
That's what you get for working hard for your whole life and being loyal to a company.
Deal Addict
Feb 9, 2009
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dantey wrote:
Aug 13th, 2017 5:24 pm
Want to create a market mover, 86 families in Canada have the wealth of the bottom 11 million people in canada.
And how do we get there? Look at what is happening to Sears Canada. 43 executives getting a bonus of 7.6 million, while pensions are not paid out for 2,900 workers.
That's what you get for working hard for your whole life and being loyal to a company.
This is an extreme case but yes I agree with you it is not right... but I was talking in general.

The Weston family for example unless one of them screws it up will always be super wealthy... there is nothing much else to do...
Deal Addict
Jan 22, 2003
4182 posts
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Austin/Markham
Motoss wrote:
Aug 12th, 2017 3:11 pm
A family with an annual income of $100,000 with a 20 per cent down payment can currently afford a home worth $792,813 (based on a 2.64 per cent mortgage rate and accounting for property tax and utility costs).
If stress-tested to qualify at 4.64 per cent, that same family would afford $146,579 less home.
Yikes

http://www.bnn.ca/realtors-brace-for-ne ... r-1.827890
This seems shady, I'm surprised a $100K earner can even afford a $800K house. Let's assume you're a regular family earning $100K. You max out your RRSP like a good Canadian, that brings you down to $82K. That gets taxed at 35%, bringing you down to $53K. or 4,416/month. A $800K house with 20% down, on a 25 yr mortgage would be $2,916 a month. Property tax is $6k ($500/month) on a 800K house assuming 0.75% tax rate. That leaves $1,000 a month for everything else. Since this is a family and not a couple I'm assuming there's at least one kid there. Sending that kid to day care would be $1,000/month minimum. So there's $0 left for utilities, car insurance payment, food and maybe some condoms because you can't afford to make another mistake.
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Deal Addict
Feb 22, 2011
1890 posts
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Toronto
webdoctors wrote:
Aug 14th, 2017 12:35 am
This seems shady, I'm surprised a $100K earner can even afford a $800K house. Let's assume you're a regular family earning $100K. You max out your RRSP like a good Canadian, that brings you down to $82K. That gets taxed at 35%, bringing you down to $53K. or 4,416/month. A $800K house with 20% down, on a 25 yr mortgage would be $2,916 a month. Property tax is $6k ($500/month) on a 800K house assuming 0.75% tax rate. That leaves $1,000 a month for everything else. Since this is a family and not a couple I'm assuming there's at least one kid there. Sending that kid to day care would be $1,000/month minimum. So there's $0 left for utilities, car insurance payment, food and maybe some condoms because you can't afford to make another mistake.
Tax would be like $2000 in Toronto on a $800k house, not $6000. Also why would you calculate it at 25 years? Most would elect to do 30 years. Also assuming someone will max out their RRSP and calculating affordability that way is a bit disingenuous.

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