[Merged] Real estate crash - yes, no, maybe?

[JWL]

I say what I want to say. I've been wrong before, and I'll be wrong in the future. But, OP, you've been warned.

Op, something bad will happen to you in the future. You've been warned.
(BTW, something good will happen too)

here's an example of a price going "up" the wrong way:

Price Changes
Apr 22: $589,900
Apr 28: $579,900
Apr 29: $569,900
Jun 1: $549,900
Jun 3: $529,000
Jun 8: $525,000
Jun 16: $499,000
Jun 22: $489,000

C1846580 - C08 - 5 COLE ST, TORONTO, ON - $489,000

So far, 18% price correction. How low does it need to go before it finds a buyer?

One house is an example that proves something? I don't think so.

[Patrick.Bateman]

I cant see a 70% drop ever happening, cities would go under from the lack of property taxes.

property taxes are based off MPAC assessments here, not on things like MLS pricing

besides, cities would go under long before we hit a 70% correction. barring something cataclysmic, we don't hit a 70% correction

up to -70% "correction" in some areas of Vancouver and Toronto
up to -40% in some other select areas (Alberta, outskirts of GTA, etc)
about -25% to -%30 elsewhere

timeframe: over the period of next 4 years

I say what I want to say. I've been wrong before, and I'll be wrong in the future. But, OP, you've been warned.

you are basing this on? I'll say what I want to say; you are hilarious lol

here's an example of a price going "up" the wrong way:

So far, 18% price correction. How low does it need to go before it finds a buyer?

oh, nevermind, you are using one skewed example to back up your argument of a "correction"?

[new_vr]

here's an example of a price going "up" the wrong way:

Price Changes
Apr 22: $589,900
Apr 28: $579,900
Apr 29: $569,900
Jun 1: $549,900
Jun 3: $529,000
Jun 8: $525,000
Jun 16: $499,000
Jun 22: $489,000

C1846580 - C08 - 5 COLE ST, TORONTO, ON - $489,000

So far, 18% price correction. How low does it need to go before it finds a buyer?

One property doesn't mean much
How do we know the price just wasn't correct from the start? Maybe they started at 589,000 then found out it was buried on top of an ancient Indian burial ground...who knows...
Or..they just were hopeful that they could get that much, and figure they had nothing to lose by posting high.

[LarryLat]

I base my comments on fundamentals and examples. Care to object with solid reason supported by an accepted paradigm?

A reduction in price by 70% in some cases doesn't mean a drop of median or average price by 70%. Some junk will drop by 70%, some gems will remain the same, on average I expect 25% to 30% reduction.

[new_vr]

I base my comments on fundamentals and examples. Care to object with solid reason supported by an accepted paradigm?

You start with the solid reason

[Patrick.Bateman]

I base my comments on fundamentals and examples. Care to object with solid reason supported by an accepted paradigm?

Well, care to start by supporting your own thesis with solid reason and an acceptable paradigm? Your example is a sample size of one that doesn't reflect the market, fundamentals and historic trends.

[ShopperfiendTO]

I cant see a 70% drop ever happening, cities would go under from the lack of property taxes.

Don't know what the property tax system is in Alberta, but assume it's similar to Ontario.

Assuming this is the case, the price (or price drop) of a house does not affect a city's budget. The price (or price drop) affects the homeowner's relative share of the contribution to the city's budget.

If every single house dropped in value 30% and assuming everything else is the same, every homeowner would not see a change in the amount of property tax they paid.

The only way a city goes under for lack of property taxes is if no one pays the property taxes and when the city forecloses on those houses, the sales proceeds aren't enough to cover the taxes owed. The buyer who paid a ridiculously low price for the house is liable for the property taxes on that property going forward. Admittedly, this may now be less, but the shortfall will be recovered by some other homeowner who will have to pay more property tax on his property.

[quatchi]

I agree that things are out of whack, but it IS possible that fundamentals will improve to support the current price. At 70% off, I have enough cash to buy the entire block, and I would! I think 30% off, or rents 30% higher, to me would make me feel RE is fairly priced in my area, and I would look to upgrade/buy.

[Jor]

Well, care to start by supporting your own thesis with solid reason and an acceptable paradigm? Your example is a sample size of one that doesn't reflect the market, fundamentals and historic trends.

While I do not agree with the severity of his estimates I do agree with the trend and the reasons for it. Historically, real estate is valued at around 3x median income. We are so far out of whack with that fundamental indicator that current home values are screaming bubble. Last time I looked, Toronto was around 6-7x and Vancouver is around 9x.

I could see a 30% correction in hot markets within the next few years easily, with the potential for more if things get ugly. We really are not as different from the US situation as most hope we are.

[AllWheelDrift]

I would expect a return to what prices were around 2003-2005, perhaps a bit higher due to inflation. The Vancouver market in particular has turned into "castles in the sky".

Look at the US and UK for what could happen here. Of course it's not the same here, but it's also not as different as people claim.

I believe the "best case" scenario is a RE market that is flat for a decade or more. Of course I've been wrong since 2003 or so when I figured the market would be flat going forward.

Still, the recent hysteria has been fueled by mortgage innovation (lower downpayments, longer ammortizations, plus cheap, government backed default insurance allowing the banks to loan large sums without taking on the risk themselves) and emergency interest rates. Some of the mortgage innovation has already been rolled back, and interest rates are edging up. Supply (listings) is increasing, and demand (sales) is decreasing faster than what triggered the correction in 2008.

[LarryLat]

To that I'll say: use the Search button. The stuff was spelled out many times over on this forum.

The only objections put forward were:
- the prices have been going up for the past 18 years, so they must continue to go up or remain the same
- the Chinese, Brits, immigrants, etc will save us
- it's different here in [...]
- my mortgage payment (at P-1%) is lower than my rent payment

None of the above belong to solid reasoning because things change and always cross the fundamental line. This time we're going to cross the fundamentals from the above on our way below averages.

Care to explain what will allow new buyers sustainably pay the same or higher prices for real estate?
Do you expect five million millionaires from China any time soon on our shores?
Do you expect market-wide pay raise of 30% in the near future?
Do you expect the same or lower level of taxation over the next decade, and as such there won't be any additional pressure on homeowners?
Do you expect drastic drop in unemployment that will bring new droves of buyers to the market?
Do you expect that there will be no other attractive types of investments that won't pull funds away from the real estate market?
Do you expect that homes in Canada will continue to cost 2-5 times more than in USA when the Loonie is almost at par?
Do you think that all the Baby Boomers will continue to stay employed, and won't need to cash out the only type of savings they have, which is in Real Estate?

Good luck with the pipe dream. The only hope for you is instant high level of inflation, which will make all my reasoning completely irrelevant. Droves of people moved away last time this happened in my old country , and it's still in shambles. Do we really want this to happen to Canada?

[Neil]

I'm one that's been calling for this for at least 2 years.

It did seem as if this correction was happening about 18 months ago but then in 2009 the central rate was set to almost zero. This, plus a few other factors I believe refluffed the market but the effect I think is very temporary.

I'm predicting a minimum of 20% correction, and some markets will be worse. Those worse markets will get heavily reported and make it seem even worse.

[TheDude79]

None of the above belong to solid reasoning because things change and always cross the fundamental line. This time we're going to cross the fundamentals from the above on our way below averages.

Then we can argue "when" is this going to happen....is it because the prices stay put and the fundamentals catch up, or vice versa?

Care to explain what will allow new buyers sustainably pay the same or higher prices for real estate?

Buyers are currently paying at this rate, who are you to say that they can't do this for the foreseeable future?

Do you expect five million millionaires from China any time soon on our shores?

I enjoy your hyperbole. Foreign money does and will continue to play a factor in some Canadian RE markets (especially where I live). The amount of foreign input depends on a many geopolitical factors that are difficult to predict. Do you expect *all* foreign investment to dry up?

Do you expect market-wide pay raise of 30% in the near future?

What's the near future? If inflation is a rather modest 2.5%, we'll see 30% increase in wages in about 11 years, provided incomes keep up with inflation as they tend to.

Do you expect the same or lower level of taxation over the next decade, and as such there won't be any additional pressure on homeowners?

Do you expect drastic drop in unemployment that will bring new droves of buyers to the market?Do you expect that there will be no other attractive types of investments that won't pull funds away from the real estate market?

I don't see what you're getting at here. Bad economy = bad equity investment environment = more attractive housing investment environment. Bad economy = higher unemployment = fewer buyers. The two factors tend to normalize things. Besides, people generally can't just flee the housing market because they need somewhere to live! You can't sell your house to buy a pile of gold and live under that.

Do you expect that homes in Canada will continue to cost 2-5 times more than in USA when the Loonie is almost at par?

Canada and the US are different markets. they have different rules, different players (more lenders), and are affected by different government policy. Currency equivalence in this case is not much of an issue, as most housing is owned by domestic buyers.

Do you think that all the Baby Boomers will continue to stay employed, and won't need to cash out the only type of savings they have, which is in Real Estate?

Do you have any data to support your assertions? I know of many baby boomers who are continuing to work. I know of many baby boomers who have paid off their houses and are able to live comfortably on their savings, CPP, and OAS. I don't believe the majority of them are on the road to destitution.

Good luck with the pipe dream. The only hope for you is instant high level of inflation, which will make all my reasoning completely irrelevant. Droves of people moved away last time this happened in my old country , and it's still in shambles. Do we really want this to happen to Canada?

What country would that be?

[robert9a]

Hmm, they will continue to go up only if people are willing (and able) to pay the premium.

They are and they are.

[rsoon]

For me, annual rent/purchase price in the area I want (and will) to buy the ratio approx. 0,5%-0,75%. Clearly means do not buy.

Just curious, if you like a particular place but the prices are NOT right, why not just rent for a while.

Given the SAME mortgage payment, it is better to have a low mortgage with a high interest rate versus a high mortgage with low interest rate.

Today, the mortgage rates are at the bottom. They have only one way to go, UP.
... and when the mortgage rates rise, the property price fall