Real Estate

When will we know that TO/GTA real estate has bottomed?

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  • Dec 16th, 2017 10:08 pm
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Jun 8, 2017
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When will we know that TO/GTA real estate has bottomed?

Headwinds continue to swirl in our great City.

Just as it very difficult to accurately predict exactly when peak values will hit, it is tricky to predict when prices will bottom. That doesn't prevent us from trying though.

What will we need to see to recognize that the bottom has arrived? (I am referring to the bottoming of the benchmark price of a home- all types- in Toronto and GTA)

Not sure how long or how much the fall will be, but I opine that the fall will continue throughout 2018. Why? Combination of the following factors.

OSFI broad stress test to hit in January.

We are just at the beginning of a tightening cycle. There is a close correlation between lowering rates and increases in prices in TO. To think that the converse does not apply is naive.

Toronto is the most overvalued market in the world according to UBS. Household debt has never been higher. Many households have their heads just above water and will struggle with small increases in rates.

Big money/ investment and flippers are running for the hills.

Money is getting much more expensive and difficult to access. Many deals falling apart in Nov because of financing issues according to my agents and banker. When January comes, the situation will get even worse.

Now that MLS data cannot be hoarded by TREB, buyers can make more informed and educated decisions, and will be less likely to overpay.

So, what will the bottom look like? My opinion, when prices in relation to local incomes recede to more reasonable levels, and we are near the top of the interest tightening cycle. I see a noticeable drop in prices early in the New Year (stress test), then a slow melt until the two markers noted are hit.

Your thoughts are welcome and appreciated.
Last edited by inferiorplanet on Dec 3rd, 2017 12:46 pm, edited 1 time in total.
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Feb 9, 2009
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When Jungle says we’ve bottomed ;)
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Dec 5, 2009
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There is an expression in stock investing - Never try and catch a falling knife.

Generally , in real estate, things move more slowly. In typical RE cycles a correction is followed by a period of stagnation (flat to very slow growth). I don’t think the bottom is as important as how long this stagnation will last. After the last boom/bust it took around 5 years.
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Jan 15, 2017
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Ottawa experienced a housing correction in 2012 when Harper announced major layoffs in the federal public service. Prices remained flat until this year when we started to see some gains across the city. Not enough to catch up with the losses yet, but movement upward. So, 5 years of stagnation. Could Toronto experience the same? Who knows? The challenge for Toronto is that even a slow down that still results in positive gains may feel painful for many.
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To be honest the big drop to me already happened... like fdl we’ll see stagnation but I don’t see a 50% drop here unless rates go up significantly higher which I don’t see happening unless the world wants to see world recession 2008 happen again.

People also forget that in 1989 not only did rates jump up like crazy we had a crazy amount of overbuilding, which hasn’t happened yet. Old generation living longer, not selling, working longer adding to their cash flow. New generation is different many of them are not getting married as early or at all and more units required. Also a much higher number of immigrants coming in who are thirsty for real estate and Toronto on a worldwide level has a much higher interest from
Foreigners then in the past.
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I thought we’d be trending sideways thru the fall but that was what I was looking for prior the OSFI announcement. Looks like things have still been slow and slightly trending down in detached. Seeing the price history and terminate/relist data on mongohouse still paints a pretty bleak picture.
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Feb 24, 2017
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cartfan123 wrote:
Dec 3rd, 2017 1:29 pm
I thought we’d be trending sideways thru the fall but that was what I was looking for prior the OSFI announcement. Looks like things have still been slow and slightly trending down in detached. Seeing the price history and terminate/relist data on mongohouse still paints a pretty bleak picture.
Which area? In Vaughan, specifically east of 400, prices have held up pretty good and is trending upwards again. 4 bdr that were selling for 1.5 million at it's peak are now selling for ~1.3 million . Yes the prices have come down but still selling at very high prices in a slow/depressed market.

Personally i think it's already bottomed out.
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We won't see crash (sharp drop in short period) because economic growth has been positive and continuing. However raising interest rates over the next 1-2 years are expected to put a damper on buying power and reflect in RE prices by reducing demand, therefor prices not going up like the recent past.

Condos have their own problem of dilution in Toronto as builders keep building thousands of units back on the market. Most pre-construction are bought by investors and run cash flow negative. This won't continue as the cost of servicing debt reduces operating cash flow significantly and there becomes too little demand for units being bought VS inventory on the market.

The population of Toronto has not grown nearly enough as immigration policy lets in. Why? because immigrants cannot afford Toronto rent (or housing prices) and relocating elsewhere, according to recent census.

I would expect to see prices in the next 3-5 years actually going negative and flattening out after 5-10 years.

If we get a big recession anytime soon, expect a crash and 20 year Japan style stagnation, as central banks will have to dilute currency into nothing, because household debt is so high.
Last edited by Jungle on Dec 3rd, 2017 2:18 pm, edited 2 times in total.
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aspiretobegreat wrote:
Dec 3rd, 2017 2:01 pm
Which area? In Vaughan, specifically east of 400, prices have held up pretty good and is trending upwards again. 4 bdr that were selling for 1.5 million at it's peak are now selling for ~1.3 million . Yes the prices have come down but still selling at very high prices in a slow/depressed market.

Personally i think it's already bottomed out.
Mostly in the Durham region. Still high prices, no collapse but not rebounding in any meaningful manner either.
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aspiretobegreat wrote:
Dec 3rd, 2017 2:01 pm
Which area? In Vaughan, specifically east of 400, prices have held up pretty good and is trending upwards again. 4 bdr that were selling for 1.5 million at it's peak are now selling for ~1.3 million . Yes the prices have come down but still selling at very high prices in a slow/depressed market.

Personally i think it's already bottomed out.
cartfan123 wrote:Mostly in the Durham region. Still high prices, no collapse but not rebounding in any meaningful manner either.
I think it's meaningful to look at trending sold/vs active listings ratios.

For a while now in Vaughan, that ratio indicates a buyer's market. ZOLO reports the average detach is 1.2M now, with only 90 sold VS 697 active listings. This is likely to put downward price pressure on people who need to liquidate. Those who buy, have the power to offer lower price. As many comparables continue to sell lower in price, all prices drop together. (average)

For the entire region of durham the sold/active listing is between 1:3, or mostly 1:2.5. Also durham is at less risk because prices are among the lowest in GTA.

Regions saturated with million dollar listings are more to lose on a $ basis.
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Jungle wrote:
Dec 3rd, 2017 2:18 pm
We won't see crash (sharp drop in short period) because economic growth has been positive and continuing. However raising interest rates over the next 1-2 years are expected to put a damper on buying power and reflect in RE prices by reducing demand, therefor prices not going up like the recent past.

Condos have their own problem of dilution in Toronto as builders keep building thousands of units back on the market. Most pre-construction are bought by investors and run cash flow negative. This won't continue as the cost of servicing debt reduces operating cash flow significantly and there becomes too little demand for units being bought VS inventory on the market.

The population of Toronto has not grown nearly enough as immigration policy lets in. Why? because immigrants cannot afford Toronto rent (or housing prices) and relocating elsewhere, according to recent census.

I would expect to see prices in the next 3-5 years actually going negative and flattening out after 5-10 years.

If we get a big recession anytime soon, expect a crash and 20 year Japan style stagnation, as central banks will have to dilute currency into nothing, because household debt is so high.
You have many scenarios of which they have to go according to plan to a crisp ... which we know doesn’t happen.

If we continue to get strong economic growth and rate higher, this is still a positive for Toronto real estate... of course if we hit a recession that may be a different story but Canada hasn’t had a major recession in a long time and helicopter Trudeau would no doubt be ready to drop money like it’s hot to save the economy.

Right now the Toronto market is stalling cause of too many rules that have been coming at once. I think the pc govt will pull back the foreign buyer tax (one of the major reasons for the pullback) and loosen the tenant rules a bit.

B20 is the big one but it comes out once and could have short term effects but once in that’s it... if Toronto drops 5% on it then what? Brokers are already saying they can play around with amortization and such so I don’t even think it will be as bad as people think.

Only thing left to truly depress prices would be massive rate hikes ... b of c is already aware it can’t increase too fast so your theory of 4 rate hikes in the next year is too optimistic... while we have had good growth , our economy is not on fire and overall growth is still below 2%. Also remember when rates went from 2% to about 4% and some change from 2005 to about 2007 or so it did not cause any major corrections.

So while I know people are expecting some impending doom it probably won’t happen. There is no doubt the Toronto market got too hot in mid 2016 into 2017 with much of it probably caused by higher amount of foreign buyers who came here after Vancouver slapped their foreign buyer tax. Now if Vancouver does do the unimaginable and ban foreign buyers from buying in Vancouver (very small chance) I expect that to be net positive for Toronto real estate.

Lots of directions it can go ... none of which any of us know cause we don’t have a crystal ball.... but it won’t be as dire again as some think...
Last edited by Sanyo on Dec 3rd, 2017 2:47 pm, edited 1 time in total.
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Mar 20, 2017
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My guess is - after Ontario elections with Wynne's fail (if we talk about YoY percentage). Or Dec 2017 if we talk about absolute price.

What is happening now is not true economic correction, it is constant bombarding real estate market with new stress tests and taxes. 3-4 times per year.
If gov simply stops this bombardment - prices will skyrocket. And the bombardment can't happen for a long time.
Therefore, its more correct to say about "when super heavy government interventions end?" rather than "when market will bottom?".
[OP]
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Jun 8, 2017
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Article noting that many who plan to buy a home are unaware of new mortgage rule changes.

http://news.buzzbuzzhome.com/2017/11/th ... nyway.html

I agree with some posters that without government intervention, ie. new OSFI rules & rate hikes, the market looks very different (higher). However, I am of the view that if these sorts of rules are not implemented, the ride down will be much more harsh/ hurt a lot more.

I keep in regular contact with my mortgage broker as well as mortgage specialists at the big banks. The consensus is that financing is much more difficult now, and will get materially harder come January. My broker advised me yesterday that there has been recent and clear push back from the banks he deals with re mortgage applications (funding sums). Further, a relative of mine, who has a very very good relationship with his bank manager, advised me this morning that he got a call from the bank manager advising that any flexibility that was extended to him in the past will stop in January due to the new rules.

Psychologically, there appears to be a shift from homeowners that I know. When talking to homeowner friends and colleagues at different points in the summer and fall, many felt that we had bottomed already. Fast forward to now, most are not optimistic about where the market is headed next year (yes, small sample size).

IMO, Toronto is a fabulous city and the Will is definitely there for many to pay as much as the banks will lend them to get the most house they can (which usually isn’t much). Come January a decent chunk of this cash with instantly dry up. Some will be able to ‘creatively’ find money, but given the broad and wide reaching implications of B20, many/most will simply accept the lower sums being offered by the banks and go shopping. Some will be knocked out of the market all together. Result- few buyers- less cash.

If there is a continued disconnect between sellers expectations and what buyers can afford, active listings will continue to rise while sales will continue to fall. However, that scenario can only last for so long. We have seen this process play out for detached several times throughout the past year.
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GalvToronto wrote:
Dec 3rd, 2017 2:49 pm
My guess is - after Ontario elections with Wynne's fail (if we talk about YoY percentage). Or Dec 2017 if we talk about absolute price.

What is happening now is not true economic correction, it is constant bombarding real estate market with new stress tests and taxes. 3-4 times per year.
If gov simply stops this bombardment - prices will skyrocket. And the bombardment can't happen for a long time.
Therefore, its more correct to say about "when super heavy government interventions end?" rather than "when market will bottom?".
In a way much of the bull market was fuelled by govt intervention which was taking interest rates too low for too long. Rates are still even being held abnormally low, then on the other hand all this Mish mash of measures to slow the market seeking to unwind some of the price increases that the low rates caused.

Bottom line if rates had been increased earlier and not taken to such low extremes there would be no need for the intervention to slow the housing market.

One hand not talking to the other. All a big joke.

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