[interested]

Did the Bank of Canada just raise interest rates with High unemployment and weak economic growth?? Shame on them..........

Actually myfive: a couple of points:
The US peak market I believe was 2006. Not being picky but prices were already dropping in 2007, just the drop accelerated the next 3 years. Note: the prices in some markets trebled in just 5 years in the US so that saves us somewhat here as we did not go up anywhere near as much. the US consumer even more than the Canadian consumer used his house as an ATM. Now even with cheap money, the US economy is dragging with fears constantly of a double dip recession entering in the news. Remember, 3/4 of all our exports go to the US so don't believe we are going to escape their problems unscathed should their economy falter further.
Bank of Canada interest rates are going up but it is the bond market that sets mortgage rates and they are viewing the future less than certainly and therefore the decreased demand for yield/money as you hear companies and others are sitting on cash and therefore the still low mortgage rates. If there was alot of demand for mortgage money, rates would be going up. the fact there is not is in part the cause for the lower mortgage rates.
Interest rates from the bank of Canada are predicated on inflationary pressures in the market. It is forward looking and takes 6 months to a year before changes in the Bank rate become apparent in the economy. Increasing even a little bit interest rates, Carney is sending the psychological message that people must not expect protracted low interest rates "forever" and make unwise decisions based on this. However, while real estate is important, it is not the primary focus of the BOC.
I fail to see how any of this results in a conclusion that house prices will defy gravity and continue upwards.
While there is a seasonal slowdown in summer, I would not expect barring a change in the economy, an upward resumption of real estate prices.

 

[myfive]

For the next time around, Bank of Canada has already sounded cautious/no increase move.

yes...due to global risks to the ecomic growth. But recall they are calling for 3% or so growth for the next 3 years or so. I'm ok with that. If it was projecting much higher, they'd be jacking rates up more....and we like the low rates.

 

[myfive]

I fail to see how any of this results in a conclusion that house prices will defy gravity and continue upwards.
While there is a seasonal slowdown in summer, I would not expect barring a change in the economy, an upward resumption of real estate prices.

As i say, i'll stick with the formula as a 'broad stroke'. How can prices stay down in such an environment? If the variables start to turn, then it will bring down the prices. So i don't see that the market has defied gravity.

 

[interested]

As i say, i'll stick with the formula as a 'broad stroke'. How can prices stay down in such an environment? If the variables start to turn, then it will bring down the prices. So i don't see that the market has defied gravity.

Myfive,
I go back to impressive rise from the lows of last year. Looking at a 10 year plot, one would not even know based on averages that things got really dicey in the world last year. Yet, Toronto real estate is up almost linearly as if nothing happened. Maybe I am too pessimistic but the world and Toronto in particular was doing great from 2000 to 2008 or so we thought. 2008 came along and disappeared from peoples memories in 9 months. Yet the problems in the world are still here, no one is sure they will resolve, how well, and over what time.

I guess we will agree to have different views on this. All I know is either we will both be wrong, both right(I don't know how) or I hope I am wrong and will treat to a coffee. See, I am willing to put a substantial amount of my wealth on the line and spring for coffee. LOL

 

[cdr108]

Thanks for quoting various figures Cdr.

Can you, please, add your understanding/conclusions of the statistics? Txs.

comparison for 2008/2009/2010:

Housing Market Indicators June 2008 June 2009 June 2010
Sales 8,600 10,955 8,442
New Listings 16,069 13,357 15,086
Active Listings* 26,697 18,704 23,923
Days on Market 34 33 27

Housing Market Indicators July 2008 July 2009 July 2010
Sales 7,806 9,967 6,564
New Listings 14,830 12,174 10,825
Active Listings* 26,543 16,915 21,714

hi KA1 ... part of the problem is TREB stats can/are manipulated so they aren't entirely 'true'.
i have on many occasions seen listings that were old and not going anywhere.
so the realtor enters a new ad, hence new MLS # so the days on market would reset to one (DOM: 1) so one doesn't think the listing is stale and properties are selling quick.

given the above, the ratio of sales:active listings is around 30% ... so by definition, it is a buyer's market, but that doesn't mean the price is favourable to a buyer yet.

IMO prices are just too high at ~$500+PSF for resale in dt TO and ~$600+ for pre-construction.
average income to average property value is also too high ... we are higher than the US peak before their bubble burst.
values have also appreciated for the past 15 years and has been aided with low interest rate environment coupled with loose CMHC rules ... that tide is changing and will eliminate a good portion of the specuvestors in the pre-construction market.

 

[interested]

hi KA1 ... part of the problem is TREB stats can/are manipulated so they aren't entirely 'true'.
i have on many occasions seen listings that were old and not going anywhere.
so the realtor enters a new ad, hence new MLS # so the days on market would reset to one (DOM: 1) so one doesn't think the listing is stale and properties are selling quick.

given the above, the ratio of sales:active listings is around 30% ... so by definition, it is a buyer's market, but that doesn't mean the price is favourable to a buyer yet.

IMO prices are just too high at ~$500+PSF for resale in dt TO and ~$600+ for pre-construction.
average income to average property value is also too high ... we are higher than the US peak before their bubble burst.
values have also appreciated for the past 15 years and has been aided with low interest rate environment coupled with loose CMHC rules ... that tide is changing and will eliminate a good portion of the specuvestors in the pre-construction market.

This is well thought out and reasoned and I agree with one slight caveat. Our property values are higher than in the US before the bubble burst but one must be cautious in comparing a city like Toronto to say Miami. TO is the financial capital of Canada and the hub for the whole country. Miami is a low wage city with properties that trebled (did not increase 60% over 6 years). They are different and all real estate is local.
That said, I am certainly do agree that they are frothy and the specuvestors will get out. In the process, probably the whole market will overshoot on the downside until the weak are eliminated and stability sets in.
Remember as well that while values have appreciated in 15 years, along time, there was 7 prior years where they were down. So some of the appreciation can be justified, but I believe it may be up to 2006 or maybe 2007 or if we are lucky, back to the lows of 2009 when there was a 15% drop approximately from the previous peak.

 

[TrickyRicky]

I think it's a good idea to keep track of trends but really all this discussion about statistics revolves around historical events. We will not be able to tell where we are in the cycle until months, even a year or years after the actual event. From the perspective of real world decision-making the statistics being discussed here are near useless.

I think the average viewer of this thread who isn't jsut here for a fun distraction is a first time buyer probably in the condo market looking to know when to jump in the market for a unit they plan to use personally or a mixture of personal and rental income. The decision is do I buy now or wait? I think the answer is clear: It doesn't matter either way you are too late.

What I mean by too late is that majour factors (not market indicators, market indicators are the historical data being discussed that are essentially useless to your decision-making process) suggest that in the near long-term (say the next five year) capital appreciation will underpreform historical averages and fixed operating costs will be higher. What this means is that if you are using the previous five years as your point of reference, a period of historically above average appreciation and affordability, you will be openly exposing yourself to downside risk.

What I mean by it doesn't matter is that you should still buy if you need to. Your ability to outsmart the market as a first-time buyer is negligable because your purchasing power is relative to the positions of other people in the market. If marginal swings in interest rates or carrying costs effect your decision your decision to purchase is a mistake on the face. If you wait to time the market you will gain little because as a new buyer your will always be in the same position as the other players in your market band.

 

[interested]

What I mean by too late is that majour factors (not market indicators, market indicators are the historical data being discussed that are essentially useless to your decision-making process) suggest that in the near long-term (say the next five year) capital appreciation will underpreform historical averages and fixed operating costs will be higher. What this means is that if you are using the previous five years as your point of reference, a period of historically above average appreciation and affordability, you will be openly exposing yourself to downside risk.

[/QUOTE]

I think Condo George and Myfive would disagree with you.

On your other points, you are correct that past performance is not an indicator of future, but we all learn (unfortunately from mistakes we have made as we get older). The one thing that seems to recur is that those who don't study history are doomed to repeat its failures.

I believe your other conclusions are correct "trickyRicky".

 

[KA1]

Thanks for your thoughts: Cdr 108, Interested and TrickyRicky.

 

[Condo George]

RBC lowered fixed rates yesterday, good call Carney spike them on Unemployment at 7.8 and run for cover on .1 GDP, its not the amount RBC lowered but the reversable trend. My clients still getting .75 off prime on variables or 2%

Went the the L Tower release of high floor units today approx $800 psf in todays somewhat pessimistic tone to the market, fyi

 

[cdr108]

one thing i think many don't take into consideration is the financing cost/or their ability to finance in 5 years when the mortgage is renewed.

for every $100, 000 mortgage @ 4.59% 5-yr term/25-yr amortization = $558/m
http://www.mackenziefinancial.com/calc/jsp/MortgLoanAmortScheduler/mortgloanscheduler.jsp

after the first 5 year term, the O/S balance would be $87,927.
if interest rates rise, as many believe, by just 200 bps (ie. 2.0%);
then $87,927 mortgage @ 6.59% 5-yr term/20-yr amortization = $656/m ...
http://www.mackenziefinancial.com/calc/jsp/MortgLoanAmortScheduler/mortgloanscheduler.jsp


even though the principal decreased by ~$12K (ie. 12%), the mortgage payment increased by 17.5% from a minor 2.0% rate rise ... imagine if it was something more dramatic!

high prices are resulting in the largest mortgage debt in history.
if the percentage of income going towards mortgage payments weren't so high, i wouldn't be concerned.
but as it stands i don't think many can withstand to pay ~20% more ...

 

[interested]

RBC lowered fixed rates yesterday, good call Carney spike them on Unemployment at 7.8 and run for cover on .1 GDP, its not the amount RBC lowered but the reversable trend. My clients still getting .75 off prime on variables or 2%

Went the the L Tower release of high floor units today approx $800 psf in todays somewhat pessimistic tone to the market, fyi

George, they can ask $800 /sq. ft. Let's see if it sells. 3 months ago it would have flown off the shelf. Now, perhaps not so quick.

 

[Condo George]

George, they can ask $800 /sq. ft. Let's see if it sells. 3 months ago it would have flown off the shelf. Now, perhaps not so quick.

You maybe right, we shall see. $800 psf is steep

 

[KA1]

You maybe right, we shall see. $800 psf is steep

Please keep us posted about the sales activity or any price decrease by way of special promotion. Txs.

 

[CN Tower]

George, they can ask $800 /sq. ft. Let's see if it sells. 3 months ago it would have flown off the shelf. Now, perhaps not so quick.

Oh, those units will sell for $800 psf alright. Sure, $800 psf + an iPad + 1 year of free maintenace fees + 2 years of Autoshare membership + a locker +++. Adjusted price? $700 psf. Of course TREB/CREA/Hot Property TV/Advertorials will all include $800 psf sales in their data too. Because that's what they do.

But when our friend the $800 psf buyer goes to resell that unit a year later guess what he will get for it?