[paperchopper]

Anyways, I'm out suckers. Keep buying that RE. You're smarter than the Irish, Americans, Japanese, Spanish, British, etc.... RE can only go up and is the source of untold wealth. Debt is good. Remember that.

Peace.

 

[daveto]

I have a distinct feeling that you will be proven wrong. You can not stop dead real estate activities, as they say, in its tracks, unless, of course, there is a general collapse of the economy.

Certain number of individuals will keep buying real estate -- because they need to live somewhere or that, considering the alternatives at present, real estate is still a better investment. Then, there is 'foreign money' wanting to park money, some where, for a long, perhaps longer term. What one might not know, quite a few real estate firms -- and Baker Real Estate is the one name that comes into mind -- have offices in Hong Kong, China and other parts of the world pushing real estate as a safe investment in Canada. And that means, first, Vancouver and, second, Toronto.

Canada's RE prices are now an average of more than 5 times average income.
The US maxed at 4.8x income, and are now approx 3.6x income.
Many other countries whose RE prices have crashed similarly maxed at approx 5x income.
The historical average is 3 to 3.5 x average income.

There is no major economy in the modern world whose RE prices have ever remained above 4x income. NEVER.
It is hubris to believe that Canada will be the first.

And it is hubris to believe that Canada's RE prices will be indefinately supported by foreign investment. Maybe for 3 months, or a year or maybe longer. But I can GUARANTEE you that our prices will eventually move below 4x earnings. Yes. I said guarantee.

And I can also guarantee you that the first response of everyone reading this will be "Well, my property will fare better than the average".
And half of you will be wrong.

 

[Kenny]

Interested I don't get why you come in here day in and day out and post tacit denials? Do you own speculative RE properties?

Face reality. The bubble is going to burst very soon, actually, it probably starting bursting in July, but it takes a while for people to realize it.

Eh? I kinda figured the two of you were in the same camp, actually. It depends on how you define "burst", though. I see no signs of a dramatic drop. It looks more like a slow dwindle/plateau - much like my gym workout.

 

[Kenny]

There is no major economy in the modern world whose RE prices have ever remained above 4x income. NEVER.
It is hubris to believe that Canada will be the first.

Taiwan?

http://www.chinapost.com.tw/taiwan-business/2010/10/08/275382/Taipei-price-to-income.htm

 

[interested]

I guess paper chopper I am not posting tacit denials.

To answer your question, I own a few properties with no mortgages. I am not a speculator but I would rather feel a "true investor".

I am not as apocolyptic as you. My reality is not your reality. I think sthe bubble will deflate. Yes there is a chance it will be a loud pop like in the US but I am hopeful for all the reasons previously posted that it will not be. Rather, I hope for a reasonable adjustment downwards.

I find it interesting to observe R/E in the bigger economy and its interplay as a commodity.

I suppose I speculate about this day in and day out because I have too much time on my hands. I need to get a real job or at least a life. LOL.

In response to your friend. Yes, he is the type of individual I am worried about. The thing that I don't have a handle on is how much of the market does your friend and others like him make up. Clearly, you feel it is a significant enough amount to have a brutal reckoning.

Carney incidently is between a rock and a hard place. If he raises interest rates, he chokes an already fragile economy. Leaving them where they are and more and more Canadians are acting irresponsibly (witness our debt to income ratios). However, in the absense of a sudden jolt, "the mother of all crashes". I think that may be a bit much though I am sure if it comes and it surely will correct, it will be ugly.

Personally, other than for probable personal use 1 property in 2008( presently up 40+% but I fully expect it to be where I paid for it if there is a severe correction; I hope not more), I stopped buying any real estate for investment at the beginning of 2007 because that was the last time I could justify a rate of return. Incidently, the rate of return was low and I acknowledge that but frankly not being a big believer in the stock market (also inflating as a result of the World printing money), so I need to invest somewhere where I can get a return, albeit very low.

 

[interested]

Taiwan?

http://www.chinapost.com.tw/taiwan-business/2010/10/08/275382/Taipei-price-to-income.htm

Kenny your point is taken but the article states that this is speculation driving these high prices. Just because one can point to an anomaly and say Dave is wrong with his 4x income, let's see if Taiwan is still there in another couple of years and TaiPei in particular. He may well be proven right.

Paperchopper and I are in the same camp believing there will be a correction. It is just that we don't agree on the degree and how it will unfold.

If one or the other of us has to be right, I hope for the whole country's sake that it will be me, because big bursts with overcorrections are extremely harmful to everyone, including all those bright people who will have been smart enough to not hold any real estate. They may make some money but when everything is crashing around them, it won't feel very good.

 

[paperchopper]

I don't think I've ever heard a central banker use such apocalyptic terms such as 'brutal reckoning', laced in with a catchy idiom. I think he's trying to get a point across, and the average intellect of the homeowner is too low to comprehend this.

All they react to is losing their home. So be it. I feel no sympathy. I have my cash ready.

 

[interested]

Ah you see Paperchopper you and I differ here. I want to get a good deal and hope to make money and good investment decisions in the long run but I do have sympathy for people who will lose their home. Yes, they may be bringing it on themselves to a degree. But not everyone is either as intelligent or perhaps connected or understanding as you are. As you say, perhaps the average intellect of the homeowner may be too low to comprehend Carney's point. None the less, I don't wish misery to my fellow Canadians and I will feel sympathy if/when it happens. Hence the reason for my post that I hope there is not the "brutal reckoning". That said, I do agree the excess liquidity and unsustainable house prices need to be reigned in.

I fear however that one thing has fundamentally changed and that is until real estate premiums are wrung out fully and it no longer is a commodity/investment but rather a place to live or to acquire to be a landlord, it will continue to exhibit volatility more so than in the past both on the up and the downside.

 

[cityboy]

Interested I don't get why you come in here day in and day out and post tacit denials? Do you own speculative RE properties?

Face reality. The bubble is going to burst very soon, actually, it probably starting bursting in July, but it takes a while for people to realize it.

It will be the mother of all crashes. My friend recently moved to Kitchener and bought a house there, 1750 sq ft for $330K. 0/35, 2.35% VRM. Yes, 0 down. TD. He makes 45k/year. He can't spend any money because it all goes to his housing costs.

Mark my words, RE is about to be slaughtered so hard it will be shocking. As Carney said, a 'brutal reckoning'.

Not a chance any bank would underwrite this. This mortgage would have to go to CMHC or GE for insurance. Your numbers are wrong or your friend used fake NOA's to get this mortgage.

 

[paperchopper]

Not a chance any bank would underwrite this. This mortgage would have to go to CMHC or GE for insurance. Your numbers are wrong or your friend used fake NOA's to get this mortgage.

TD underwrote it and naturally he had to purchase CMHC insurance since he was putting 5% down, but TD loaned him the downpayment through a LOC. He said they even offered him more than the house but he said no thanks. Apparently TD is allowing 125% mortgages now. Haha-- No no, there is no housing bubble!!!!

And FYI, the vast majority of new mortgages are 0-5 / 35 variable 2-2.5% mortgages, I believe back in 06-08 they were primarily 0/40's variable rates @ 1.75%.


ahhhhhhhhh, ain't subprime grand?

 

[cityboy]

TD underwrote it and naturally he had to purchase CMHC insurance since he was putting 5% down, but TD loaned him the downpayment through a LOC. He said they even offered him more than the house but he said no thanks. Apparently TD is allowing 125% mortgages now. Haha-- No no, there is no housing bubble!!!!

And FYI, the vast majority of new mortgages are 0-5 / 35 variable 2-2.5% mortgages, I believe back in 06-08 they were primarily 0/40's variable rates @ 1.75%.


ahhhhhhhhh, ain't subprime grand?

If he's using the 5% cash back from TD the rate is much higher like 5%.....and I seriously doubt CMHC will insure this mortgage with 45K income. A mortgage broker in my office is laughing at your claims......he says less than 200K for a 5% rate and $250k for 2.5% rate (which the bank can't qualify you for now based on the rules).

 

[daveto]

Taiwan?

http://www.chinapost.com.tw/taiwan-business/2010/10/08/275382/Taipei-price-to-income.htm

First, it is based upon a poll. Taiwan doesn't publish official house price statistics.

Second, presuming that people have been honest in their statement of income in the poll (and similarly have not inflated their house price), and presuming that the poll is 100% reflective of ALL housing and all people (doubtful at best), it reflects what the price to income ratio is NOW, and not that it has been above 4to1 for the last 100 years or so.

3.5-to-1 is not a number plucked out of thin air. There are basic mathematical reasons for it. Cost of money, disposable income after tax. Rental income potential (in relation to the renter's income).

Much of people's perception of real estate values derives from the experience of the past 30 years. But that experience has been skewed by the demographics of the baby boom, which applied high demand to low supply. Simply put, it takes time to build housing and infrastructure. This demographic influence is especially pronounced in a country like Taiwan on a relatively small island, and thus one of the highest population densities in the world. But eventually they will build bigger skyscrapers, and produce more units, and even in Taiwan the price will settle down.

ps. Thanks for your insightful analysis on the link you posted.

 

[paperchopper]

Ughm, almost everyone takes a 0-5 / 35 VRM 2-2.25%. The average downpayment on a house today is 7%. I said he got a 5/35, and TD loaned him the downpayment via a LOC. Not fixed. He got a variable rate - 2.35%. CMHC insures everything that comes before them, just like Fannie and Freddie did.... ?

 

[paperchopper]

Man housing is going to crash HARD. I hate to be someone who just bought a 350K / 600 sq ft condo in Toronto, LOL. That baby will drop easily $50K/year. So by year 3 you'll be at about 200K prop value & a 330K mortgage LOL. Maybe even worse, like those idiots in Miami and vegas who still have $300K mortgages on $50K condos LOL.

 

[cdr108]

Man housing is going to crash HARD. I hate to be someone who just bought a 350K / 600 sq ft condo in Toronto, LOL. That baby will drop easily $50K/year. So by year 3 you'll be at about 200K prop value & a 330K mortgage LOL. Maybe even worse, like those idiots in Miami and vegas who still have $300K mortgages on $50K condos LOL.

i don't know the Miami or Vegas market, but isn't that a complete exageration?
the most i heard according to Shiller-Case, is 70% lost of value from the peak.


i can see Toronto losing 25% for sure, but if the pendulum swings dramatically maybe 35-40% could be in the picture with $350 PSF being the norm for dt Toronto (excluding Yorkville PROPER).