[yyzer]

Actually, I believe it is 100,000 people per year that move to the GTA...

And here is a positive news outlook, published by Royal Lepage today...

Canada house prices to rise 3.5 pct -Royal LePage

Thu Jul 17, 2008 2:06pm EDT
TORONTO, July 17 (Reuters) - The price of a Canadian house will rise only modestly this year, and home sales will fall from last year's record levels, realtor Royal LePage Real Estate Services said on Thursday.

The realtor said it expects the average house price to rise by 3.5 percent to C$318,000 ($318,000) by year end. But the number of home sales is expected to fall by 11.5 percent to 461,000 units in 2008 from a record-setting pace in 2007.

Phil Soper, president and chief executive of Royal LePage Real Estate Services, said Canada's resale housing market proved resilient in the second quarter, even as consumer sentiment worsened in the face of a U.S. housing slump.

"Our research indicates that all markets will continue to perform well, albeit at a tempered pace," he said.

The report, which surveyed 17 Canadian cities, logged lower house prices in Alberta's main cities of Edmonton and Calgary, two markets where an energy sector boom had sent prices soaring.

The central Canadian cities of Montreal, Toronto and Ottawa saw strong second quarters and prices are expected to rise, while St. John's, Newfoundland, is expected to remain an economic bright spot in Atlantic Canada.

Doug Porter, deputy chief economist at BMO Capital Markets, agrees there will likely be a modest rise in house prices, but the fallout from the U.S. housing market and high oil prices have put a "chill" in the Canadian market.

"I think it will be a struggle in a lot of cities to see price increases in the second half of the year," said Porter, though he noted there are still "pockets of very real strength".

The Canadian Real Estate Association said on Tuesday that sales of previously owned homes dropped 13.3 percent in the first half of 2008, while new listings jumped 8.1 percent.

The association called the shift a "balancing out" of the housing market, noting that it follows six years of double-digit sales growth, capped off by a record 2007. ($1=$1.00 Canadian) (Reporting by Jennifer Kwan; editing by Janet Guttsman)

 

[Dichotomy]

I don't believe we have any real idea how many people move to the GTA...just take a walk through Thorncliffe Park. The city is trying to get a handle on how many people are living in that area and don't have a clue.
But there are a lot of 'undocumented workers' there........shhhh!

 

[TrickyRicky]

I would take articles that quote future predictions made by industry representatives with a grain of salt. They are no more or less likely to be correct then any semi-informed impression. The only really relevent data being published by the real estate and financial industries is the historical data collected from previous months.

On population. As I have mentioned in several previous threads on related subjects, I find this indicator suspect. There is no hard correlation I have seen between population growth and future prediction of home prices. What I mean is that population growth can have a positive impact on real estate prices, but this is neither certain nor required. Population growth has been strong during the worst and best and most stagnant eras in home value appreciation here in the GTA. This is not to say that demographic shifts don't have a profound impact on real estate. What I am suggesting is just that in a given market observed over a fixed time frame, population growth in isolation is largely irrelevent as a predictor of home prices.

 

[izomax]

Here is why you CAN'T trust Real Estate Agents commenting on Real Estate industry.

Some famous quotes from Dave Lereah, National Association of Realtors (NAR) in the US:

August 2005: "There is virtually no risk of a national housing price bubble based on the fundamental demand for housing and predictable economic factors"

April 3, 2006: NAR: "We can expect a historically strong housing market moving forward, earmarked by generally balanced conditions across the country and fairly stable levels of home sales with some month-to-month fluctuations."

June 27, 2006: NAR: "Right now we are on course for a soft-landing in housing."

October 25, 2006: NAR: "The worst is behind us, as far as a market correction"

December 4, 2006: NAR: "Its important to focus on where the housing market is now, it appears to be stabilizing, and comparisons with an unsustainable boom mask the fact that home sales remain historically high"

February 15, 2007: NAR: "At least the bottom appears to have already occurred. It looks like figures will be improving"

June 6, 2007: NAR: "Home sales will probably fluctuate in a narrow range in the short run, but gradually trend upward with improving activity by the end of the year."

October 10, 2007: NAR: "The speculative excesses have been removed from the market and home sales are returning to fundamentally healthy levels"

December 10, 2007: "Although there could be some minor slippage in the first quarter, existing-home sales should hold in a narrow range before trending up."

I rest my case.

 

[Dichotomy]

That is the danger the entire economy is facing: as a general rule, the public can't handle the truth.
Prediction of doom can become a self-fulfilling prophecy. Look at the mess General Motors is in. Chrysler faced the same thing 30 years ago. Bad news makes investors nervous, which in turn only hastens more bad news. Since bad news sells papers, bad news is exaggerated often; however, if the experts consulted (in this case someone who has a vested interest in the real estate business remaining stable), then that expert is likely to gloss over bad news, hoping it will go away.

People tend to think like sheep and analysts are no better.

 

[northstar]

People tend to think like sheep and analysts are no better.

^^ This is probably the most accurate observation in this entire thread.

Personally, I tend to agree with the Royal Lepage article.
Increases of 2% to 3% per year are slightly below the current inflation rate. Therefore it doesn't seem out of line.

"National average" prices may go down, but "average" includes monster homes built in far-flung suburban communities. Energy prices, lack of public transportation amenities and general costs of upkeep are making these homes less affordable. This "averaging" fact seems to be ignored by those with a glee to see prices tumble.

Often, it seems those most anxious to see prices tumble are the same folks who sat by in the early 2000's "waiting for the inevitable crash". Meantime house prices continued to rise. Now most of these people are priced out of a basic starter home. Their option is to spend the rest of their life renting or move out to a suburban community with cheaper housing, albeit much less amenities. These people can't seem to come to terms with this fact; so they sit and wait for the "inevitable housing crash". But I'm afraid to say the days of buying a home in Toronto for $200,000 or less are gone... and like it or not - you missed out!

 

[dpylyp]

Eventual Crash

"When people are greedy, be fearful and when people are fearful be greedy."
Sage advise from Warren Buffet.

 

[DarnDirtyApe]

But I'm afraid to say the days of buying a home in Toronto for $200,000 or less are gone... and like it or not - you missed out!

What has happened to the median income over the past 10 years? Nothing! Why shouldn't houses sell for the same as they have before? Costs have certainly gone up, but a lot of that is because of the high demand for trades and record prices for resources. As the global economic slowdown continues and the pace of new construction slows, costs for the building industry will go down accordingly. As long as a builder can keep building profitably they will do so even with lower prices, and this will put downward pressure on existing home prices.

This has already happened in the U.S. People trying to sell their homes are being undercut by builders who continue to finish projects and sell them at whatever the market will pay (i.e., less than what existing owners paid).

Based on what they currently rent for, I see no reason why a generic 500-600 square foot condo shouldn't sell for under $200K.

 

[CGM]

^... You make a good point. The greatest threat to current owners are the builders. The profit margins are so great that if they start selling at 20% less, the will still walk away with huge profits. Why should anybody pay more for an existing project when they can buy a newer, better building for the same if not less? In the long run owners will still benefit, but it will be a number of years before selling the property can be a gain... so you better be ready for the long haul.
The only problem is that this prediction has been made for sometime and it hasn't happened... yet.

 

[cabbagetowner]

^... You make a good point. The greatest threat to current owners are the builders. The profit margins are so great that if they start selling at 20% less, the will still walk away with huge profits. Why should anybody pay more for an existing project when they can buy a newer, better building for the same if not less? In the long run owners will still benefit, but it will be a number of years before selling the property can be a gain... so you better be ready for the long haul.
The only problem is that this prediction has been made for sometime and it hasn't happened... yet.

i think most builders will tell you now that the margins are paper thin, with the increase in oil and the shortage of trades.

 

[CGM]

^... Somebody can correct me if I'm wrong... but I believe they sit on around 50%

 

[poppajojo]

Correct me if I'm wrong, but Toronto's population is increasing by about 200,000 per year.

You sure are good at really inaccurate "correct me if I'm wrong" statements, but I guess that's the easy way of putting out misinformation without any liability. According to StatsCan Toronto's population increased by 21787 from 2001 - 2006.

Anyway prices are up 1% in the 416 for the first half of July compared to last year. Getting close to the 0 to negative percentage territory. Inventory is also up 25% from last year according to the Toronto Real Estate Board website.

 

[Mike in TO]

^... Somebody can correct me if I'm wrong... but I believe they sit on around 50%

That's absolutely ridiculous - profits are no where near that, some builders have actually been taking loses on a few projects recently. And there are many more projects that are on the brink of being economically unviable as margins approach zero.

The greatest threat to current owners are the builders. The profit margins are so great that if they start selling at 20% less, the will still walk away with huge profits. Why should anybody pay more for an existing project when they can buy a newer, better building for the same if not less?

Builders are not going to start selling projects for 20% less (margins are far less then that - builders don't plan to construct condos at massive losses). They will take their money and invest it elsewhere or buy land and sit on it until the economy improves. If the market falters the result will be far fewer projects built, not plenty of cheap projects at 20% reductions.

edit: Also in suggesting 50% profit margins I don't think you understand the market. Competition is significant and in some areas fairly cut throat - anyone with margins over 20% is going to cut their prices to make their product more affordable to move units quicker. Sales have slowed significantly this year and the objective of developers often isn't the profit per unit, but rather to move product quickly - get financing, get shovels and the ground, complete the project and move on - it's all about risk management. Nobody wants to be trying to make 50% profit to have the guy across the road significantly undercut their prices - then they'll be stuck with tens of millions invested in a project that they can't move units on. Margins on most projects are fairly tight and getting tighter as affordability declines and sales decline.

 

[CGM]

^... Lets use 18 Yorkville as an example. The construction cost was $60 million... If we take a conservative price/unit average of $350,000 and multiply by 511 units in the building.. that's almost $180 million... Factor in land, marketing, etc... and that is still a substantial margin.
4 years ago you could buy a 2 bedroom condo for about $260,000 at Pinnacle Centre... now 2 bedrooms of the same size, in the new phases, are selling for $390,000. You can't justify that with rising costs unless we've had a 50% inflation... Builders have benefited greatly with the boom and they are not as poor as you might think... they have a lot of margin they are sitting on

 

[Mike in TO]

I'm quite familiar with the budget process for new condo development and while there are a couple buildings that do very very well, there are others that take losses or don't do so well - most typical projects lie somewhere in the middle. The profit margins you are suggesting are asumptions that aren't based on reality, we are currently in a climate of drastic commodity price inflation, increasing land & labour costs and increased levels of local taxation (development charges, planning fees etc) and in many cases increased levels of regulation (i.e. sprinklers are one examply of many and will increase hard construction costs by about 1%) - these factors are key drivers behind price increases we've seen that last few years. Toronto is not going to see 20% price declines any time soon, construction will simply come to a halt as the developers will not be capable of absorbing that kind of price decline.

With respect to your examples I'm not familiar with the land deal or costs behind 18 Yorkville, so I won't comment (Although $350k avg per unit may be a bit high, as the tower went into sales back in 2002 when avg psf in Toronto was below $300 - the average condo unit in the GTA sold for about $260k in late 2002, even it's yorkville border location wouldn't have increased that by $100k - although I could be wrong as I don't have 18 Yorkville specific figures) - the hard construction cost increases at the Pinnacle centre would fall roughly in line with the figures that you've posted - obviously they are still likely making a decent profit - I'm not disputing that point (well the 20%-50% figure, but not a decent profit below 20%), but ready-mix concrete, aluminum, steel, cooper and a variety of other materials that are significant components of condos have been increasing by well over 10% a year (I've heard from some suppliers that aluminum has gone up by over 25% the last few months, other sites are dealing with increasing levels of theft at night - people actually coming on site just to steal cooper due to it's inceased value). Soft costs have also been increasing, but not at the pace of the hard costs.