October 16, 2014

When You Have A Lot Of Flippers, That’s A Bubble

The Toronto Star reports on Canada. “Canada’s housing market is in Goldilocks mode — not too hot and not too cold, except in Toronto and Calgary which are ‘bucking the trend of moderation’ now taking hold in major cities from Halifax to Montreal and Winnipeg, says a quarterly house price survey from Royal LePage. Low interest rates and an improving U.S. and Canadian economy are expected to buoy the housing market, says Royal LePage president Phil Soper. ‘Further, early indicators, such as declines in the number of new listings in some key cities, suggest that as demand slows, so shall supply, further protecting Canadian homeowners’ primary investment.’”

The Leader Post. “Average prices for single-family homes in Regina have fallen seven to eight per cent during the past year, according to the Royal LePage house price survey. The average price for standard two-storey homes decreased 6.9 per cent to $346,450 and detached bungalows decreased by 7.9 per cent to $307,250, the report said. Mike Duggleby, managing partner with Royal LePage Regina Realty said the Regina market is taking a breather after seven years of unprecedented price appreciation.”

“The inventory levels available on the market right now are approximately 40 per cent higher than usual, which has created a supply-demand imbalance and pushed home prices down,’ Duggleby said. ‘Strong unit sales this quarter have not been enough to support previous price levels.’”

The Ottawa Sun. “It’s a smorgasbord of a real-estate market as Ottawa enters its fall housing season, especially when it comes to first-time homebuyers. But one thing’s for certain, the number of units being sold shows a declining trend. In September, 5,139 units were sold, down from 7,172 in August. ‘In Ottawa, the demographics aren’t there to afford them,’ said Marnie Bennett, broker at Bennett Property Shop Reality. ‘So if I was the owner of a large property with a very big lot, I would start selling it now.’”

From Reuters. “While Toronto’s housing boom rolls on, some of the housing itself is falling apart. Glass panels have been falling off newly built Toronto condos. New buildings suffer from water leaks and poor insulation, making them ill-suited to Canadian weather. Real estate brokers are dealing mostly with 10-year investors who want to buy from a blueprint, double their equity during the five years of construction, and enjoy rental income and price appreciation for five more years before selling and investing again elsewhere.”

“‘It’s all about timing. We advise most clients to get out before that five-year mark,’ said Roy Bhandari of Sage Real Estate, which notched nearly C$50 million in Toronto condo sales in 2013, with clients typically from China, Eastern Europe, or the Middle East. ‘It’s the magic number because after five years the warranties are expired.’”

The Globe and Mail. “The CEO of a U.S. luxury home builder says his company considered expanding into Toronto’s condo market but was scared off by the high number of investors buying real estate in the city. Toll Brothers Inc. ’snooped around’ in the city about three years ago, but was concerned that 60 to 70 per cent of condo buyers didn’t plan to live in their homes, said CEO Douglas Yearley. ‘We’re always looking for new places to grow, but the level of investment, and not just foreign investment, is what concerned us,’ Mr. Yearley said. ‘We saw a lot of people buying with no intention of living there – they just planned to flip. When you have a lot of flippers, that’s when a bubble comes.’”

From MoneySense. “Solo-dwellers, as they are called, are top of mind for urban planners, explains Brian Jackson, Vancouver’s general manager of planning and development. That’s because almost 30% of Canadian homes have just one person living in them, according to 2011 census figures — a number that’s more than doubled since 1971. On a recent trip to Vancouver, I had the pleasure of talking to a few solo-dweller condo-owners—all of whom had independently bought into the thriving Vancouver market when interest rates were really low.”

“Unfortunately all three of these condo owners were still in the process of building their careers—a process that was forcing them to sell their units so they could pursue promotions. Despite their low monthly mortgage payments and good, sizeable initial downpayment, each solo-dwellers was faced with the prospect of losing money on the sale of their unit.”

The Financial Post. “It might be hard to convince some Canadians the end of the housing boom is near based on new statistics from the Canadian Real Estate Association which show prices still rising. But the growing consensus, even in the face of record valuations for homes in Canada’s three most expensive cities, is that prices will flatten out — a thesis even supported by one of Canada’s largest real estate companies. David Madani, an economist with Canada Economics who has called for a major correction, wonders whether some consumers are even prepared for a flat market let alone one that is falling.”

“‘What concerns me is some buyers seems to have this view that prices can only go up,’ says Mr. Madani. ‘People feel it’s a one-way bet. A lot of younger people seem to think that if they don’t get in now on the home ownership ladder, they’ll miss out. Some of these people will come to regret this decision. In the more expensive markets, it’s almost like a capitulation where they say ‘If I don’t buy now, I’ll never own a home.’ This is what happens in a housing bubble.’”

Bits Bucket for October 16, 2014

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