The Housing Bubble

The Calgary Herald reports from Canada. “Prospective Canadian homebuyers are more willing to enter into a bidding war this year for properties they want to purchase, says a new report by BMO. Mike Fotiou, associate broker with First Place Realty, said Calgarians were so determined to buy a home in February that nearly one in five paid above the asking price. ‘Of the 1,854 properties that sold during the month, 364 or 19.6 per cent of buyers paid higher than list price. Compare that to the 10.4 per cent of buyers from a year ago or the 6.1 per cent from February 2012 that paid above asking,’ Fotiou wrote.”

“Laura Parsons, mortgage expert with BMO Bank of Montreal, said the competition for real estate in Canada, particularly in hotter markets, can be fierce and turn into an emotional frenzy. ‘It’s such an emotional thing. When you see it, you get it. I remember the days when there were lineups of people behind each other. The minute you see that your heart starts to race and you want to not lose,’ said Parson of the Calgary market.”

The Financial Post. “Could developers faced with a glut of condominiums turn to apartments? Real estate brokerage Rock Advisors Inc. is predicting that the number of purpose-built apartments will grow in 2014 as developers look elsewhere for income. Derek Lobo, chief executive of Rock Advisors, says purpose-built rental apartments avoided the 2008 recession and continue to outperform all other sectors of the real estate market. He noted the 36,186 housing units started in Toronto were up from the month before and he says apartments starts have helped bolster the housing market.”

“‘The heated housing markets are why apartments will do better in 2014,’ says Mr. Lobo. ‘More and more Canadians are finding the high cost of home ownership isn’t what it’s cracked up to be. Even with condominiums, the cost of maintaining a mortgage and paying condominium fees presents an ownership premium of 10% over what it costs to rent an apartment.’”

From CBC News. “TD Bank economists Derek Burleton and Diana Petramala said people’s obsession with house prices in the Toronto area has obscured the differences between various subsections of the market: the 905 area versus the 416; detached houses versus condos; and new builds versus existing homes. ‘One market is facing too much supply, while another appears to be heating up,’ the bank said.”

“So many new condos are being built that the sale prices are being cannibalized by those that came before. The average price of a new condo is $545,000, TD Bank said. But prices for existing condos are much lower — $347,000, on average. Older condos are also generally larger — the average unit size in 2005 was 925 square feet, but had shrunk to 798 square feet in January.”

“The bank also sounds a modest alarm about the market for investors who rent out their units. Recent estimates are that 26 per cent of the condos in Toronto aren’t owner-occupied, but rather are rented out — at an average cost of $1,700 a month, the report said. Investors face more of a risk to flip and sell their units upon completion, and are less likely to ride out a cold market if prices decline. ‘It is likely that a good portion of these rented units will ultimately end up on the market,’ the bank said.”

From Global News. “TD Economics is basing the fresh assessment on the fact that a whopping 70,000 units are set to be completed this year and next – a number the bank calls ’striking’ — at a time when buyer demand for new units already appears to be ‘dwindling,’ the bank said. ‘While a majority of these units have been sold, roughly 9,000 of the units remain to be absorbed,’ the report said.”

“But even among sold units, some suggest an unknown number of owners or investors are facing challenges when it comes time to securing a final loan to close the deal and take ownership. There’s some emerging (if anecdotal) evidence that some buyers who put down a small deposit a few years ago on a yet-to-be built unit are now facing unforeseen problems securing a loan to cover the remaining balance now that lending conditions have tightened.”

“‘They put their deposit down four or five years ago and then they’re ready to register the unit and get a mortgage and they’re walking into tough times,’ a Toronto broker told industry website Mortgagebrokernews.ca last month.”

“Experts says a pronounced downturn in Toronto’s condo segment could have farther-reaching effects on the regional economy and beyond. With tens of thousands of jobs in construction and financial services tied to the market, the Bank of Canada has specifically cited Toronto’s inflating condo sector as a potential source of concern.”

The Metro News. “Unemployment in Toronto — at 8.4 per cent — is higher than in any of the main Canadian metropolitan areas reviewed by TD Economics’ Metro Beat report. Housing starts were down 30 per cent in 2013, according to Metro Beat, and they’re expected to drop another 20 per cent in 2014 and an additional 7.4 per cent in 2015. ‘The market is largely overbuilt … and there is a lot in the pipeline right now,’ said Sonny Scarfone, a TD economic analyst. ‘We can expect a pullback in construction as the market will need to absorb all the supply.’”

The Ottawa Sun. “Elizabeth Bannerman has heard all the statistics, the dire forecasts and the tempered expectations for the so-called ‘deep freeze’ in the Ottawa condo market. But as she prepares to place her two hotspot properties on the market, she’s undeterred. ‘Yes, prices have leveled out because of the overstock, but places that are well-maintained and priced positively are still selling,’ she says.”

“Sellers like Bannerman who snapped up properties during the record-setting condo boom of the last two years are having to work harder than ever to move their units, with the Ottawa market — once as stable as they come — now experiencing an almost unheard-of cooling period. Condo inventory is at an all-time high — one in five completed units is now sitting unsold — and a stagnant market, coupled with unprecedented uncertainty among buyers, is having a significant impact on prices.”

“Simply put, developers jumping on the condo boom bandwagon built too high, too fast, too soon. While developers are either slowing construction starts or shifting gears, a number of high profile dwellings are still in various states of completion across the city. That’s troubling for agents like Martin Elder of Keller Williams, who has been around the block long enough to recall when homes used to sell for under $20,000, yet still marvels at the developers ‘who have just flooded the market.’”

“‘The ones that have been newly built from Westboro to Beechwood, they’re still going up,’ says Elder. ‘How can these things keep going up?’”

“Elder currently counts a handful of clients who jumped into the condo market with both feet during the boom, only to be left with cold feet two short years later. ‘They got in for the right reasons, but life got in the way and now they have to sell, but they can’t sell. They’re expecting to recoup the price they bought it at, plus fees and what-not, but it’s just not possible. I’ve been telling them, ‘Let’s get used to this, you’re going to lose money.’”