The Risks Surrounding A Decade-Long Run-Up
The National Post reports from Canada. “Areas to the west are seeing the same listing crunch that has characterized Toronto proper, which means that a growing pool of buyers is competing for an inventory that can’t keep up with demand. ‘We’re setting records left, right and centre. I’ve never seen anything like it,’ says Rob Kelly of Royal LePage Meadowtowne Realty in Mississauga. ‘Right now the buyer pool is so large with such a lagging inventory that it’s creating these crescendos. When there is a listing, it’s gone within days and attracting six, seven, eight, 10 offers. The houses are selling for well over what is considered market value.’”
“Another of his recent sales involved a three-storey townhouse in Oakville that was priced $50,000 higher than what the last comparable unit sold for. On the day the sign went up, there were three offers and a deal was done for a bit over asking at $517,000. ‘Sellers love it, but it’s a little scary for agents like me,’ he says. ‘We don’t want it to be too exaggerated. We don’t want a correction.’”
From News 1130. “If you’ve been hoping to buy a single-detached family home, you may not be able to do it here in Metro Vancouver. Tsur Somerville with the UBC Centre for Urban Economics and Real Estate says he doesn’t see prices for detached homes going down anytime soon, since the inventory is shrinking to make way for more condos. ‘It’s sort of two choices. One is live in something other than a single family house, and that’s a function of what else is available. Or, go live somewhere else.’”
The Richmond Review. “Compared to a year ago, houses were selling like hotcakes last month, according to the latest figures from the Real Estate Board of Greater Vancouver. But look at another set of numbers, and the picture wasn’t as rosy for March. Fewer houses sold in March than February, continuing a trend since nearer the peak of the market in 2011. Sales of condominiums and townhouses remained about the same last month compared to February, with 75 townhomes sold for a median price of $518,000, down slightly from the 79 homes that sold for a median price of $525,000 a month earlier.”
“Condo sales eked up, to 119 sales at a median price of $338,993, up from 116 for a slightly lower median price of $341,415. Regionally, March’s sales were 17.2 per cent below the 10-year sales average for March. ‘You cannot have a record year every year,’ said local realtor Tony Ling.”
The Canadian Press. “Signs of a cooling in the Canadian housing market piled up on Tuesday as both the pace of housing starts and building permits slowed. On a seasonally adjusted annual basis, urban starts were down 18.8 per cent in March. On the same basis, multiple urban starts decreased by 25.5 per cent while single-detached urban starts segment slipped by 5.4 per cent. Meanwhile, the drop in building permits was due in large part to a 31.5 per cent drop in the value of building permits for multi-family homes — such as condos and apartment buildings — to $1.5 billion for February. Plans for single-family homes fell 12 per cent to $2.2 billion.”
“‘While the extent of the decline was indeed surprising, major month-to-month swings of this nature are not unprecedented, for multiple unit dwellings,’ TD Bank economist Connor McDonald said. ‘This report highlights the downside risks surrounding homebuilding after a decade-long run-up. Weaker construction activity, along with general fatigue in domestic spending, will inevitably put more pressure on net exports to drive the next stage of Canada’s economic recovery.’”
From News Talk 1010. “Royal LePage says that after a ‘remarkably drab winter’ for real estate activity, the final month of the first quarter saw inventory increase noticeably. ‘It appears that it took only the slightest hint of spring to bring home sellers out of hibernation,’ said Phil Soper, chief executive of Royal LePage.’
The Herald Business. “There is little question that harsh weather has helped to dampen enthusiasm for home buying in the Halifax area this spring. Some real estate agents have been telling me it has been one of the worst markets in some time. The number of homes sold this year though the Multiple Listing Service in Halifax by the end of February was down 20 per cent from the same period last year. There is a large inventory of homes on the market. As a result, it is not unusual for sellers to lower their asking price in an effort to attract attention from would-be buyers.”
“Guillaume Neault, senior market analyst with Canada Mortgage and Housing Corp.’s Atlantic Business Centre in Halifax, attributes the slowing pace of residential construction in March in Halifax to the slight growth in the municipality’s employment and population levels. ‘The numbers that we have so far regarding the resale market are tracking very much along the same pace as last year. We may be a few percentage points — between five and eight percentage points — below last year.’”
The Ottawa Business Journal. “The price of detached houses in Ottawa edged up as condo prices fell during the first three months of 2014, according to Royal LePage Real Estate Services. ‘It is common to see a slowdown over the winter months, but 2014 has been one of the most extreme that I have witnessed,’ John Rogan, broker of Ottawa brokerage Royal LePage Performance Realty, said in a press release.”
“Despite slow sales, the market for detached houses in Ottawa is still balanced, according to Royal LePage. It’s a different story for condos, however, where excess supply is pushing prices down. Condo prices declined 1.4 per cent to an average of $258,500 during the three-month period. ‘Our condo market supply has continued to see some overflow but we remain confident that these excess units will work their way through the system in the year ahead,’ said Mr. Rogan in the statement.”
The Western Star. “All across the country headlines are reassuring Canadians: Don’t worry, they say — the housing price bubble isn’t bursting yet. The Conference Board of Canada is reporting that the seemingly over-inflated prices charged for homes from St. John’s to Victoria almost reflect their actual values, so if they do start to decline, they’ll only drop a little bit. There’ll be no crash. The Conference Board is responding to various claims to the contrary.”
“Those other banks and agencies, the Board says, are making faulty calculations. Instead of comparing incomes and apartment rents to house prices, which produces a high ratio that suggests overvaluation, the Board’s release says they should compare them to mortgage payments. That shows a more modest ratio and, consequently, suggests that home-buyers are almost getting their money’s worth. However, according to one of the board’s senior economists, “The housing market may be undergoing a correction in some regions and market segments, but it is more likely to be a soft landing than a bubble bursting.”
“The housing market in Labrador’s Upper Lake Melville area could be described as one such segment, except that it is not included in the board’s study area. Nevertheless, residents will soon discover if they’re in for a soft or a crash landing, since the central Labrador bubble has already burst. All it takes now is to watch how much and how fast it deflates.”
“The fact that it has been pricked is hard to miss. After many months of trying to unload their investments onto a flattened market, several cash-strapped entrepreneurs have had to drop their asking prices, or even take their houses off the market altogether and offer them for rent. So now people are wondering just how far prices will drop. A local real estate agent recently told the local CBC that he, in essence, expects the ’soft landing’ promised by the Conference Board for the rest of the country, not the ‘collapse to a ridiculously low level’ feared (or perhaps welcomed) by many of his neighbours and clients.”
Mortgage Purchase Apps Fall Again; Near 20 Year Lows
http://my.chicagotribune.com/#section/-1/article/p2p-79863506/
Collapsing demand is the obvious result of grossly inflated asking prices.
Renting for half the cost of buying is the solution.
So price/demand l confirms a bubble. Is there any historical example of a soft landing from a bubble? Ever? Serious question.
Fair question but I don’t believe there has ever been a bubble of this magnitude with this much fraud in history.
“Areas to the west are seeing the same listing crunch that has characterized Toronto proper, which means that a growing pool of buyers is competing for an inventory that can’t keep up with demand. ‘We’re setting records left, right and centre. I’ve never seen anything like it,’ says Rob Kelly of Royal LePage Meadowtowne Realty in Mississauga. ‘Right now the buyer pool is so large with such a lagging inventory that it’s creating these crescendos. When there is a listing, it’s gone within days and attracting six, seven, eight, 10 offers. The houses are selling for well over what is considered market value.’”
Which means whoever gets to control the inventory in a buying craze gets to control prices, sort of like the Beanie Baby frenzy of a few years ago, or maybe de Beers.
I like it. This buying frenzy causes the value of the inventory of mortgages to reclaim some, or maybe all, of the values they lost due to the RE price crash. This may help take the “pretend” aspect out of the “extend and pretend” accounting environment most of the lenders have been living under.
I especially like the idea that realtors do all the work in persuading marks to commit maybe thirty years-or-so of yet-to-be-earned income to buying a property and then these realtors bring to me the mark for the signing-on-the-dotted-line ceremony.
The realtors do the working, I do the reaping. The realtors get paid a fee at the signing and then they are gone from the picture. I also get a fee at the signing PLUS I get a cut each time the mark makes a monthly payment.
Life is good.
Who does get to control the inventory?
And doesn’t that amount to price fixing?
And where in B.F.E. is Mississauga? Is that a previously undiscovered Canadian housing bubble capital?
Collusion seems to be perfectly acceptable, nay encouraged, if a company is in the financial sector. Look at the various bailouts over the years. Fed brings in big players, they agree on a strategy. That’s a datapoint which defines the playing field. Plus - the government doesn’t prosecute the big Wall Street players. Lanny Breuer and Holder said so themselves.
It wasn’t too bad when the only “price” that was “fixed” was the Fed Funds Rate. But now that the Fed is starting to prop up real estate prices, I am wondering where their mandate ends (if it does end!)?
It’s a credit orgy; a global daisy chain.
Arizona Housing Demand Collapses 19% YoY; Now At 10-Year Lows
http://www.zillow.com/local-info/AZ-home-value/r_8/#metric=mt%3D30%26dt%3D1%26tp%3D6%26rt%3D14%26r%3D8%26el%3D0
Rising price on tanking sales. I think we know where that leads.
It’s a beautiful thing.
Grand Junction, CO Housing Prices Dive 12% YoY; Demand Craters 26%
http://www.movoto.com/grand-junction-co/market-trends/
http://www.zillow.com/local-info/CO-Grand-Junction-home-value/r_31819/#metric=mt%3D30%26dt%3D1%26tp%3D6%26rt%3D8%26r%3D31819%252C120269%252C120135%252C28474%26el%3D0
‘Housing starts in Atlantic Canada are down a whopping 57 per cent for March compared with the same month in 2013. There was a year-over-year decline for March in total starts in Halifax of 65 per cent, from 295 to 102.’
‘About 17 per cent of the decline in Halifax was in the single-detached category, while 74 per cent came from a reduction in starts of multiple-unit (apartment and condominium) buildings.’
‘The Canada Mortgage and Housing Corp. said decreases in multiple-unit starts in urban centres is becoming a national trend.’
“Lower starts activity over the remainder of the year compared to 2013 is anticipated as builders continue to adjust activity in order to manage inventory levels,” Mathieu Laberge, the corporation’s deputy chief economist, said in a news release.’
‘The Realtors Association of Edmonton is reporting the average sales price for a home in Edmonton has risen to $432,000 – $6,000 more than the previous high set in May 2007. To compare, the average family home was selling for $386,000 in 2011.’
‘Association president Greg Steele says the inflated price tags aren’t slowing the city’s intense real estate market, however. House sales are up nearly six per cent this year already.’
Check out this guy:
‘Ike Glick recently put his home on the market and was pleasantly surprised to find a buyer within a week. “We were pleased to sell it but … [given the current market] we figure probably sold it sooner than we should have.”
You gave it away Ike! You shoulda’ waited a month or two and you could have bagged another 5k.
From the comments:
‘Is there any difference between used car salesman and realtors ?’
Another:
‘No one has missed a thing as the Edmonton market like most is ripe with speculators driving demand and no fundamentals to support it. Government of Alberta reports point out that in-migration into the province has restrained wage growth. Yet the reason for this “boom” and price increase is… you guessed it in-migration. When prices exceed wages and the ability to pay for it you get a “boom”…. while anywhere else you approach a bubble. Yet in a country where 69% of households already own their home that leaves relatively few people to buy. That said the average family income in Edmonton is about $92,000/year. Assuming no other debts at all and a healthy 10% down payment of $42,578.20 you can’t even afford the median house price. In fact according to bank mortgage calculators you could afford about $410,000. No shortage of available land to develop, wages in check, large percentage of existing home owners, and you get a boom. It is about time the media asks the realtors about the underlying fundamentals and not just print the gibberish they preach.’
And another:
‘We are so far from market fundamentals. People have forgotten that it wasn’t that long ago that 25% down and 25 year amorts was acceptable by lenders if one had stable steady income. And, one’s mortgage payment was approximately one-third of their income.
When 0 down and 40 year amorts were unleashed in 2006, that is the policy spawned a bubble market - it had nothing to do with oil prices, etc. Plus, the fact that CMHC and the Banks okay anyone who can breathe.
Totally agree with you - the market fundamentals are unsupportable.’
That said the average family income in Edmonton is about $92,000/year
That’s comparable to the Bay Area:
http://www.bayareacensus.ca.gov/bayarea.htm
See, the problem is that the market is so heavily distorted by Fed intervention, government intervention, hot money coming back to the US from China. Geithner’s focus was foaming the runway for the banks. The individual private buyer is not a concern. Why? Because he doesn’t connect real estate values with government and central bank actions. To the average private buyer, it’s all social-network information and momentum based.
If the time comes that it’s in the big players’ interest to leave the muppets holding the bag, then that’s what will happen.
See, the problem is that the market is so heavily distorted by Fed intervention, government intervention, hot money coming back to the US from China.
I thought this thread was about the Canadian market, where they have no MID and no 30 year fixed rate mortgages. And somehow, their market, even in their flyover provinces, is far bubblier than ours.
I’d be pretty confident that again, lenders are making money from loans that they don’t care about having paid back.
‘Local homebuilders slammed on the brakes last month, sending housing starts tumbling by 65 per cent from a year earlier. Canada Mortgage and Housing Corporation said only 180 new single- and multi-family starts were recorded last month in the Winnipeg Census Metropolitan Area (CMA), which includes Winnipeg and 10 neighbouring municipalities. That compared with 515 starts in March of last year.’
‘It was the third straight month that new-home construction activity in the Winnipeg area lagged behind the last year’s pace. It followed declines of 19 per cent in January and 10.7 per cent in February.’
‘The volatile multi-family-housing sector took the biggest hit last month, with the number of new starts plummeting by 86 per cent to 45 units from 323 a year earlier. Single-family starts were down nearly 30 per cent to 135 units from 192.’
‘The harsh winter put a freeze on housing starts in the Brockville area, while starts declined across Ontario as well. Canada Mortgage and Housing Corporation (CMHC) statistics show there was only one housing start during the first quarter in the Brockville census agglomeration, which includes the city and townships of Augusta and Elizabethtown-Kitley. That’s down from 12 starts for the first three months of 2013, added CMHC market analyst Andrew Scott.’
‘Brockville developer Michael Veenstra said poor weather was not the only factor driving down housing starts. “It’s also an employment situation,” said Veenstra, who believes a lack of employment security may be holding people back from buying homes.’
‘Veenstra, who soon hopes to start construction of one pre-sold home, said he has to clear out his inventory of built units before building any more new ones. He was uncertain about what the coming quarters may bring. “It’s definitely a late start. We’ve lost a lot of time and I don’t know if we’re going to make it up,” said Veenstra. “It’s not taking off like a rocket, that’s for sure.”
What defines a housing “start”? If it’s breaking ground, there is still snow on the ground in Brockville. If it’s getting the building permit, the late snow cover shouldn’t be a factor.
This is probably the bigger problem:
‘Veenstra said he has to clear out his inventory of built units before building any more new ones’
What defines a housing “start” ??
I would suspect its when the permit is pulled…That starts the clock…
And does bad winter weather some how make permits harder to pull?
‘The harsh winter put a freeze on housing starts in the Brockville area, while starts declined across Ontario as well.’
By contrast, Canada’s normally mild winter weather is conducive to high rates of housing starts.
‘What does it take to resuscitate financial life in middle age? That’s the dilemma of a couple we will call Sally, 48, and Bobby, 40, formerly artists in Britain and now parents of a seven-year-old daughter. For years, they lived in squats in East London, then came to Alberta in 2008. Then they put their life savings into what turned out to be a rotten investment. They have money abroad but can’t touch it, a modest income in Canada, and wonder how to get out of their trap of debt and low income.’
‘They have take-home salary income of $6,284 a month and receive $650 rent from a condo they own. Total income - $6,934 a month. That should buy a decent living in a low tax province, but their debts, a deficit in what they charge for rent and a big investment gone sour have drastically reduced their standard of living.’
‘The budget breaker is an investment in a B.C. rental condo that has lost 35% of its original price. The bargain it seemed at the time turned out to be a money pit.’
‘The mortgage has $106,000 due and, if they were to sell, it is unlikely that they would get a great deal more than $100,000, maybe $125,000 if they get lucky. They rent the condo for $650 a month, which is less than their $1,195 cost of ownership (mortgage, water, insurance, taxes and condo fees).’
‘To keep a tenant who is a friend, they charge $545 less rent than their own cost of ownership and operation of the unit. Thus they generate a negative return on a collapsed asset. The price drop has vaporized their down payment of $70,000. “That was our life savings,” Sally explains.’
‘The budget breaker is an investment in a B.C. rental condo that has lost 35% of its original price. The bargain it seemed at the time turned out to be a money pit.’
Precisely the end result of paying in excess of $55/ sq foot for new construction or $35/sq foot for resale housing.
It’s very kind of come-lately landlords to eat the capital losses on the overpriced money pits they buy in order to provide affordable rental housing for tenants.
‘Despite the glut of condo developments expected to sprout in the next five years, a new report states Toronto’s housing market will experience a “soft landing.”
“We see a soft landing even in areas of higher risk, like Toronto. Granted, there are many condominium units under construction in Toronto, but not all will be completed at once, and the rental market, for which many are headed, is tight,” the Conference Board of Canada’s report, released Wednesday, states. “The city has a decent economy and strong population growth.”
The one comment:
‘Ottawa condo specialist: Thanks for this fantastic article. It contains whole lot data which I need. I am bookmark your site by my next visit.’
You know it’s tough when the lead sentence has the word glut, and they have to spin it from there.
You know it’s really tough when two of the primary sources of ‘all cash foreign investment’ in U.S. housing since 2009, Canada and China, have massive gluts of overpriced real estate to work through at home over the next several years. We saw how a similar development in California circa 2007 led to the evaporation of liberated home equity for investment in Arizona, Nevada, Utah, Idaho, Washington and Oregon.
I fully expect the Canada and China real estate busts to have a similar chilling effect on the flow of “all cash” investment from those countries into U.S. residential real estate. Same dynamic as before, but this time on an international rather than intranational scale.
My favorite story about that was about a year ago. A UHS bragged to a reporter that 4 Canadians were in a bidding war for a Scottsdale house.
A side story to the “it’s the same bubble” theory is the Canadian central bank. Most don’t remember the downturn in Canada, as Mark Carney slashed rates and started printing money like mad. House prices turned back up and Carney was celebrated for having beat the great financial crisis. He was so successful that the Bank of England hired him as chief, where he promptly blew up London house prices.
It’s all so weird. Chinese investors leave many Vancouver condos empty. Canadians storming all over Florida, Arizona and Palm Springs using HELOC money.
Maybe some Canadian posters can answer this; why the fondness for condos? And as Canadians are generally polite, why the nastiness about house prices? Like this: ‘Tsur Somerville with the UBC Centre for Urban Economics and Real Estate says he doesn’t see prices for detached homes going down anytime soon, since the inventory is shrinking to make way for more condos. “It’s sort of two choices. One is live in something other than a single family house, and that’s a function of what else is available. Or, go live somewhere else.”
From the comments:
‘Why does the media give these people ANY time of day? Condos are rip offs! Strata fees should be capped at $100 because some people are paying over $300 which is in fact a car payment! Abuse everywhere in BC and nothing done about it.’
‘Why do any of us care what some guy at UBC has to say?’
‘Only people interested in facts would listen to this guy. Feel free to stay ignorant.’
‘His record of predictions is abysmal. He’s bought and paid for by r/e interests so what does that say?’
That phrase, like “subprime is contained,” should draw nothing but derisive laughter. Canada is going to have soft landing like in those old silent, pre-Wright Brothers videos of inventors and their attempts to design a flying contraption.
I have a relative living in Toronto who is leaving, on the ground that the city has become too expensive. She is an educated professional who has a job that pays well. The distortions caused by a global economy based on asset bubbles are creating a class of cities that almost no one can afford to live in. And we’re celebrating it.
“The distortions caused by a global economy based on asset bubbles are creating a class of cities that almost no one can afford to live in. And we’re celebrating it.”
So long as real estate and stocks keep going up, where is the problem?
http://www.huffingtonpost.ca/2014/04/09/toronto-vancouver-calgary-best-real-estate-markets_n_5120113.html?utm_hp_ref=canada-business
This stuff adds fuel to the fire.
http://www.huffingtonpost.ca/2014/04/09/toronto-vancouver-calgary-best-real-estate-markets_n_5120113.html?utm_hp_ref=canada-business
Reports like this add fuel to the fire.
Ceridian is a does a lot of IT recruitment. The job market is slow in Toronto.
http://www.torontosun.com/2014/04/09/multiple-stabbing-near-yonge-york-mills