Canada's 'housing bubble' deemed close to bursting

[someone123]

Statistics like "percentage of homes sold for over $1M" (Calgary is number of homes) were probably chosen to make market changes look more dramatic than they are. Why aren't they giving us the median and mean housing prices?

It's easy to imagine a situation where the median housing price goes up marginally but it creates a huge increase in the number of $1M homes. Imagine if a bunch of comparable homes in a market sell for $950,000 one year and then $1,000,000 the next.

[caltrane74]

Canada has the 7th hottest real estate market on Earth

from MSNBC

http://today.msnbc.msn.com/id/471970.../#.T538m1Iqg1h

[Waterlooson]

Originally Posted by jlousa

Our numbers show that Canada will see a significant (up to 20% in some urban areas) but shift correction, but not a bubble burst. It will be started by the Toronto condo market but will effect the whole country especially recreational properties which could see a dip closer to 40%. Vancouver will get hit around ~25% on the higher end stuff and less on the lower end. The good news is it'll be short due to the US economy and Europe starting to regain steam in the next 12-18months and we'll be back to current numbers or above within 5yrs.

We already know that that forecast is wrong... prices have started to drop in Vancouver... not in the Toronto condo market.

[jlousa]

The average selling price has dropped in Vancouver due to the lack of movement in the higher end properties. There hasn't been a decrease in prices of individual properties yet. Hope you understand the difference, we will see it later though. We still believe the national correction will begin due to an oversupply of condos in Toronto and take the wind out of the market nationwide.

[Nouvellecosse]

Originally Posted by cornholio

You forgot one thing. Buying because a person thinks they will be priced out of the market at a future date, this is much much worse then speculating...

People speculate and prices rise > people begin to worry and that's when normal market cycles correct > foreign money keeps pouring in at record levels and does not act rationally as its intentions are different then that of regular people and speculators > prices remain stable and even continue to rise > some people and speculators begin to question their own gut instincts > some speculators start seeing the money they could have earned while some people begin to think they will be priced out of the market > not all but many people start acting irrationally and buying when they otherwise wouldn't and shouldn't > prices continue to have a schizophrenic upward trend > .........where does this lead when the influx of foreign money is reduced or even dries up, where does this lead when the economy stagnates possibly because of the same trigger that reduces the inflow of foreign money, what happens when all these things happen at the same time? We are in a bubble, will it burst in a month, a year, two years, 10 years? Eventually it will and likely sooner then later, and the later it is the worse it will be for everyone...and I am as certain as I can be that a soft landing will not happen, the market is not structured for a soft landing, only a crash will correct it. /rant

There's still a big difference though. The thing that makes speculative buying so bad and potentially damaging to the economy is that they lead to sudden crashes, ie bursted bubbles. If people invest in property for the purpose of flipping it to cash in on expected appreciation, as soon as they see prices start to go down they often panic and try to dump the property to stem their loses. And the more prices go down, the more people try to dump and in turn prices go down even more. But if someone who actually wants a home buys one sooner than they'd prefer in order to avoid being out priced, they aren't likely to dump their home back onto the market as soon as prices go down. They might be annoyed that they hadn't bought after prices went down, but they have the home they wanted and are living in it. So there's no bubble bursting.

The fact that they bought sooner means that same person won't be buying later, so their demand will be missing from the market later. This can cause prices to flatten or even drop, but demand naturally fluctuates up and down without indicating a bubble. Same thing with foreign money. If demand from foreigners drops for some reason (not sure why we expect it will but if/when it does), this is also simply a drop in demand.

Like I said, I have no idea if buyers are buying for sound reasons or not. There very well could be plenty of speculative investors out there. But without any way to know for sure, that's something I'd rather not speculate on.

[urbandreamer]

Jlousa is probably correct. Certain new downtown Toronto projects are apparently not selling well to investors.

While it's nice to see a bunch of new developers in town with interesting proposals, it's typically a sign the market top is about in. Like in the stock market, newbies rush to grab a piece of the pie only to be caught with the herd when the market turns.

Way too many projects being launched at the same time in the same area--for example the Entertainment District--for it to be sustainable imo.

[taal]

Originally Posted by urbandreamer

Jlousa is probably correct. Certain new downtown Toronto projects are apparently not selling well to investors.

While it's nice to see a bunch of new developers in town with interesting proposals, it's typically a sign the market top is about in. Like in the stock market, newbies rush to grab a piece of the pie only to be caught with the herd when the market turns.

Way too many projects being launched at the same time in the same area--for example the Entertainment District--for it to be sustainable imo.

I'm curious do you know which projects ?

I've heard that INDX, funky Picasso, Scott, have sold extremely well, while others in the area have not.

What's the key factor here ?

Also any idea how other parts of Toronto are doing.


Here's my guess: You'll see cooling downtown, but other areas, particularly the 905 (maybe NYCC and Y&E) will stay hot for a while longer.

[caltrane74]

The Twittersphere has been saying good things about INDX. Like it haa already sold 70% of the units. The buzz on 10 York has also been good. We'll find out soon enough, becauae that is likely the biggest project launching next month for Toronto/ and or Canada.

[Waterlooson]

Originally Posted by jlousa

The average selling price has dropped in Vancouver due to the lack of movement in the higher end properties. There hasn't been a decrease in prices of individual properties yet. Hope you understand the difference, we will see it later though. We still believe the national correction will begin due to an oversupply of condos in Toronto and take the wind out of the market nationwide.

I understand what you are saying as to the reason why Vancouver average prices have dropped... but they have still dropped, while Toronto condo prices have not.

So just when will we see condo prices in Toronto start to drop? What date do you have in mind?

[jlousa]

6-18months from now we will see measurable results (yoy).

[caltrane74]

Diane Francis going ass-first agian!

There is a secret futures and derivatives market financed by condo developers in Toronto & Vancouver??

Do DF's bosses check her brain to make sure she is not mentally ill?

http://news.google.com/news/url?sa=t...condo-bubbles/

[rbt]

Originally Posted by caltrane74

Diane Francis going ass-first agian!

There is a secret futures and derivatives market financed by condo developers in Toronto & Vancouver??

Do DF's bosses check her brain to make sure she is not mentally ill?

I don't get it. Why would the buyers lawyer allow the client to pay $150k on a unit when the value in their contract with the developer paperwork shows $100k. Second to that, the buyers lawyer who must be Canadian to access the title office, has a responsibility to ensure taxes are paid before the funds leave the country as the Buyer is liable for those taxes. If the buyer lawyer is cutting a cheque to a foreigner they better know why and what that tax liability is; or they risk being disbarred and lawsuit.


To get a mortgage for the full amount paid the Buyer needs to show the bank the agreement and will only be able to get up to 80% of the value shown.


The only way this works is if the Buyer is cutting a large personal cheque directly to someone out of the country before closing and they do not show that portion of the agreement to their lawyer. In this case, why isn't FINTRAC picking it up? The bank the cheque is drawn from must report it.

[kwoldtimer]

Originally Posted by caltrane74

Diane Francis going ass-first agian!

There is a secret futures and derivatives market financed by condo developers in Toronto & Vancouver??

Do DF's bosses check her brain to make sure she is not mentally ill?

http://news.google.com/news/url?sa=t...condo-bubbles/

Apart from the inflammatory vocabulary (she needs to help peddle the paper, after all), what part of the transactions she is describing does she have wrong, caltrane?

[caltrane74]

She is pulling all these facts out of thin air. There is nothing to back up the garbage coming out of her giant brownhole:

25% of Downtown Toronto Condo Buyers are foreign speculators?
Condo speculators are being financed through criminal activities ?

Comon man, what dumbass would believe a word that comes outta her?

[kwoldtimer]

Not trying to defend Diane Francis, just trying to understand what she has wrong.

[caltrane74]

There are some deep racial undertones to all her articles, especially when it comes to Chinese people. (maybe immigrants in general and how they aquire their wealth)

I also sense, deep hatred of Toronto.

[Martin Mtl]

Diane Francis hating Toronto ? Give me a break.

[caltrane74]

Record Breaking Toronto Condo Sales for the last quarter

http://www.marketwire.com/press-rele...es-1653564.htm

Read the report here:

- brokers are worried about media speculating there will be a crash

[telyou]

Originally Posted by rbt

If the buyer lawyer is cutting a cheque to a foreigner they better know why and what that tax liability is; or they risk being disbarred and lawsuit

And what does a real estate lawyer have anything to do with income tax?

Originally Posted by caltrane74

She is pulling all these facts out of thin air. There is nothing to back up the garbage coming out of her giant brownhole:

25% of Downtown Toronto Condo Buyers are foreign speculators?
Condo speculators are being financed through criminal activities ?

Comon man, what dumbass would believe a word that comes outta her?

Just because you clearly do not understand what type of transaction she's implying does not make it false. These types of transactions are occurring however, they are not illegal by Canadian law as far as i know. A tax lawyer would be better at answering this. And where on earth did she say criminal activities? Do you even understand this sentence "Many developers include in the agreement of purchase the right to “assign” this right to buy at a fixed price". This has been going on in Vancouver as well for a while. She's not implying drug money is buying Toronto condos. However, that type of transaction would be illegal in Australia and other nations.

[rbt]

Originally Posted by telyou

And what does a real estate lawyer have anything to do with income tax?

When a person buys a property they are liable for the capital gains of the seller if the government doesn't get their cut.

Since the buyer's lawyer represents the buyers best interests; one of the jobs a lawyer does before/at closing is ensure the sellers taxes have been paid or will be paid (person has residence in Canada).

Just because you clearly do not understand what type of transaction she's implying does not make it false.

I didn't mean it was false. I just don't see how it can occur without another party doing something either not in their own best interests or a chargeable offense.

"Many developers include in the agreement of purchase the right to “assign” this right to buy at a fixed price"

Sure, assignments are fairly common. I've even done 1 myself. What is described isn't a normal assignment because there is no papertrail with the buyer's lawyer (who typically cuts cheques) or with the bank (who wants to know why customer buying a $200k unit needs $300k).

Also, normally in an assignment the original buyer is responsible for closing the contract if the new buyer backs out. If there is no papertrail of the transaction then the developer is waiving the right to enforce that.


All I can come up with is the buyer pays for the difference plus deposit in advance out of cash without taking a loan. It's not very often that a person can come up with a 30% to 50% downpayment months to years before the closing date.