Wednesday, 9 April 2014

A Link Between Employment Growth and the Housing Bubble?

The burst of the Toronto housing bubble in the late '80s significantly amplified job losses during the early '90s recession. It took over two decades for the number of jobs in the City of Toronto to surpass a peak reached in 1989.

But of course much of the job growth can be attributed to the population growth. Between 1989 and 2013 the population in the City of Toronto grew by about half a million. On a per capita basis the number of jobs in the City of Toronto is still far less then during the end of the '80s.

Is it a coincidence that employment in Toronto peaked during the late '80s housing bubble and is now rapidly growing as we are in the midst of yet another condo boom? I don't think so. 

Sunday, 6 April 2014

Housing Delusion - Weekly Links

Houses: the greatest investment delusion known to man
The housing market is the greatest source of investment delusion known to man. As I said a few years ago, people are encouraged to believe in “money for nothing”. As house prices go up, they are led to believe that as a society we are richer and yet if no new assets are produced, clearly we are no richer at all. On the contrary, we would be richer if a prolonged and pronounced building boom caused house prices to fall.
For this you cannot blame Mr and Mrs Average, whether driven by greed or fear. This is the result of a massive failure of public policy: tight control of building land and massive subsidies to home-ownership, combined with a lax immigration policy. I am not saying that each of these is necessarily wrong but the combination of the three has been catastrophic – wasting resources, distorting the economy, leading to misery and frustration for millions of people and diverting their energies into the zero-sum game of climbing the housing ladder.
Indeed it is a failure of public policy. Current housing policy rewards those who borrow the most. The lower your down payment (sub 20%), the lower your mortgage rate. As Luke Kawa pointed out in his article, the Canadian housing policy is quite puzzling at the very least and irresponsible at worst.

Thursday, 3 April 2014

Toronto Average Home Price Up 7.8% in March 2014

Toronto home sales were up 4% in March 2014 compared to a year earlier. Compared to March 2012, sales were down 17%. The average home price in Toronto was up by 7.8% while the median price was up 8.2%. The current price appreciation rate is simply unsustainable and is bubble like. This won't continue indefinitely and. at one point, this will reverse.

Median home price growth in the GTA by market segment:

Detached homes were up by 8.6%
Semis were up by 11%
Townhouses  were up by 6%
Condos were up by  3%

toronto housing average and median prices march 2014

Months of inventory in downtown Toronto condo market hit a record level (HT Ben Rabidoux).

month of inventory condo downtown toronto

With a near record number of condos expected to be completed this year, expect the inventory to continue to rise. As the inventory continues to increase we will eventually hit a tipping point at which the price appreciation will reverse - just like it did in 1989.

Wednesday, 2 April 2014

Subsidizing the Housing Boom in Toronto

You might be renting a basement and thinking that you are not a part of the Toronto condo boom but yet you are - as you are subsidizing it.

Each time a condo tower is built, each unit must pay a developing charge. In November 2013 the fee was $8,356 for a one bedroom apartment.

The principle behind development charges is that "growth pays for growth" - so that the cost of growth-related infrastructure does not fall on the existing community in the form of higher property taxation or user fees. Development charges help ensure that municipalities have adequate funding to invest in necessary capital improvements in a timely manner so that average service levels do not decline as a result of growth.

Development fees are supposed to be set at a level that recovers the costs that new growth generates, but in the City of Toronto that is just not the case.

Tuesday, 1 April 2014

Do Real Home Prices Have a Substantial Long-Term Uptrend?

Most of the housing reports that downplay the risk of a housing bubble in Canada tend to base their analysis on just a few decades of housing data. But if you are a homeowner who plans to occupy a dwelling for the next 30 to 40 years, then such data may not provide a definite answer on how real estate prices actually behave in the long run.

If we look at the long term housing data (100 years +) then something unexpected emerges - in the long term, home prices tend to be rather flat.

Below are long term real housing price indexes for Australia, Norway, United States and Canada.


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