Saturday, 19 April 2014

Latest Toronto Housing Market Stats - April 2014

The garbage that Canadian banks feed us is simply unbelievable. The above quote is the first sentence from a recent BMO report (go to page 6). By comparing apples to oranges the report tries really hard to paint a picture of a soft outcome. It says a 20% correction is unlikely under normal economic conditions. 

Without going further into details here's what you need to know: Canada's housing boom did not end in 2008 and prices have not kept pace with incomes. The reality is this:

toronto median home price, toronto median wage

Incomes have remained the same since 1997 while condos and freeholds almost doubled in price (adjusted for inflation). Now if you're like me and believe that inflation is understated then the above picture is even worse.

Emergency interest rates will certainly help to keep things afloat for now. How long will that last? Who knows. Things can still turn south whether interest rates rise or not.

Here is the same chart as above for the detached market segment.

toronto median home price, toronto median wage

Speaking of detached home prices, the average price for SFH in the City of Toronto went up by almost 20% compared to a year earlier. Yes, you've read it right - 20%.

You Cannot Make Money Flipping Condos in Toronto

Real estate agent David Fleming runs through an example of how you cannot make money flipping pre-construction condos in Toronto. Key points include:

1. Price. A decade ago you could go to a sales center and pay $300 a sq.ft., while similar resale units sold for $375 a sq ft. This is not the case anymore with pre-cons costing as much if not more than resale condos.
2. Upgrades. Precon condos are very basic and it is guaranteed that you would want to upgrade.
3. Occupancy. It can take a year for a building to be completely finished after you are given your keys.
4. Adjustments. On average you have to pay $10,000 in adjustments on closing. Hire a lawyer and cap them.
5. Legal Fees. Pay for review. Pay for closing.
6. Land Transfer Tax.
7. Realtor Fees.

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.



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