Tuesday, 24 January 2017

CMHC Declares Overvaluation in the GTA

As home prices in the GTA went up by over 18% in 2016 compared to a year earlier, CMHC did something unexpected.

It said  in a recent report (pdf) that: "moderate or elevated evidence of overvaluation was detected in Hamilton and the GTA..., indicating that some of the price appreciation was not driven by fundamental factors."

Is this damage control?

Seriously, I really don't understand CMHC. Let me explain why.

Between 2013 and 2015 the average home prices in the GTA went up by 17%. And that's fine according to CMHC. Because apparently - "this substantial increase was due mainly to favorable economic conditions, population growth and relatively low mortgage rates, which increased demand for housing and drove up prices." In other words, substantial price appreciation before 2016 was due to fundamental factors yet, as CMHC said, current price increases were not only driven by fundamental factors.  Really?

Let me show you a chart.

Wednesday, 11 January 2017

Canada Resembles US before the Housing Crash in 2007?

Vice has recently picked up the following chart with regard to Canada's housing market.
What's interesting about the above chart is how it compares housing market statistics of the US at the height of its bubble to the Canadian counter part.

Housing prices in the US with regard to income were still cheaper during the peak of the bubble than they were in Canada in 2015. In 2007 the home price to income ratio was 12.5x in the US and 16x in Canada in 2015.

Canadians also withdraw more money from their homes than the Americans ever did. Home equity line of credit withdrawals accounted for 12% of GDP in Canada in 2015 while the same number was 4.5% in the US in 2007. Scary.

Tuesday, 3 January 2017

Is Canadian real estate going to crash in 2017? According to Motley Fool the answer is yes. The big reason for the potential crash, Motley says, is the fact that demand is drying up from buyers. Well, demand for housing was up and down for the past decade, so I don't really buy their reason.

Furthermore, Motley Fool writes that new mortgage rules will have a great impact on already stretched first time buyers. Hm, really? Mortgage rules have been tightened up before.  Not once, not twice, but many many times!

Finally, Motley mentions the possibility of mortgage rates going up. While true, people have been saying this since 2011! Who knows when the rates are going to go up by a substantial amount that would shock the waves through the housing market.

Anyway, why am I writing all of this? Simply to tell you that I have no idea whether the market is going to crash this year or not - I really don't!

The Toronto housing market went up over 20% last year. Interestingly prices tend to rises at the fastest rate just before the peak of the bubble. Is this a sign? I don't know. We can have another 20% increase this year, I don't know.

In any case Happy 2017 everyone!

Monday, 5 September 2016

Meanwhile In Vancouver

Is it finally happening? Is Vancouver's housing bubble the first to burst? Average price was down almost $300,000 this past August. Link to picture from REBGV. (pdf)

Wednesday, 21 October 2015

Toronto Condo Bubble Still Hasn't Popped

Just because the bubble hasn't popped yet doesn't mean that the bubble isn't real. For the past two years I've been writing articles on this blog about the subject, presenting detailed analysis of my own and of others.

Yet nothing happened. Prices didn't fall. In fact, they went up. During the past two years alone, condos in the city went up by 15% and detached homes increased by 23%. (comparing September 2013 vs September 2015).

You may justify detached homes going up more in price than condos due to the limited amount being built. For instance only 11 new low rise homes were sold in the 416 in August 2015 while 660 high rise units were sold.

Fine, limited new inventory of low rise units justifies the 8% difference in price between detached units vs condo units in the 416.

But why did condos go up by 15% ? Is it because we make more money? Is it the immigrants? Or maybe it's the green belt?

Or maybe it's just because real estate prices always go up!

Hmm, maybe I should jump in the market and buy. The average price of a condo in the city of Toronto was $418,603 in September. Five percent down would be under $21,000. But hey, all it takes is for prices to go down by 5% or more to wipe out my down payment. I would be down $100,000 if prices were to drop 23%.

Of course prices won't go down 20% overnight as it may take a decade or more. Bubbles tend to be remarkably symmetrical.

And if I were to choose to live in that shoe box for next 10 years, not only would my properties go down, but maintenance costs would go up, and never mind the opportunity cost of investing my original down payment somewhere else.

Point being, I am a renter, and will continue to be for some time.

Till next time.


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