Wednesday, 4 December 2013
The Toronto housing bubble keeps on inflating!
Average home prices in the GTA rose by 11% in November 2013 as compared to a year earlier. Median price rose by 10.5%.
The average price of condo apartment was up by 10% in November 2013 compared to a year earlier.
MLS sales were up 10% compared to a year ago but down 10% compared to November 2011.
Labels: Toronto Monthly Stats
Tuesday, 3 December 2013
Royal Lepage says there is no condo bubble in Toronto - I say there is. In fact I believe there is a nation wide bubble in this country!
Royal LePage hired Will Dunning Inc. to produce the report called Sustainable Growth in Condominium Sector Supported by Market Trends and Demographics. In my view the report is a joke. Not only does it look like a sales pamphlet but it's also full of misinformation!
Let's start at the beginning.
Will Dunning says that "an essential element of a housing bubble is that demand becomes divorced from economic fundamentals and that has not occurred in the markets for condominiums".
Arguably, the most important factor underlying real estate evaluations is income. If both home prices and incomes went up fifty percent in a decade - there is no issue.
I would say that kind of growth is supported by fundamentals. Heck - even if incomes grew 20% and condo prices grew by 50%, with low interest rates, this would still be justified in my view.
But that is just not the case.
For instance, in Toronto condos rose in price by 55% between 2001 and 2011 (median condo price) when adjusted for inflation. During the same time span incomes had declined by 3%.
Mysteriously, the report - sponsored by a real estate firm - had no mention of this. In fact, Will Dunning Inc. did not even analyze the relationship between condo prices and incomes.
Instead the report focused on vacancy rates, demographics and price-to-rent ratio.
Monday, 2 December 2013
There is a reason why the subtitle of this blog says "Largest housing bubble in Canada... Except for Vancouver of course." You see in just a decade home prices in Vancouver have skyrocketed by almost half a million dollars while the average home price in Toronto rose by just over $200,000.
In Toronto (GTA), the 2001 average home price was $251,508. Ten years later, the average home price was $466,352.
But here's the interesting part.
When adjusted for inflation, the average home price in Toronto increased by $156,000 between 2001 and 2011. During the same time period real median incomes (adjusted for inflation) actually declined by $1,900 from $67,400 to $65,500. Bloody marvelous!
So whenever somebody tells you that home prices in this city rose because of rising wages you now know that they are full of sh*t.
Labels: canada housing bubble
Sunday, 1 December 2013
On November 1, 2012 it was announced that Mondelēz Canada would be closing the Mr.Christie's plant at Lake Shore Boulevard West and Park Lawn. Not only would 550 people be out of work, but rumour had it that the plant would be torn down and replaced by condos. Not just a few condos - 27 condos would be built on the 27 acres of land.
Residents in the area were adamantly against the condo development - understandably so. The proposed 27 condos would add approximately 25,000 new residents to the area. Such an influx of residents would be major stress on the aged infrastructure and limited transportation in the community. It wasn't too hard to see that this development would almost certainly become a condo ghetto in the not-too-distant future.
Just over a year after the initial announcement, there's some good news. The Mr. Christie's land will not be used for condo development, but instead it will be redeveloped for the purpose of creating employment. Finally, there's a glimmer of hope amongst the all the condo bubble doom-and-gloom news.
The City of Toronto's guiding principles for the Mr.Christie's plant include reuse of the existing structure/building, providing 1,500 new jobs and to create opportunities for the local labour market. For the sake of the City of Toronto, let's hope we see more decisions that encourage employment opportunities and cut back on the overdevelopment of condos in the future.
The full city report can be found here.
Saturday, 30 November 2013
In his recent piece Roubini pinpointed "signs of frothiness, if not outright bubbles" in Canada, Norway, Sweden, Switzerland, Finland, France, Germany, New Zealand, Australia, Hong Kong, China, and Israel.
"In most advanced economies, bubbles are being inflated by very low short- and long-term interest rates. Given anemic GDP growth, high unemployment, and low inflation, the wall of liquidity generated by conventional and unconventional monetary easing is driving up asset prices, starting with home prices"
According to Roubini, signs of entering bubble territory include rapid real estate appreciation, high and rising price-to-income ratios and high levels of mortgage debt as share of household debt.
Canadian home prices rose over 125% since 2000. According to OECD the price-to-rent ratio was 68% above the historical average while the price-to-income ratio was 32% above the long term average. 64% of all household debt was mortgage debt in Q2 2013.
Labels: global housing bubble