Thursday, 28 February 2013

Toronto Housing Bubble in 1989

Between 1985 and 1989 the average price of a house in the GTA increased by 113% in real terms or by $240,992 in today's dollars. Low unemployment of the late 1980s and large inflow of immigrants to the area helped to inflate the bubble. Some critics pointed to the fact that in the early 80s many women were still just entering the workforce and thus doubled the income of households by the mid 80s which further fueled the bubble.

However, one could argue that bubbled was fueled mostly by massive speculative investment. In late 80s everyone thought that the housing prices are going to rise indefinitely and that turned real estate into a compelling investment for everyday Joe. More people jumped into the market hoping to make a fortune causing an artificial increase in demand. Suddenly housing became scarce, which further increased the price. Developers decided to profit on this illusive scarcity by building condos left and right - many of them in downtown Toronto.

Wednesday, 27 February 2013

27 Condos on 27 Acres

Bloomberg just wrote an excellent piece on the Canadian real estate and mentioned about the story that I almost forgot about, Mr. Christie's Bakery.

From Bloomberg:

"Many of Canada’s construction workers have been toiling on Toronto’s condos. Lou Rivera wonders who will live in them. Rivera, 55, found out in November that property owner Mondelez Canada Inc.,"..." will close this year the Mr. Christie’s bakery where he has worked as a  production mechanic for 14 years and sell the land. The factory, which employs 550 people to pump out animal crackers and other snacks, may be replaced with 27 condo towers, documents filed with the city’s planning board say.

“What will happen, 550 people will be jobless,” Rivera says in the plant’s snow-covered parking lot, which already is hemmed in by new condo developments named Eau du Soleil and Ocean Club. 

“Will they work at the condos? No. Will they live in them? No.”

Tuesday, 26 February 2013

TD Forecasts 2.5% drop in Toronto's Home Prices in 2014

TD is joining the party of other financial institutions and predicting a correction in Toronto's real estate market. So far we have IMF saying that Canada's real estate is overvalued by 10% to 15%,  BMO suggesting a moderate correction in Toronto and Marc Carney from  Bank of Canada saying that more housing adjustment is to come in next the few years. But what does BMO mean by "a moderate correction"? And what does TD mean by saying that the housing market adjustment in Toronto is going to be more severe? TD forecasts that Toronto average price will drop from $507,000 in 2013 to $494,800 in 2014. Well, that's hardly a correction and it doesn't look severely worse from their forecasts for other Canadian cities. There must be something TD is not telling us, but why should they tell us? If they told us that the market was substantially overvalued, less of us would buy houses, which means less of us would get TD mortgages, which means less profit for Toronto Dominion. 

New Condo Sales in Toronto are Down 7.8%, Low Rise Down 66%

Last year it was the new high rise sales that crashed. Now it's the low rise sector that is in free fall. But first, let's take a look at condo sales.

New condo sales in the city of Toronto are down 7.8% in January from a year earlier according to Building Industry and Land Development Association. While this number may seem small, please keep in mind that in 2012 new condo sales went down by over 40%. Compared to the sales peak achieved in 2011, new condo sales are down by 39%. If we look how sales compare to a long term trend, new condo sales in the city are 11% below the nine year average. The purple square represents January, 2013.

Saturday, 23 February 2013

BMO says Canadian Housing Overvalued by 10%

BMO sees a 10% overvaluation of housing prices on a national level which is on the lower end of estimate produced by IMF which calls for 10% to 15% correction. During the last downturn in 1980s, prices declined by 13% throughout the country.

Prices for detached houses in Vancouver and Toronto are unaffordable says the bank. Homes are considered unaffordable when the cost of owning a house exceeds 39% of family income. The average detached house in Toronto consumes 43% of income. When the interest rates rises by 2 percent, last number jumps to 52%. If the economy remains weak, the bank expects a moderate price correction in both cities.

Tuesday, 19 February 2013

Toronto Condo Bubble is Bursting

Condo sales in the City of Toronto are down by 14.4% while prices are down by 8.4% ($32,549) in mid-February from a year ago, says TREB. Past Sunday Mark Carney made it official that the housing correction (crash) is underway and is going to last a few more years while he is on a five year vacation in England. So if this is just the beginning of the correction, I wonder how much more Toronto condo prices will drop?

Monday, 18 February 2013

What Does Mark Carney Think About the Canadian Housing Market (Bubble)?

A couple of days ago I talked about how IMF thinks that the Canadian housing market is over valued between 10% to 15% and now the governor of the Bank of Canada himself tells us what he thinks about real estate in his home country. 

Saturday, 16 February 2013

IMF says Canada Real Estate is Overvalued by 10% to 15%

At the end of 2011, IMF originally reported (pdf file) that the Canadian housing market is overvalued. Nothing has changed since than and if anything the problem just got worse. Recently IMF published another report (pdf file) in which it suggests that Canada's housing is over valued by about 10% to 15% with biggest over evaluation in Ontario. In this blog post I will summarize key points from the report and include a few scary graphs.

Friday, 15 February 2013

Canadian Housing Bubble Visualized

Are you surprised? Did you see anything out of the ordinary on that graphic above? Windsor, looks off, but that is no surprise as it is practically a Canadian Detroit. Alberta?, Well they've got oil. Sudbury's got nickel. But seriously, Regina and Saskatoon growing 175% and 153% in nine years while Toronto grew only mere 66%? Maybe I should start a blog about Saskatoon Housing Bubble, but too bad that somebody else already does it here. Now you may say that Toronto is not in a bubble judging by this graphic. However, keep in mind that between 2002 and 2011 prices went up by about $170,000 in Regina and by over $200,000 in Toronto.

Wednesday, 13 February 2013

7 Reasons Why Rising House Prices Are Bad

1. First time home buyers get more indebted.
The costlier the home, the bigger their mortgage is going to be. First time buyers are usually younger generation which are already debt burdened with student loans, so higher real estate prices aren’t what they need.

2. Closing costs become exponentially bigger.
You pay more to your real estate agents. Real estate agents usually charge about 5% commission. In 2002 you would of pay $15,000 in commission for average Toronto house, while in 2012 you would have to pay $27,000.

3. Existing home owners go further into debt.
Home owners start behaving irrationally through wealth effect (rising equity in their home) by engaging in extra consumer spending via the practice of mortgage equity withdrawal. While it is true some say this is positive for economy, which it sort of is in the short term, this is a not sustainable growth path as you can’t base countries economy on inflated house prices.

Monday, 11 February 2013

Toronto Housing Prices in US Dollars

        Some economists like Jeff Rubin believe that it was the price of oil that blew up the mortgage market in United States and caused the great recession. Whether you agree or disagree with him, Rubin is at least right about one thing - the fact that the rising price of oil has made the Canadian dollar a petrocurrency as Alberta's oil sends became increasingly profitable. That is, when the price of oil goes up, so does the loonie, and when the price of oil drops, the loonie drops as well. As the price of oil continued rising over the last decade, the loonie kept appreciating. In fact, the loonie has risen by over

Thursday, 7 February 2013

Who'll buy boomers' houses?

And to make things worse, 60% graduate with an average debt of $27,000.  Mired in debt, and working in dead end jobs, their launch into adulthood is being curtailed.  Some call them “the lost generation”.  But, it’s not only young people who may be lost.  If the next generation fails to gain a toehold into the economy, who’ll buy boomer’s houses?  Who’ll pay for social programs? Youth unemployment and underemployment is a ticking time bomb with serious consequences for everyone.

Tuesday, 5 February 2013

Toronto Condo Prices Fall 1.3%, Sales Fall 4.5%

The Toronto Real Estate Board just released January 2013 data and below is a sneak peak. The average price of a condo apartment in the City of Toronto is $340, 295, which is down 1.3% from 2012. In central Toronto areas, prices went down by 3%. In total there were 730 sales, down from 775 in January 2012. Active listings went up by 28% from a year earlier. Below are updated graphs.

Friday, 1 February 2013

Median Household Income in Toronto 1990 - 2012

Update: Toronto median household income for 2012 is $73,300 according to demographia (pdf). Below is the data from demographia. Note, that CMHC and Demographia have different values. 

Update 2: Time series data for average and median incomes in Toronto 1975-2013 see here. 

It took me awhile to find a good data set on a median income in Toronto and when I did I was scared by it. First I thought that the data was wrong as the numbers were not what I expected. The data was from CMHC (.xls). It summarized the real median household after tax income for metropolitan area of Toronto from 1990 to 2010. The incomes were in 2010 dollars. Note there were no data available for 2011 or 2012 yet. Below are the highlights:


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