Good or bad, up or down, I don’t mind what the market does, but I’d like for the information out there to be credible!
Let’s take a look at some of the recent headlines and compare notes…
Let’s take a look at the headlines, shall we?
“Canadian Housing Boom Over, Economists Say” – Financial Post, 3/11/2013
“How To Lose Money In Real Estate” – The Globe & Mail, 3/14/2013
“Home Sales Have Plunged Almost 16% In A Year As Price Gains Slow” – National Post, 3/15/2013
“Real Estate Market Shows More Signs of Cooling In February” -Toronto Star, 3/15/2013
“Clouds Gather Over Housing Market” – The Globe & Mail, 3/16/2013
“Housing Market To Remain Tepid” – The Globe & Mail, 3/18/2013
And that’s just from this past weekend.
I’ve said it before, so I’ll say it again: I’m not a bull, I’m not a bear, and I work in today’s market, not yesterday’s, and not tomorrow’s.
But I feel as though many people out there want to see real estate devalued, either because they want to buy a bigger home for less, or because they’re renting, or maybe just because they’ve been predicting the real estate demise for so long.
A good friend of mine – an older guy, with far more life experience than I had back in 2003 when I started in real estate, told me then, “This is a bad time for you to get into the business. The market is about to drop 30-40%.”
That was in 2003. Yeah.
I hope by now, my readers know that I’m here to tell the truth, and nothing but the truth…..so help me, whoever…
So I want to look at these headlines, and some of the content of these articles, and perhaps dispel some myths.
These headlines, and these articles, were brought to the attention of my entire office on Monday morning at our weekly company meeting.
Our manager, who is always on the ball, and always trying to stimulate conversation and discussion amongst agents new and old, pasted all the weekend real estate articles up on the whiteboard like so:
So we went through these articles, one at a time, and discussed them amongst 40-50 agents.
“Agree or disagree with the content,” our manager asked us. The general consensus was “disagree,” with the overall message and theme, but that many parts of the articles held truth.
“Who do you think is reading this?” our manager replied. Everybody, we figured.
“Who do you think takes this as 100% fact?” we further discussed. And this is where things got interesting.
I’m not doubting hard facts like statistics, but rather the way the stats are being portrayed. For example, “Housing Market Down 16%” has a very different meaning to some people than others. The media often uses this to lead readers to think the prices are down 16%, when in fact it’s sales.
And so when we discussed, “Who do you think takes this as 100% fact?” We realized that primarily it’s two types of people:
a) Those who aren’t currently involved in the real estate market
b) Those who really want to believe it
Therein lies the problem.
At the time of this writing – 5:25pm, on Monday evening, I’m sitting at my desk and overhearing my colleague discuss a property on Edith in North Toronto. The property is listed at $799,000, has 13 offers registered, and will undoubtedly sell for more than $900,000. I’ll update the blog on Tuesday when I get the sale price. Wait, I can’t legally do that. Okay, so somebody go to www.tosolds.com and post it here. 🙂
My point is that those people in the market right now – those who are out there looking at properties, actively searching, and ready to buy, are experiencing something completely different from what the newspaper articles are portraying.
This, from the Globe & Mail:
The flicker of optimism that sparked in Canada’s housing market when January sales outpaced December’s has died out, erased by a notable drop in February.
That’s opinion, dressed up as fact. Is it not?
I mean, since when do January sales not outpace December’s, as they have in Toronto in 5 of the last 7 years?
And what’s this about a drop in February sales? Sales in Toronto are actually up by 32%, Feb/13 over Jan/13 (5759 vs 4375).
You can make numbers say anything you want, right? Well, so can I!
Also from the Globe:
The association (CREA) is now forecasting 441,500 sales this year, a decline of 2.9% from 2012. Just two months ago, it had said it expected 447,400 sales this year, and in September it had estimated 457,800 – a figure that it had already cut.
Well, that will teach us for hoping that CREA had a crystal ball! Shame on you, CREA!
The Globe article makes it seem like a forecast is carved in stone! And what’s the big deal about reducing that forecast by (wait for it!) a paltry 1.3%? Hey, if they reduced the forecast from 447,400 to 300,000, then we’d have something to talk about!
Also from the Globe:
CREA now expects a national average of $362,600, down 0.2% from last year.
CALL THE COPS!
A 0.2% drop in house values! Somebody, quick, put me out of my misery!
And don’t forget – this article was called “Clouds Gather Over Housing Market.”
Clouds? Really? I mean, I lost 90% of my money on Nortel Networks back in 1999, and those were some cloudy days! Soooo……what do we make of 0.2%?
Well, based on the national average of $362,600, that means the average home-owner is going to lose $725.20, which, clearly, according to the media reports, is enough to make us all jump off a tall building.
The newspapers use words like “plunge” and “plummet,” and those words can’t help but conjure up ideas and images in the heads of readers.
Consider the Chris Rock comedy sketch when he talks about the mis-use of the word “assassinated.” The average person, according to Rock, can’t be “assassinated.” Martin Luther King was “assassinated,” but the average man on the street “just got shot.”
So how can you make reference to a “plunging” housing market, when we see stats like a decrease of 0.2% in prices?
Or my favorite: “U.S. Style Housing Crash.” Ah yes, the “style,” as though this crash were some kind of dance craze, handbag, or pizza topping.
The people who believe this, and the people who write it, are one in the same: those who want it to happen.
At the end of our meeting on Monday morning, we tried to draw a general conclusion. And keep in mind here, we were salespeople amongst salespeople; there was nobody in the room that we had to lie to, so for the Realtor-haters out there, you’ll have to take me at my word.
One of the longest-serving agents in the room said this:
“Here’s what’s going to happen – this supposed slowdown is going to be a distant memory in April, May, and June, when offer dates, multiple offers, and bidding wars are back, and everybody is bitching about how hard it is to buy a house, and the media is glorifying the red-hot market because they write whatever sells papers, and the market-bears will just keep singing the same tune.”
Did anybody disagree? I think that question was rhetorical.
I share my colleague’s sentiments. I believe that a historical slowdown in March, which we see every year thanks to March Break, Easter, and Passover, will give way to a red-hot spring market, the way it always has, and always does.
“We sit here, every year, at this time, and have the same goddam conversation, as if we expect the result to be any different,” my colleague said.
Yes,one day, perhaps it will be.
But not today. Not with the lack of quality inventory on the market, not with stable prices (oh sorry – down 0.2% in Canada, but still up 2.1% Feb/13 over Feb/12), not with mortgage rates this low (I know they can go up, market-bears, butwhen will they?), and not with buyers salivating in the starting blocks like a bunch of thoroughbred horses ready to get out of the gate.
I’m not talking about what’s going on in Vancouver, and I’m not even talking about what’s going on in Ajax or Brampton; I’m talking about Toronto, more specifically, the GTA.
The one thing I will say about this market that I do agree with, is that buyers for condominiums have choice, and if they search long and hard enough, there truly are “deals” to be had.
Last Monday morning, I spotted two properties on MLS, both only an hour new to the market, and both, in my opinion, severely under-priced. I had a buyer into one property at 1pm with an offer signed, and a buyer into the second property that night at 6pm.
I sold them both, each of them for $20-$30K (prices were mid $300’s) under what I know them to be worth.
The bears will say, “It’s only worth what somebody was willing to pay for it.” Well, an authentic hard loft, 610 square feet, totally renovated, for $329K? My buyer and I both agreed that we would have paid over $350,000 for it. And my buyer is savvy; he’s lived in Australia, New York City, and in a host of real estate climates, and he’s seen 50 lofts in Toronto in the past six months. Fifty lofts, and yet we pulled the trigger in the living room of this condo only 90 seconds after coming through the front door.
There are deals to be had out there on condominiums, but they only come from knowing the market inside and out, being diligent, often patient, and above all – being ready to move. Unfortunately, you still have to sift through 100+ crappy listings at CityPlace, Fort York, and the like, although if you can spot that one in two-hundred, you’re doing something right.
But the newspaper articles never seem to differentiate between houses or condos, high end versus low end, Vancouver versus Toronto, or anything that doesn’t take the path of least resistance.
I can’t wait to see what the headlines read in May. Columnists will be crawling over each other to do a story on that happy couple who purchased their dream home in a 17-offer frenzy.
Hey, I’m not saying I like it. In fact, I hate it. I wish it weren’t so.
But I want people to know what’s really going on in the market, because they sure as hell aren’t getting it from the newspapers…
ScottyP
at 9:08 am
One of your best posts on the year so far. The media are shameless in their lack of thoughtful perspective.
I just wonder… if *every* newspaper is singing the same tune at the same time, could that be enough to trigger a lack of confidence in the market in its own right? (Despite the complete lack of evidence with which to do so.) Perception being reality and all that.
But most likely, those who are actually buying and selling property – those in the trenches, so to speak – are going to look at “warning bells” such as “CREA now expects a national average of $362,600, down 0.2% from last year” and smile the sad smile, knowing that the Globe is as full of hacks as any other daily.
dave
at 9:14 am
Ahem, the newspapers are telling the truth when they say market is rising, and they are lying bastards when they say it isn’t?
As for me, well, I’m a bear who thinks prices will inevitably correct to sustainable level for the long term efficiency and health of the Canadian economy. Its not a question of what I want, but what the Canadian economy needs. And I count in my corner the Economist, the IMF, Moody’s, Fitch, and others.
ScottyP
at 11:11 am
The rating agencies lost all their credibility in the 2008 financial crisis by giving AAA ratings to credit default swaps that weren’t worth the paper they were printed on. I wouldn’t want them in my corner if I were you.
As for the Economist, it’s true that they sounded the alarm about Canadian house prices being overvalued compared to rents, yes. Mind you, they sounded a very similar alarm in 2011, but I digress.
What the Economist failed to mention is that as long as interest rates remain at near-historic lows, owners are going to be able to continue to afford the mortgage payments on their “overvalued” homes.
So really it all comes down to interest rates, doesn’t it? And our esteemed Bank of Canada expects for the overnight rate to remain the same for “a period of time”.
Meanwhile, eight of the ten economists that comprise the C.D. Howe Institute have recommended that the overnight rate remain at 1.00% for another TWELVE MONTHS at a minimum. Even the IMF itself recommends that the central bank hold its rate at 1.00% until late 2013 at the earliest. (With friends like these, who needs enemies?)
And meanwhile, house prices keep on chugging along.
Until the benchmark rate has been raised a single quarter-percentage point, it’s silly to be even having this discussion. And even sillier for the newspapers to be bleating about “plunging” prices without having one shred of tangible evidence to back up their assumptions.
dave
at 11:43 am
Scotty, as I understand from your post you agree that house prices in Canada are overvalued? But that you position is that they will only correct when interest rates move from their current historical low?
ScottyP
at 12:17 pm
No one knows the future with any certainty, but I find it hard to believe that a massive correction is forthcoming during a period of ultra-low interest rates, yes. (As for a slight correction? Sure, anything’s possible. The BoC seems to be predicting that themselves. “Price stabilization” is the term that I for one am partial to.)
Any thoughtful counter-arguments are always welcome, of course. A much smarter person than me might be able to rationally argue that it is indeed possible for a large number of mortgage defaults, an onset of panic (or at least a general lack of market confidence), and/or a protracted selling spree to emerge during an extended period of historically-low interest rates. (People will point south of the border, but an apple never tasted like an orange in my experience.)
For all the “bubble mongers” out there, I have yet to hear one convincing argument in favour of such a hypothesis. And even if according to various indicators real estate is overvalued per se, a soft landing seems a lot more likely than a drop from the heavens – with the very monetary policy of our central bank reflecting this thinking.
dave
at 1:03 pm
Scotty, can you quantify the % range of your definition of a “soft landing”?
And have you read the TD report (calls for a 10% decrease in the next 3 years), or any of the many reports referenced by the media in recent months?
ScottyP
at 1:32 pm
@dave
I didn’t read the TD Report itself, but my understanding is that it’s calling for a moderate correction followed by a price rebound, averaging out to a 2% increase in housing prices over the next 10 years.
See? It all depends on which paragraph you quote. A 10% reduction in prices over three years? Or the long-term stabilization of prices over 10 years? And no matter how you read this report, it’s hardly earth-shattering stuff.
The report also states that overvaluation is closer to a modest 10%, as opposed to the 25%-75% you can find from other sources. (Side Note: The Chief Economist at TD himself is quoted as saying that he doesn’t think we’re in a housing bubble.)
In other words, the report is calling for a soft landing. Sounds reasonable to me.
Joe Q
at 2:05 pm
The issue with “soft landings” is that there doesn’t seem to be much precedent for them. As far as I can tell, at least in Canada, run-ups in home prices (above the level of income growth) are followed not by plateaus, but by decreases in the average home price.
The percentages can be deceiving, in any case, and depend on neighbourhood, housing type, investor participation, etc. During the 1990-94 crash / correction / whatever-you-want-to-call-it, average Toronto prices went down 25% but the condos took a 40% hit. IIRC.
ScottyP
at 3:08 pm
Fair point Joe Q. Except that in the last 60 years there has been exactly one “bubble-pop” in the history of Toronto real estate. So we don’t really have much of a precedent for anything.
dave
at 4:54 pm
Scotty, if I can summarize.
You think that 10% is a reasonable “soft landing” but that 25% would be an outrageous crash? I’m not intending to put words in your mouth. If you’d like to change the %’s, please do.
As you may guess, my point is that the two are not so far apart. Looking at this another way, if one had gone back to 2000 and put forth a prediction for house prices in 2018, most predictions would have been far below 2013 prices minus 25%.
Anyway, thanks for indulging my questions.
ScottyP
at 6:23 pm
Hi dave,
I dunno… there’s a pretty decent gap between 10% and 25%, no?
That said, I don’t think that 25% would be the end of the world. But it would be a heck of a bigger shock than 10%. More to the point, what I was saying was that the very report that you encouraged I examine seems to fall in line with where I think things are going to go: That housing is somewhat overvalued – but not to the extent that many would have us believe – and that while there is a high probability of a modest correction down the road, housing prices will stabilize over the medium- to long-run. Most importantly, the report seems to stress that we are not in store for the doom and gloom that so many supposedly reliable sources are speculating upon, and have been for the past half-dozen years while largely lacking the credible evidence or analysis necessary to back it up.
I’ll take things a bit further in saying that I don’t really see a forthcoming decline in Toronto house prices at all as long as people are able to continue paying their mortgages at a low rate of interest – after all, we live in a city with a finite number of single-dwelling residences available in a finite number of in-demand neighbourhoods, coupled with an ever-increasing influx of immigrants. And I don’t see the supply level of available single-dwelling residences changing any time soon, unless a quarter of the city’s homeowners suddenly decide to foreclose because they can’t pay a mortgage tied to historically-low interest rates. (That said, I do see more of an argument for the prices of low-end condos and lower-demand suburban housing going through a modest correction sooner rather than later, though again not to the extent that the doomsayers expect.)
And whereas the TD report seems to think the “near future” means the period between 2013 and 2015, I would probably delay that timetable by a year or two, given that monetary policy will likely remain unchanged over the next 12 months at a minimum – remembering also that even once the overnight rate does eventually rise, it will do so at a very methodical pace, and only as far as the BoC’s stated 2% inflation target will allow it to.
And should housing prices fall, the big question is: How much? The term “soft landing” gets bandied about a lot (and I’ve fallen into the trap), but perhaps a specific number would be more fitting.
So, how’s this? I’d be willing to say that the TD report itself would constitute a “soft landing”: Up to an 8% decrease in average prices over the next 2-3 years (I would stretch that to 3-5 years), with prices experiencing an overall increase of 2% over the next 10 years. The report also states that Toronto’s average home prices will continue to outpace the national average. I’ll then throw in the addendum that high-demand housing in Toronto will suffer no short-term decrease in prices whatsoever, but will fail to experience the same level of year-on-year growth that we’ve grown accustomed to over the past 17 years.
I hope that suffices. These expectations aren’t things I pulled out of my kazoo, they’re essentially what the BoC has detailed for our enjoyment in its monetary policy. And if the numbers provided in the TD report you recommended cannot be termed as a soft landing, then I don’t know what can be.
Joe Q
at 2:12 pm
“So really it all comes down to interest rates, doesn’t it?”
Interest rates are part of a bigger picture, I think — one that includes overall credit availability, CMHC rules, etc. For example, the 2.99% fixed-rate mortgages of mid-2012 are available again, but the rules of the game have changed and significantly fewer prospective buyers are able to take advantage of them now (at least to hear those in the industry explain it).
Clues about what the future holds likely lie at the intersection between Bank of Canada policy (which is necessarily “macro”) and CMHC rules (which only affect housing).
David Fleming
at 2:23 pm
@ dave
If you have time, I’d love for you to expand on what you’ve written about “what the Canadian economy needs,” and “long term efficiency and health of the Canadian economy.”
I tend to agree with you, in principal, but it depends on the outcome of a correction.
I agree that the long term health of the economy would benefit if real estate prices stopped rising, today, and remained that way for a decade. But as for a decrease in values? Does this help? I agree that more affordable prices would be beneficial, as they would help buyers take on less debt, but from an economic point of view (and this is where I’m out of my league, and I’m hoping you can shed some light), wouldn’t a decrease in house values hurt more than help? What if prices went down 20%, and suddenly people had more debt on the property than it was worth? If people were undewater, like so many of those in the U.S., would we see people walking away from their houses? Would we see four out of five properties on a street up for sale like in parts of Florida?
Wouldn’t this trigger a massive recession?
dave
at 5:06 pm
DF, in short, sometimes one needs to endure some unpleasant consequences in order to effect a long term healthy and sustainable outcome.
Slightly more long winded…
RE exists in a relationship with the Canadian economy. Ultimately, the value comes from providing shelter – physically and also socially and emotionally. And clearly that value cannot overstep its proportionate role within the economy. One cannot drive a house to work, nor can one eat it.
Gold as a lot of value. But I’m sure we’re all familiar of the analogy of two men on a crashing airplane, one with gold and one with a parachute. Ultimate, the value of something is the use one has for it.
In Canada since the 1994 price trough, the pendulum of RE prices has swung too far on its journey to the current price peak. It has therefore skewed decision making, and skewed the efficient deployment of human and fiscal capital. There are valid and logical reasons for this – mostly demographics and declining interest rates.
But eventually RE will revert to its long term mean in relation to income, which itself exists in relation to the size of the economy. The more that RE prices continue to rise, the more painful it will be when they correct.
However, I freely admit that the question is when, and how. Decrease 2% a year for 10 years? Decrease 1% a year for 20 years? Or decrease 5% a year for 5 years. Dunno.
David Fleming
at 10:28 pm
@ dave
Ah, yes, the old “It’s going to get worse, before it gets better.”
I had predicted real estate gains up until 2011-2012, when I finally got out of the boat and predicted stagnant growth. I figured 2012 would see 0-2% gains, and I was wrong. I predicted that again this year, and so far I’ve been wrong. But we DID see a true decline in prices in July-December last year, when we felt condos were down a solid 5-10%, and houses were probably down a few points. The only problem is, those losses have been made back, and then some.
The house on Edith last night was an outlier, and the price somebody paid is utterly insane, but my argument keeps coming down to supply and demand. Everybody in Toronto wants to live in a house, and yet there will never be nearly enough of them. I still fail to see circumstances when single-family homes in high-demand areas will drop 20%. Whether or not there’s an economic benefit, I just don’t see the $800,000 Riverdale homes being worth $600,000 in the next few years. Luxury condos? $2M new-builds in Leaside? Maybe. But for most of the single-family dwellings, the demand is too high.
Dan
at 1:08 pm
David,
You speak of demand being high, but what is really driving demand? I would say low interest rates and a generally bullish real estate market creating a generally positive perception of real estate as an investment. You can’t assume demand will remain constant, even in blue chip neighbourhoods. Sure, they will still hold their value over the long term, but a 30 to 40 percent drop is not out of the question. Especially when you consider that would take us back to 2007 prices. Not really earth-shattering over the long-term.
Rates of immigration were higher in the 1990s, but we didn’t see nearly the same growth in real estate prices. Also, the minute real estate shows any sign of a real correction, the available inventory will increase. I just don’t think you can assume that demand will always remain constant. Prices are too high and only justifiable given current market conditions. Whenever prime rates go up to even 4%, you are going to see a substantial correction across the board.
Kyle
at 2:03 pm
@ dave
“Also, the minute real estate shows any sign of a real correction, the available inventory will increase.”
This is a very bad assumption. Real Estate doesn’t behave like stock, perfect example was in late 2008 – early 2009, prices pulled back, but supply pulled back a lot harder, and consequently in the summer of 2009 GTA prices took off like a bottle rocket. Owners need more than a pull back in prices to want to unload their homes. If anything, when there is uncertainty they are LESS likely to sell, so long as they can continue to make their payments. Given that rates will rise gradually over the next few years, the risk of people not making their payments is a very low one. In fact the irony is that all of this uncertainty created by the press in Toronto is actually dampening supply as much if not more than demand. Just ask any real home hunter how much decent supply there is out there.
The rate of immigration isn’t the key determinant, household formation is and where on the income distribution those new households are being created. The number of households in the right tail has been growing very steadily in Toronto since 2003. And that has had a huge impact on real estate prices.
Kyle
at 2:04 pm
Sorry that should have been @ Dan
Dan
at 2:22 pm
Hi Kyle,
Check out this chart courtesy of Guava. Highest levels of inventory were in late 2008 early 2009, just following the financial crisis.
http://guava.ca/indicators.html
You will notice a sharp increase in available inventory along with a drop in overall demand. You are correct that this was a short-lived phenomena, because sales picked up again when it became apparent we were going to weather the economic storm, along with an appealing drop in interest rates. Also, there was about a 10% drop in prices that further fueled the demand come the spring. However, if interest rates remained at their late 2008 levels, I don’t think we would have seen the current levels of demand.
Also keep in mind that the government was able to fuel demand by lowering interest rates. Right now there no such tool at their disposal should an economic event cause a downswing in demand.
So should a similar event occur, or an increase in interest rates. I doubt you will see such an immediate recovery. Affordability is maxed out, and home ownership rates have hit an all-time high. Basically, there are few qualified borrowers who can afford to buy something that haven’t already.
Keep in mind, I sell mortgages for a living, so much of my opinion is informed from what I am seeing on a daily basis. People are overleveraged, and their is not justification for current home prices, outside of the low interest rate environment and low return on alternative investments.
George
at 10:08 am
Headline 1: “Home Sales Have Plunged”
Headline 2: “Home Prices Remain the Same”
Which article would anyone read? That’s the problem.
Geoff
at 10:40 am
You know it’s interesting. I really am having a hard time reconciling what I’m reading in the news here with what I’m seeing. In my neighborhood (don mills) which is a nice but hip part of Toronto, two houses just sold in 3 and 4 days for 99% of asking – and asking was a big $700K (we paid $450K in 2007). So I don’t know what’s going on, and the experts don’t either!
ScottyP
at 11:16 am
And the newspapers have no friggin’ clue. They make the experts look like Nostradamus.
Half an hour of research would have been enough to encourage them to shut their traps about “plunging” RE prices and re-focus their collective attention on Lindsay Lohan.
LL
at 11:14 am
Hi David! Just started reading your blog as I’ve recently plunged into the condo market (first time buyer). I agree that there’s still a few condo deals to be had, but they’re gone before I can even take a look! And I haven’t even had time to google info on the building or research the developer! I had no idea how much of a battlefield it would be. And this is even BEFORE I’ve made any offers…and obviously the really great ones will field multiple offers. I’m already exhausted and discouraged and I just started… anyways, I hope everything will work out in the end. Your blog helps a lot!!
moonbeam!
at 11:25 am
My pet peeve is when they use percent — as in: ‘16% drop/increase’– percent of what?? from when?? It’s never made clear, IMO,
Joe Q.
at 12:14 pm
Sensation and appeals to emotion help sell ads, as we know.
Newspapers and magazines sometimes make mountains out of molehills when there is any movement in the market (keep in mind that the headline is rarely written by the journalist who actually wrote the story) — although the Star used to run TREB monthly press releases almost verbatim, with no commentary.
On the other side, TV is saturated with shows about house-flippers, first-time buyers, renos, etc. and even the TV news media can get hoodwinked (as in the Vancouver Global TV fiasco from earlier this year). For obvious reasons, bullish commentary is much easier to find.
At the end of the day, stats and a long-term view matter more than month-to-month prognostication. Housing armageddon may not come this spring, but that doesn’t mean that there aren’t real concerns about the rate of house price increases relative to rents and incomes, the pace of new condo construction, etc.
flipside
at 1:08 pm
This is a bit of a paradox.
Those involved in the real estate market blame the media for stirring fear and ‘lack of thoughtful perspective’. Those who profit from RE industry on the other hand, will always tell you ‘there has never been a better time to buy’ no matter what. Reason? Agents, brokers and lawyers need transactions to get paid, so as an interested party, there is some(or a lot) of bias to what they say.
It comes down to:
if you own property or profit from the sector, you hope to Ghandi that the market is not cooling down so that you can enjoy making money on the sector. You wish that media would just shut up in hopes to avoid a panic.
If you’re looking for a buyer seeking entry into the market, you’re probably rubbing your hands in anticipation waiting, saying ‘soon, sooooon’. You wish that RE profiteers would just admit they’re full of it.
Both parties call each other liars, and so life goes on.
ScottyP
at 2:02 pm
I for one am not a “profiteer” in the RE market at all. I’ve made my bed and am happily lying in it; this is more of a hobby for me personally, on days off such as today.
And neither I nor the other media skeptics in this thread are calling the newspapers liars; just lazy and incompetent. There is a difference, albeit perhaps a marginal one.
As for DF, he seems pretty confident that he’ll still be assisting prospective clients with the buying and selling of their properties regardless of the direction in which prices trend from this point forward. I don’t know how long you’ve been reading his blog, but your assumption that it’s in his best interests to provide a consciously biased opinion or to mislead his readers is wrongheaded at best.
That said, DF does (rightly) point out that the bears have been singing the same tune for well over half a decade now, and little has changed. It’s a tired song.
AsianSensation
at 2:20 pm
Ever since the Globe and Fail went to a pay-per-use system, their headlines have become more and more sensational to drum up revenue.
Sadly what used to be my favorite daily read is inching closer everyday to being the SUN!
2sides
at 2:22 pm
It’s all relative – What is right is not always popular, and what is popular is not always right.
How timely this posting is…read a piece by Grant Williams (Mauldin Economics) yesterday on the US Economy and it begins with a few quotes from Einstein, leading into the infamous equation E=mc^2.
Grant goes on to devise his own equation: OS + ps^2 != R
that is, Official Statistics (OS) plus political spin (squared), do not equal Reality (R).
So true…
The reality being that housing prices are a (inverse) function of interest rates, and interest rates are expected to be low for some time…a long time…as there exists upward resistance limiting how fast and how high they can go in the medium term. When they do go up, they will do so gradually.
Ralph Cramdown
at 3:01 pm
David Lereah and much of the rest of the US real estate industry were blaming negative media coverage for their troubles in late 2006.
I’m of the opinion that the industry generally gets very positive coverage, much of it due to laziness. I don’t think anybody ever won a Pulitzer for writing up the local real estate board’s latest stats into an article — it’s done by the most junior reporter, who often just regurgitates the spin the board puts on the numbers. If the numbers are poor but there’s some way to spin them (fewer days, fewer weekdays, changed sales mix), they’re spun. If none of those reasons apply, blame the land transfer tax. If the numbers are good, don’t mention any contributing factors. Always highlight the best stat (sales, prices, YoY versus seasonally adjusted MoM). And compare last year’s numbers ex-cancels with this year’s cum cancels, which always adds a few percent to the YoY sales and prices comparison. Most of this spin goes straight into print.
And then there’s the hoodwinking. Articles about condo shoppers or buyers who turn out to be real estate agents, developers or financiers. Agents posing as foreign buyers. Properties for sale on MLS where the pictures are artist’s renderings of what could be built, and said pictures making it into print as supposedly extant houses. “Done Deals” type articles about bidding wars and over-asking prices which don’t disclose that the deal was done six months ago…
When things are going up, the industry is thrilled to get positive press four times a month (CREA, Teranet and twice from TREB). When things get bad, those numbers still print positive for 6-12 months because they’re YoY.
Somehow I doubt that agents spend every February stressing about whether buyers will come back. Most years it’s just naturally assumed. But we’ve been through a long boom, much longer than typical for real estate cycles. Some suspect that this can’t go on forever, so they wait on tenterhooks…
BillyO
at 7:42 pm
That house on Edith that David mentioned listed at $799K went for $976K (122% over asking). Here’s what it looks like:
http://mls-spotlight.agentshowing.com/vkczx6
derek
at 9:08 am
A good friend of mine – an older guy, with far more life experience than I had back in 2003 when I started in real estate, told me then, “This is a bad time for you to get into the business. The market is about to drop 30-40%.
That was in 2003. Yeah
I’m with your friend – I think he saw all the signs as I did, however we were too early. Artificially low interest rates and other strange happenings in the world have propagated this. Where else to put your money when the worlds biggest banks were crashing and the stock markets were rubbish? Investors will soon take their money out of property with no returns. A few more turns of the world and it might just happen.
Separately anyone wanting to buy a new condo – go have a look at how shabby they start to look after about 5 years of hard wear, particularly if you have renters in the building. Investment?
David Fleming
at 2:02 pm
@ Derek
You say “We were too early” as if that gets you off the hook. My point is that it doesn’t. Not even close.
The price of the house my friend was renting in 2003 has gone up about 80-90% since then. All the bears in 2003 should have been fired by their clients, if they were financial advisors, analysts, etc.
You can’t say, “Apple is going to go down like 50%,” when it’s at $400, then watch it rise to $700, then watch it fall to $400, and say, “See, I told ya!”
You can’t say, “The Leafs are going to win a Stanley Cup,” then wait 45 years, then say, “See, I told ya.”
If you think, TODAY, that prices are going to drop 10-20%, and they do, then good on you. But that holds no merit if you’ve been saying it since 2003.
Am I wrong here?
As for your comments about condos – I couldn’t agree more. There ARE good buildings out there, but they’re hard to find in the jungle of awful UrbanCorp-style buildings that don’t even need the 5 years you quoted, and are starting to fall apart before the paint is dry…
dave
at 3:49 pm
@DF, personally, I wasn’t a RE bear till 2008. But for those who were bears in 2003, in fairness they’ve been proven 90% correct in North America. I don’t think anyone forsaw Canadian house prices moving from parity with the US in 2003 to double the US prices in 2013.
And let’s not forget that while RE may have gone up great deal since 2003 in Canada (+80-90%), so too have various equity markets (S&P w dividends reinvested up 120%), Oil (up 300%), Gold (up 300%) (all figures prior to inflation)
derek
at 5:50 pm
David, I agree I got it completely wrong. If the governments had not stepped in with all this QE I may have been right. There will be a huge debt to pay going forward by the sheeple sooner or later though. The way to pay is though higher interest rates. I rambled a bit on Joey Blue Eyes post / response below but I think a few of those ring true. BTW I am a bit of a bear – probably due to a mostly Calvinistic, post war upbringing.
Joe Q.
at 9:58 pm
Were people really saying that Toronto houses were overvalued in 2003? On what basis did they make that claim?
I am genuinely curious, because as far as I can tell, price-to-income ratios were close to their long-term average back then (about 11x average personal disposable income — it had been about 10x from 1992 to 2002). Right now we are at about 16x average personal disposable income.
Joey Blue Eyes
at 3:12 pm
Saw the signs of what? You obviously did a poor job analyzing the situation. It was clear post TMT bubble that the Fed was on a massive push for reflation, and unfortunately created the housing bubble as markets overshot.
2003 was a fantastic year for the stock market, the S&P 500 rallied from 850 ish to well over 1000 pts, over 17%. As a discounting mechanism, that was TELLING you the story about how much liquidity was being poured into risk assets (including housing). So – your conclusions were wrong, and your ‘measuring stick’ seems like it was uncalibrated.
PS Interest rates (a hugely vague and useless term) are always ‘artifically’ impacted. Who sets the overnight rate (LIBOR)? Banks. Who sets the Fed Funds rate which affects overnight rates? Central banks. Who issues government debt? Treasury. Who buys and retires older, longer term debt? The Fed. Market participants may impact rates, but they do so in the context of what the main players have given them as rules to work with (ie everything I wrote above).
derek
at 5:38 pm
I was in the UK at the time and had been through the yuppie 80″s. When the banks were de-regulated in the 90’s people could borrow 9 times their salary – those were the signs I saw. Property lost 30 pc of their value in the late 80’s and logically thought this cannot last. So far London has fared well but boy the rest of Europe is faring pretty badly. A mate bought at the top of the market in Dublin (No one saw it coming) and is still seeing his place devalue 4 years later. Close to 50% under. Now I don’t understand why Canada and Australia are faring so well when the rest of the globe is going t it s up? A mate of mine in Europe expects the end of the commodity market sooner than later which might prove to be the catalyst? What I don’t understand is why a beautiful home in a mature neighbourhood in Dallas, Austin etc can cost 250 to 300 k whilst a pigeon hole in the sky costs 350 here in Toronto. I rented an apartment in Vancouver for a bit for 1750 a month – the proposed market value was 1.4 M. Surely as an investment you would not pay more than 350 – 400K. I dont know the slightest thing about finance and what you were on about re interest rates and thereafter, all i have is an interest which is growing. I do know that the interest rate in the UK got to 20 % in the 70’s and no one saw that coming. Again a mate of mine that works in New York for city bank as a senior analyst suggests he has no idea where to invest. Thanks for your comments.
David Fleming
at 10:07 pm
@ derek
No idea where to invest? I think there are a LOT of people with the same problem.
Call me old fashioned (and ridiculously conservative…), but I pay down my mortgage! My mortgage is at 3.39%, but when I pay it down, I know I’m making…..wait for it…..3.39%.
And I don’t own a single equity in my RRSP. Just bonds and income trusts. I’ll take a steady 6-8% return every year till the day I day!!
Sure, I’ll never own that hot tech/bio/gold stock that shoots up 1000%, but I’ll never be wiped out.
I don’t trust “stock brokers.” None of them know anything. It’s like trying to day-trade real estate, if a decade was a day.
I believe that the only people that get rich in the stock market are insiders, and institutions.
My old man sold our family home in 2007, and his stock broker (40+ years experience) said, “Put a third of your money in oil and gold, a third in financials, and a third in technology.” My Dad said, “Given my age, and investment horizion, I think I’ll keep my money in MONEY.” He didn’t invest a penny, and as ‘luck’ would have it, the stock market dropped 50% in the next 18 months.
Hindsight is 20/20, no doubt, same goes for real estate.
But I feel that real estate is something you have more control over, and the price flucutations are miniscule in comparison.
Gordon Shirbon
at 11:11 am
Good article. Journalists haveto meet deadlines with “stories”,mostly fiction. Real estate markets are fundamentally local so discussions on the average price in Canada are like dicussing average weather across the nation. Of some interest but will not tell whether to put on a parka or shorts. Doom and gloom sells papers.
The market looks good to me for the foreseeable future and look forward to a brisk spring.
Good agents sell real estate good market or bad. Everyone needs somewhere to live
One quibble. Both Ajax and Brampton are firmly in the GTA.
Jen
at 5:23 pm
Well said David. The media and their reports infuriate me. Especially because as an agent, I’d love for the market to correct! Instead, I’m in competition with 7 others on a mediocre bungalow at Keele & Lawrence that sells for low $600s?!?
Here’s another prediction…..after the media tries to garner new interest in April, May & June, with articles about the bidding wars being back (albeit 5 months after the fact), they will follow with “Market Plunges!!” in July & August. It’s called seasonality folks. But people fall for it every year….
AndrewB
at 11:22 pm
I have a few issues with the current pricing in the market for certain types of living situations.
1. New home builders for the most part are expecting too much money for sub-par building quality. Thankfully, people are smart enough for the most part to not pay ridiculous prices for new developments. This results in developers correcting their values and providing “discounts” which merely brings the unit down to the level it SHOULD be sold at anyways. There are also many condo developments rising too quickly, not selling as many units as they should, and this is because the pricing on new developments is just too much, IMO.
2. Which brings me to my second point. This applies to both urban and suburban living. Due to urban sprawl and land constraints, municipalities are requiring most land to be used in high rise development to meet population demands and increase population density. I’ll use Mississauga/Oakville as an example as I am currently looking in these markets. Why would I want to pay 350k for a decent sized condo, with a $300+ condo fee, when those two figures together at today’s interest rates allows me to carry an almost 450k mortgage on a house, which will by far appreciate with more value. My point basically, is condo living is not priced right in suburban settings.
I will say however, that my experience looking for homes is much different than what the papers are saying. The prices are remaining steady from what I see, however the really good homes remain on market less than 5 days from what I have seen. An example of this is one neighbourhood I am looking at in Mississauga; Churchill Meadows. Very high in demand, high prices and towns/semis/detaches do not stay long on the market.
jeff316
at 9:47 am
Condo living isn’t priced in accordance with single family housing in most locales because, by-and-large, the consumer pool for SFH vs. condos don’t overlap. If you can afford a 450 000$ mortgage, you’re not the person those condo developments are after so the link between the two pricing ‘schemes’ is tenuous.
AndrewB
at 10:44 pm
I think my point still remains though.
In the suburbs, it is hard to forego a car while still living in a condo. An example of this is the plethora of condos around Square One. A one bedroom should run you a nice 350k for a decent sized unit. Now let’s tack on the maintenance fees. We’ll assume 350 a month, which is pretty average. At current interest rates, it’s roughly 3.50 – 4.50 per $1000 in terms of monthly carrying cost. So effectively, that $350 a month could realistically net you around 100k extra on your mortgage, for the exact same amount of money. Which of course, let’s you buy a really nice townhouse or semi in many areas of Mississauga, including around Square One. Where is the value of condo living in the suburb then? Surely I’d take the house over the condo, even if it was too much space. Demand for SFH will always outstrip a condo and will always be worth more. That’s why I don’t understand the pricing schemes of condos in the suburbs.
In Toronto, it makes perfect sense. One could theoretically forego a car and walk/use TTC for most needs. Also the fact that SFH in Toronto will be out of reach price-wise for the majority of people living in the GTA due to how rapidly they have inflated.
derek
at 11:57 pm
Aye completely agree, in Toronto Condo land you have to put up with the screaming louts and ceaseless fire engines making their way up King Street et al. Call me boring but I know where I would rather live and then dip my toes into once in a while. The Condos are generally not sized and constructed to suit a long term resident or create a neighbourhood as such. Im hearing that even the illustrious Shangri La are having to reduce rental rates considerably. Toronto will end up paying a price for all this rushed, un thought out development. Right, I’m off my soap box.
mickey moree
at 6:36 pm
House sales have collapse significantly since 2005 based on collapsing employment incomes. Most of the detached house sales in the GTA are from foreign individuals who are not employed in the GTA.The last great property crash occurred in the GTA in the early 90s due to the free trade depression. Many people fled from the GTA and retired at that time. This vacuum has been filled by recent “third world” immigrants now earning much less income. Since then we have had the tech wreck crash of 2003 and now the great depression of 2008. Good luck on paying the high cost just to hold these properties.
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at 1:54 am
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