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Toronto is in a housing bubble

[WHAT]

[SUMMARY] toronto-is-in-a-housing-bubble - ] by Ryan Lewenza(guest blogger) @greaterfool.ca - Lewenza shares his theory on why the TO market is in a bubble, compares it to other RE market bubbles and has a strategy for a good personal outcome

[WHY]

] when will it burst?

]

] how deep will the correction be?

] estimates 10 - 20 %

[WHERE]

] READ THE FULL ARTICLE

] http://www.greaterfool.ca/2017/03/04/its-official-its-a-bubble/

[WHEN]

] 2017-03-06

[EXAMPLE]

] Canadian home prices at nose-bleed levels, it seems like everything these days is in a bubble. This is particularly true for the Toronto housing market with average home prices up 22% Y/Y.
] As we examine in this post, the Canadian housing market is in one big fat bubble, and the real question is when does the bubble burst, and how deep will the correction be?
] In my readings and conversations with real estate agents and experts, it’s become abundantly clear of the speculative froth in the Canadian housing market, particularly in Toronto right now.
] The obvious data point to highlight this is the staggering 22% Y/Y increase in Toronto home prices. Over the long run, home prices typically appreciate in line with income growth and inflation trends. So a 22% Y/Y gain is incredible and completely divorced from the underlying economic realities.
] I think Toronto is also seeing a surge from foreign purchases lately, as a result of the 15% foreign resident tax in Vancouver. It’s no surprise that Vancouver home prices are down significantly following this new tax (according to the CREA, average Vancouver home prices are down 19% Y/Y to $878,242), and that Toronto is surging to new levels over the last 12 months.
] What scares the heck of me, beyond the 22% Y/Y appreciation, is the nature of sales these days. In speaking with agents I see a few clear and worrisome trends.
] Bully offers are aggressively high offers that bidders submit before the official offer date. This topic was addressed in a recent blog post from TorontoRealtyBlog.com, a great website for chronicling the insane Toronto housing market.
] The second sign of excess is the spread between offers, particularly the winning bid and other offers. Before the winning bid may have been $20,000, $30,000 or $50,000 above the next highest bid. Now the winning bid is often six figures above the next highest bid.
] I’ve been thinking a lot about the craziness that I’m seeing and it made me wonder how the run up in the Toronto housing market compares to previous housing bubbles. So I decided to compare the data of these housing bubbles and the results were shocking.
] So the conclusions from this chart are: 1) Toronto’s home price appreciation has been on par with other notable housing bubbles; 2) will Toronto’s housing market follow Japan’s and the US and peak soon as the chart suggests; and 3) if it does peak and rollover, will it track more like Japan (which today is still half of what it was worth at its peak in 1991) or will it follow more like the US, which declined 30% during the Financial Crisis, but has since fully recovered?
] I have to run now. I’m interviewing some real estate agents to give me a quote on what my home is worth. Who knows, maybe Garth has rubbed off on me and I can convince my wife to sell our home and lock in a massive profit. These type of gains don’t come along too often in life!

[HOW-TO]

]

[REFERENCE]

] SRC = x] # 5640 - best-of-hacker-news-2017-03-05 - (#) comments(#)

[RELATED]

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COMMENT MINE

Euro Observer

Again, I understand the need to be politically correct, but let’s be clear here:

A decline of 10-20 % will revert house prices to levels from 2016 in GTA. If that is the case, then all the talks about a housing bubble prior to that year 2016 would prove to be wrong.

Down the toilet goes the credibility of this blog. The facts:

1. The bubble was noticable in 2008 (nine eyars ago). It poped in 2009 but due to Flaherty’s poilcies 0/40 it got re-inflated, this time overblown on enormous scale.

2. If we look at any meaningfull stats:

– house price appreciation for SFH in GTA s not 200 %, it is 400-500 % for the last 15-17 years, a house in Toronto pucrased for 265 k in 1999 sold for 1.6 mil in 2017.

Mississauga jumped from 200 k to 1.2 mil for SFH./ 6 times!

– significant detachment of house prices from incomes for all intends and purposes, I abolutely don’t buy it that 10-15 % increase in income justifies 400-500 % increas in house prices.

There is no way even without meaningfull normalization of interest rates (and I don’t think that it is possible, just look at Poloz’s lame excuses not to raise the rates when employment numbers are good and economy is ‘somehow ok’) to justify SFHs costing 14-15 times income before taxes!

– None of the cases that you mentioned (Japan, US) had the equivalent of the CMHC insuring mortgages and encouraging lenders to underwrite syper-risky subprime mortgages, it it also absolutely clear that there is signifcant mortgage fraud in Canada and very loos lendind standards despite what you hear in the Mass Media or lenders selft-advertisements.

There was also signifcant foreign flippers activies and (suprise, suprise) there were even no records of these so they can be taxed!

-Mindblowing incompetence in the regulating agencies, BOC and crown corporaations (CMHC), no meningfull risk model.

Nobody can convince me that a bungallow bought for 400 k at Leslie and Shepaprd is now ‘worth’ 2.8 mil and will correct to 2.5 mil which is ‘OK’

In Ireland the prices corrected by 50-70 % and our bubble is arguable much worse. Any correction south of 50 – 70 %, 75 % + in GTA is meaningless in real terms (purchasing power, not nominal price), our economy simply can not sustain the bubble in eny form or shape any more.

So when coming with suggested ’10-20 %’ decline ‘from the top consider the above, including the real crash in Ireland.

Hell, real estate in GTA could even go further up from here another 10-15, event %, it is that insane.

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