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My friend likes to say, Toronto housing prices could collapse by 50% and my $400k dollar house in 2005 will still be worth over a million. I don't think there a

My friend likes to say, Toronto housing prices could collapse by 50% and my $400k dollar house in 2005 will still be worth over a million. I don't think there are a lot of folks that realize how much some areas of Toronto have increased over the last 15 years. It is not uncommon to have the a buyer from Asia purchase a house for 200-300k over asking and not even move in, or the buyer is a Chinese UoT Student and buys a 1.8 million dollar house. It is beyond insanity and even a crash won't bring it back to reality.

mabbo 6y ago
I bought a (rather large) condo in 2015 for just shy of $600k. In 2017, the same unit in my building on another floor sold for over $900k. 50% increase in value while we did nothing. That's not normal. That's a bubble. That said, the prices haven't gone up in 3 years now- no one is getting $900k for this unit anymore.
H8crilA 6y ago
> It is beyond insanity and even a crash won't bring it back to reality. You don't appreciate the power of "crashes" or multi year "slow bleeds". Ultimately housing prices always recovered to their inflation adjusted average, Robert Shiller wrote a lot on this topic. Both from being undervalued and from being overvalued. The only thing that's always unclear is the path. Note that this implies two exists from the situation, or a combination: CPI will go much higher or nominal housing prices will go much lower. 1970s saw the first variant, 1930s and late 2000s saw the second variant. Also, if you want to see true insanity compare Chinese big city apartment prices to salaries and CNY interest rates. That is true insanity. No other country comes even close to what's going on there (maybe 1980s Japan? I suppose it's close). It has a lot to do with chinese people having strong conviction in government's support of the market, kinda like the US equity market is now widely believed to be completely supported by whatever means will necessary. Time will tell how much such self-fulfilling illusions last.
- nostrademons 6y ago
  The inflation part is pretty key. $M2 has grown from about $7T to $18T, so if anything, housing prices have tracked monetary inflation. It's just that the CPI has severely lagged monetary inflation, possibly because of cheap food prices, cheap oil, cheap microchips, and cheap goods from China. There's a macroeconomic story for that: with roughly 80 million Millenials (in the U.S; ~3B worldwide) reaching homebuying age and competing for a housing stock that's not growing nearly as fast, the ability to buy a house moves up the income ladder, so that sellers can capture money from an increasingly wealthier homebuying population. Meanwhile, those ~3B worldwide Millenials are entering working age, driving the price of labor (and hence of anything built with labor, including food and manufactured goods) down. CPI of goods & non-professional services goes down, price of assets goes up. This demographic trend reverses itself in about 10-15 years as the comparatively tiny Gen-Z reaches homebuying age, but in the meantime there'll be an even bigger pop as late Millenials (1990-1998) reach homebuying age and there are nowhere near enough homes for them all. I'd also expect inflation to start showing up in the CPI as Gen-Z starts to make up the new workforce entrants, boomers start dying off, and hence the labor force shrinks and wages go up.
  - CountSessine 6y ago
    This demographic trend reverses itself in about 10-15 years as the comparatively tiny Gen-Z reaches homebuying age, but in the meantime there'll be an even bigger pop as late Millenials (1990-1998) reach homebuying age and there are nowhere near enough homes for them all. It's worth pointing out that in most developed countries (but not the US), there are far fewer millenials than there are boomers. Also, most residential real estate in developed countries is owned by boomers, and the oldest boomers (right now, this year, in 2020) are entering their final years (age 75). I think even within 5 years most mid-tier cities in the developed world that aren't hopelessly supply-constrained will see huge drops in residential home prices.
    - nostrademons 6y ago
      Life expectancy among the homeowning demographic (~top 3 income quintiles) averages about 85: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4866586/ https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4866586/ Barring things like a mass COVID die-off (certainly possible), I still think it'll be 10-15 years before we see a large transfer of homes away from boomers.
throw0101a 6y ago
If anyone wants to know about the last crash in Toronto in 1989: > Once adjusted for inflation you can see the real scope of the Toronto housing bubble of 1980s. Only in 2010, or 21 years later, real average housing prices reached the peak of 1989. * http://www.torontocondobubble.com/2013/02/toronto-housing-bubble-in-1980s.html http://www.torontocondobubble.com/2013/02/toronto-housing-bu... * https://betterdwelling.com/city/toronto/it-took-22-years-for-prices-to-recover-from-the-last-toronto-real-estate-crash/ https://betterdwelling.com/city/toronto/it-took-22-years-for... It took ~7 years for prices to bottom out before starting to rise again. Lately condo prices have been softening (supposedly due to Airbnbs folks offloading), but (semi-)detached houses are still going up. Rents have also been dropping due to Airbnbs giving up on 'short-term rentals' (read: mini-hotels) and switching to long-term rentals.
- jcroll 6y ago
  What can we learn from that bubble to help us tell whether this one is close to bursting?
  - hourislate 6y ago
    I don't think we can learn anything. The whole dynamic is different. Interest rates, BoC/FED Gov are too invested in keeping the market going to allow it to correct. People have stretched themselves to the limits with debt. Then you have incredible capital outflows from Asia just parking money in Canadian Real Estate. For ever distressed Canadian sale, there will be 100's of billions of foreign $$$ waiting to snatch it up. It is truly remarkable what a young Canadian faces today when it comes to enjoying what previous generations took for granted. A good job or career, a house or property, etc. It just isn't going to happen for the majority of them.
    - CountSessine 6y ago
      If this was really the case, wouldn't we expect large numbers of Canadian homes to be sitting empty? Or to have a rental market with high vacancy rates at the expense of a tight sales market? In Vancouver at least, we don't see either of those. But the population keeps exploding (2%/year for the metro area) and people keep protesting development. What's the most straight-forward explanation for this?
wolco2 6y ago
Toronto housing prices are still way lower than other comparable cities. The condo market will take a covid hit with airbrb rentals much lower but it is a great time to buy.
- jcroll 6y ago
  A condo? Houses are still insane
medium_burrito 6y ago
When out-of-area buyers are pricing out locals, that is a giant problem. Fortunately more remote work will mitigate this a little bit, as China presumably won't buy all of Montana or Wyoming or Nevada.

mabbo 6y ago

I bought a (rather large) condo in 2015 for just shy of $600k. In 2017, the same unit in my building on another floor sold for over $900k. 50% increase in value while we did nothing. That's not normal. That's a bubble. That said, the prices haven't gone up in 3 years now- no one is getting $900k for this unit anymore.

H8crilA 6y ago

> It is beyond insanity and even a crash won't bring it back to reality. You don't appreciate the power of "crashes" or multi year "slow bleeds". Ultimately housing prices always recovered to their inflation adjusted average, Robert Shiller wrote a lot on this topic. Both from being undervalued and from being overvalued. The only thing that's always unclear is the path. Note that this implies two exists from the situation, or a combination: CPI will go much higher or nominal housing prices will go much lower. 1970s saw the first variant, 1930s and late 2000s saw the second variant. Also, if you want to see true insanity compare Chinese big city apartment prices to salaries and CNY interest rates. That is true insanity. No other country comes even close to what's going on there (maybe 1980s Japan? I suppose it's close). It has a lot to do with chinese people having strong conviction in government's support of the market, kinda like the US equity market is now widely believed to be completely supported by whatever means will necessary. Time will tell how much such self-fulfilling illusions last.

nostrademons 6y ago
The inflation part is pretty key. $M2 has grown from about $7T to $18T, so if anything, housing prices have tracked monetary inflation. It's just that the CPI has severely lagged monetary inflation, possibly because of cheap food prices, cheap oil, cheap microchips, and cheap goods from China. There's a macroeconomic story for that: with roughly 80 million Millenials (in the U.S; ~3B worldwide) reaching homebuying age and competing for a housing stock that's not growing nearly as fast, the ability to buy a house moves up the income ladder, so that sellers can capture money from an increasingly wealthier homebuying population. Meanwhile, those ~3B worldwide Millenials are entering working age, driving the price of labor (and hence of anything built with labor, including food and manufactured goods) down. CPI of goods & non-professional services goes down, price of assets goes up. This demographic trend reverses itself in about 10-15 years as the comparatively tiny Gen-Z reaches homebuying age, but in the meantime there'll be an even bigger pop as late Millenials (1990-1998) reach homebuying age and there are nowhere near enough homes for them all. I'd also expect inflation to start showing up in the CPI as Gen-Z starts to make up the new workforce entrants, boomers start dying off, and hence the labor force shrinks and wages go up.
- CountSessine 6y ago
  This demographic trend reverses itself in about 10-15 years as the comparatively tiny Gen-Z reaches homebuying age, but in the meantime there'll be an even bigger pop as late Millenials (1990-1998) reach homebuying age and there are nowhere near enough homes for them all. It's worth pointing out that in most developed countries (but not the US), there are far fewer millenials than there are boomers. Also, most residential real estate in developed countries is owned by boomers, and the oldest boomers (right now, this year, in 2020) are entering their final years (age 75). I think even within 5 years most mid-tier cities in the developed world that aren't hopelessly supply-constrained will see huge drops in residential home prices.
  - nostrademons 6y ago
    Life expectancy among the homeowning demographic (~top 3 income quintiles) averages about 85: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4866586/ https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4866586/ Barring things like a mass COVID die-off (certainly possible), I still think it'll be 10-15 years before we see a large transfer of homes away from boomers.

throw0101a 6y ago

If anyone wants to know about the last crash in Toronto in 1989: > Once adjusted for inflation you can see the real scope of the Toronto housing bubble of 1980s. Only in 2010, or 21 years later, real average housing prices reached the peak of 1989. * http://www.torontocondobubble.com/2013/02/toronto-housing-bubble-in-1980s.html http://www.torontocondobubble.com/2013/02/toronto-housing-bu... * https://betterdwelling.com/city/toronto/it-took-22-years-for-prices-to-recover-from-the-last-toronto-real-estate-crash/ https://betterdwelling.com/city/toronto/it-took-22-years-for... It took ~7 years for prices to bottom out before starting to rise again. Lately condo prices have been softening (supposedly due to Airbnbs folks offloading), but (semi-)detached houses are still going up. Rents have also been dropping due to Airbnbs giving up on 'short-term rentals' (read: mini-hotels) and switching to long-term rentals.

jcroll 6y ago
What can we learn from that bubble to help us tell whether this one is close to bursting?
- hourislate 6y ago
  I don't think we can learn anything. The whole dynamic is different. Interest rates, BoC/FED Gov are too invested in keeping the market going to allow it to correct. People have stretched themselves to the limits with debt. Then you have incredible capital outflows from Asia just parking money in Canadian Real Estate. For ever distressed Canadian sale, there will be 100's of billions of foreign $$$ waiting to snatch it up. It is truly remarkable what a young Canadian faces today when it comes to enjoying what previous generations took for granted. A good job or career, a house or property, etc. It just isn't going to happen for the majority of them.
  - CountSessine 6y ago
    If this was really the case, wouldn't we expect large numbers of Canadian homes to be sitting empty? Or to have a rental market with high vacancy rates at the expense of a tight sales market? In Vancouver at least, we don't see either of those. But the population keeps exploding (2%/year for the metro area) and people keep protesting development. What's the most straight-forward explanation for this?

wolco2 6y ago

Toronto housing prices are still way lower than other comparable cities. The condo market will take a covid hit with airbrb rentals much lower but it is a great time to buy.

jcroll 6y ago
A condo? Houses are still insane

medium_burrito 6y ago

When out-of-area buyers are pricing out locals, that is a giant problem. Fortunately more remote work will mitigate this a little bit, as China presumably won't buy all of Montana or Wyoming or Nevada.