Thursday, December 30, 2010

Toronto Debt Crisis and Condo Bubble

Scarey headlines topped the newspapers this year, The Montreal Gazelle adds a year end reflective; That there was never any reality for all the bubble and housing price level concerns that dominated through out the year.

It lays the commentary directly attributable to one person.

..that Canada could be headed into the same kind of disastrous real-estate bubble and meltdown that we saw right across the border.

And a superficial look is just what this issue got. There was never a solid basis for the scary speculation, but it just kept bubbling up. Serious Canadian media, including Toronto's Globe and Mail, made housing-bubble headlines into a staple. Below the headline, there was usually an acknowledgment that there was no evidence of anything more than a hot market, but the scary headlines didn't stop.

Even big American newspapers that usually give Canada about as much coverage as Iceland became interested. The Wall Street Journal ran a front-page story in February under the headline Housing Rebound in Canada Spurs Talk of a New Bubble.

Where was the talk coming from? The most prominently quoted source wasn't an economist or a real-estate expert; it was Garth Turner, a former politician who had been promoting a book predicting a housing collapse.

I have been reporting a single fact, yes prices are increasing, so are insurance, food, clothes, movies and gasoline prices, yes everything, the term is Inflation. IMHO prices have increased a few percentage points above the rate of inflation for the last 40 years. Inventory levels for homes has been steadily decreasing in an ever expanding (GTA) city. Month over month stats show we will again be in a Seller's Market in the spring of 2011. There is no bubble if there is no excess inventory supply.

Banks talk about debt levels of families being at an average of 150K with a mortgage rate of 2%. This means the [HELOC] home equity line of credit most parents use to fund their vehicle purchase and their children's education average 600 per month plus what ever debt repayment plan they select. They also talk about the fact that one third of Canadian home Owners are debt free. CAAMP Canadian Assoc'n of Accredited Mortgage Professionals

Seniors will continue to "nest egg" their only primary asset that has a return on investment of approximately 4 - 5% annually. Liquidation of these assets into cash would create a taxable income stream with interest of less than 1.5% annually. Dipping into the principal amount of their nest egg every month for rent would erode their investment. My conclusion is that seniors are worse off by selling out. Garth's recommendations to invest the money into stocks and mutual funds places the principal at risk is [his] subjective opinion. These are mine; You need a place to live. Why pay rent when you can leverage your downpayment and pay a similar monthly amount and gain equity tax free.

Monthly statistics are published by the Toronto Real Estate Board and their market watch; I crunch these numbers further for the west end to provide you with an absorption rate of homes for sale or conversely the number of months available supply. With the reducing inventory throughout 2010 we will be back in a Seller's market as soon as we start after the New Year.

What are your thoughts? Where will our market go in 2011? Immigration to Toronto and the Golden Horseshoe continues; for jobs, education, security, political and religious freedoms and the right to raise your family in a safe environment. Our employment rate exceeds 90%.

..but don't sell books, I sell places where you can live.

1 comment:

arrielle p said...

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