Monday, February 13, 2012

Toronto Bubble Risk Naysayers Collected

In one handy reference guide from Bloomberg.

Toronto Bubble Risk Topping New York in Condos
Canada’s housing market is about 10 percent overvalued, with inflated prices primarily in Vancouver, Montreal and Toronto, [Sheryl King, an economist with Bank of America Merrill Lynch] said in a telephone interview. “We would call it a bubble,” she said.
10%? The median is already down 4%. Does that mean Toronto's market's already 1/3 of the way to the bottom? Have you noticed that Edmonton, Calgary, and Victoria have already fallen at least that far but somehow you didn't mention that they were overvalued in the first place.
A record 27,504 condo units in the City of Toronto were under construction at the end of last year, according to Canadian Mortgage & Housing annual data, adding to the city’s total of 199,000 units.
“If builders stopped building today, there’s five years worth of supply that is about to be delivered, relative to what normal population growth is,” Bank of America’s King said.
But it's only 10% overvalued? And downtown Central Toronto condos have already fallen 7%. Where in the world did you get that number?
Banks are also cutting their funding costs by selling covered bonds, a form of corporate bond backed by assets such as home loans. Bank of Montreal and Bank of Nova Scotia sold $4.5 billion of the securities last month, after a record $25 billion of sales in 2011. Relative yields on the covered bonds fell to 130 basis points on Feb. 9, down from 170 at the start of the year, according to Bank of America Merrill Lynch data.
Someone has to finance that ever expanding bubble of credit. Thanks bondholders. You do realize that Canada, unlike Greece and Ireland, are perfectly capable of currency devaluation, right?
Investors represent a “significant portion” of Toronto’s condo market, with 20 percent to 30 percent or higher for some projects, the report said.
Doesn't sound that high, honestly...
“In absence of another recession, we’re not expecting demand to fall,” Canadian Mortgage’s Hildebrand said. “We’re expecting it to hold steady so long as the economy holds steady.”
Toronto is home to about 2.5 million people -- more than double that including its suburbs -- and accounts for about 11 percent of Canada’s economic output, according to the City of Toronto.
. . .
Realtors and others in the industry say the record condo units under construction will be easily absorbed by 100,000 immigrants streaming into the city each year, wealthy foreign investors looking for a haven to park their money and young urbanites demanding to work near the financial industry that is the backbone of the city’s economy.
Where did that number come from? The highest annual growth number I can find is .4%, which would be double the average census number from 2000 to 2006. Against a population of 5 million, that's 20,000 people a year. Or, for the next twelve months, 1.35 condos coming on the market, per immigrant. If the financiers have their way, however, they will happily let every one of them buy three a piece, so there you go. No overhang.
“There are reasons why people want to spend time in Toronto, and that’s part of what supports these real-estate markets,” said William Strange, RioCan Real Estate Investment Trust Professor of Real Estate and Urban Economics at Rotman School of Management in Toronto. “Toronto tends to be a pretty good place to do business and, with respect to Canada, it also tends to be a place where people want to live.”
Noted. It's different here. Really it is.
Toronto isn’t facing a bubble because price increases have been steady, said Ben Myers, executive vice president of Urbanation, a Toronto-based real-estate research firm.
“We’ve seen the same level of increase in the market year- over-year in terms of index pricing in 10 of the last 15 years,” Myers said. “If we didn’t have an explosion of the bubble in those years, I’m not sure what would cause it to happen now.”
Awesome. Bronze that quote.
Fallout from Toronto’s construction boom may not surface immediately, according to Queen’s University’s Andrew.
“It’s going to be three-and-a-half to four years from now when these loans are all coming up and you’ve got a number of people who say they can’t afford to refinance it, so they’ll just sell,” Andrew said. “They’ll find out that 40 units in the building all went on the market in the same month, and now they’ve got a big problem.”
The lag in the reckoning is based on how creative the banks were getting in the last year with financing people who are already overextended on debt. The slow bleed and unusually high levels of variable rate financing will push distressed properties on the market sooner than that.

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