TD: A bubble brewing?

TD  is the latest bank to ask “is a bubble brewing in Canadian real estate?”  TD Bank Financial Group released a report today on the Canadian housing market, and their conclusion should not surprise any readers here:

Call this housing cycle a blip if you like. But we feel that is misleading, especially because of what this suggests for the future. While the market looks remarkably unperturbed from start to end of this sharp cycle, existing home sales and prices cannot sustainably stay on their current path.  Markets are currently very tight and favour sellers, as evidenced by multiple competing offers and bidding wars, but we expect them to rebalance over the course of 2010. As the central bank begins to hint at a tightening monetary policy cycle in the second half of next year, sales could well see a last gasp of strenght. Moreover, by that time, the availability of units on the supply side should provide a relief valve helping to cool price growth. And, by 2011, while the overall economy will have improved significantly, housing markets will be losing momentum.

They also mention the concept of borrowing demand from the future:

A more difficult issue relates to how much of the current demand is simply being brought forward, i.e purchases in recent months that advanced sales to take advantage of low rates, which raises the risk of a dip in ensuing quarters. Because the pool of potential buyers is not fixed and itself depends on affordability, it is not possible to satisfactorily address this issue in a precise quantitative fashion with the current data available. There is little doubt as to the direction of this effect, however. The prevailing ‘now or never’ mentality will weigh on future demand.

The full PDF of the report can be found on the TD site here.

Hat-tip to Donald for the link!

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Cleaning Services Va
10 years ago

Nice description.

scullboy
10 years ago

God bless you SUpratard, you're a dim little critter aren't you? My buddy at TD essentially ran an arm of the bank that loaned GOVERNMENTS money to complete infrastructure projects. My parents are wealthy entrepreneurs as well, and then there are the families in the East that own whole chunks of provinces and have been wealthy for many more generations then you and your family have been in Canada. People who have been wealthy for generations do not gamble with their cash. They calculate risk vs opportunity and invest based on that. This is something you just don't seem to get. Risk and opportunity are two sides of the same coin so to speak. Ordinarily if the risk is high, the opportunity to make money is also high. However in the case of Vancouver real estate the risk is now… Read more »

realpaul
realpaul
10 years ago

#11, The RCMP need some transparency? "From the mouths of babes" they say. No Duh!!!!!!!!!!! An immediate 'stop work' order would be more appropriate. As far as 'numbers' go, I suggest reading the papers. Count back the number of citizens killed by RCMP in the past year and tally that against the number of CDN soldiers killed in Afghanistan over the same period. Yeah thats right, pretty shocking isn't it? There needs to be immediate civilian oversight and removal of all personal files into the public domain. All agents under 50 should be given an independant psych evaluation. The RCMP members involved in atrocities and the cover ups should have thier benefits and pensions revoked and the budget should be directed towards paying victims reparations. As far as the 'gangbangers' are concerned it has been RCMP inaction over the years… Read more »

rp
rp
10 years ago

#49 @observer: However in early 2008 everyone reading financial blogs knew that most of Wall Street was bankrupt. The subprime losses were there, it was just a question of where the bodies were buried. The US was already in a recession (although this was disputed) and then Bear Stearns went under, confirming everyone's worst fears. It was perfectly clear that a crisis would occur. We now know that few of those massive losses will ever be realized. No large banks will go under. The government has sanctioned their fraudulent accounting practices, extended credit as necessary to keep them running, and monetized much of their toxic waste. Millions of people are also living mortgage free in houses they bought but aren't paying for because banks won't or can't recognize any more defaults. Furthermore, we know that real reform is impossible at… Read more »

crabman
10 years ago

Two other bubble cities also had condos called 'The Mark'; Scottsdale, AZ and San Diego, CA. Both projects were pre-sold at peak prices, but weren't completed until after those bubbles had popped. Who says developers don't have a sense of humour?

http://www.livethemark.com/

http://www.themarksandiego.com/

crabman
10 years ago

@Supraboy: Rich people share common traits, that is they take risks in life. Something you and a lot of bears don’t understand.

What supratard doesn't understand is that rich people take calculated risks. They study the market, then place their bets if it makes sense to do so. The supratarded risk takers are just gamblers.

Go look at Gold today, Doh! over $1200. Wait till gold rockets over $2000, you’d wish you had bought a property today. I bet you’re holding cash, shove it all into GICs, yup, that’s the way to beat inflation with your mentality.

So, the 400% increase in gold since 2002 was inflation, eh? Boy you truly are a supratard!

observer
observer
10 years ago

Although I have no hard evidence for the number of speculators in the market, the circumstantial evidence I've seen comes from how the market behaved in early 2008, before Fall 2008 when the financial crisis hit full steam. In early 2008, there was a marked increase in the number of new listings and decrease in the number of sales. One could attribute the decrease in sales to the prices hitting affordability ceilings given the interest rates at the time, but the fact that there was an increase in the number of new listings, at a time when the financial crisis was probably only known within certain financial circles, suggests to me that this increase was due to investors trying to sell at peak. The quick turnaround in our markets this year but large rental inventory also smells of investors deciding… Read more »

anon
anon
10 years ago

Speaking of price volatility, I remember that when prices were going up, analysts refuted the idea of a large number of speculators in the market, pegging them at 5-10%. Then when we had the market downturn, those same analysts came out and said that speculators accounted for at least 25% of the market. If the latter is true, you will always have volatility…

observer
observer
10 years ago

@Dave: I personally think it is difficult to have stable RE prices given the way the market currently operates. If RE were treated less like a get rich investment scheme and more like a consumable priced in line with the service it provides (i.e. more in line with rents paid for housing), there could be more price stability, like in Germany for instance. However, our RE market is treated more like an investment vehicle for the economy in the way it is taxed and the way credit is loosely given to purchase it. It almost has borderline ponzi like qualities to it depending on how you view it. The significant amount of investors in the market, especially in Vancouver, makes it prone to price volatility. The RE market is also inefficient for many reasons: it is not very liquid, it… Read more »

anon
anon
10 years ago

45

Or maybe the bulls have returned to the board….

Anonymous
Anonymous
10 years ago

If kansai's comment scored -4, something is wrong with the intelligence of the voters. Either that or they are CHMC agents.

Forget Your History?
Forget Your History?
10 years ago

43 – Don't bother trying to convince anyone, especially SP. He has been schooled so many times and he has been called out so many times. After this latest ribbing he will be quiet for a few days and then come back again with the same blather.

kansai_92
kansai_92
10 years ago

Supraboy, it has nothing to do with being pessimistic.

It has everything to do with an unsustainable market.

Put it another way. Let's say your buddy is at a Vegas roulette table. He's won 6 wagers in a row, each time doubling up.

If you tell him that you think he should cash out and leave, does that make your a pessimist?

And for all you bulls out there, there's nothing unpatriotic or wrong about lower housing prices.

It means that families have more money left after paying the mortgage to afford things like food, clothing, education, etc.

oneangryslav2
oneangryslav2
10 years ago

@Dave: You're close, Dave. According to the Sauder chart, flat prices occur AFTER a market top, but NOT UNTIL…?

Dave
10 years ago

@patriotz:

Obviously flat prices occur AFTER a market top.

I'm not sure what you are getting at here.

patriotz
10 years ago

@Dave:

I think we have a number of flat years ahead of us.

Do you? Take a look the price charts:

http://cuer.sauder.ubc.ca/cma/van.html

Now where do you find the flat prices? At market tops or market bottoms? There is a reason for this, can you figure it out?

patriotz
10 years ago

@Disbelief:

I was just stating that Real Estate and Gold are very different and they are not relating in the slightest.

That just isn't true, gold and RE have been noticeably correlated since the late 70's, albeit a bit out of phase (gold topped a year earlier than Vancouver RE in 1980 and then both saw busts, gold has seen a very similar runup to global RE since 2000). In the early 90's gold was out of whack with Vancouver RE but correlated with Toronto and Southern California which both saw RE busts.

The main reason is that both are very sensitive to interest rates. A big hike will bust both of them.

Compare to the RE price charts at UBC. Gold prices can move way faster but you can see the similarity.

http://www.kitco.com/scripts/hist_charts/yearly_g

Dave
10 years ago

@Supraboy: I am not pessimistic, but I am equally not too optimistic of there being much more upside for the next while. I think prices are going to moderate over the next four months and then slowly start climbing again next spring. I think we will still pass the prior price peak, but probably not by much. I think we have a number of flat years ahead of us. I think prices are going to mostly sit somewhere between the May 2008 peak and the January 2009 trough. Sales volumes will probably moderate a little as well over this period. I don't think there is much risk in sitting and waiting out the market at this point. I also don't think prices are going to crash. The patient buyer is probably the one who is going to win out at… Read more »

AAA Man
AAA Man
10 years ago
Forget Your History?
Forget Your History?
10 years ago

32

I believe that when prices went down 14% between March 08 and December 08, the steepest decline of ANY North American bubble city, you were proven wrong. I believe you were pretty much absent during that period.

With record unemployment, affordability eroded once again, demand from the past and future absorbed, interest rate decisions around the corner, and the soon to be end of the Olympic hype, its only a matter of time. Bears were proven right once through fundamental analysis – they will be proven right again.

GR
GR
10 years ago

Superlittleboy, Ah yes, littlesuperboy is known as the big "risk taker" on this site. He is the individual who has acknowledged several times that he still lives with his parents in their Richmond family home. If you cannot even take the simple "risk" of leaving the confines of your family's home and mother's womb to experience the world, you clearly lack the ability to risk anything without the family safety net. And if you have a family safety net to fall back on, my dear little warcraft playing basement dweller, you certainly are no genuine risk taker. Unfortunately for you superlittleboy, the biggest risk takers are those that have been made hungry through world life experience, who have been on their own so to speak, and who have lived knowing that they alone will receive the benefits of risk and… Read more »

Disbelief
Disbelief
10 years ago

I never said that gold won't go down in price. I was just stating that Real Estate and Gold are very different and they are not relating in the slightest. They are polar opposites. When people get scared they buy metals.

Yes I was around in the 80's I was born in the 60's.

patriotz
10 years ago

@Disbelief:

When investors get scared they buy Gold and Silver etc. NOT Real Estate. Most people know that Real Estate as an investment can be risky especially when in a Bubble as we currently are.

Like gold isn't? Guess you weren't around in the early 80's.

http://www.kitco.com/LFgif/au80-84.gif

Supraboy
Supraboy
10 years ago

Just wondering, am I the only one here that's not pessimistic? Everyone here has been talking bubble for years. It feels good when you're all wrong and I'm right. Prove me wrong fools. I'll be here in 6 months making you fools eat it when this bubble gets bloated even higher and I turn into a fat phuck enjoying life looking at my properties soar to the moon.

Supraboy
Supraboy
10 years ago

@GR: "My advice is take your own advice. Leave the confines of your home, travel, “plant your ass” somewhere else, engage in discussions with others from around the world from all backgrounds, observe, analyze, and then bring informed arguments to the table. I know that cutting the umbilical cord is hard to do in Richmond, but it will make you, hopefully, a better person down the road." Isn't it too bad you hang around with low income and middle class wage earners who hump for the rest of their lives without taking any risks. You're the type who hides in your little own cave and got picked on in highschool. The only way for you to bitch at people is to vent your frustrations on the internet. Rich people share common traits, that is they take risks in life. Something… Read more »