TD: Toronto & Vancouver face 15% decline

It seems like one of these bank economist forecasts come out every week, but TD is calling for a 15% decline in house prices here and in Toronto over the next couple of years.

“There have been growing signs that the markets have been tilting towards excess supply of new multiples,” the bank said.

Indeed, condo prices in both cities have shown signs of slowing down much more than the price of single-family homes, the usual benchmark of a market’s overall health.

“In fact, looking at the trend in condo prices, you can see there has been essentially no increase in prices since the federal government first began tightening mortgage rules in mid-2008,” the economists said.

So if the average selling price on a Vancouver single family home is already down 12% year over year and the outlook for condos looks worse… maybe not the best time to buy a presale condo eh?

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bubbly
Member
bubbly

12% down, 3% more to go. riiight…

After a run up like we had in the past 10 years, it’s impossible for the market to slightly deflate over 3 years. There are a lot of investors with cash flow problems. The market can only keep growing or crash hard. Soft landing is the least likely possibility.

jesse
Member
Here is the actual report (HT Zerodown) http://www.td.com/document/PDF/economics/special/lp0612_housing_markets.pdf TD does make some good points but their conclusions are somewhat confusing. They are not highlighting some important data we know are pertinent to housing: detachment of prices from incomes and rents as well as declining population growth (in Vancouver anyways). They did present a few interesting things though: – Completed but unabsorbed units in Vancouver have remained high since about mid-2010; – The increased percentage of condo units being built may lead to longer build times and an inability to quickly react to changing market conditions. The rest of the data presented should be nothing new to those following local RE bear blogs. Reading the report’s text, they are calling for a decline of at least 15%. That’s not quite the same as “about 15%”, though I can understand how the… Read more »
Maverick
Guest
Maverick

If TD is coming out with 15%, they really mean 30%.

The 15% is just the middle ground between TD Economics (who knows the poop has hit the fan) and TD Mortgage, who absolutely don’t want anyone to rock the boat.

The 15% is a political number.

Curiosity
Guest
Curiosity

Interesting how they can forecast an arbitrary decline of 15%. Analysts can’t predict psychological behavior. When people see their assets deflating, most people rush out of the door at the same time. So 15% decline may be a safe number for TD to report to not create chaos but at the same time may not be the true number.

patriotz
Member

Harper applauds Spain bailout, touts ‘Canadian approach’ to economy

“The Canadian approach is what the world needs, a practical approach and an approach that works,” (Harper) said.

What approach would that be? A mind-boggling increase in RE prices, personal debt, and government debt guarantees? Sounds rather like the US, Ireland or Spain.

Memo to Steve: it works until it doesn’t.

AG Sage
Member

@jesse: Well, perhaps based on their limited worldview (supply and demand on a rational supply and demand curve) their conclusion makes sense. Unfortunately the normal supply and demand curve left the building. So to speak.

pricedoutfornow
Guest
pricedoutfornow

You know things are tough in the RE market (at least outside of the lower mainland) when sellers have to offer incentives like this:

http://www.castanet.net/edition/news-story-76408-23-.htm#76408

Buy a house, get free beer!

N
Guest
N

At least 15% is the figure they came up with before factoring in the impact of headlines calling for a 15% drop.

dyugle
Guest
dyugle

Supply and Demand curves rely on the two big fundamentals.
1. Complete accurate information for all market participants.
2. Rational behavior based on the information.
There is not a single market in the real world that fits these two requirements for the supply and demand curves to work as taught in econ 101.

YLTNboomerang
Member

What two words should never be strung together without illiciting a laugh? “Soft Landing”

Anyway, looks like sentiments continue to shift and it is no longer “if” the Chinese economy was going to tank but what the landing will look like and guess what…their using the “S” word:

http://business.financialpost.com/2012/06/12/canada-to-skirt-global-turbulence-record-healthy-growth-this-year-rbc/

Anonymous
Guest
Anonymous

“Reading the report’s text, they are calling for a decline of at least 15% (over 2 to 3 years)”

That is pretty much a US style crash.

jesse
Member

@Anonymous: “That is pretty much a US style crash”

I was going to say “no” but for some areas of the US, even in bubble cities, -15% was about right. Vancouver is a region, not a city, so I don’t think we should be surprised if the aggregate index drops a wee bit more than 15%. I’m going with “at least 15%”.

patriotz
Member

@dyugle:
“There is not a single market in the real world that fits these two requirements for the supply and demand curves to work as taught in econ 101.”

The supply and demand curves from Econ 101 are based on utility and apply only to consumables, that is they expressly assume that the buyer is not going to resell.

Assets that are acquired for resale behave completely differently.

So many people miss this.

Vansanity
Guest
Vansanity
N
Guest
N

@Vansanity:

This is from April, and we discussed it then. I think the consensus was, “Yeah, kind of. What else is new.”

Crikey
Guest
Crikey

Can somebody point to stats that show what is historically the highest-volume sales time of year? Some people say it is summer, some say spring, some say fall…

Crikey

jesse
Member

@Crikey: http://housing-analysis.blogspot.ca/2012/06/greater-vancouver-market-snapshot-may.html

The answer appears to be May-June for most years, even going back to the turn of the century.

But this year IS different so who knows!

MM
Guest
MM

A conspiratorial reading: “RE is cooling off, so hands off our mortgage business”

“Assets that are acquired for resale behave completely differently.” – anything in Econ 101 about that?

Bull! Bull! Bull!
Guest
Bull! Bull! Bull!

@jesse: “But this year IS different so who knows!”

Every year is different. What about this years difference makes you think we are going to see a change in the trend?

Not much of a name...
Member
Not much of a name...

@Bull! Bull! Bull!:

Every year is different. What about this years difference makes you think we are going to see a change in the trend?

Jesse’s stated his reasoning quite well.

What makes you think that the market will continue on the same path it has been on for the last ten years?

patient renter
Guest
patient renter

@Bull Bull Bull

You’re right. If real estate has ever gone up, it means that it will always continue to go up. Just ask the U.S. and Ireland.

patient renter
Guest
patient renter

@Bull Bull Bull

What is different this year is simple. Less people are buying at these ridiculous prices. Follow the numbers.

jumpin in
Guest
jumpin in

http://www.cnbc.com/id/47778019
Roubini Tells Europe to Stop ‘the Savings Madness’

He should have a chat with Harper 😉

Navin R. Johnson
Guest
Navin R. Johnson

This is one room where I can say I enjoy hanging out with the pessimists 🙂

Dave
Member

@jumpin in:

What an idea. Pay government workers more and send everybody to Southern Europe for a free vacation. I’m surprised the NDP aren’t lapping this stuff up and making Rubini their leader.

But seriously, it’s a little scary to think that economists don’t agree about Keynesian economics vs. austerity.

We basically manage our economic policies ad hoc.

Greece is done and will likely be gone by this time next year.

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