It’s Condolicious … !

Last week, Merrill Lynch issued a report, “The tipping point?”, suggesting that Canadians are financially overextending itself to figures higher than in UK and not far from the US peak in 2005.  Basically, it’s only a matter of time until the Canadian housing sector suffers a meltdown.

You can read the complete report by David Wolf and Carolyn Kwan here.

I don’t deny that we’re in a period of a softening market, but to claim that we will face a similar fate as in the US does “seem like a stretch”.  Certainly it’s possible if all the planets align – higher interest rates, higher unemployment rates, crumbling consumer confidence, etc. – but it’s extremely unlikely.  Also remember that real estate is local.  So if this report has any substance, it’s more to do with Western Canada which has experienced unsustainable growth e.g. Saskatchewan doubling over the last two years.

So how many of you are there are waiting for a correction?  What’s your take on this?

My concern is for those who purchased and are purchasing pre-construction at seemingly outrageous prices.  How many can afford $600 psf with deteriorating stock portfolios and shrinking bonuses?  I’m not trying to add to the pessimism, I’m trying to be more realistic about these lofty valuations.  People will get burned.  I tell them this but they are confident and continue to make the purchase.  I respect that.  But, as Kevin O’Leary put it hilariously to an inventor in Dragon’s Den: “You’ll never make money.  Then you’ll go into the forest, slit your wrists, story over”.

Eric Shackleton
THE CANADIAN PRESS

Merrill Lynch is challenging the prevailing view that Canada’s housing and mortgage markets are more stable than their U.S. counterparts, warning that households in this country are so indebted that it’s only a matter of time before we see a major downturn here as well.

In a report issued Wednesday, Merrill Lynch Canada economists said many Canadian households are more financially overextended than their counterparts in the United States or Britain.

They said it’s only a matter of time before the “tipping point” is reached and the housing and credit markets crack in Canada.

The Merrill Lynch Canada report by economists David Wolf and Carolyn Kwan acknowledges that the analysis is more pessimistic than the prevailing view.

Prime Minister Stephen Harper, in British Columbia for the federal election, responded to the investment firm’s warnings by repeating his assurances that Canada’s economy is in good shape.

“I think our housing market is in strong position (and) consumer markets, as well, are stronger in Canada than the U.S. and the position taken by our financial institutions.”

“Of course, we have seen that this market has somewhat weakened in the last 12 months but we will not see such a situation here as in the U.S.”

An expanding financial crisis that has been heating up in the United States for more than a year, came to a full boil last week with the near-collapse of several major American investment banks, including Merrill Lynch, and insurance giant AIG.

U.S. Treasury Secretary Henry Paulson, himself a former senior Wall Street investment banker, has been feverishly pushing the White House and Congress to accept a US$700-billion taxpayer-funded rescue plan.

Meanwhile, the National Association of Realtors reported Wednesday that the U.S. median sales price in August fell 9.5 per cent to US$203,100, the largest decline on records dating to 1999.

Many economists have said repeatedly that Canada’s housing and banking sectors are much more stable than their American counterparts and is unlikely to crash – since it didn’t spike in recent years because of many differences between the two countries..

Benjamin Tal, an economist with CIBC who has been following closely the ups and downs of the housing industry, said Wednesday he sees no “trigger” threatening Canada’s housing and mortgage market.

“To see a crash in the housing market you need a trigger,” Tal said.

“The trigger in 1989-1990 was extremely high interest rates. The trigger in the U.S. was subprime mortgages. We’re still missing the trigger for Canada.”

However, Merrill Lynch – whose U.S. parent is one of the biggest victims of a crisis in financial markets that is rooted in the American housing and mortgage meltdown – said Canadians should be wary.

Household net borrowing in Canada amounted to 6.3 per cent of disposable income in 2007 – meaning they’re carrying more debt than households in the United Kingdom and not far off the peak U.S. shortfall in 2005 – just before the subprime mortgage crisis erupted.

“These data imply that the Canadian household sector is now overextending itself as much as the U.S. or U.K. ever did, challenging the consensus view that Canadian lenders and borrowers have been far more conservative through the cycle,” the Merrill report says.

It also says housing prices are now falling and inventories of unsold homes are rising sharply in Canada suggesting that this market turnaround will not be a transitory phenomenon.

The prevailing view, however, is that Canada’s lenders have issued few of the type of subprime mortgages that sparked the U.S. crisis, which is continuing to ripple through the financial system.

In addition, many observers argue that Canadian residential properties are, by and large, not overvalued – considering the strength of regional economies in resource-rich provinces.

Tal agreed there’s a high level of debt in Canada but added “the distribution of debt in Canada is much better than in the U.S.”

“There was really a lot of high-risk debt in the U.S. You don’t see this in Canada,” Tal said.

Gregory Klump, chief economist with the Canadian Mortgage and Housing Corp., said there would need to be a spike in interest rates or massive layoffs before the housing market would take a tumble

Right now, Klump said, “we have a stable labour market” and interest rates are low.

“There’s no distress sales in Canada, not like in the States.”

In Calgary and Edmonton, where house prices have been falling recently after reaching astronomical heights, he said, “the market is beginning to stabilize.”

Klump said Merrill’s warning on Wednesday “is consistent with the viewpoint they’ve had for the last year, but it hasn’t happened.”

James Marple, an economist at TD Bank, said housing affordability – which reflects not only the purchase price but cost of ownership, including debt payments – has not declined in this country like it has in the United States.

As well, Canada has not had the “kind of glut of housing supply across the country” that would lead to the massive correction experienced in the U.S., Marple said.

BMO economist Douglas Porter said “it’s quite a stretch” for Merrill Lynch to say that the Canadian market is going to face the same kind of deep downturn as the U.S.

However, Porter said, there are legitimate reasons “to be cautious on the housing market outlook” in this country.

“I don’t think it’s going too far out on a limb to say that prices could recede a bit in many cities” but nothing like in the United States.

Hands down – another great marketing move by Nintendo for the Wii!  It would be fantastic to see just a fraction of this creativity in the real estate market.

YouTube Wii Ad

C01 District

30 Grand Trunk Crescent - Infinity by Conservatory Group

The average sales price paid for a condo apartment in the C01 district increased by 4.05% to $341,668 from $328,361 in August 2007 and increased by 15.9% from August 2006.  Compared to the same period last year, sales have decreased by 13% but listings for sale surged 72.8%.  This leads to a revealing statistic — the sales-to-listing ratio dropped back to earth to 40.6% from the unsustainable level of 80.7% in 2007.  A sales-to-listing ratio of 40% basically means for every 10 listings available for sale, 4 of them sell.  Under these circumstances, buyers have more options, they can take a bit more time, and the likelihood of a multiple offer situation is reduced.  Please remember the 80.7% figure in August 2007 was an anomaly due to the Municipal Land Transfer Tax situation.

99 Harbour Square - Number One York Quay

Let’s look at a sample of what sold last month.  A recent sale of a one bedroom plus solarium with parking at 99 Harbour Square resulted in a 35.2% appreciation from when the owner had purchased it in June 2006.

An owner of a 2 bedroom 2 bathroom unit at 30 Grand Trunk Cres. (Infinity Condos) got 32% back on his investment.  He had purchased his unit during pre-construction.  It took over a month to find a buyer but he got the price he wanted.

Average Sales Price for Condo Apartment in C01 District

Sales to Listings Ratio for Condo Apartments in C01 District

C08 District

Let’s start by commenting on the statistic that exploded off the chart.  August 2007 sales-to-listing ratio was over 100%!  So you simply list your home for sale and it sells.  It didn’t matter how hideous your home showed – it sold!  Now that’s a hot market with happy sellers and frustrated buyers.

The average sales price in the C08 district were:

• $200,378 – Studio
• $263,773 – One bedroom
• $306,832 – One bedroom plus den(s)
• $420,576 – Two bedroom
• $386,371 – Two bedroom plus den(s)

A two bedroom plus den unit at The Richmond (313/323 Richmond St. E.) was purchased in April 2006 and sold last month for 25.9% above what they paid for.  If we assume that the market price for a parking space in the area sells for $27,000 then the price per square foot we get is $368 psf.  Roughly within the range for this area.

Average Sales Price for Condo Apartments in C08 District

Sales to Listings Ratio for Condo Apartments in C08 District

C14 District

The average sales price increased by 9.1% to $302,071 from $276,799 in August 2007.  Overall, sales activity is healthy and distribution of condos sold in terms of bedrooms remains fairly balanced.  The most popular options were 1 and 2 bedrooms at 27% each followed closely by their den counterparts at 21-22%.

Sales Distribution (By Bedrooms) in C14 for August 2008

One of the 1-bedroom units that sold was at 5 Northtown Way built by Tridel.  It sold for $240,000 and was purchased two years ago at $213,000 – an increase of 12.7%.

5 Northtown Way

Toronto Real Estate Board

Below is the market summary for August by the Toronto Real Estate Board:

TREB Members reported 6,318 in sales in August, President Maureen O’Neill announced today. “The 2008 Toronto summer market is ending on a solid pace,” noted the President.

Sales were down 22 per cent from the record-breaking August 2007 of 8,059 single family dwellings, but were only off nine per cent from the more typical figure of 6,976 sales recorded in August 2006. This sales decline did not occur uniformly across the GTA. Units transacted within the City of Toronto, at 2,437, were down 25 per cent from the 3,243 recorded in August of 2007, while down only 10 per cent from the 2,706 figure in the same month of 2006. Meanwhile sales within the 905 suburbs came in at 3,881, down 19 per cent from 2007 (4,816 sales), and down 9 per cent from August of 2006, when 4,270 sales were recorded.

Prices increased marginally in August, with the overall average moving up one per cent to $364,886 from the $361,890 seen last August, and up eight per cent from the $338,192 recorded in August of 2006. Once again, however, price movements varied depending on area. Within Toronto proper, the average actually fell one per cent to $377,990 from last August’s $381,681, although it was up 10 per cent from the $344,419 recorded during the same month in 2006. Outside of the City, on the other hand, prices rose two per cent to $356,657 from the $348,563 seen in August 2007. They were also up seven per cent from the $334,245 seen in August 2006.

Breaking down the total, 2,494 sales were reported in TREB’s 28 West districts and averaged $346,285; 1,091 sales were reported in the 14 Central districts and averaged $436,120; 1,246 sales were reported in the 23 North districts and averaged $419,694; and 1,487 sales were reported in TREB’s 21 East districts and averaged $297,896.

Once my afternoon appointments were over in downtown I quickly drove home for a very important meeting … with my television   I had the evening schedule blocked out so that I could watch the U.S. Open finals featuring Roger Federer and Andy Murray.  I got home at 5PM just in time for the start.  Turned on CBS and it’s the news.  Waited a little while and later checked TV guide.  Argh - they aren’t showing it!

Roger Federer of Switzerland reacts to winning the U.S. Open 2008 Champtionships in 3 sets over Andy Murray of the United Kingdom. This is after his "winning roll". (Photo by Matthew Stockman/Getty Images)

First off, I would like to boo the people in charge of not broadcasting The U.S. Open finals on CBS in Toronto.  How could you do this? tsk tsk   Thankfully, I was able to find an live online stream.  It wasn’t the greatest quality (my nose was glued to the screen trying to follow the pixelated ball during rallies) but was good enough.

Hats off to Andy Murray for being a class act showing tremendous respect and also being a fierce competitor … well moments of fierceness.  I just hope he keeps on progressing as he had during this year and we’ll see many great battles from the top 4 in 2009.  One other thing I do hope is that he doesn’t pull a “Tsonga”.  Where has that guy disappeared to after smoking Nadal off the Australian Open courts???

And Congrats Mr. Federer!  It’s so wondeful to see you win this and showing the skeptics that you certainly do have a lot remaining in the tank.  I’m looking forward to 2009 and please … do work on that “winning roll” though :D  Perhaps do something like a cartwheel or roar while snapping your racquet in half!

For many years, Google Maps has been my go-to mapping destination.  It loaded quickly, had an easy to remember URL, user-friendly interface, and it gave me the results I was looking for.  All the other major players including Yahoo!, Microsoft and MapQuest were basically playing catch-up with Google.  I even used the Google Map API to mark For Sale listings on the map before the concept went mainstream in the Toronto market.  Although Google Maps wasn’t perfect, it did many things right.  It seemed like the site had gradually engraved into my subconscious so it was going to be challenging to pull me away from their service.

A year or so ago, Yahoo! launched a nifty upgrade to their mapping service.  The application and maps were aesthetically better and built using Flash.  However, the first time I used it has been my last so far.  Basically, it couldn’t locate my home address – a very simple request.  Nothing earth shattering but it just goes to show that you should not launch your service when it’s not ready!  Small mistakes will lead potential visitors to your competition.

Lately, I’ve been migrating to Microsoft Virtual Earth.  The URL (http://maps.live.ca) is somewhat hard to get use to but it definitely offers some benefits.  I enjoy using the Collections Stratchpad when planning my home showing route.  Also, a major one for me is updated map imagery.  It seems Google has relaxed on its throne for too long.  Users have sent requests stating that location ABC has the wrong image or location DEF images are outdated, but Google is slow to respond.

Below is an example of how outdated some of Google’s imagery is:

Google Maps: Infinity (30 Grand Trunk Cres.)

Do you recognize this area?  It’s York & Bremner.   Amenities include ACC, Union Station, Rogers Centre, CN Tower, and the lake to name a few.  Considering there are cranes up, I guestimate this image was taken in mid-2005.

Now here is Microsoft’s image:

Microsoft Virtual Earth: Infinity (30 Grand Trunk Cres.)

Both towers are complete!  Of course, two issues with this image.  There should be a parking lot to the immediate right of the building and, to the east of York Street, the Residences of Maple Leaf Square tower should be under construction.  Those sections of the image need some updating but definitely a big improvement over Google’s one.  Obviously this is a terrible sample size but I conducted several comparisons and overall Microsoft had newer imagery.  On top of that, Virtual Earth has a Bird’s Eye view feature with provides very good street-level detail of Toronto.  The Bird’s Eye view is taken at a 45 degree angle from four directions north, east, south and west.  The images are high-quality making it an excellent vehicle for potential home buyers to browse the neighbourhood.

Here’s a Bird’s eye view of The Residences of Maple Leaf Square (mentioned above):

Microsoft Virtual Earth: Bird's Eye View of Residences of Maple Leaf Square

If you have been in the area recently, you can tell that this image is very new.  Microsoft mapping division has done a good job so far and I’m happy to see that.  It’s made my real estate life easier!

Not to be outdone though, Google does have a “Street View” feature that has launched in selected cities.  Toronto is not one of them yet but there have been sightings of a Google Van with their large panoramic camera driving around the city.  Once Street View is available in Toronto, Google can rest on their throne again.