Thursday, April 08, 2010

Royal LePage warns of real estate 'irrationality'

Prices up more than 10% across Canada in 1st quarter: survey

Last Updated: Thursday, April 8, 2010 9:25 AM ET Comments109Recommend72

The Canadian Press

There are signs that some of Canada's major house markets have become overheated, although most other markets have shown a more healthy rate of moderate growth, according to a national real-estate sales organization.Across Canada, the price of a standard two-storey home rose 10.3 per cent, to about $365,000 during the first quarter of 2010, Royal LePage said Thursday.

Prices for all key housing types were up more than 10 per cent across Canada in the first quarter on a national basis, according to the Royal LePage survey released Thursday.
But Vancouver and Toronto prices rose much more dramatically — about 20 per cent in some cases — and the head of Royal LePage Real Estate Services suggested they may have risen too far in those local markets.

"House sale data from the past two-year period shows tremendous variances in terms of how different cities reacted to the recession," said Phil Soper, president and chief executive, Royal LePage Real Estate Service. "In Vancouver and Toronto, for instance, the dramatic unit sales fluctuations exhibit a significant degree of market irrationality: inordinately fearful when faced with poorer markets; and overly enthusiastic when the tables turned."

The Royal LePage survey found the average price of detached bungalows in Toronto climbed to $459,107 in the first quarter, up 13.3 per cent from a year ago. Standard two-storey homes in Toronto were up 13.2 per cent, rising to $562,150 while condo prices rose a more moderate 10 per cent to $317,579.

In the Vancouver area, detached bungalows climbed an eye-popping 21.8 per cent to $906,045 while two-storey homes were up 19.2 per cent to $987,500 and standard condos were up 15.7 per cent from early 2009, rising to $470,000.

In contrast, Soper described Montreal as "an example of a city where the market has been much more stable and homeowners there seem quite happy with the relatively slow pace of change."
The average price of a bungalow in Montreal climbed by 7.2 per cent to $249,172, the price of a standard two-storey house increased by 7.6 per cent year over year to reach $355,109, while the average price of a condominium increased by 7.6 per cent, to $222,244, Royal LePage said.

The survey found that on a national basis, the average price of a detached bungalow in Canada rose to just over $329,000 in the first three months of this year — up 11 per cent from the first quarter of 2009. Standard two-storey homes rose 10.3 per cent, to about $365,000, while condominium units increased by 10.9 per cent to just under $229,000.

Avg. two-storey house price
Canada - $365,000
Vancouver - $987,500
Toronto - $562,150
Montreal - $355,109

© The Canadian Press, 2010
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david said...

Man when things get this crazy you know the end is near.

Does anyone know why Montreal is so cheap (relative to the rest of canada)?

As far as I know incomes arent much different there and it's at least as desirable to live in as Toronto. (well, in my opinion anyway)

Anonymous said...

Yes... just like 5...10...15 years ago

patriotz said...

Does anyone know why Montreal is so cheap (relative to the rest of canada)?

1. Differences in fundamentals. Montreal has high property taxes and Quebec has high income taxes. Quebec also has strong rent controls. These will result in lower price/rent and lower price/income at fair valuation.

2. Trends and risks. Separatism, low population growth, high provincial debt, and the most rapidly aging population in Canada mean fundamentals are likely to deteriorate in the future.

3. Cultural differences. Most Quebeckers do not have a preference for home ownership for its own sake, and are thus reluctant to pay more to buy a property than to rent it. In other words it's less bubbly.

1 and 2 are valid economic reasons for lower prices long term. Bubbliness or lack of it can result in differences in the short term but not the long term, since all bubbles eventually pop.

RentingSucks said...

Hey Chad. Have you ever read a Random Walk Down Wall Street? He convincingly proves that charting for stocks doesn't work. Any small advantage you may gain is obliterated by trading costs. Real Estate is starting to feel to me like the same random walk. I think the only difference is that Real Estate generally trends up by inflation while stocks generally trend upward by more than inflation to compensate for risk. If this is the case then no one can predict anything over a short period of time (even 5-10 years). So we will get back to trendline (perhaps even undershooting it) at some point but who knows when or how long.

patriotz said...

while stocks generally trend upward by more than inflation to compensate for risk.

Google "death of equities".

RentingSucks said...

Not sure what you are exactly trying to say. I agree past performance does not guarantee future performance and that stocks could be done but the original article was 30 years ago. It is interesting that we have many of the same symptoms as then except that inflation supposedly low. I have heard it said that we have changed the way we measure inflation so much that we are indeed in a high inflation enviroment even if the official numbers don't say so.

That being said there is some weird scary stuff still happening all over the world. If you want to really freak yourself out watch the move "Collapse" with Michael Rupert. Check out this slideshow about the top 20 worst debt to GDP ratio nations too:

Anyway if you had a large amount of cash right now what would you invest it in? I can't think of much that doesn't have a potentiall of a huge downside. There is some chance that things will continue as before with some bumps along the way.
If we are nearing something catastrophic then I don't think there is much you can do anyway. Are we at the point where we need to be building bunkers and sniper towers?

Anonymous said...


I'm really not sure what you're trying to get at by alluding to the "Death of Equities" article originally written in 1979. When this "death of equities" article was written the S&P was at 108.00 -- we're currently at 1,196. That's a 10 fold increase. Being a bear pays off every now and then but, so does playing roulette or Keno.

patriotz said...

When this "death of equities" article was written the S&P was at 108.00 -- we're currently at 1,196. That's a 10 fold increase.

The point you don't get is that the article was written toward the end of a period of high inflation. Over that period the stock market had a negative real total return. The big boom in the stock market began after inflation was beaten.

Inflation is bad for the stock market. Indeed that was the subtitle of the article itself.

patriotz said...
This comment has been removed by the author.
Anonymous said...

“In that moment, the money didn’t matter. Only the condo mattered. Now, all the money I have, goes towards paying the loan. I live for the loan.”