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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: carranza2 who wrote (34692)	6/22/2005 12:30:03 PM
From: Cogito Ergo Sum	Respond to of 110194

This fellow while not always great on the market etc... is very good on Canadian real estate (In my opinion FWIW :O) garth.ca garthturner.com Garth Turner's Weekly Newspaper Column: INSIDE THE BUBBLE June 19, 2005 My recent column likening the current real estate craze to the Internet bubble of five years ago has, understandably, generated a lot of debate. Many readers have been in touch to express their agreement or violent objection. There appears to be particular hysteria and housing mayhem happening on the west coast, and especially around Victoria. Some people are convinced real estate values in places like Vancouver Island will go up in a straight line forever because every Baby Boomer in Canada is desperate to retire there. Others think current prices in Victoria are completely nuts. Meanwhile in one of the hottest markets in the country - the Muskoka lakes north of Toronto - prices have mushroomed to the point where property taxes are a burning issue. In this land of market value assessment, rising real estate values translate directly into higher taxation. One cottager who inherited a shack, built in the 1920s by his parents, has seen property taxes rise by 800%, thanks to his millionaire neighbours and their recreational palaces. And, in the biggest urban real estate market in the country - that Big Smog called Toronto - the housing market has gone from alarming to freakish. I opened my weekend paper a few days ago to se a house advertised as a "teardown" for $1 million. That's the value the owner put on 40 feet of Toronto dirt. In the first 15 days of this month, 4,308 houses changed hands in the city, up 8% from the first half of June, 2004. That means this month is going to turn out to be the best month ever - in the last 90 years that they've been counting - for real estate sales in that market. Sales activity in the downtown core itself is up by 30%. Now what makes this panic buying most interesting is that it is coming at a time when prices have soared beyond all expectation. The average house price has jumped 9% in the last year, and is currently rising at the rate of 1% a month. This means house values are exceeding the rate of inflation by roughly 10% per year, which is ten times the historic average. At the same time, Canadian family incomes are rising at less than 2% annually, which brings us to the big question: At what point will the average family no longer be able to afford the average house? Because, when that point arrives, the boom will be over - just as the last one ended abruptly in 1989. Real estate is a commodity whose value is determined not by replacement costs, but by supply and demand. Never, never, forget that one. So, are we there yet? Well, if we are not, we are very close. At today's mortgage rates the average family (making $54,000 a year), putting 25% down, is basically maxed out in terms of debt service ratio buying the average house selling for $350,000. If mortgage rates rise even a single percentage point, then hundreds of thousands of people are knocked out of the market. Let them rise a couple of points, and millions no longer can afford to buy. And will mortgage rates be going up? Is Paris Hilton nauseating? Of course! Interest rates will not stay at their current point, which is about the cheapest in a generation. The federal government is spending billions it does not have, American rates have been rising for months, rapidly advancing real estate prices and soaring energy costs have been stocking inflation, and the Bank of Canada is not about to let things get out of hand. The cost of a mortgage will be higher by the end of the year and quite a bit above that by this time next June. If you don't think that will have serious consequences on a market that is currently out of control, you are inside the bubble. » Archive of Garth's WEEKLY NEWSPAPER COLUMNS From 2000-2004 Oh and we agree on Paris LOL.. but what is sadder is the celebrity she enjoys... that's not her fault ;o) And will mortgage rates be going up? Is Paris Hilton nauseating? Of course! The federal government is spending billions it does not have, BTW that's the Canucky fed... despite the wonderful rhetoric on our fiscal situation... The prime Minister is spending the money he got buy raping the provinces and municipalities to stay in office ... IMHO of course..