Real estate decline 2020

NoMoreTO

Pelican
I was talking to Toronto friends about selling my condo. The feeling was "no no no don't sell it now, this is the worst time." But prices are sticky, and many will buy seeing the 50K off price tag and not the long term impact.

This is a market that has been rising meteorically since 1989 crash. The 2008-9 financial crisis was only a pause for the city. Condos in Toronto have basically never gone down, and people don't understand the concept other than the crisis which wasn't experienced but through the US media.
Long term I'll still be up, and its a good unit, not as cookie cutter as most. It's currently rented out and the guy is paying the mortgage so I'll likely ride this one out. In the long run, massive inflation and a lowering Canadian Dollar will keep the value up. A lot of buyers nowadays are foreign and Toronto will be appealing as the financial centre of Canada. But really how much can a Condo be worth.

A big part of the condo market is renting it out, and I think that market will take a hit with (1) less high paying jobs (2) more work from home flexibility (3) additional Airbnbs flooding the market as long term rentals (4) shutdown of all the amenities and reasons people live downtown like cafes, bars, baseball games, concerts, etc. Ultimately, I'll likely sell at some point and move into a piece of farmland with my condo money. Seems like a fair trade between price and long term value.
 

Troller

Woodpecker
What you must look into is rent prices. If they fall real estate falls after. Rents are the canary.
At this moment banks mortgages interest rate are still low. So I don´t see a epic downturn happening unless this changes. Prices will fall. But not epic.

I believe people at this moment are still in a wait and see mode. Either we are at the verge of a massive precipice. Or just in a pause moment. It will also depend on how much time they can hold on before having to sell. Same for banks. How long can banks keep in inventory houses. Because if they sell houses foreclosed with a new lower price it hurts their balance sheet. So most banks try to keep them.

Had a german tenant. Incredible tenant paid months in advance. Anyway his parents own a lot of real estate. They sold everything last year.

Since two years I´m not investing in real estate. It´s just stupid. People are making calculations based on tourism yelds. Bunch of idiots. When investing you should always make calculations based on long term lease at the worse price paid in last recession. This is the comp people should use. Never understood tourism yields. Imagine just a terrorism attack. It doesn’t have to be a pandemic.

Pick an area you would like to buy. And before going to sleep. Check prices in that area. Target what you want. Even statistics are averages. So when you read there’s been a 10% low. It’s not 10%. It doesn’t mean houses in a place all went down 10%. Some houses might have 30%. Others 5% others 15%, etc others might even increase.

Recessions normally mean a lack of credit. It’s an economy without credit (restrictions on credit). In this case there’s still credit. Maybe taking a look at house prices during pandemics.
 
Last edited:

NoMoreTO

Pelican
I wrote a business paper once on the case - schiller curve. Relation between rents - price - wages. As long as credit is available and exuberance people will get aggressive and prices can seemingly detach from the reality on the ground.

The chickens don't always come home to roost for years though. Rental rates are a key indicator still, along with wages. And we might have a reckoning here. Utlimately, its hard to know until the market buyers & sellers come back in full force. A realtor was telling me that realtors aren't working right now.

Getting out of stocks is one thing. Timing the real estate market is another. Animal spirits at work. Good for your parents getting out at a good price though, but I've never sold real estate.
 

Troller

Woodpecker
Did a quick search on pandemics. And it seems the effects are not that bad. Pandemics are not recessions. If they become recessions then we have a problem. People will not lower their house prices steeply until there´s certainty ugly economy is here to stay. At this moment the outlook seems to be "this is temporary. And will pass". Prices will adjust but not heavily. Unless there´s a change in interest rates. Or some other shock, Realtors were stuck at home. I believe the pressure will be in real estate agents also. They´re probably receiving comissions from deals closed 2-3 months ago and finalized now. So they will feel the pain in 2 months. Since now they are not closing deals. A real estate deal takes time to be finalized. In 2-3 months real estate agents will feel the hit of deals not closed. And it might impact the prices. Since they will pressure owners to sell. There are many variables. But interest rates are one of the most important. Also the yeld between rents and price. 5% minimum.

Found this paper:

Real estate and the pandemic

Whilst tourism and hospitality seem like the obvious sectors to be affected, what about the impact on real estate markets? We know that ‘usually, a downturn in median home prices doesn’t appear for about 18 months after a major stock market crash’[1], the most well-known being that after the 1987 Wall Street crash. There are several reasons, most obviously that the first effect of a rapid fall in stock market prices on real estate, whether caused by a pandemic or otherwise, is to crush liquidity. This delays any evidence of declining price given that transactions are the lifeblood of real estate indices, even those based on valuation. Remarkably, from a contemporary perspective, stock market valuations remained largely insulated from the Spanish flu, which, as a result, had little effect on real estate prices, especially when combined with the macro-economic effect of the end of the war. The Land Registry’s long-term house price index for the UK shows no discernible impact at all.

And this one:


Crisis but no crash
“Chances of a real estate crisis are very high, but it’s unlikely to be a big crash like the subprime mortgage crisis,” says Scognamiglio.

And he says a crisis can be avoided if there is no massive rise in interest rates at the same time.

Ultimately, Scognamiglio hopes that the measures ordered by the Swiss government, notably an economic relief package to the tune of CHF42 billion ($44.1 billion), will help stabilise the situation.



Gudell looked at past global pandemics — the 2003 SARS outbreak, the 1918 Spanish Flu and even the early days of coronavirus’ spread in China — and found that typically economic activity drops sharply but snaps back quickly when the epidemic ends. During a standard recession, economic activity falls for 6-18 months and recovers at a slower rate, according to Gudell.

In terms of housing specifically, during the SARS outbreak, housing prices didn’t fall significantly, but transaction volume plummeted 33 to 72 percent, with homebuyers trying to avoid contact.
 
Last edited:

Arado

Pelican
Gold Member
Did a quick search on pandemics. And it seems the effects are not that bad. Pandemics are not recessions. If they become recessions then we have a problem. People will not lower their house prices steeply until there´s certainty ugly economy is here to stay. At this moment the outlook seems to be "this is temporary. And will pass". Prices will adjust but not heavily. Unless there´s a change in interest rates. Or some other shock, Realtors were stuck at home. I believe the pressure will be in real estate agents also. They´re probably receiving comissions from deals closed 2-3 months ago and finalized now. So they will feel the pain in 2 months. Since now they are not closing deals. A real estate deal takes time to be finalized. In 2-3 months real estate agents will feel the hit of deals not closed. And it might impact the prices. Since they will pressure owners to sell. There are many variables. But interest rates are one of the most important. Also the yeld between rents and price. 5% minimum.
Not that applicable - this is not just a pandemic, it's a recession and possible depression. That last pandemic did not occur at the end of an over inflated business cycle. But agreed with your point on interest rates - that's a major factor behind the inflated prices of today.

For those who are still bullish on urban real estate - what is the future rationale for overpaying for city property if someone can telecommute to their knowledge economy job, combined with possible restrictions/reluctance on large gatherings (major appeal of city life)?

One interesting question will be how will cities pay for subsidized housing for their large urban ghetto populations if all the knowledge economy workers have moved away and are paying fewer taxes?
 
Hold on Arado, this wasn't necessarily the end of the inflated business cycle that you refer to. It might have been close to the end, I won't argue, but this had far more artificial than structural aspects of a decline (ie it wasn't a banking/financial crisis), it was self imposed negative GDP quarter over quarter, essentially. That said, we definitely are entering a deflationary period for the time being. We will see if that creates recession/depression. And that likely has to do with the world, too.

Your last two questions are the questions going forward. What's funnier is that at least for the largest cities in America, how will they pay for anything?
 

Arado

Pelican
Gold Member
Hold on Arado, this wasn't necessarily the end of the inflated business cycle that you refer to. It might have been close to the end, I won't argue, but this had far more artificial than structural aspects of a decline (ie it wasn't a banking/financial crisis), it was self imposed negative GDP quarter over quarter, essentially. That said, we definitely are entering a deflationary period for the time being. We will see if that creates recession/depression. And that likely has to do with the world, too.

Your last two questions are the questions going forward. What's funnier is that at least for the largest cities in America, how will they pay for anything?
Don't want to derail the thread and you know I'm in the anti-Fed pro Austrian camp, but we did have an inverted yield curve in mid 2019, the world stock market peaked in January 2018, and there was a major slowdown in transports and trucking. Fed panicked and went from quantitative tightening and rising interest rates in Fall 2018 to lowering rates in September 2019 and bailing out the repo market under "not QE". They obviously knew something was up and were trying to get ahead of the curve, but the virus upset their plans and brought the oncoming recession forward.

But that's a fair point about cities - for those who are still planning to buy in cities - telecommuting and social life aside, how will cities still manage to function without a drastic restructuring of services? Perhaps not as much an issue in Canada since the urban ghetto population isn't as much a concern as it is in the US.
 
Yes, it was certainly coming, haha my original prediction was something popping up in 2021-22, but yes corona was the excuse. It is really hard to see what is going to happen, but it looks like the likes of NJ and IL were set off to degrees I couldn't even (with schadenfreude) have predicted with this market drop and then choice of no activity or tax revenue for them. They are so pot committed to the idea of bailout it's actually funny, since it's not going to work. But as Lenny has said, minions gonna minion.

Back to Real Estate --- I foresee both deflation and credit decreases. Couple that with boomers slowly passing on and the flood of supply ... I don't see in any scenario how it works out. The question isn't will it be bad, it's going to be, how bad. Whiich of course will be good moving forward for the younger people, who desperately need a shot in an economy that has been against them since they were born.
 

PixelFree

Woodpecker
It looks like coronavirus is going to put the big hurt on both home sale prices and rents.
Some more context on this article.

The ‘CBD’ = Central Business District. Equivalent to the US Downtown.
Traditionally, there was no residential in the CBD. It was just skyscraper offices and business hour retail and cafes basically.

There has been a new trend over the last 10 to 20 years and a massive increase in the supply of CBD based residential, which typically takes the form of poorly built dog box sized apartments in massive towers. It’s the international student market (Chinese) as well as those ‘new Australians’ (Indians) 457 visas (H1B) that live in these areas (as well as English, interstate, etc). In fact, these apartments are specifically targeted towards overseas Chinese buyers as it helps them with citizenship in some way.

The CBD is a ‘new suburb’. In someways it’s very convenient and close to lots of lifestyle but in other ways it’s getting too hectic and dirty.

It’s no surprise to see vacancy go through the roof in these areas, it’s primarily international and itinerant people that live in them. I think it will have a flow on effect if/when rents drop quite a lot in the CBD.

In fact, people have long predicted an inner city / CBD apartment property collapse. It’s just the opposite of how Australians like to live. When they were overbuilding into oversupply no one could work out how they could possibly be filled, but they were, by the third world.
 

Laner

Hummingbird
Gold Member
I live in one of these high rises in downtown. Most of my friends in Vancouver do as well. The buildings here in Canada are not poorly built. Some take shortcuts like having only two elevators, or don't paint the halls enough. But in the dozens of buildings here that I am familiar with, none have ever stood out as being poorly built immigrant ghettos. I won't argue for Australia, as it has been a number of years since I lived there, but in my memory the nice low rise condo's of inner city suburbs were amazing there too.

Who wants to buy these condos? I have the numbers on these as well. Like I mentioned, April numbers have just come out here.

- Professional couples under 40
- Professional singles under 40
- Couples with one or two children
- Downsizing retirees
- Downsizing empty nesters still working

Mostly its people who work a lot and enjoy the convenience. Currently I am waiting out this covy madness at my farm. Its essentially in a suburb, so its not rural. But things like getting groceries become a huge pain. School. Forgetting something from the market is frustrating. Coming from downtown where I can be in and out of Costco in less than 20min - from my condo door back to my condo door. I can see my local pub from my home office. I can look down into the plaza of a train station and watch hundreds of people go about their days. Off to the burbs or the main train hub 3 stations away. Getting the basics of life done downtown takes no time at all. It leaves hours of extra time per day to work, play with kids, etc.

This covy shit has many people thinking though. Look at me, I have been out here for 8 weeks on Wednesday. Going back is not really my priority right now as the crush of humans downtown still seem too panicked. But restaurants and pubs are opening next week and retail is opening today so people should start to mellow out here soon. Hopefully.
 

ball dont lie

Kingfisher
Gold Member
I sold a house in March and couldnt believe the buyer went through the purchase to be honest. It was a white knuckle event.

Then I saw my cousin that same week and heard he just bought a house. I couldnt believe it. He said it was a good deal, but looking at the numbers, the area, etc, it dont agree.

In my small town there were a lot of for sale signs up, but some of them have been taken out of the yards. I walk my dog through the town different streets each day and these houses didnt sell.

One house I know had a for sale sign, then a sold sign, but the original owners are still there months later. They have the same kind of dog as mine and we chat if the owners are outside.

I have cash waiting to buy, but right now Im not seeing a big drop in prices. I asked a local realtor I know about it, but he didnt want to say anything one way or the other. If prices fell 30-40% here, I would buy immediately. Better than the stock market, better than cash.
 

Troller

Woodpecker
One house I know had a for sale sign, then a sold sign, but the original owners are still there months later. They have the same kind of dog as mine and we chat if the owners are outside.
Probably lease back. Selling and renting betting the market will go down. Believing they can buy cheaper in future.
 

PixelFree

Woodpecker
The buildings here in Canada are not poorly built. Some take shortcuts like having only two elevators, or don't paint the halls enough. But in the dozens of buildings here that I am familiar with, none have ever stood out as being poorly built immigrant ghettos. I won't argue for Australia, as it has been a number of years since I lived there, but in my memory the nice low rise condo's of inner city suburbs were amazing there too.
It's probably more correct to say they are poorly designed, rather than built (although we have had an issue with non-fireproof cladding used in some buildings, resulting in a repair bill in the millions for the owners).

They're too small, don't have enough light, not enough car parking, have views that suck or become built out, have styles that date and paper thin walls. They're classic 'investor builds' rather than owner occupier builds. One of the main things people complain about is the lack of character or community vibe in these areas, although that's probably more specific to my city. It's a bunch of people who have no connection to each other all living together in a cluster of towers. Some wouldn't even be able to converse with each other. Foul cooking smells throughout some corridors, loud AirBnB parties, escorts use them for 'call ins', etc.

If I was going to live in the CBD, I would buy into one of the solid, beautiful old buildings that has been renovated/converted. Some of these were originally government offices or old grand hotels. Then you'll get a bit of charm and uniqueness as well.
 
I've been warning friends and family a recession was coming within 12-18 months back in 2019. Everyone scoffed at me for not buying into the inflated market despite my carefully laid out divine logic. Now I want to reciprocate and dunk on these fools but it seems cruel knowing some of them have already lost 10% (that's 200k for a guy that recently bought a 2m house in Sydney). The MSM has finally figured out there isn't going to a soft landing for real estate and they are calling for a MODEST 30% drop. These are rookie numbers. Aussie banks always seem to underestimate their own currency and property devaluations. Based & Red-pilled Irish economists have been talking about a 60% drop from the peak and this before anyone knew about Covid19. There's no nice way to put it, houses will go underwater and cheeks will get busted.

One interesting question will be how will cities pay for subsidized housing for their large urban ghetto populations if all the knowledge economy workers have moved away and are paying fewer taxes?
Raise taxes on the middle class and inflate the money supply to pay for everything. There's some talk about taxing capital gains harder.
 

Troller

Woodpecker
Jewish/french kingmaker/whore/futurologist/purse carrier/elite mouthpiece/ Jacques Attali wrote recently:

"The stock market has never been better and will continue to increase the value of financial and real estate assets, while jobs and salaries will decline. The level of precariousness of those who are not protected by virtue of some form of status and who depend on their clients or employers for their livelihood will be aggravated. Unemployment, precariousness, homelessness, and hunger, has affected or will pose a threat to countless families in Europe, most of whom are not yet aware of these risks.

Finally, life in the post-crisis era will favour the rich and make the lifestyle of the people more expensive. In other words, the life of the mass, from whom the rich like to stand out: public transportation will take longer; tourist trips will be more expensive; public beaches will be more difficult to access. Food will be more expensive."


There´s also a video of Singapore bank which I can´t find online. Stating basically the same. It will depend on covid. But for now there´s a disruption not a recession.

Honk Honk
 
Last edited:
I made the same prediction. It was already happening. Like most say, it's just another push in the same direction or an application of acceleration of things.
 

PixelFree

Woodpecker
To be fair, Australian property (particularly Melbourne and Sydney) has become massively unaffordable. $800k AUD for an OK house in the middle-outer suburbs. $2.2M AUD for a family home in an nice inner suburb within 10kms.

Australia escaped GFC 1.0, maybe it's crunch time for us now, be it natural market behaviour or manufactured.
 

paninaro

Woodpecker
"Real estate" is quite broad. In my area (large US city), for residential sales of SFHs (single-family homes), there are currently more listings under contract than for sale. That's pretty much never happened, and that indicates there's high demand and insufficient inventory. One reason behind it is people don't want strangers traipsing through their house for fear of infection, so they took their houses off the market. The only ones still on the market are the speculative (new builds not sold before construction started) and otherwise empty houses, since those can be easily shown.

But here's my prediction:

Residential: general slow downturn to accompany general economic downturn. A short-term moratorium on foreclosures, as well as low interest rates, will delay when this really impacts, but it'll happen.

Commercial Retail (stores/restaurants): Tenants are already either not paying or paying a drastically reduced rent. Restaurants can't make money if they're restricted to takeout only, or can seat but only at 25% capacity. They'll deal down their rents, and the landlord will go for it, knowing it's impossible to find a new tenant these days. My friend has a couple retail stores that are currently closed due to the virus, and the landlord happily took his offer of paying 25% of the usual rent -- most tenants weren't paying at all.

Commercial Office/Industrial: A lot of companies have realized working from home is possible, and they will fear lawsuits if they make everyone come back to work and someone gets sick. This means many companies will downsize their office space footprint. I predict a decline here too.

Maybe it's a good time to short large retail mall operators and REITs, though the market may have already done so and there aren't good deals to be had.
 

jordypip23

Pelican
Gold Member
A shrewd tycoon should start a business specializing in retrofitting office rooms for high end corporate types. In the New York metro area as many Manhattan residents flee to suburban & exurban 2nd homes (and new primary homes), one of their top requests is a properly outfitted office room.
 

Troller

Woodpecker
Spoke to some people. At this moment developers are not lowering prices. And sellers don’t know if there are no buyers because of lockdown or there are simply no buyers. Transactions numbers fell sharply during lockdown. If there’s a second wave it’s going to crash. People are holding on. Negative interest rates in USA probably. Higher taxes to support madness. Spain is talking about a 2% tax above 1M. Which means 20k.
Reports of new virus outbreaks in France. 50 schools closed.
 
Top