You can’t have an Easter dinner in Toronto right now without somebody bringing up the topic of our “crazy” real estate market.
Below is a chart from Bloomberg showing the year-over-year change in home prices in the Greater Toronto Area since 1990. It also shows the historical average (in blue) and how in March 2017 we hit 4 standard deviations above that. Home prices rose 33% in March compared to a year earlier.
If I were a realtor, I’d probably tell you that the market is hot hot hot. Now is the time to sell because you’ll get some absurd number above your asking price and now is the time to buy because prices are going nowhere but up. Don’t miss out.
I would like to try and be a bit more nuanced than that. Here are 3 thoughts:
1)
There’s no question that low rates / cheap money is one of the root causes of the real estate valuations we are seeing today. But frankly I have no idea when or if that will change. There is an interesting argument out there that capital is no longer scarce. Our economy is going through a fundamental shift, which is why real estate is not the only asset class seeing these sorts of valuations and growth figures.
2)
There are a number of global factors which are helping to cement Toronto’s position as an alpha global city and destination for human capital. Think Trump, Brexit, and so on. I agree with Richard Florida’s argument that our real estate market will see more – not less – pressure going forward. Here is a snippet from a recent interview with Florida in Toronto Life:
I think Toronto is going to get an even bigger influx of the creative class. With the rise of Trumpism, more and more people who might otherwise have gone to the United States are going to come to Canada. We’re going to see American tech companies invest more and more in Toronto. And if we think the housing affordability and economic divide we see today is bad, it’s going to grow ever more gaping.
3)
I believe that there are always opportunities in the real estate space, but that you have to be disciplined, focused on fundamentals, and willing to do things that others won’t. What bothers me is when I hear people say things like: “Real estate only goes up. You can never go wrong.” I started my career pre-2008 and lived in both the United States and Ireland. I saw what down looks like.
On Monday, Tesla surpassed GM in market value, making it the most valuable U.S. automaker. It’s also the first time in modern history that this title was held by a car maker not based in Detroit. The gravitational pull to Silicon Valley is immense, today.
I subscribe to Alan Murray’s CEO Daily newsletter and his overarching comments were as follows: GM sold 10 million cars last year. Tesla sold 76,230 cars (albeit high value cars – my 2 cents). And Tesla lost three quarters of a billion dollars last year. Are we partying like it’s 1999?
This is an expectations game.
Elon Musk crafted an electric sports car that was actually cool and Tesla is certainly one of the leaders when it comes to autonomous vehicle technology. If Tesla is the company that transitions our economy to both electric and autonomous vehicles, then is a current market cap > $51 billion justified?
I don’t know.
But given how often we talk about electric and autonomous vehicles on this blog (in the context of city building), I thought it would be worthwhile to also talk about where Wall Street is putting its money and placing its bets.
I couldn’t sleep last night, so I got up and pulled out an old issue of Monocle magazine from my nightstand. I then stumbled upon the following article by Taras Grescoe.
You can’t have an Easter dinner in Toronto right now without somebody bringing up the topic of our “crazy” real estate market.
Below is a chart from Bloomberg showing the year-over-year change in home prices in the Greater Toronto Area since 1990. It also shows the historical average (in blue) and how in March 2017 we hit 4 standard deviations above that. Home prices rose 33% in March compared to a year earlier.
If I were a realtor, I’d probably tell you that the market is hot hot hot. Now is the time to sell because you’ll get some absurd number above your asking price and now is the time to buy because prices are going nowhere but up. Don’t miss out.
I would like to try and be a bit more nuanced than that. Here are 3 thoughts:
1)
There’s no question that low rates / cheap money is one of the root causes of the real estate valuations we are seeing today. But frankly I have no idea when or if that will change. There is an interesting argument out there that capital is no longer scarce. Our economy is going through a fundamental shift, which is why real estate is not the only asset class seeing these sorts of valuations and growth figures.
2)
There are a number of global factors which are helping to cement Toronto’s position as an alpha global city and destination for human capital. Think Trump, Brexit, and so on. I agree with Richard Florida’s argument that our real estate market will see more – not less – pressure going forward. Here is a snippet from a recent interview with Florida in Toronto Life:
I think Toronto is going to get an even bigger influx of the creative class. With the rise of Trumpism, more and more people who might otherwise have gone to the United States are going to come to Canada. We’re going to see American tech companies invest more and more in Toronto. And if we think the housing affordability and economic divide we see today is bad, it’s going to grow ever more gaping.
3)
I believe that there are always opportunities in the real estate space, but that you have to be disciplined, focused on fundamentals, and willing to do things that others won’t. What bothers me is when I hear people say things like: “Real estate only goes up. You can never go wrong.” I started my career pre-2008 and lived in both the United States and Ireland. I saw what down looks like.
On Monday, Tesla surpassed GM in market value, making it the most valuable U.S. automaker. It’s also the first time in modern history that this title was held by a car maker not based in Detroit. The gravitational pull to Silicon Valley is immense, today.
I subscribe to Alan Murray’s CEO Daily newsletter and his overarching comments were as follows: GM sold 10 million cars last year. Tesla sold 76,230 cars (albeit high value cars – my 2 cents). And Tesla lost three quarters of a billion dollars last year. Are we partying like it’s 1999?
This is an expectations game.
Elon Musk crafted an electric sports car that was actually cool and Tesla is certainly one of the leaders when it comes to autonomous vehicle technology. If Tesla is the company that transitions our economy to both electric and autonomous vehicles, then is a current market cap > $51 billion justified?
I don’t know.
But given how often we talk about electric and autonomous vehicles on this blog (in the context of city building), I thought it would be worthwhile to also talk about where Wall Street is putting its money and placing its bets.
I couldn’t sleep last night, so I got up and pulled out an old issue of Monocle magazine from my nightstand. I then stumbled upon the following article by Taras Grescoe.
What really stood out for me was this line:
“Thickets of haphazardly planned condo towers, compacted amid neighbourhoods of single-family houses, have led to congestion nightmares in Toronto and notoriously out-of-hand housing costs in Vancouver.”
It bothered me for a few reasons:
- The frame of reference is the single-family house. It perpetuates the cultural bias that what matters most in cities, like Toronto and Vancouver, is low-rise housing.
- I don’t get the “haphazardly planned” comment. New tower development has been heavily concentrated in the downtown core, growth centers, along the Yonge subway corridor, and so on. Their built form is also significantly influenced by their relationship to these low-rise “Neighbourhoods.”
- I believe that building up, as opposed to out, is the way to address congestion nightmares. Though I will concede that our ability to plan and execute on transit in this city is positively deplorable.
- How did thickets of condos create an affordability problem in Vancouver? Many factors at play in this city, including a powerful geographic supply constraint.
Those are just a few of my thoughts from early this morning. What are yours?
What really stood out for me was this line:
“Thickets of haphazardly planned condo towers, compacted amid neighbourhoods of single-family houses, have led to congestion nightmares in Toronto and notoriously out-of-hand housing costs in Vancouver.”
It bothered me for a few reasons:
- The frame of reference is the single-family house. It perpetuates the cultural bias that what matters most in cities, like Toronto and Vancouver, is low-rise housing.
- I don’t get the “haphazardly planned” comment. New tower development has been heavily concentrated in the downtown core, growth centers, along the Yonge subway corridor, and so on. Their built form is also significantly influenced by their relationship to these low-rise “Neighbourhoods.”
- I believe that building up, as opposed to out, is the way to address congestion nightmares. Though I will concede that our ability to plan and execute on transit in this city is positively deplorable.
- How did thickets of condos create an affordability problem in Vancouver? Many factors at play in this city, including a powerful geographic supply constraint.
Those are just a few of my thoughts from early this morning. What are yours?
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