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Longtime readers of this blog might remember a post that I published back in 2016 where I talked about the genesis story of Toronto-based developer David Wex and his company Urban Capital Property Group. In it, I wrote about his first project at 29 Camden Street in the Fashion District. It had a total of 55 condominium suites and an average price per square foot of ~$195. And it took somewhere around 2 years to pre-sell enough of the suites for construction financing.
The reason I bring this up today is because when I originally wrote the post, it seemed so far from reality. In 2016, I said that these same 55 suites could be sold within 2 hours at $800 psf! But now things have changed once again. The market realities that David was facing in the mid-90s with Camden Lofts feel remarkably similar to today. Selling even 55 suites might not be a sure thing. And this is the first time in over 2 decades that the market has been like this.
So for fun, let's consider what happened in the late 80s and 90s. The Toronto housing market peaked in 1989 at an average price of approximately $273,698 (according to the Toronto Regional Real Estate Board). It then went on to decline 27% over the next 7 years, finally bottoming out at approximately $198,150 in 1996. So it took around 8 years for the market to stabilize.
Of course, the market took even longer to return to its 1989 peak. The average home price crossed $275,000 in 2002, which means it took 13 years in nominal dollars. However, $275k in 1989 is the equivalent of around $610k in today's dollars. So in real dollars, it actually took until 2011 for the market to return to its prior peak, which is some 22 years later!
I'm not arguing that the exact same thing will play out with this cycle. Who knows, Toronto is a different city. But I have suggested that 2028 could be the year where we're on the other side of this downturn. The average home price peaked, most recently, in 2022 at ~$1,194,600. Since then, it has come down by around 8.5% (as a broad average). If the market does turn positive in 2028, that'll be 6 years after the peak.
Only time will tell.
Chart from the Toronto Regional Real Estate Board; cover photo by Melvin Lai on Unsplash
The world is increasingly spiky. Inequality is growing and it is increasingly geographic in nature. We know that people tend to make more money in urban areas compared to rural areas – even when they possess the exact same level of education. The returns to being smart and educated are simply greater in cities.
But they also depend on the size of the city. Mark Muro and Jacob Whiton of Brookings recently published data looking at labor market performance – by metro size – from 2009-2015 (right after the financial crisis). What they found is that larger metropolitan areas simply performed better than smaller ones.
In summary:
City size matters because it’s a major influence on city prosperity and adaptability as well as local worker fortunes. Bigger cities are more
Real estate is a highly levered asset class, which means that pricing is sensitive to interest rate changes.
Larry Summers recently published a post on his blog where he argued that the Fed (US) is being far too complacent about their ability to respond effectively to a future recession. He sees this as their biggest monetary policy challenge going forward.
Given the potential impact to real estate and city building as a whole, I thought I would summarize some of his key points:
Private sector GDP growth in the US averaged 1.3% over the last year
Since the 1960s, this level of tepid growth has typically foreshadowed a recession
Larry sees > 50% chance that the US economy will enter a recession in the next 3 years
400-500 basis points of monetary easing is usually needed to counter recessionary pressures
The Feds will likely not have this much room to play with when the next recession comes along
I don’t think anyone could have predicted that rates would remain so low for so long. (10-year Treasury = ~1.6% at the moment.) Still, my view has been that rates in Canada and the US won’t be posting meaningful increases anytime soon. And Larry’s post reinforces that for me.
What’s your view?
Longtime readers of this blog might remember a post that I published back in 2016 where I talked about the genesis story of Toronto-based developer David Wex and his company Urban Capital Property Group. In it, I wrote about his first project at 29 Camden Street in the Fashion District. It had a total of 55 condominium suites and an average price per square foot of ~$195. And it took somewhere around 2 years to pre-sell enough of the suites for construction financing.
The reason I bring this up today is because when I originally wrote the post, it seemed so far from reality. In 2016, I said that these same 55 suites could be sold within 2 hours at $800 psf! But now things have changed once again. The market realities that David was facing in the mid-90s with Camden Lofts feel remarkably similar to today. Selling even 55 suites might not be a sure thing. And this is the first time in over 2 decades that the market has been like this.
So for fun, let's consider what happened in the late 80s and 90s. The Toronto housing market peaked in 1989 at an average price of approximately $273,698 (according to the Toronto Regional Real Estate Board). It then went on to decline 27% over the next 7 years, finally bottoming out at approximately $198,150 in 1996. So it took around 8 years for the market to stabilize.
Of course, the market took even longer to return to its 1989 peak. The average home price crossed $275,000 in 2002, which means it took 13 years in nominal dollars. However, $275k in 1989 is the equivalent of around $610k in today's dollars. So in real dollars, it actually took until 2011 for the market to return to its prior peak, which is some 22 years later!
I'm not arguing that the exact same thing will play out with this cycle. Who knows, Toronto is a different city. But I have suggested that 2028 could be the year where we're on the other side of this downturn. The average home price peaked, most recently, in 2022 at ~$1,194,600. Since then, it has come down by around 8.5% (as a broad average). If the market does turn positive in 2028, that'll be 6 years after the peak.
Only time will tell.
Chart from the Toronto Regional Real Estate Board; cover photo by Melvin Lai on Unsplash
The world is increasingly spiky. Inequality is growing and it is increasingly geographic in nature. We know that people tend to make more money in urban areas compared to rural areas – even when they possess the exact same level of education. The returns to being smart and educated are simply greater in cities.
But they also depend on the size of the city. Mark Muro and Jacob Whiton of Brookings recently published data looking at labor market performance – by metro size – from 2009-2015 (right after the financial crisis). What they found is that larger metropolitan areas simply performed better than smaller ones.
In summary:
City size matters because it’s a major influence on city prosperity and adaptability as well as local worker fortunes. Bigger cities are more
Real estate is a highly levered asset class, which means that pricing is sensitive to interest rate changes.
Larry Summers recently published a post on his blog where he argued that the Fed (US) is being far too complacent about their ability to respond effectively to a future recession. He sees this as their biggest monetary policy challenge going forward.
Given the potential impact to real estate and city building as a whole, I thought I would summarize some of his key points:
Private sector GDP growth in the US averaged 1.3% over the last year
Since the 1960s, this level of tepid growth has typically foreshadowed a recession
Larry sees > 50% chance that the US economy will enter a recession in the next 3 years
400-500 basis points of monetary easing is usually needed to counter recessionary pressures
The Feds will likely not have this much room to play with when the next recession comes along
I don’t think anyone could have predicted that rates would remain so low for so long. (10-year Treasury = ~1.6% at the moment.) Still, my view has been that rates in Canada and the US won’t be posting meaningful increases anytime soon. And Larry’s post reinforces that for me.
What’s your view?
The situation is even more pronounced across the pond. According to the New York Times (quote from Richard Florida), a third of Britain’s gross domestic product comes from London alone.
What is far less clear is what should be done to address the decline of some of the smaller cities in America – cities that are stagnating and feeling left behind. But perhaps the first step is acknowledging what has happened and what remains feasible in today’s global economy.
Here is another quote from the above NY Times article:
Mr. Trump’s promise to relieve the pain by reviving the coal and steel industries, by keeping immigrants out of the country and by raising barriers against manufactured imports is only a rhetorical balm to satisfy an angry base seeking to reclaim a prosperous past that is no longer available.
That rhetorical balm.
The situation is even more pronounced across the pond. According to the New York Times (quote from Richard Florida), a third of Britain’s gross domestic product comes from London alone.
What is far less clear is what should be done to address the decline of some of the smaller cities in America – cities that are stagnating and feeling left behind. But perhaps the first step is acknowledging what has happened and what remains feasible in today’s global economy.
Here is another quote from the above NY Times article:
Mr. Trump’s promise to relieve the pain by reviving the coal and steel industries, by keeping immigrants out of the country and by raising barriers against manufactured imports is only a rhetorical balm to satisfy an angry base seeking to reclaim a prosperous past that is no longer available.
That rhetorical balm.
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