Central Toronto Will End Badly - but Predictably

There's a segment that will clearly be the 'bellweather' of the coming crash - central and 'fringe' Toronto areas (i.e., what Torontonians of several generations would identify as 'crap' areas, that realtors have convinced dummies are now part of 'good' areas) where builders and resale newer construction (say, 1-10 years old) are being priced now well over $1M,and closer to $2M. Some of these are even on severed 20-foot lots, as greed cycles higher and builders (who used to work on 10-15% margins, stry to squeeze two over-luxuried shitboxes onto a 40-foot lot).

One troubling aspect of these areas is that realtors have engaged in 'swapping' sales to drive 'comparables' higher - either in the direct service of custom builders, or generally. While a smaller factor in the general stupidity of buyers, if it were the stock market where this sort of stunt were happening (i.e., slightly better regulated than realtors and TREB) this would lead to jail, not another gauche white and gold Lexus. In any event, the 'last greatest fool' buying into these areas - many carrying very large debt - will have themselves to blame, even if they don't realize the realtor-builder games going on. The only question is : 12 months? a lot longer? . But in the meantime, as a cash guy with a balanced portfolio and no over-exposure to this market, I love the fact that my executive peers at the banks are being paid to write Lemming Valium like: "we see a soft landing- our Bubble Index is just fine, folks", while we all know precisely how nice their CBU, Branch and "Special Loans" divisions are going to be to those yuppies self-deluded enough to plunge in on the back of a 'Carl Gomez' special (I single him out, only because every bubble needs its Mary Meeker penitent). Now - here's how it will all happen: (1) rates will continue to rise past the current 7% 5 year-fixed level; (2) the "Toronto is Different because we have a lot of Russian mobsters and Crazy 3rd world mid-east/asian/oopa-loopa or whatever migrants bringing money in and buying these overpriced piles" will fail to sop up the builder/reseller's greed and listings pool; (3) people may start to lose jobs, or, more likely, figure out that if they have an 8% $1M mortgage, the kids can't go to private school; and (4) the builders who are actually telling realtors "I know my house is worth $1.2M, but I won't take offers below $1.5 because, hey, there's gotta be at least one sucker in this market" will start to realize that their money-makers are now on list for 80, 120, or 150 days - and their banker (not the ones that write about 'soft landings') will start to invite them in for a chat more often.

And where should we all be? Well - not heavily invested, and not recently - keep cash, don't be the last lemming into the 'over $1m shitbox' lottery, and stay calm. THe great thing about being a long-standing torontonian is that you get to read about people selling real estate wohave only been in Canada a few years lecture the lemmings on how everything only goes up. This should be a lot of fun for those in the front row for this 'tragedy'.

Just thought about asking if the sellers are planning to upgrade or downgrade? Is 30 bathrooms in the future?

There is a market for these homes and it has no relation to any other part of the Real Estate market. The people who buy these homes have so much money that the price is not so much a factor in relationship to the location and facilities and more importantly the prestige of owning a home like this. As for the 22 bathrooms, well consider that a 3000 sq ft home often has 4 bathrooms and this is almost 11 time the size. Besides if you got to go in a home like this you could get lost before you find relief.