[Chris_Hull]

[/B]

First thing I learned is never say "never". I am sure that is what people thought in the US before prices dropped over 50% in some places which I am sure we would all agree is a crash.

New condo fees do not have low maintenance. The average of most new projects is now 50-60 cents/sq.ft. Some are reporting in the 40 cents range (and I know some even lower) but these are massive projects as a rule or limited amenities. As well, of greater issue, I believe new condos to not make a calculation for the reserve fund or do a very low one and within a year or 2 when the first year budget is revised, condo fees go up quite rapidly to make up for funding of the reserve fund.

Yes I agree, we can't rule out any possibilities here, but the thing is when we look at more conditions such as the Financing requirement and buyers' structure in our country, we will find a lot of significant differences. Also under current economic conditions, do you believe our central bankers can increase interest rates to 10% while US, Europe, China, Japan and all other countries are competing to ease their money supply? I bet our central bankers to increase interest rate immediately to 10% so we can stop guessing from time to time. The question is, dare they do so!?

 

[interested]

^^^
I would go a step further Chris.
If one follows what has happened to mortgage interest rates over the past 30 years...they were 20% in and around 1981; they peaked about 13% in 1987 then the next recession.
then I believe around 10% in 1992; 7% or thereabouts in 1999 and 5% in early/mid 2000's. Now they are at 3-4%. Will they go up....yes I believe so but each time the economy has faltered at lower interest rate levels.

So yes, 10% interest rates are possible but I sincerely doubt we will see it in the forseeable future. One caveat. If we get rampant inflation or stagflation as in the 70%, yes interest rates will go up markedly and the economy will suffer tremendously. I sincerely hope we don't see that.

 

[Chris_Hull]

^^^
I would go a step further Chris.
If one follows what has happened to mortgage interest rates over the past 30 years...they were 20% in and around 1981; they peaked about 13% in 1987 then the next recession.
then I believe around 10% in 1992; 7% or thereabouts in 1999 and 5% in early/mid 2000's. Now they are at 3-4%. Will they go up....yes I believe so but each time the economy has faltered at lower interest rate levels.

So yes, 10% interest rates are possible but I sincerely doubt we will see it in the forseeable future. One caveat. If we get rampant inflation or stagflation as in the 70%, yes interest rates will go up markedly and the economy will suffer tremendously. I sincerely hope we don't see that.

To Interesed: What also followed late 1980's and early 1990's R/E crash is fast rent increase. So the investors can always make a profit either from capital gain or from rental income. In terms of interest rate increase, yes, I do hope that Bank of Canada's constitution includes that killing the R/E economy is their first priority. Then they can easily raise the interest rate to 20% overnight regardless of our low CPI and quant easing all over the rest of the world. Then our R/E sector and probably the whole economy will be killed. By the end of the day, we people can simply deposit all our money in our saving account and get 20% return by doing nothing! World peace!

 

[interested]

^^^
Sarcasm aside. The low interest rates are killing older people, especially those without pension plans which are the majority of people. Also, boomers who are looking at retirement if they don't have a defined benefit plan or are not government employees have been severely hit.

I am not saying sky interest rates are a good thing. But clearly these absurdly unrealistic low interest rates are not good either.

I guess the answer as with most things is that it is best when things are in the middle. Rates high enough that savers are not punished yet low enough that borrowers can manage their affairs. Then I think we all come out ahead.

 

[interested]

One more point to Chris:
Rents may have increased rapidly...frankly I don't remember. They have been relatively stagnant over the past 10 years in Toronto however. There is some correlation between rent and affordability. Granted I even said that rent as part of disposable income may even go up but I doubt we will see rapid increases in rents. I believe in the 1980's and early 1990's, incomes were going up more rapidly than they are now (other than bank exec's and the top 5% of the population). My belief is that if interest rates do up rapidly, and the economy suffers, rent cannot and will not go up rapidly. Just my opinion

 

[cdr108]

The TREB should report the data of price per sqft because it is the only way of statistics that makes sense!

yes but that would entail actual work on behalf of all the agents who do the listings to get accurate figures and measurement, floorplans, etc.

 

[cdr108]

The dt condo price will hype in next five years. Think about that most newly released dt condo projects are selling at $750-$800 psft such as Casa2, Massey, Indx, 1000 Bay, Britt, Karma, Five etc. Some newly added units at One Bloor, U condo, Aura, Exhibit, Yorkville Plaza, Yorkville Condomium etc all selling at $800 to $1000 psft. No need to mention some giant projects such as 50 Bloor st and Ten York which we can expect to be priced at $1000psft or higher. Plus the parking spots coming along with these units are priced at $60,000+. After 2014 when all these expensive projects gradually enter into the market we will definitely see another round of price boom. Btw, don't expect these owners will cheaply dump their stocks because the rental market is very hot and rents continue to climb to new highs. Plus new condos have very low maintainence fees. So even if interest rates climb up 2-3% these unit owners can still easily make a positive cash flow. I believe the market can be flat for a short period of time but you can never expect it will crash.

please provide figures/calculations to support your general statements.
at least 5 examples would be appreciated.

at current prices, even with mortgage rates in the 4% range, these units DO NOT PROVIDE positive cash flow.
to suggest there will be positive cash flow when interest rates climb up 2-3% is laughable.

all new condos these days have $0.50+/psf maintenance fess but most have separate electricity/gas/water + maintenance fees for locker/parking is extra.

 

[CN Tower]

Chris Hull, you're either a sanguine optimist or a realtor. There's no other explanation for your ignorant comments.

Why is no one discussing the elephant in the room- the new condo market is absolutely dead and developers are crossing their fingers that buyers will close and not walk away. Not to mention the 18,000 unsold units about to flood the market.

One main reason- the investors have left town in a hurry!

 

[interested]

In the way of support about the new condo market, I was surprised to see that the very large Scott Street project, a very high profile project was 50% sold. In my view, this is one of the high profile projects that I would have thought would appeal to investors. Similar to INDX and the other large project that did well according to reports as I understand. That tells me that other less high profile launches are probably languishing. So while the 18000 may be about to flood the market with even more next year, my suspicion is that by 2015 we may well see decreased product and so the correction may not be as long or as severe as some are expecting. Not saying it won't happen. Just not as sure as some that it will be quite as severe as expected.

1 further point...if people stop buying, and if interest rates stay reasonably low (say under 5%) I think many investors will hold on and rent. Rents may suffer mildly and certainly those buying at $600+/sq.ft. will be in negative cash flow. The question is how negative and can they hold on. My suspicion is yes if interest rates stay at these rates for at least 2-3 years and then as I commented above, I think the decreased product may well give the reprieve by improving the market a bit as rents go up and people conclude they may buy again.

I suspect however that those investors buying mid range product in the core who paid $600 and up will not make a profit for many years when they try to sell.

 

[Chris_Hull]

please provide figures/calculations to support your general statements.
at least 5 examples would be appreciated.

at current prices, even with mortgage rates in the 4% range, these units DO NOT PROVIDE positive cash flow.
to suggest there will be positive cash flow when interest rates climb up 2-3% is laughable.

all new condos these days have $0.50+/psf maintenance fess but most have separate electricity/gas/water + maintenance fees for locker/parking is extra.

Dt rental market is tight and the vacancy ratio is close to zero. Everyone knows it is now seller's market in the rental market. My friends who own condos increase rent around 20% recently compared to last year but still received several offers in a day!

 

[interested]

For cdr: Chris' point about the downtown TO market is probably correct.
This is from Jamie Johnson's blog. Not sure if it has been posted. If so, I apologize. Market report for Aug/Sept posted Aug 20, 2012.

RENTAL COMMENTARY:

As noted above, the rental market is extremely tight with rising rents and rental volumes. While studio rents remained fixed at $1400 per month on average, the entry level for one-bedroom units – no den and no parking is now $1600! The high end of the one-bedroom market (parking plus den) is now $1850 on average. Over 550 one-bedroom units were leased in July – most for September 1st occupancy which is double the volume of the spring market! The entry level for two-bedroom units pushed to $2100 on average. Expect to pay upwards of $2600 for a two-bedroom with den and parking. One two-bedroom rental even attracted 14 offers! Days on market for even two-bedroom units is averaging just 8 days! Over 270 two bedroom units were leased – again double the normal volumes.
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Of course, this just may be a reflection of a lot of people waiting on the sidelines and choosing to rent waiting for prices to fall so they can then buy.
However, over the short term, if this continues, increased demand will absorb a bit more of those 18000 condos that CNTower referred to.

If we assume even 15000 hit the rental pool, if this month trend continues with 400 more than usual rentals... that may swallow up perhaps 3-5000 of these units and maybe population growth etc., people moving into the core will swallow the difference? Not sure this is the case, just offering this up as "food for thought".

 

[Chris_Hull]

please provide figures/calculations to support your general statements.
at least 5 examples would be appreciated.

at current prices, even with mortgage rates in the 4% range, these units DO NOT PROVIDE positive cash flow.
to suggest there will be positive cash flow when interest rates climb up 2-3% is laughable.

all new condos these days have $0.50+/psf maintenance fess but most have separate electricity/gas/water + maintenance fees for locker/parking is extra.

For example, a 1+1 at city place with parking and locker is now renting around $340,000 to $350,000. After 30% down payment, you borrow around $250,000 from the bank for 20 years, and your monthly mortgage payment is $950, and your maintainence fee is $350, and tax is $150, which totally added up to 1450. Such unit can be rented at $1700 to $1750 in the market. You can easily make a $250 to $300 cash gain. Also, never forget you have around 50% of mortage payment goes to yourself, only another 50% is waste as interest payment, so there will be another $475 income. These totally add up to around $750 income per month even if without any capital gains! Btw most maintainence fees do include water and heat, and for hydro bill, everyone knows tenants pay for this! There are many more examples here. Can any other investors give a live example to show us how you make a positive cash flow here?

 

[drewp]

I have seen at least a 10% increase yoy in regards to the rental market. On the other hand resale has slightly dropped from earlier this year. You probably will get 3-5% less for a condo now that sold earlier this year.

Rental market is a good indication that many first time buyers who were on the fence have decided to wait and see where the market turns next year. That being said because of the ridiculous multiple offer situations some people have been a part of they have opted to buy because there is so much more selection. We soon will see renters exhaustion.

 

[interested]

In your example Chris, you have to remember that you have $100K tied up yielding nothing. However, well capitalized investors/long term landlords will accept this. Short term speculators will not.

 

[Chris_Hull]

In your example Chris, you have to remember that you have $100K tied up yielding nothing. However, well capitalized investors/long term landlords will accept this. Short term speculators will not.

In my example you can easily make 9% to 10% return on investment without capital gain. That's why R/E is still a very favorable investment no matter in short, medium or long run. Do the math guys, and don't believe investors will simply sell out the properties without a profit!