[MBS-Guru]

Either this thing gets build or not.I dont think the current market conditions is going to be a factor on the additional floors.

Even in these doom and gloom times real estate is still a good investment in Toronto. Build them taller and more investors will buy.

Not to be a doom and gloomer but how is it still a good investment?. If you bought in 2007/Early 2008, you probably already lost 10% of your investment ..... and counting.

 

[lxmoss]

Not to be a doom and gloomer but how is it still a good investment?. If you bought in 2007/Early 2008, you probably already lost 10% of your investment ..... and counting.

I bought in May 2008. I don't think I've lost anything because I got the unit I wanted at price I was willing to pay and am able to carry the mortgage on it.

Furthermore, I entered the real estate market in 2005 and since then I'm up approximately $100,000. If that $100,000 evaporates it doesn't really matter since anywhere else I would consider buying will have depreciated as well.

 

[DaninToronto]

If you bought this as a new home, you will most likely will hold onto it over the long term. Only investors are being hurt and given the sheer number of them out there, the slow down may be a good thing for those not wanting to shell out hundreds of thousands of dollars for an apartment the size of a closet and buy a place at a reasonable price.

 

[Big Daddy]

Not to be a doom and gloomer but how is it still a good investment?. If you bought in 2007/Early 2008, you probably already lost 10% of your investment ..... and counting.

People who handle their own investments are their own worst enemy. Just because things are slowing down (and by the way prices did not drop 10%) doesn’t mean they will never climb again at higher rates. Just hang on, sit back and wait. If you are investing for the short term, you shouldn’t be in real estate anyway. If you want guaranteed returns, invest in CSB's (very low return). Remember, over the last 50 years prices have increased in Toronto with ups and downs along the way - but the overall trend has always been up.

According to TREB "The average GTA price in November 2008 was $368,582. During the same period last year, the Toronto MLS system recorded an average of $393,747". That does not mean prices have dropped $25,000 - Higher priced homes are selling much slower than lower priced homes so the mix is significantly different with a much higher ratio of lower priced homes which brings down the average. A new price index gets around this apples-to-oranges comparison and shows by how much CREA statistics miss the mark. The repeat-sale price index (RSPI), developed by Teranet Inc. and National Bank, says house prices are still above the level of a year ago by 3.3%. Just relax and remember things will change again in a year or two - enough with the "end of the world" doom and gloom already.
Think of it this way, We have 94% Employment and the economy created a net 133,000 jobs across Canada in 2008* – that’s less than last year’s increase, but an increase all the same.


“Statistics Canada said Friday the job losses lifted the official unemployment rate to 6.3 per cent, from 6.2 per cent in October. November's result cut deeply in the job creation record for the year, bringing the accumulated gain to 133,000.*â€

*Friday, 5 December 2008 - 8:22am. THE CANADIAN PRESS

 

[greenleaf]

The discussion on using real estate as an investment tool reminds me of the study on Amsterdam housing prices from about 1650 to now. Basically, housing prices in Amsterdam (adjusted for inflation) barely grew over time.

From the NY Times:

"Between 1628 and 1973 (the period of Eichholtz's original study), real property values on the Herengracht — adjusted for inflation — went up a mere 0.2 percent per year, worse than the stingiest bank savings account."

And another graphic found that displays this:

 

[lawsond]

man, that eerste wereldoorlog really sucked for onroerend goed.
on the other hand the tweede wereldoorlog seemed to liven things up after the bezetting.
dunno why but the dutch just crack me up.

 

[cdr108]

People who handle their own investments are their own worst enemy. Just because things are slowing down (and by the way prices did not drop 10%) doesn’t mean they will never climb again at higher rates. Just hang on, sit back and wait. If you are investing for the short term, you shouldn’t be in real estate anyway. If you want guaranteed returns, invest in CSB's (very low return). Remember, over the last 50 years prices have increased in Toronto with ups and downs along the way - but the overall trend has always been up.

According to TREB "The average GTA price in November 2008 was $368,582. During the same period last year, the Toronto MLS system recorded an average of $393,747". That does not mean prices have dropped $25,000 - Higher priced homes are selling much slower than lower priced homes so the mix is significantly different with a much higher ratio of lower priced homes which brings down the average. A new price index gets around this apples-to-oranges comparison and shows by how much CREA statistics miss the mark. The repeat-sale price index (RSPI), developed by Teranet Inc. and National Bank, says house prices are still above the level of a year ago by 3.3%. Just relax and remember things will change again in a year or two - enough with the "end of the world" doom and gloom already.
Think of it this way, We have 94% Employment and the economy created a net 133,000 jobs across Canada in 2008* – that’s less than last year’s increase, but an increase all the same.


“Statistics Canada said Friday the job losses lifted the official unemployment rate to 6.3 per cent, from 6.2 per cent in October. November's result cut deeply in the job creation record for the year, bringing the accumulated gain to 133,000.*”

*Friday, 5 December 2008 - 8:22am. THE CANADIAN PRESS

I agree that the overall trend it up, but it doesn't necessarily make it a good investment.

Interesting that you should put that graph up trying to illustrate the 'uptrend'.
I will assume a starting price of $100,000 in 1953, and give you the benefit of $393,747 in 2008.

To calculate the annual interest rate appreciation:


FV = PV * (1.0 + i) ^ n
(1.0 + i) ^ n = FV / PV

FV = future value;
PV = present value;
i = annual interest rate, expressed as a percentage;
n = total number of compounding periods;


(1.0 + interest rate) ^ 55 = $393,747 / $100,000
(1.0 + interest rate) ^ 55 = 3.93747
(1.0 + interest rate) = 55 root [3.93747]
(1.0 + interest rate) = 1.02523195
interest rate = 0.02523195

THAT'S 2.523195 percent compounded annually!!!

Geez, I guess CSBs don't sound that bad now considering 0% risk; cashable anytime; and no 5% commission to a realtor !!!

 

[bornandbredinto]

The 2.5% isn't anything special, but remember very very few people could or should pay for real estate 100% outright. If you only put 20% down, then that becomes more like a 12.5% annual return. Looking at it from an investors point of view. Assuming you were renting the property out, you've also gained equity from the mortgage payments your tenant made.

 

[cdr108]

The 2.5% isn't anything special, but remember very very few people could or should pay for real estate 100% outright. If you only put 20% down, then that becomes more like a 12.5% annual return. Looking at it from an investors point of view. Assuming you were renting the property out, you've also gained equity from the mortgage payments your tenant made.

I believe your assumption of 12.5% annual return is incorrect for a principal residence.

You forget that if there's a mortgage, there are interest payments (which would typically have been for 25 years but could until recently been extended to 40 years); nor the added costs of maintenance over the lifetime of the building, etc.

I somewhat agree with you from an investor's point of view; however, it only makes sense if there is positive cashflow with no more than 20% down. What we've seen from the last 5 years at least are RE speculators looking to make short-term capital gains and not long-term rental income once the mortgage has been cleared.

 

[Flux Capacitor]

"The 2.5% isn't anything special, but remember very very few people could or should pay for real estate 100% outright. If you only put 20% down, then that becomes more like a 12.5% annual return. Looking at it from an investors point of view. Assuming you were renting the property out, you've also gained equity from the mortgage payments your tenant made."


I agree with the above theory 100%! it's about building equaty. and overtime, with a reduced mortgage, you could even hold it with a positive cash flow until the market trend changes. Like he said, and i said.... IT'S ABOUT BUILDING EQUATY!

 

[BobBob]

THAT'S 2.523195 percent compounded annually!!!

I'm pretty sure that graph uses figures adjusted for inflation, which you are not adding to your figures. I'm pretty sure the average house didn't cost $100,000 in 1953 in 1953 dollars!

 

[cdr108]

I'm pretty sure that graph uses figures adjusted for inflation, which you are not adding to your figures. I'm pretty sure the average house didn't cost $100,000 in 1953 in 1953 dollars!

Sorry BobBob, you are correct that the graph is adjusted for inflation.
I pulled an old post to verify by comparing the 1989 vs 2008 prices.

Cut through the hype and do the math
October 11, 2008

Tony Wong

If you had purchased a home in Toronto at the peak of 1989 for $280,767, it would have taken you till 2002, or an agonizing 14 years later, before you broke even.

And that's not factoring in inflation. An inflation rate of 30.7 per cent compounded annually from 1989, means that your home would have to have increased in value to more than $367,000 if you were to come out ahead back then.

Which is a roundabout way of saying some people from 1989 still haven't got their money back.

IMO 2.523195 % cpa is not that great since there are many added annual costs not calculated into the 'appreciation'.

And there is the great risk of buying at the peak and having to wait at least 14 years just to break even as reflected in the newspaper article.

I'm not saying RE is never a good investment, but it's NOT ALWAYS one.
For me it's all in the math like the author stated, whether it be as a personal residence or investment purposes.

 

[BobBob]

Like I pointed out, it's not 2.5%, it's 2.5% plus average inflation over that period, which brings us closer to the oft-cited 5-6% average annual appreciation.

 

[cdr108]

Like I pointed out, it's not 2.5%, it's 2.5% plus average inflation over that period, which brings us closer to the oft-cited 5-6% average annual appreciation.

Which precisely illustrates that TO was in a bubble as much as any other city.

From what I've reviewed of historical values, RE doubles in value every 18 years or so, which translates to ~ 4% cpa.

Even if we use your cited 5-6% average annual appreciation, TO values are still 20% overvalued; and the graph illustrates it as much.
That means we will probably undershoot the trendline before we get back to the norm.

 

[bornandbredinto]

I believe your assumption of 12.5% annual return is incorrect for a principal residence.

You forget that if there's a mortgage, there are interest payments (which would typically have been for 25 years but could until recently been extended to 40 years); nor the added costs of maintenance over the lifetime of the building, etc.

I somewhat agree with you from an investor's point of view; however, it only makes sense if there is positive cashflow with no more than 20% down. What we've seen from the last 5 years at least are RE speculators looking to make short-term capital gains and not long-term rental income once the mortgage has been cleared.

Keep in mind, with 20% down, an investor would be wise to take a heloc. At today's rate of 4.5%, that equals $375 for every 100k of mortgage. On a 300k property, that's $900/month + about $550 in taxes and maintenance. A 300k property in downtown toronto should easily rent above $1450/month. The excess is all principal gained.