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interested

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Does not this sound eerily similar to Mr. Greenspan holding rates artificially low from 2001 to 2005. Did not end so well in the US.
Ka1, you may be right with your 2014 prediction. Personally I hope prices stop appreciating and frankly even go down a bit slowly so we do not reach a sudden end to a cliff.
 

daveto

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Today, Mr. Ben Bernanke has stated that low rates will stay till late 2014.

That means, rates in Canada will also stay low. That, in turn, means investors will keep on investing at these 'crazy' prices and that means there will be no bubble burst till at least 2014 end.

I'm not sure I understand the reasoning.
US Low rates did not prevent the US price correction.
Why would Canadian low rates prevent a Canadian price correction?
 

ILuvTO

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Teranet's final 2011 numbers are now out.

As of the end of December 2011, the Toronto index level is 138.15, which represents a 9.94% increase from the end of 2010. It's a 0.29% decrease month over month however.

Looking at the general trend curve, I'd say 2011 was an anomaly. Prices shot up too much last year. A more reasonable index level for Dec. 2011 would be something like 131.5, which would mean that Dec. 2011 prices are about 5% too high.

The index at the end of 2001 was 79.82. This means a 73.1% increase over the decade, or 5.64% per year. If we were to use my projected 131.5 number, that would mean a 64.7% increase over the decade, or 5.12% per year.

If we were to use an extremely conservative 4% increase per annum since 2001, the projected index would be 118.15. That's That would suggest that our 138.15 currently is 16.9% too high, or to put it another way, a 20 point drop would mean a 14.5% drop from December 2011 price levels.

---

In summary, personally I think that home price valuations in Toronto should be about 5-15% lower than where they are currently. However, although I wouldn't count on it, I still think a soft landing is plausible if interest rates rise slowly in the coming years.

BTW, a house nearby that I had been watching that was listed at $2.25 million and then dropped to $1.99 million has recently sold. I had told my neighbours that my guesstimate for a reasonable price on that home would have been closer to about $1.9 million. I wonder if I was in the right ballpark, based on purely a guess on the location and seeing only the exterior of the home and pictures of the interior.

Eug, I hear what you are saying. On the surface a 4-5% yearly appreciation in RE doesn't seem unreasonable. However when we take into account that wages have not even kept pace with that, and that the higher prices are a result of historically low interest rates, then is 4-5% still reasonable? I personally don't think so. However small we think 4-5% is, if the wage appreciation is not there to support it then I don't think it is reasonable to expect prices to stay where they are or for the market to land softly.

Just my opinion.
 

KA1

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I'm not sure I understand the reasoning.
US Low rates did not prevent the US price correction.
Why would Canadian low rates prevent a Canadian price correction?

Daveto, please, stop looking for any reasoning in my posts simply because it is not there. I/We need your reasoning to better understand the happenings. Now, you have given it to us. Investors should be careful and not be fooled into buying a condo in this low rate environment.
 

Eug

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Eug, I hear what you are saying. On the surface a 4-5% yearly appreciation in RE doesn't seem unreasonable. However when we take into account that wages have not even kept pace with that, and that the higher prices are a result of historically low interest rates, then is 4-5% still reasonable?
Yes. The reason I think they are is for two reasons:

1) Historically price increases in Toronto have been slightly faster than increases in the consumer price index.

But more importantly:

2) Real estate prices were depressed in the 90s. It took until the mid 2000s before prices actually reverted back up to the expected price curve. Now we're over the expected price curve, but not by a huge amount.
 
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radioheadmike

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Yes. The reason I think they are is for two reasons:

1) Historically price increases in Toronto have been slightly faster than increases in the consumer price index.

But more importantly:

2) Real estate prices were depressed in the 90s. It took until the mid 2000s before prices actually reverted back up to the expected price curve. Now we're over the expected price curve, but not by a huge amount.

Just curious, what is considered the expected price for GTA?
 

TheSpeculator

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Does anyone have an opinion about Massey Towers on corner of Yonge and Queen. Prices start at approx 620 psf. I never paid higher than $450 psf, so given the fact that this pre-con is in an unbeatable location, and given today's condo market sentiments, what do you think about this investment. I for one am staying away, but part of me is interested in this project.
 

CN Tower

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Does anyone have an opinion about Massey Towers on corner of Yonge and Queen. Prices start at approx 620 psf. I never paid higher than $450 psf, so given the fact that this pre-con is in an unbeatable location, and given today's condo market sentiments, what do you think about this investment. I for one am staying away, but part of me is interested in this project.

As you're soliciting opinions I'll share mine-

This is in fact a terrible location for a condo. Indeed I view most of Yonge Street in the core to be an undesirable place to live. I'd say the same for Wall Street. It is however a dynamite spot for an office tower though.

Perhaps because I am not a 'Speculator' I tend to view things differently but I would consider this project along with many in this hot zone as nothing other than overheated investor market flyers that developers are just clamoring to bring to market before the expected slowdown.
 

drewp

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As you're soliciting opinions I'll share mine-

This is in fact a terrible location for a condo. Indeed I view most of Yonge Street in the core to be an undesirable place to live. I'd say the same for Wall Street. It is however a dynamite spot for an office tower though.

Perhaps because I am not a 'Speculator' I tend to view things differently but I would consider this project along with many in this hot zone as nothing other than overheated investor market flyers that developers are just clamoring to bring to market before the expected slowdown.

I have price lists for the 23rd floor. It is averaging 680 a square foot. Parking is an additional $60000. Supposedly from the presentation conducted by an Agent I went to today that this is platinum VIP pricing. Yipeee!!

Because the presentation was to exploit inexperienced Agents I say no. It was a waste of time when information about how wonderful the area is skewed. First off they were comparing the prices to College Park which is the "nearest comparable" College park is being sold for 680 square foot (but he forgot to add parking was included in a lot of these units) Plus College park has direct underground access to the Subway. Massey has ......hmmmm nothing near by. Also prices at the Pantages were used as a refernce point to see how units increased since 2006 in this area. I find it hard to relate a 2004 condo/hotel to a new condo project. Also he said that you will have positive cash flow, but when I asked him to clarify he said if it is for a furnished unit, which are much harder to rent. Then he said that there is no cash flow anymore on new construction condos.......Hmmm so basically people are buying with the hopes of continious appreciation? Sure it might but if it doesn't than the rental rates won't cover you expenses. Don't seasoned investors like this gentemen tell us if there is not positive cash flow than don't buy (BTW he has a best selling book on investing). So basically he is contradicting an investors blueprint. This is a case and point when an Agent is whoring himself for the buider to unsuspecting Agents, which in turn to unsuspecting clients all for the glorious chance to be a part of VIP pricing.

Sorry needed to rant!!!
 

cdr108

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I have price lists for the 23rd floor. It is averaging 680 a square foot. Parking is an additional $60000. Supposedly from the presentation conducted by an Agent I went to today that this is platinum VIP pricing. Yipeee!!

Because the presentation was to exploit inexperienced Agents I say no. It was a waste of time when information about how wonderful the area is skewed. First off they were comparing the prices to College Park which is the "nearest comparable" College park is being sold for 680 square foot (but he forgot to add parking was included in a lot of these units) Plus College park has direct underground access to the Subway. Massey has ......hmmmm nothing near by. Also prices at the Pantages were used as a refernce point to see how units increased since 2006 in this area. I find it hard to relate a 2004 condo/hotel to a new condo project. Also he said that you will have positive cash flow, but when I asked him to clarify he said if it is for a furnished unit, which are much harder to rent. Then he said that there is no cash flow anymore on new construction condos.......Hmmm so basically people are buying with the hopes of continious appreciation? Sure it might but if it doesn't than the rental rates won't cover you expenses. Don't seasoned investors like this gentemen tell us if there is not positive cash flow than don't buy (BTW he has a best selling book on investing). So basically he is contradicting an investors blueprint. This is a case and point when an Agent is whoring himself for the buider to unsuspecting Agents, which in turn to unsuspecting clients all for the glorious chance to be a part of VIP pricing.

Sorry needed to rant!!!


thanks andrew.
we've been hearing more and more of this stuff about VIP presentations from agents that have integrity.

it's all about the quick buck, and forget the fact that the numbers / cash flow don't make sense.
i suppose the 'investors' are buyers who don't know/live in the area.
 

interested

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^^^
Great post Andrew.
I figure that is the next thing that will happen with this and other projects are as follows: We will see less and less things being included and the fine print will include all sorts of hidden costs.
I suspect the following for starters: Locker $5000
Parking $60,000 or more.
Visitor suites: Prorated amount to be paid by all purchasers:
Beautification donation to the City: To be paid by purchasers: etc. etc. And others that I can't think of but I am sure others will add others. Just like when buying a car.... oh, you wanted windshield wipers with the car....that is extra. In other words, anything to make the initial figure seem low.

If I could be indulged a bit of speculation; $680 /sq. ft. on floor 23 is the average price, I am wondering what smaller units (investor purchases are). Probably more like $700+ with the larger units being $660 probably. Since parking spots on the smaller units will not be added I am guessing (on a 450 sq.ft. unit and under as we are talking about $133/sq.ft. bringing that unit to well over $800 on floor 23, imagine when you get higher). So to buy a 2 bedroom(end user unit) here assuming it is 750 sq.ft. and that you would want parking if it was even $650/sq. ft. would mean $487,500 +$60,000 parking or $547,500 + I assume $5000 for a locker is $552,500 for the 23rd floor. This works out to $552,500/750 sq.ft. for the comparable resale which would include parking and locker already of $737/sq.ft.

This is just ludicrous. Whether or not prices get there is irrelevant in my view. The point is as an investor... makes absolutely no sense at all. Solely reliant as drewp says on appreciation. True speculation and speculation only....not investing in my view.


One additional point Drewp, in fairness to the agent who quoted this to you, while we may disagree with comparing it to RoCP or maybe Aura or the Pantages, these are probably the closest large scale projects and I think it is fair to do so. I am not sure what you would have him compare to. That said, he should compare the pricing with all the additons (parking and locker) included since one should compare apples to apples. But that would not make the project very appealing.

After my little rant here, I happen to like the location and I think Yonge street will improve and gentrify with time.
 

interested

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As you're soliciting opinions I'll share mine-

Perhaps because I am not a 'Speculator' I tend to view things differently but I would consider this project along with many in this hot zone as nothing other than overheated investor market flyers that developers are just clamoring to bring to market before the expected slowdown.

I wholeheartedly agree with this comment CN Tower. I suspect a number of projects in the pipeline will get cancelled this year, similar to what happened in late 2008-2009. That will actually help though I think investor/speculators will be waking up with buyers remorse. The lucky ones will be the ones who get their deposits back.

If I was to buy anything today, I would be very careful to choose a very reputable developer with a track record of good product/work and consistency.
 

interested

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Interesting further little anecdote:
I had posted about 1-2 weeks ago that we had 5 houses go up for sale in our neighbourhood. Since that time we had 2 more. This is within a 6 block radius. As I had said, usually we get 1 -2 houses every 6 months so I was surprised to see this many. Well, 4 of the 7 have sold and 3 remain. If this is indicative, things are still moving. Price range $800K to $1.28 mill.
There is still an $850K as well as $1.04 and the $1.28mill for sale asking. The $800K, $880K sold; as did the $980K and the $1.2mill.
I do not know what they sold for. This is in the "burbs" and I suspect central TO is moving even better.
Condos I know are another story but I note in the 2 buildings that I follow sales/rentals have been swift with most going within the month.
 

interested

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I came across this post from late Jan 2012. It is written by Andrew Lafleur of Remax condos plus.

Please note: I have no interest in promoting him and this may be biased but it is interesting blog. I know the usual biases we refer to and his vested interest to pump up real estate so more investors buy, but let's assume for a moment that his post is sincere.

I do not agree just because there may have been some increase in rents recently that it will continue in this fashion. Also, since so much product is due to hit this and next year, I suspect rents will be impacted. As well, I am just not sure there are that many people who can afford these rents. In fact, what I have heard is that people are moving into 1 bedroom/dens and small 2 bedrooms since 1 bedrooms have become too expensive and taking on room mates as a 2 bedroom is cheaper than 2-1bedrooms.

Anyone have views on this post or what the downtown market is doing. I knew it was up but my question is how much? I appreciate he is quoting the high end when saying that rents have broken the $3/sq.ft.[/B] range other than for high end.

http://truecondos.com/

Landlords and would-be landlords take note: the sky is not falling and it is not a bad time to be a landlord in this city. I’ve been watching the rental market more closely than ever these past few months and I’ve noticed some very surprising trends. Rents are going up, and going up much faster than anyone in the mainstream media (those who are trumpeting an impending market crash) would like to admit.

Here are two recent case studies that illustrate the current rental market environment:

Some clients of mine who are currently living and working in the U.K. but want to move back to Toronto in a year bought a 2 bedroom semi in Cabbagetown for around $600K. Their plan is to keep their foot in the Toronto real estate market and when they move back, renovate and move into the property. When they took possession of the property, they inherited the tenants who were paying $1900/month. The tenants are set to move out next month. They advertised the property for rent and after the first two showings they had two offers to rent from highly qualified and professional tenants. They ended up taking slightly less than they could have in order to get the tenants they wanted. The property will be rented at $2450/month with the tenant paying the gas and hydro bills. That’s an increase of 28% in rent from the previous tenant! The owners are enjoying break even cash flow with just 20% down.
New condo buildings are especially interesting. They are commanding rents never imagined just a year ago. For example, at M5V (375 King), you can get a great example of how rents have been creeping up significantly over just the last few months! If you take the example of a 852 sq ft 2 bedroom unit with parking, they were renting out for $2500 in October, $2600 in November, and $2700 in December! An astonishing increase of 8% in less than 3 months. $2700/month works out to $3.16 per square foot. The $3PSF barrier was until recently usually reserved for Yorkville properties and a few other select buildings downtown only. A studio just rented out at M5V for $1500/month and it was only on the market for 2 days! Prime downtown studios were fetching a max of about $1300/month just a year ago.

The point of this post is to illustrate anecdotally that rents are going up and going up fast for downtown properties, especially condos in brand new buildings on high floors. This is food for thought to the crowd that says the prices like $650-$700 per square foot for pre-construction condos are completely unsustainable because they will never carry themselves with 20-25% down. Three or four years from now do you think rents will be higher or lower than they are today?
 

cdr108

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The point of this post is to illustrate anecdotally that rents are going up and going up fast for downtown properties, especially condos in brand new buildings on high floors. This is food for thought to the crowd that says the prices like $650-$700 per square foot for pre-construction condos are completely unsustainable because they will never carry themselves with 20-25% down. Three or four years from now do you think rents will be higher or lower than they are today?

i find the examples of a 852 sq ft 2 bedroom unit with parking, they were renting out for $2500 in October, $2600 in November, and $2700 in December abit deceptive:
- this isn't new ... typical rents for the dt core ranges from $30-36 psf gross (no parking, + utilities, excluding Yorkville). this has been the case for a decade.
- parking is included with unit, that has a value of $150-200 / month ... i typically would not include that in the calculation psf
- without knowing full details as to what floor, upgrades, views, exposure, any locker, etc .... these will factor into the rent and desirability
- we're not talking about the same unit, perhaps identical layout but not the SAME one. it's not like the same tenant was paying $2500 in October, $2600 in November, and $2700 in December.
- M5V is in midst of completion/registration. from October to December, were more condo amenities completed/finished and made the building more presentable than earlier. there is a discount for living in a construction zone.

working backwards, let's see if the math works:
- 852 sf ft x $700 psf = $596,400
- less 20% dp (since that's the example he used for the SFH) = $477,120 mortgage
- $477,120 mortgage @ 5.25% for 5/25 yr (typical offering by big 5 banks) = $ 2,843 mort / m
(if it was 25% dp = $447,300 mort @ 5.25% 5/25 = $ 2,666 / m )

- property taxes @ 0.8%(current mill rate) = $4,800 = $400 / m
- maintenance fees @ $0.52 = $443 / m + $50 / m parking maintenance fee
- property insurance = $75 / m


in the above, the mortgage already equals or exceeds the rental income.
property taxes, maintenance fees and property insurance haven't been included and that's around $950+/m negative cash flow; or 35% more than current rents.

i guess that's why AL tried to allude that rents went up 8% in 3 months.
are we to extrapolate (erroniously) that on an annual basis that will be 32% ?!?



let's try the Cabbagetown semi example:
$600K - 20% dp = $480,000 mortgage;
- $480,000 mortgage @ 5.25% for 5/25 yr = $ 2,860 / m; that already exceeds the $2,450 rent.

- property taxes @ 0.8%(current mill rate) = $4,800 = $400 / m
- property insurance = $75 / m
- garbage + water utlities = $50 /m
- while there are no maintenance fees, since the owners are out of the country, one may have to pay for lawn maintenance and snow removal since res tenants leases don't usually need to do this = $125 /m

working backwards, $2,450 rent - $650 TMI costs = $1,800 net rent;
the only way the monthly mortgage would be that low is if the $480,000 mortgage is @ 1.00% for 5/25 yr ! ! !

http://www.mackenziefinancial.com/calc/jsp/MortgLoanAmortScheduler/mortgloanscheduler.jsp
 

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