[CN Tower]

Johnzz,

The real estate agents are not your friends. By design they have competing interests.

Check out this link for accurate info on current and historical prices:

http://www.housepriceindex.ca/Default.aspx

As you can see, the index peaked in August 2008 at around 117 then dropped precipitously down to around 104 and rallied back up to around 120 today. So what's that? A 2% increase from August 2008?

Granted other investments might have underperformed (ie stocks) but if you factor in huge transaction costs (LTT, commissions, legal, etc.) you are well underwater in the past couple years. Bonds have you beat by a long shot.

So the market is back to where it was at the 2008 peak on the back of rock bottom rates and a very accommodative lending environment. Until the new mortgage rules take effect.

Long term investors shouldn't sell on this coming weakness I agree, unless they need the money, but it would be foolish to jump into the market for investment property today in my opinion. Foolish.

 

[interested]

Johnzz,


Long term investors shouldn't sell on this coming weakness I agree, unless they need the money, but it would be foolish to jump into the market for investment property today in my opinion. Foolish.

I agree CN Tower. We all know the expression: Liers,Damn Liers, and Statisticians. Real estate agents love to quote good figures (as do mutual fund companies and others to prove the point they are trying to make.) It would be short sighted to start the figures from 1997 when they started their increase and not look at what happened before that to get a better picture of what is likely to come. Problem is: Most of us have to reinvent the wheel instead of learning from prior errors.

 

[cdr108]

Johnzz,

The real estate agents are not your friends. By design they have competing interests.

Check out this link for accurate info on current and historical prices:

http://www.housepriceindex.ca/Default.aspx

As you can see, the index peaked in August 2008 at around 117 then dropped precipitously down to around 104 and rallied back up to around 120 today. So what's that? A 2% increase from August 2008?

Granted other investments might have underperformed (ie stocks) but if you factor in huge transaction costs (LTT, commissions, legal, etc.) you are well underwater in the past couple years. Bonds have you beat by a long shot.

So the market is back to where it was at the 2008 peak on the back of rock bottom rates and a very accommodative lending environment. Until the new mortgage rules take effect.

Long term investors shouldn't sell on this coming weakness I agree, unless they need the money, but it would be foolish to jump into the market for investment property today in my opinion. Foolish.

CN Tower, where did you read the index was 117 at the peak?

If I look at the National Composite, I see 130 in mid-2008 with a retracement to 120 and now surpassing 130 again.

From the beginning of 1999 to present (end of 2009), the index doubled from 65 to 130 ... that's 7.25% cpa.
Based on data I've seen, historical rates of appreciation was 4.25% cpa (not adjusted for inflation)

I wish the graph went further back and also had something specific for the various regions used for the Composite like Toronto, Vancouver, etc.

 

[interested]

CN Tower, where did you read the index was 117 at the peak?

If I look at the National Composite, I see 130 in mid-2008 with a retracement to 120 and now surpassing 130 again.

From the beginning of 1999 to present (end of 2009), the index doubled from 65 to 130 ... that's 7.25% cpa.
Based on data I've seen, historical rates of appreciation was 4.25% cpa (not adjusted for inflation)

I wish the graph went further back and also had something specific for the various regions used for the Composite like Toronto, Vancouver, etc.

I think CDR was talking about the Toronto data which peaked at 117 and then went up to about 120 after its decline in 2008/early 2009.

 

[Johnzz]

Johnzz,

The real estate agents are not your friends. By design they have competing interests.

They are neither friends nor enemies, but simply facilitators. They are generally rewarded for bringing buyers and sellers together, nothing more, nothing less.

A few (but not many) have the ability to synthesize data and project well thought out forecasts. I believe Brian Persaud to be one of these people. I think we're lucky to receive his insights on this forum.

 

[BrianPersaud]

That's not a valid comparison. I bet you could get even better results if you used 2001 prices. The real test is: do the numbers work with 2010 prices?

Fair enough, put a $50,000 downpayment on it. Can't use 2001 because those buildings are already lived in...550 Wellington is brand new going through occupancy now

 

[BrianPersaud]

Rents are $1450 to $1500 for a 1 bedroom in the city right now. However, I recall they were around $1500 in 2001 as well. I bought 600 sq. ft. at the time and said I will rent for $1200 as there will be a glut in 2004. New building unfinished amenities initially and I got $1300 though now almost $1500/month. In other words, there has not been much change in rental rates once buildings are complete. You cannot buy today at 2006 prices today and I suspect the same condo is at least $250K today assuming 500 sq. ft and $500/foot. As well, if there is glut and there is alot of product coming on the market shortly, why can't rents actually decrease again (at least somewhat)?

I can certainly see what that might make sense. But let's look at reality and the hard numbers.

Vacancy in Toronto is about 16,000 units. Net migration into Toronto has dipped because of employment, however it's still expected to be 64,500 people.

So currently the vacancy rate is 3.0% in downtown Toronto, and a bulk of that stock was built from 1960-1974.

What does that mean to condo buyers, well, no one wants to live in an old apartment building with roaches and mice, they want to live in a condo. Think this is conjecture? The vacancy rate for condos is about 0.8% while rents are 40% higher. It's pretty evident there is demand is there.

Think there is a glut going to flood the rental market?

According to CMHC pf the 20,000+ units that were registered, about 7,000 joined the rental supply. Ben Myers from Urbanation was on the show, he expects less than 20,000 to be registered this year. How many do you expect to hit the rental supply, say over 50% and the number is 10,000...Toronto can clearly handle it.

There is more Upward pressure on rents:
- HST
- Recent cmhc changes will mean fewer units available for rent (this includes houses and condos)
- Property tax increases
- Tenants can afford an increase
- Most renters who can afford are buying now, so what's going to be left are new residents that almost always rent, and people who are going to stay in the rental market.


Many landlords like myself would agree: they know that the real reason rents haven't gone up in older apartments is because we can't increase rents to market value because of the LTB...thats why condo rents are 40% higher than purpose built.

 

[BrianPersaud]

Hmm...

Sure, think of them as dumb, if it makes you feel better.

Perhaps you're still a little bitter after missing last year's 20% house price sale?

Agree, its not market timing....its time in the market. I went to the Concord Adex dinner a few weeks ago, those Asian agents bought all of Montage and Luna are are sitting on over $100,000 in equity on a $50,000 or less deposit.

Outside of the pre-con market, while we are debating, people's mortgages are being paid down, the get cashflow and benefit from the great appreciation.

Eventually the market will go down..But because of Toronto size, employment and migration...we'll be the first to bounce back

 

[BrianPersaud]

They are neither friends nor enemies, but simply facilitators. They are generally rewarded for bringing buyers and sellers together, nothing more, nothing less.

A few (but not many) have the ability to synthesize data and project well thought out forecasts. I believe Brian Persaud to be one of these people. I think we're lucky to receive his insights on this forum.

Thanks for the compliment.

I'm not an agent, but I disagree with CN tower's comment that they we have competiting interests with me. If my agent tries to sell me a lemon, he'll screw up his meal ticket because of all the deals I do and all the people I refer to him. what is going to do, screw up with me by saying that ICE is a steal at $715 psf to make $15,000 when I give him over $60k a year?

In addition, being at the other end negotiating with sellers agents....I have rarely seen their agent try to screw their client on a deal for more money. The worst I've seen was an agent not accepting my offer that was comparable to another offer that they convinced the vendor to take in order to double end it.

As for my comments being clouded from an agents perspective, I can see what you would think that...but I just tell you why I buy....and i'll admit, as a buyer 2009 was tough and I can't wait when the market cools down. All buyers will make more money if the market goes down when there are more motivated sellers

 

[simuls]

Vacancy in Toronto is about 16,000 units. Net migration into Toronto has dipped because of employment, however it's still expected to be 64,500 people.

So currently the vacancy rate is 3.0% in downtown Toronto, and a bulk of that stock was built from 1960-1974.

What does that mean to condo buyers, well, no one wants to live in an old apartment building with roaches and mice, they want to live in a condo. Think this is conjecture? The vacancy rate for condos is about 0.8% while rents are 40% higher. It's pretty evident there is demand is there.

Think there is a glut going to flood the rental market?

According to CMHC pf the 20,000+ units that were registered, about 7,000 joined the rental supply. Ben Myers from Urbanation was on the show, he expects less than 20,000 to be registered this year. How many do you expect to hit the rental supply, say over 50% and the number is 10,000...Toronto can clearly handle it.

I'd like to comment on a few things.

First, no one really knows what the vacancy rate is for condos. No one. The best one can do is throw a very very wild guess into the ether and hope it's accurate. Tons of the condos currently being rented have never ever been placed on the MLS (like mine) and never will because paying an agent to rent your place out is one of the silliest things to do and money down the drain unless you own tons of them. So while .8% might reflect condos rented through an agent, I'd guess there's an even larger market out there. 3-4x larger.

Second, while rents are definitely higher for condos for all the reasons you mention, they have been static for the past 8 years (meaning they have dropped in real terms) and are now dropping. I have several friends who have just recently rented brand new condos and they all managed to get either a)free parking, b) a free months rent or c) both. Also, they all rented independent of an agent on either side and the owners were very very willing to negotiate.

Third, I believe I saw Urbanation say that over the next 2 years we will see 37000 units completed in Toronto. While we could say, conservatively, that 14000 will be investment properties (I would peg the number at closer to 18000), what about all the people currently renting condos who will be occupying these newly completed condos. While I won't hazard a guess at the number, I don't think it's insignificant. The possibility even exists that many people will be like myself, in that I and my partner will be vacating 2 condos, to move into the one purchased. This could add 1000's more into the mix.

The one thing that I think is going in favour of currently owned rental condos is the ridiculous price of new construction. When I first bought in 2003, rent was equivalent to a mortgage at around $1500/month - assuming 15% down on a $200 000 condo ($170 000 mortgage). Now, that same equation makes a $1400/month condo cheap compared to the $2400 carrying costs of a $350 000($295000 mortgage)/condo with 15% down.

In order for prices/rents to get back into line with wages, we need a 20+% correction or the equivalent in terms of price stagflation for the next 5+years. Or, I could be completely wrong, and Toronto is now becoming like New York, London, Paris, etc., and real estate downtown is simply out of reach for 95% of the GTA populace.

 

[azureray]

...Or, I could be completely wrong, and Toronto is now becoming like New York, London, Paris, etc., and real estate downtown is simply out of reach for 95% of the GTA populace.

I think this is what's happening...maybe because i came from London England...I found RE in Toronto is ridiculously under valued...maybe I was spoiled...lol...

 

[ponyboy]

the reason why I think condos are overpriced is the rent to price ratio, and I have recently looked at about 30 places in my own search for a place to live. I am just about to move into a 650K loft condo with my partner renting for $2200/month in the Wellesley Jarvis area. We also looked at buying (I already own a property that I will rent out). Even if I assume this property is worth only 550K, this is still a price to rent ratio of 250 to 1. I've researched a good bit of experienced advice, and many suggest not investing in property with rent ratios less than 1%. Here is a discussion I found relevant:

http://www.getrichslowly.org/blog/2007/07/16/renting-vs-buying-the-realities-of-home-buying/

 

[azureray]

the reason why I think condos are overpriced is the rent to price ratio, and I have recently looked at about 30 places in my own search for a place to live. I am just about to move into a 650K loft condo with my partner renting for $2200/month in the Wellesley Jarvis area. We also looked at buying (I already own a property that I will rent out). Even if I assume this property is worth only 550K, this is still a price to rent ratio of 250 to 1. I've researched a good bit of experienced advice, and many suggest not investing in property with rent ratios less than 1%. Here is a discussion I found relevant:

http://www.getrichslowly.org/blog/2007/07/16/renting-vs-buying-the-realities-of-home-buying/

You got a great deal living in a 650K loft for 2200 per month. I am currently renting my 330K loft for $2000K...and I receive multiple offers for the lease...I guess both of these are unique cases...

 

[interested]

I can certainly see what that might make sense. But let's look at reality and the hard numbers.

Vacancy in Toronto is about 16,000 units. Net migration into Toronto has dipped because of employment, however it's still expected to be 64,500 people.

So currently the vacancy rate is 3.0% in downtown Toronto, and a bulk of that stock was built from 1960-1974.

What does that mean to condo buyers, well, no one wants to live in an old apartment building with roaches and mice, they want to live in a condo. Think this is conjecture? The vacancy rate for condos is about 0.8% while rents are 40% higher. It's pretty evident there is demand is there.

Think there is a glut going to flood the rental market?

According to CMHC pf the 20,000+ units that were registered, about 7,000 joined the rental supply. Ben Myers from Urbanation was on the show, he expects less than 20,000 to be registered this year. How many do you expect to hit the rental supply, say over 50% and the number is 10,000...Toronto can clearly handle it.

There is more Upward pressure on rents:
- HST
- Recent cmhc changes will mean fewer units available for rent (this includes houses and condos)
- Property tax increases
- Tenants can afford an increase
- Most renters who can afford are buying now, so what's going to be left are new residents that almost always rent, and people who are going to stay in the rental market.


Many landlords like myself would agree: they know that the real reason rents haven't gone up in older apartments is because we can't increase rents to market value because of the LTB...thats why condo rents are 40% higher than purpose built.

alot of what you say makes sense but I don't know that i agree with the statement that tenants can afford an increase. I am equally unsure that there won't be more product thant what you are suggesting is available. I hope you are correct but I do not see rent increases in the near future especially given the overall state of the economy which i believe is quite weak. I guess time will tell.

 

[interested]

You got a great deal living in a 650K loft for 2200 per month. I am currently renting my 330K loft for $2000K...and I receive multiple offers for the lease...I guess both of these are unique cases...

I am guessing that your $330K loft was bought quite a few years ago and that it is worth more than that today. If it was bought 3 years ago and is new, then it is likely closer to $450K. if not and 330K is present value i.e. you just bought it at this value, you are getting fabulous rent.