[dt_toronto_geek]

interesting ... when and where on Bay St?

that means within 14 years, values have appreciated from $147 to about $500 PSF for the average building on Bay St. ... up 340% (ie. 240% appreciation) ... that's ~10% compounded per annum !?!?

no bubble here folks ... keep on walking and look straight ahead

1995, Opera Place (phase 1) pre-construction, 6th floor, corner 2 bed/2 bath, 1050 feet, $153900. At that time, resale in Bay 1001 (for example) for similar (awkward) sized units were selling for $159-169K but it did have excellent fitness facilities which Opera Place did not.

 

[Eug]

You will not see a price drop in downtown TO below $350/ft for a mid-level condo. I'd be surprised if it went below $400 at the lowest point. In King West, for eg., two condos sold in my building in the past week both for between $450-470/ft, down less than 7% from market peak. This has also been the range for the past 3 months. I do expect further price deterioration, but not more than another 10%. Look for bottom levels mid 2010-mid 2011. As for new, most builders do need to readjust their asking prices downtown as they're simply ridiculous at around $600/ft for an equivalent product. Just my opinion.

500 psf in downtown Toronto is expensive. Sometimes that expense is justified, for a luxury building, but most of the time it is not.

As an example, on The Esplanade, even back in the hot markets of 2007 and 2008, people were paying under $350 per square foot, and that's in a nice building. Some were paying closer to $400 per square foot or more in other buildings, but the actual prices were similar (>$250000 but much less than $300000 for 1 bedroom units), with the square footages of the units being smaller.

In King West, condo townhouse units were going for well under $400 per square foot, and still are. Furthermore, those prices even include attached parking and sometimes even private terraces for ~1000 square foot 2-bedroom units. (Neither the parking nor the terraces are calculated in the square footage of the units of course.)

So, like I said, $500 per square foot is still very high, even by today's standards. You don't have pay anywhere near that to live in a nice place in downtown Toronto. If you think $450 is required, then you're not looking hard enough, because nice places below even $400 per square foot are out there. In fact, nice places under $350 per square foot are still available once in a while... as they have been all through the hot markets of 2007 and 2008, if you don't mind getting a place in a building without a pool. IOW, to claim prices won't go below $350 per square foot really makes no sense, because some nice buildings have always been under that level, and some significantly below that level. I personally think it's quite possible for some of these buildings to go just below the $300 per square foot mark, but that no big surprise as it only represents about a 10% drop from current prices, putting prices closer to where they were in around 2005ish.

The only problem is that often times by the time you find those inexpensive units, they're already sold. Inventory is low. Bidding wars are no longer the norm, but quick sales still very much are.

So simuls, while I agree we may see bottom as being 10% lower than we are now (and also agree we may hit that bottom in 2010-2011), I think your statements about projected $/sq.ft. are way off the mark. Perhaps you have a very restrictive view of what is required in a condo in downtown Toronto, but my experience with some nice buildings in downtown Toronto already has pricing way lower than what you've mentioned, not because prices have dropped precipitously, but because that's where they've always been in the first place.

 

[Eug]

interesting ... when and where on Bay St?

that means within 14 years, values have appreciated from $147 to about $500 PSF for the average building on Bay St. ... up 340% (ie. 240% appreciation) ... that's ~10% compounded per annum !?!?

no bubble here folks ... keep on walking and look straight ahead

1995, Opera Place (phase 1) pre-construction, 6th floor, corner 2 bed/2 bath, 1050 feet, $153900. At that time, resale in Bay 1001 (for example) for similar (awkward) sized units were selling for $159-169K but it did have excellent fitness facilities which Opera Place did not.

In 2009, the asking price for 2 beds + 2 baths for Opera is $389000. That means the actual sale price may be closer to $380000. That is way, way lower than the hypothetical 1050x500 = $525000.

Assuming a 1995 resale unit was probably around $160000, then the appreciation is $220000, or 138%. Compounded over 14 years, that represents a yearly return of a little over 6%.

Even if you chose a compounded appreciation of 7%, that moves it up to $425000, but it's quite common to get nice 2-bedroom units under $400000. So, that claimed 10% per annum is simply wrong.

Here is another one with an asking price of $385000 for a 1037 square foot 2-bed 2-bath condo on Bay. That works out to $371 per square foot for asking price, and probably closer to $365 per square foot for actual sale price, assuming the sale is at >98% of asking. Note, that is a nice building with a pool. Like I said in the previous messge, if you forego the pool, you can find some nice places that go for less than $350 per square foot downtown, in 2009.

 

[dt_toronto_geek]

In 2009, the asking price for 2 beds + 2 baths for Opera is $389000. That means the actual sale price may be closer to $380000. That is way, way lower than the hypothetical 1050x500 = $525000.

Assuming a 1995 resale unit was probably around $160000, then the appreciation is $220000, or 138%. Compounded over 14 years, that represents a yearly return of a little over 6%.

Even if you chose a compounded appreciation of 7%, that moves it up to $425000, but it's quite common to get nice 2-bedroom units under $400000. So, that claimed 10% per annum is simply wrong.

Here is another one with an asking price of $385000 for a 1037 square foot 2-bed 2-bath condo on Bay. That works out to $371 per square foot for asking price, and probably closer to $365 per square foot for actual sale price, assuming the sale is at >98% of asking. Note, that is a nice building with a pool. Like I said in the previous messge, if you forego the pool, you can find some nice places that go for less than $350 per square foot downtown, in 2009.

Here is the exact same layout that I had asking $410K, one floor up from the floor I was on but this is a S/E corner suite, I had a S/W corner - http://www.mls.ca/propertyDetails.aspx?propertyId=8331304

 

[Eug]

Here is the exact same layout that I had asking $410K, one floor up from the floor I was on but this is a S/E corner suite, I had a S/W corner - http://www.mls.ca/propertyDetails.aspx?propertyId=8331304

So, assuming an actual sale price of ~98%, which seems to be about the going rate these days, we're looking at a sale price of $402000.

That's still almost $125000 less than that claim of $500 per square foot ($525000). $402000 for a 1050 square foot unit works out to $383 per square foot. Even if it sold for 100% of asking, that would be $390 per square foot, well under that $400/sq. ft. mark.

I'm guessing a resale unit like that probably would have been about $152 per square foot in 1995. Going to $383 per square foot in 2009 still makes it an annual rate of return of less than 7% per year.

I still think a 10% drop is possible (although not guaranteed), over the next couple of years. That would push that building to $345 per square foot. Let's say $345 were the going rate in 2011. What that would mean is that the appreciation from 1995 is only a little over 5% per year. Healthy, but not mind-boggling by any means.

Meanwhile, a few nice pool-less condos can be had downtown for closer to $330/sq. ft. If you drop 10% by 2011, that would push it to just under $300/sq. ft. So, I say realistic future pricing for downtown Toronto is in the range of $300-400 per square foot for nice buildings. If people want to bash $500/sq. ft. pricing, that's fine, but just realize that $500/sq. ft. is beyond the norm in 2009, and it was beyond the norm at the 2008 peak too.

 

[dt_toronto_geek]

Just for the record, the Opera Place has a party room, gym and I believe guest suites - but no pool.

 

[Eug]

Just for the record, the Opera Place has a party room, gym and I believe guest suites - but no pool.

It has guest suites? Didn't know that. When I went condo shopping (way back when), I specifically looked for places that had no guest suites and no pool to save some bucks, not only in terms of the sale price but also for condo fees.

I find some people get attracted by the bazillion amenities of some higher-end luxury buildings, and then end up never using them. If they're going to use them them great, but if not they might want to look elsewhere. I guess why there is big discrepancy. Once in a while I see condos in nice buildings in popular neighbourhoods sometimes for around $330/sq. ft., yet others think the going rate must be $450/sq. ft. or more. That's a huge difference.

For example, here is a 1-bed + den with asking price of $289900. I don't know how big that specific unit is, but I do know that some units that sold there in that price range were in the range of 850 square feet. So, at 98% of asking, that would make the place $334/sq. ft. If it were only 800 sq. ft., it'd still only be $355/sq. ft. This is in a building with 24-hr concierge, excellent party room and gym (but no pool), and is situated next to the St. Lawrence Market. Despite being in such a busy area (next to a bunch of upscale pubs and a Novotel Hotel), parking is easily available for guests. The bonus is that it's Green P parking connected to the building, so that visitor parking doesn't cost the condo corp anything. Guests just pay Green P rates.

P.S. I found this graph interesting. Since 1953, average single family home prices in Toronto have increased an average of 6.2% per year (compounded) until 2007. It was faster from 1996 to 2007, but not hugely faster, still under 7%.

In my calculations above, I have the compounded rate of return for those downtown Toronto condos as being a little over 5% during the 1995-2011 time period, if we assume a 10% drop from current prices. Interestingly, that graph has 1995 right at the trend line, so my prediction of the drop would actually put 2011 below the 6.2% trend line.

 

[cdr108]

thanks for the examples guys.

Eug, when I say the 'average' condo, that seems to mean finishes such as s/s appliances, granite countertops, hardwood flooring, etc which most buyers expect these days.

However, I do agree that there are many places out there that sell for less than the $500 PSF I stated ... typically older, from 10-25 years, offer the best value of space for price.

There are also several buildings on Carlton Street that have 2 bed/2 bath 1200 SF units for $400K

$385000 for a 1037 square foot 2-bed 2-bath condo on Bay. >>>
IIRC this building is mostly rental, so prices are reflective of that.
In fact, I would say this place is overpriced ... maybe $325-350K unless the suite has been completed renovated.


I do find these 2 offer better value, location, etc. How are the floorplans though?
Sometimes there are lots of halls and wasted space in the layouts from the 80s and 90s ... nothing that some minor renovations couldn't work out.

2 beds + 2 baths for Opera is $389000.

http://www.mls.ca/propertyDetails.as...ertyId=8331304

 

[Eug]

Eug, when I say the 'average' condo, that seems to mean finishes such as s/s appliances, granite countertops, hardwood flooring, etc which most buyers expect these days.

Granite countertops are a plus, but it seems to me they don't add huge value to the place. Same with hardwood floors. In fact, it seems to me the difference between good quality laminate and average engineered hardwood is almost nil when you're talking resale pricing, and it's only a little bit better than broadloom.

To put it another way, even though you have granite counters and hardwood floors, you really shouldn't expect a price premium of more than a couple of percent if you're lucky. On an average 2-bedroom condo, my guess that is usually a 4-digit $ value. Not insignificant, but not a big deal either.

P.S. I've pulled some more numbers regarding overall Toronto home pricing, inflation, rates of return, etc:

Home price in 1953: $14424
Home price in 1995: $203028
Home price in 2007: $376236
Home price in 2008: $379347

Home price increases 1953-1995: 6.50% compounded annually
Home price increases 1995-2008: 4.93% compounded annually
Home price increases 1953-2008: 6.12% compounded annually

Average inflation rate 1953-1995: 4.48%
Average inflation rate 1995-2008: 2.02%
Average inflation rate 1953-2008: 3.89%

If we are to predict a 10% price drop from 2007 to 2011, that would mean the average home price in 2011 is $338612.

From 1995 to 2011, that would represent an average yearly increase of only 3.25%. That is higher than inflation since 1995, but significantly lower than historical home price increases (as historical home price increases have been significantly higher than inflation in Canada in the last 50+ years).

 

[Eug]

Sometimes there are lots of halls and wasted space in the layouts from the 80s and 90s ... nothing that some minor renovations couldn't work out.

Yeah, sometimes there is "wasted" space, but then again, it depends on your definition of wasted. Some people wonder why a living room is bigger than it "needs" to me, but I for one love a big living room, just like I like a big bedroom. I value this way, way more than stainless steel appliances or granite countertops (both of which can be added at a later date).

BTW, one place I was in was over 850 square feet with a den and no bedroom. The owner used the den as the bedroom, and consequently had a ginormous (by condo standards) living room. It could have easily been renovated to add a bedroom though if desired, because the layout supported it. or the den could have been easily enlarged to a single bedroom.

Even though I'm not a huge fan of the area, back in my condo days I would have considered moving to Carlton just to get one of those 2-bedroom 1200 sq. ft. units you mentioned if the buildings didn't suck.

Yeah, such renovations add to the price, but in reality it shouldn't be that much, a few % of the unit value.

 

[Nebakenezer]

When I mentioned $500 psf before, I was speaking of newer high end buildings such as festival tower, m5v and such. Buildings that are in the financial/entertainment area

My guess is 300 Front will be in the same ballpark also. Perhaps Ice condos too.

Of course if you shop around for resale units, 350 psf shouldn't be too hard to find either.

It all depends what 'style' of living your going for.

 

[Eug]

When I mentioned $500 psf before, I was speaking of newer high end buildings such as festival tower, m5v and such. Buildings that are in the financial/entertainment area

My guess is 300 Front will be in the same ballpark also. Perhaps Ice condos too.

Of course if you shop around for resale units, 350 psf shouldn't be too hard to find either.

It all depends what 'style' of living your going for.

That's just it. Some of the buildings at the cheaper end have a similar "style" of living - beautiful gym with all the latest fixins, party room with gorgeous high floor view of the city/lake, reliable and cheery 24-hour concierge service, nice lobby and hallways (with recent renovations), relatively upscale residents, in the heart of downtown... but come with no in-unit upgrades, no pool, no in-house restaurant, no on-site concierge-performed ticket purchases, no shuttlebus service (for harbourfront properties), etc.

I have friends or family who have lived in both kinds of units, and quite frankly some of the so-called higher end buildings didn't seem much better in term of lobby, elevator, and hallway niceness, but had all these extra features they never used (like free shuttlebus to Dundas Square) but paid for. For this reason, I'm still a little surprised they're so popular, and I too share the worry that after a time some of the people will realize that they're spending way more money than they really need to.

When you think about it, the possible extra $250 per square foot would be a quarter million dollars more for a 2-bedroom unit more in the basically the same location as other cheaper buildngs... to get you $10000-20000 of in-unit upgrades and some guy downstairs buying your tickets for the musical for you, in a lobby that's only marginally nicer than the cheaper building.

Then again, if people want to spend that kind of cash and can now and in the future, then all the power to them. However, personally I agree with some that some of those condos may be at higher risk for price drops than others. Plus, buying units like this for rental (as a few do) seems completely insane. Rental prices seem to better reflect pricing for the so-called lower end buildings, and those are going for under $350 per sq. ft.

In another thread, there is a person who was offered the chance to take over a purchase in one of these buildings, at the original purchase price, instead of having to pay higher resale pricing. I don't know the specifics, but that scenario does make those warning bells ring in my head... esp. since he would be buying it as an investment, not his primary residence.

 

[Eug]

Real estate bidding wars make a comeback

Annoyingly for buyers, rejoicingly for sellers, bidding wars for Toronto real estate have surged back from extinction.

House sales for the first two weeks in May were in positive territory – 3 per cent above the same period in 2008 – for the first time since the market's tailspin last fall.

Something similar was reported a few weeks back. However, something to consider with this.

1) Bidding wars are not the norm. The acquaintances of mine that are looking are saying they're not usually encountering them. Back in the crazy days of 2006-2008, in certain areas for specific classes of homes, bidding wars were almost the norm.

2) The bidding wars are usually lower than asking. There can be multiple offers, but the final sales price might still be below asking.

The article does go on to say this:

The strategy is not popular with all agents, and has come under fire from some who say it does not necessarily generate a higher price.

If multiple offers are made on the property, the agent ends up "looking like a hero" just because the property was underpriced in the first place, argue Toronto realtors Thomas and Sally Cook.

Others say the strategy is a time waster for potential buyers who would not have bid on the property if they knew the price was not realistic.

That may be true in a buyers' market / more balanced market (like now), but I do understand its potential benefits in a sellers' market. People are attracted by price, and a lowish but reasonable price is a way to get people to view the unit. If it's too low though, that may not be a good thing for the reasons mentioned.

Oh and they also mentioned this:

But overbids are not as spectacular as they once were. In 2007, at the peak of the market, one Beach-area home sold for $1.9 million – more than $600,000 over asking price.

I still don't understand this one. After I read about the sale, I went to check out the place. It isn't even on the Beach, just near it, and it needed some work. I wouldn't be surprised if the place in 2009 would only sell for $1.3 million (which was the original 2007 asking price) or perhaps $1.4 million with some renovations.

 

[MarcFromOttawa]

Granite countertops are a plus, but it seems to me they don't add huge value to the place. Same with hardwood floors. In fact, it seems to me the difference between good quality laminate and average engineered hardwood is almost nil when you're talking resale pricing, and it's only a little bit better than broadloom.

To put it another way, even though you have granite counters and hardwood floors, you really shouldn't expect a price premium of more than a couple of percent if you're lucky. On an average 2-bedroom condo, my guess that is usually a 4-digit $ value. Not insignificant, but not a big deal either.

P.S. I've pulled some more numbers regarding overall Toronto home pricing, inflation, rates of return, etc:

Home price in 1953: $14424
Home price in 1995: $203028
Home price in 2007: $376236
Home price in 2008: $379347

Home price increases 1953-1995: 6.50% compounded annually
Home price increases 1995-2008: 4.93% compounded annually
Home price increases 1953-2008: 6.12% compounded annually

Average inflation rate 1953-1995: 4.48%
Average inflation rate 1995-2008: 2.02%
Average inflation rate 1953-2008: 3.89%

If we are to predict a 10% price drop from 2007 to 2011, that would mean the average home price in 2011 is $338612.

From 1995 to 2011, that would represent an average yearly increase of only 3.25%. That is higher than inflation since 1995, but significantly lower than historical home price increases (as historical home price increases have been significantly higher than inflation in Canada in the last 50+ years).

Great posts Eug, you obviously know what you're talking about. Something I would like to add though. The average house in 1953 looks nothing like the average house in 2007-2008. Which might explain why it seems like house prices have been increasing in value faster than the CPI. I think it's mostly a function of peoples' attitude towards debt and what they feel they are entitled to. i.e. 2 people living in a 4 bedroom McMansion.

 

[Eug]

Great posts Eug, you obviously know what you're talking about. Something I would like to add though. The average house in 1953 looks nothing like the average house in 2007-2008. Which might explain why it seems like house prices have been increasing in value faster than the CPI. I think it's mostly a function of peoples' attitude towards debt and what they feel they are entitled to. i.e. 2 people living in a 4 bedroom McMansion.

Very true, and that's actually already been mentioned by someone else (I believe in this thread). Nonetheless, people are willing to spend those extra dollars to get those improvements. ie. People are willing to allocate more of their salary to housing than they were in 1953.

----

Anyways, while I believe prices are a bit on the high side in the GTA, I don't think there will be a huge price correction. Maybe another 10% as an estimate over a couple of years. Who knows, it could be more, but then again maybe it could be less. So, even pricing that in, a very, very conservative estimate might be that price increases in the next 15 years might only work out to half of inflation.

To put it another way:

Let's say you buy a place today for $375000, and it drops 10% by 2011. If after than it increases in value by only inflation (2%) for 13 years. After 15 years, it's worth $436592, which is a little over $60000 over what was initially paid.

That's about the same thing as that same $375000 home increasing on average by 1% for 15 years, to $435363.

Now, some may argue that in real terms, one has lost money after inflation, and that's true, but I also think many owners would be relatively OK with that, if it's their own place to live and make a home. To many, just owning is worth a small premium. (It is to me.) That's why I continue to say that if the plan is to live in the home for the long term, and you prefer owning to renting, then it's a reasonable time to buy. However, if it's for an investment, not so much.

Now, if you're worried home prices will drop 30% in the next few years, then the calculated numbers are vastly different.