Baby, we got a bubble!?

[CN Tower]

That's nice but, we don't live in a perfect world and I'm assuming that you can totally guarantee if there were a large shift in the Toronto condo market that those units that "ARE SOLD" will actually close. Can you????

Mac, let's be fair. Every single one of those units has a minimum 15% non-refundable deposit, a mortgage approved buyer with an Ontario driver's license and full recourse to the developer to close. That's a pretty strong deal. Not sure what more you would want from a pre-construction industry. Your comments lead towards extreme pessimism in my opinion.

[daveto]

Interested, I have to agree with BMyers, you were way out of line in your post and he is right to be offended.

You would do well to take a more fairminded approach in your responses in this forum, such as I did in my response to UrbanNations article (see below).

Wow. What an absurd analysis and bizarre collection of inappropriate analogies. Basketball rebounds to wins as an analogy to real estates rents to prices? Really??

Surely UrbanNation doesn't actually believe this giberish?

Let's cut to the chase.

The author's central argument is that the average rent statistics are not properly aligned with average price statistics. But a cursory review of various properties listed for both rent or sale on MLS shows specific figures with consistently the same relationship as noted by the average rent/price statistic.

Rents and prices are what they are. One might contend future increases or decrease, but lets not be silly and deny the current status of rents and prices.

One might just as well contend that average prices stats are 50% higher than reality. Again, just gibberish.

ps. on a related note, I now realize that rebounds-to-wins in Basketball is indeed an appropriate and insightful analogy to rents-to-prices in RE.

[MadMax]

Who says 100% of pre-construction condos are being purchased by foreign investors? I think not! I've bought 2 pre-con condos in the last 10 years and I'm home grown baby . People are forgetting that there are over 6 million people living in the GTA, and a lot of them need a place to live too! Foreign investors aren't the only savvy buyers out there...we don't give us Canadians enough credit, but I guess that's what distinguishes us from our friends to the south. I just moved in to my new place and all the people that I've met live, work, and play in the GTA. I'm sure there are investors as well, but for the most part regular people mostly young couples. On my floor I have met an engaged couple, a father who bought a condo for his son, a young guy who is living with his mother, and there is my wife and I with kids. My point being, that all of these people who I've spoken to bought to live in...not just to flip or rent out!

[macookie]

Mac, let's be fair. Every single one of those units has a minimum 15% non-refundable deposit, a mortgage approved buyer with an Ontario driver's license and full recourse to the developer to close. That's a pretty strong deal. Not sure what more you would want from a pre-construction industry. Your comments lead towards extreme pessimism in my opinion.

Extreme optimism in my opinion is highly over-rated kinda like the RE values in Toronto compared to the rest of the world, and of course our big neighbour to the south. Given that RE in the US prices are lower now, then 5 years ago and given that one shouldn't be pessimistic... wouldn't it be better to invest in say Miami than Toronto... or in any other American city... I just can't see why I can't be optimistic for a complete turnaround in the US... and a BOOM in RE prices in the US given the logic that I have a pessimistic viewpoint... on the Toronto RE market. But, when the market changes drastically, I do hope that people in Canada will be forced to be accountable for their actions that lead to RE collapse.

[cdr108]

Who says 100% of pre-construction condos are being purchased by foreign investors? I think not! I've bought 2 pre-con condos in the last 10 years and I'm home grown baby . People are forgetting that there are over 6 million people living in the GTA, and a lot of them need a place to live too! Foreign investors aren't the only savvy buyers out there...we don't give us Canadians enough credit, but I guess that's what distinguishes us from our friends to the south. I just moved in to my new place and all the people that I've met live, work, and play in the GTA. I'm sure there are investors as well, but for the most part regular people mostly young couples. On my floor I have met an engaged couple, a father who bought a condo for his son, a young guy who is living with his mother, and there is my wife and I with kids. My point being, that all of these people who I've spoken to bought to live in...not just to flip or rent out!

i believe interested was referring to anedoctal evidence for the past 2-3 years from articles citing realtors and the like.

the figure i've heard though ranges from 50-70% of pre-con are bought by investors (not necessarily foreign), and not full 100%.

[Kenny]

We did not say that there is no relationship between rents and pricing, it is the fact that people are ignoring the other factors and data that can, and have, caused the relationship between the two variables to change. There is no doubt that condominiums are less affordable today than they were five years ago, but there are much better indicators/data to determine that and much better indicators of when the market is heading south. We were just tired of hearing about 'rent multiples' from media sources and folks that don't track the Toronto condominium market to the detail that we do.

That is a great point. Relying solely on rent multiples is seriously erroneous. The media cites rent multiples because it's a very simple stat for most readers to grasp. Getting into too much detail would bore the average reader. They do it in sports, too. Batting average and homers have always been the most cited stats for baseball players. But the movie (and book) Moneyball was all about how these stats aren't the best measure for the player's offensive contribution.

That being said, rent multiples are a pretty indicator of real estate bubbles. There's a really strong correlation between high multiples and crashes.

[daveto]

That is a great point. Relying solely on rent multiples is seriously erroneous.

That being said, rent multiples are a pretty (good) indicator of real estate bubbles. There's a really strong correlation between high multiples and crashes.

Kenny, aren't you contradicting yourself?

The media cites rent multiples because it's a very simple stat for most readers to grasp. Getting into too much detail would bore the average reader. They do it in sports, too. Batting average and homers have always been the most cited stats for baseball players. But the movie (and book) Moneyball was all about how these stats aren't the best measure for the player's offensive contribution.

Moneyball was indeed about sabermetrics, the science of deriving an appropriate metric for a baseball player's true offensive vaue.

However the science of investment has generally accepted the relevance of cap rates (ie rent to price) as an appropriate metric for real estate investment. Specifically, the value from the cap rate plus the value from price appreciation represents the value of the investment.

As such, I'm not sure that your analogy is correct. Really, sabermetrics is all about trying to derive a baseball equivalent to the rent-to-price RE releationship, rather than moving away from it.

[CN Tower]

Extreme optimism in my opinion is highly over-rated kinda like the RE values in Toronto compared to the rest of the world, and of course our big neighbour to the south. Given that RE in the US prices are lower now, then 5 years ago and given that one shouldn't be pessimistic... wouldn't it be better to invest in say Miami than Toronto... or in any other American city... I just can't see why I can't be optimistic for a complete turnaround in the US... and a BOOM in RE prices in the US given the logic that I have a pessimistic viewpoint... on the Toronto RE market. But, when the market changes drastically, I do hope that people in Canada will be forced to be accountable for their actions that lead to RE collapse.

You're choosing to compare the City of Toronto, or rather the GTA, to 'the rest of the world' or The United States of America? That's close minded thinking. And who said anything about investing? The majority, the overwhelming majority, of real estate buyers are purchasing shelter for themselves, family, etc. They aren't 'investing' directly. Some international/foreign buyers are seeking shelter in a safe(r) place than their home country, comfortable with the notion of price fluctuations. Will there be downward movements in prices in Toronto in the near future? Perhaps. But it's a market defined by a continuous flow of steady immigration (as I just stated) and a stable job market that is the engine of a relative stable country with relatively a healthy financial picture.

Miami you say? You want to go chase deals there? You want to hop on a plane every time your drug dealer tenant bounces a cheque? Or would you prefer to rely on the property manager or real estate agent that you just met to look after your investment? Market rebounding there? Perhaps. You want to feed your unit/condo fees for months searching for a tenant? Does the market have a 1% vacancy? Good luck. I'd rather store my wealth at the corner of Main & Main in Toronto and get 2% return or nothing knowing that my capital is safe.

Investing usually requires some work. Actually a ton of work. If you want to set up shop in Florida be my guest. I know Floridians who can't wait to get out now that things have appear to have stabilized. There's definitely money to be made there but it isn't falling from the trees and it sure-as-hell doesn't come as easily as those real estate broker sponsored seminars you read about in the paper. Give up your job in Toronto, move to Miami, get to know the market, raise some capital and go for it! If you do it half-ass you'll get half-ass results. My experience has taught me as much.

Btw, there's a pretty big space between extreme pessimism and extreme optimism. I'm comfortable in that space as are most people who are unemotional and unattached from the market.

[daveto]

You're choosing to compare the City of Toronto, or rather the GTA, to 'the rest of the world' or The United States of America? That's close minded thinking.

Agree 100%. GTA real estate has nothing in common with the rest of the world, and especially not with the USA. We're different here!

You're choosing to compare the City of Toronto, or rather the GTA, to 'the rest of the world' or The United States of America? That's close minded thinking. And who said anything about investing? The majority, the overwhelming majority, of real estate buyers are purchasing shelter for themselves, family, etc. They aren't 'investing' directly.

Agree 100%. The majority of RE buyers are buying shelter, and do not change their behaviour due to actual or anticipated price increases/decrease. That's just crazy talk.

[cdr108]

Agree 100%. GTA real estate has nothing in common with the rest of the world, and especially not with the USA. We're different here!



Agree 100%. The majority of RE buyers are buying shelter, and do not change their behaviour due to actual or anticipated price increases/decrease. That's just crazy talk.

daveto, you know the subtlety of sarcasm can/gets lots in translation !

[CN Tower]

daveto, you know the subtlety of sarcasm can/gets lots in translation !

Dave/cdr-

Toronto is different than America or the rest of the world. Every city is different. Every city has unique characteristics that collective form the local real estate market. Just because prices in Toronto dipped, recovered and then increased after the credit crisis does not imply that prices in Toronto should necessarily fall.

I think BMyers point and part of mine was that the market is more complex than to just say properties here trade at a higher multiple of net income than they do in Atlanta, Georgia, another perennially fast growing metro area. There are other factors than need to be considered.

Google trades at a higher multiple than Microsoft. Is Google automatically overvalued? Does that make Microsoft a good buy? Think and analyze as you both have done so well in this thread. The answers are not black and white.

[Kenny]

As such, I'm not sure that your analogy is correct. Really, sabermetrics is all about trying to derive a baseball equivalent to the rent-to-price RE releationship, rather than moving away from it.

Yes, but even sabermetrics isn't the be all and end all of predicting a player's future performance. I'm sure it's being constantly fine tuned to include factors that were previously missed, and new factors due to the changing nature of the game.

Rent-to-price is a great starting point. I think it's fair to say that there are differences between markets. A 20 to 1 ratio in Toronto may not mean quite the same thing as a 20 to 1 ratio in Tokyo or Tehran.

[daveto]

Yes, but even sabermetrics isn't the be all and end all of predicting a player's future performance. I'm sure it's being constantly fine tuned to include factors that were previously missed, and new factors due to the changing nature of the game.

Rent-to-price is a great starting point. I think it's fair to say that there are differences between markets. A 20 to 1 ratio in Toronto may not mean quite the same thing as a 20 to 1 ratio in Tokyo or Tehran.

Sure, agreed on both points

[Eug]

Agree 100%. GTA real estate has nothing in common with the rest of the world, and especially not with the USA. We're different here!

OK, I'll bite.

Yes, Toronto is different from the USA. Toronto is of course not immune from a real estate crash, but to use places like Miami or Las Vegas or whatever as a direct model for Toronto is extremely lazy, and foolish. Indeed, I almost feel sorry for those misguided souls who sold their homes in Toronto several years back to move into rentals simply because their aunts' retirement village homes in Palm Beach dropped in value.

Agree 100%. The majority of RE buyers are buying shelter, and do not change their behaviour due to actual or anticipated price increases/decrease. That's just crazy talk.

FWIW, a family member just bought a condo this month, cuz, well, people generally don't like living on the street... and a lot of people don't like living in rentals either.

[Polkaroo]

Garth Turner