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Baby, we got a bubble!?

From: A reality test for would-be home buyers

"His basic guideline: The monthly cost of your mortgage and property taxes, plus the monthly portion of your annual home insurance bill, should not eat up more than 25 to 30 per cent of your monthly net pay.

Sure, you could push it higher. In fact, Mr. Schwartz said some clients of his agency have housing costs as high as 50 per cent of their take-home pay. “That means they’re eating Kraft Dinner to be able to afford the house they’re living in. They’re making sacrifices somewhere else.”

Capping housing costs at 30 per cent will keep some people out of the housing market, which is fine. They can rent and keep saving to build a bigger down payment. In the housing market, fools rush in.

Those who follow this guideline in buying a home will enjoy three major benefits, the first being that they’ll have room to save for retirement and for their kids’ post-secondary education. Mr. Schwartz figures a goal of saving 10 per cent of your take-home pay is realistic if you cap your housing costs at 30 per cent.

Another benefit of the 30-per-cent ceiling for housing is that it gives you enough financial slack to absorb higher costs in the future. Higher interest rates could push up the cost of your mortgage on renewal, for example. Mr. Schwartz said rising household utility bills are also an issue.

A final benefit of the 30-per-cent rule is that it leaves you with enough money to cover all the usual living costs, as well as a reasonable level of additional debt. "
 
This is copied from the Trump thread on the UT website. From the Star:

By Susan Pigg Business Reporter
The Donald flew into Toronto Monday to officially open the new Trump International Hotel, taking the spotlight — at least briefly — off negotiations going on behind the scenes with investors trying to get out of condo deals.
Well over a dozen investors, some of whom bought more than one of the unique hotel/condo units when they first went on the market back in 2006, are refusing to pay final closing costs and assume ownership of units they say no longer make financial sense.
“I think some people will walk, some people will (eventually) close and some of them will inevitably end up in litigation,” says Toronto lawyer Bob Aaron who is representing “a handful” of buyers, including a U.K. couple who’ve refused to make final payments on a $830,588 unit.
A group of 10 Korean investors is also reportedly looking to get out of deals on multimillion-dollar units, concerned about maintenance fees that have now hit close to $3,000 a month, on top of other add-on costs like cleaning and “booking fees.”
But any investor revolt — if he even knows about any— didn’t seem to be ruffling a hair on Trump’s carefully coiffed head Monday. He waved and yelled hello to the crowd poised with cellphone cameras outside the elegant 60-storey hotel on Adelaide St. where Mayor Rob Ford, his brother Doug and dozens of media gathered for the official ribbon cutting in a 10th-floor conference room.
The Star was denied entry to the press event which was “invitation only,” according to one Trump executive, noting that The Star wasn’t on the list and that it was “a full room.”
Alex Shnaider, the Russian steel magnate and chairman of Talon International Development Inc. which built the five-star project, would only say later that he was “very happy” with the event to which Trump brought his daughter Ivanka, as well as sons Eric and Donald.
While the hotel has actually been open for weeks now, work on the condo floors continues and seemed to tie up elevators yesterday, creating long lineups to get to and from the ribbon cutting.
But behind the scenes the real work is continuing, with lawyers like Aaron.
A lot of people went in blinded by the Trump name and Toronto’s condo boom. They put up a lot of money,” says Aaron.
“These (purchase) documents were very tightly written and they are one-sided,” to remove most of the financial risk of the project from Talon, he alleged.
“There’s not much I can do,” for investors.
One purchaser estimates his monthly costs, including mortgage fees and property taxes on a less than 600 square foot hotel/condo unit for which he paid $860,000, would now run about $8,000 a month.
He’s part of a group of Korean investors who refused to pay final closing costs due two months ago and hope to get back deposits worth almost $200,000.
“If I had closed then, I would have lost almost $10,000 already,” because of monthly fees, including $2,400 in commercial property taxes, says the investor who spoke on condition his name not be used. “I’m not going to let that down payment go without a fight.”
One U.S. buyer has already won the right from Ontario’s court of appeal to renege on his $709,000 hotel/condo suite and get back his $212,700, citing two-year delays in the project.
While that could have been grounds for other investors, most of those who’ve contacted Aaron agreed in writing to Talon’s requests for extensions because of construction delays — eight months because of weather alone.
Lawyers have been in discussions for about six weeks now, but investors may be in for a long and, ultimately, fruitless fight, Aaron warned.
Unless Talon agrees to let some off the hook or reduce the cost of some units, most owners are likely in breach of contracts and could be responsible for any damages accumulated by their delays in finalizing deals, he said.

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I have a few views on this:

1) Buyer beware. As the article suggests, people did not necessarily do their due diligence. If prices were up this would be a non issue. I saw the same behaviour in Florida of people trying to get out of condos after the crash of 2006. I recall reading in the paper of a statement of claim as follows: Increase in the number of units from 210 to 213 units. For this reason, people were trying to get out of their contract as this was a material change. Really? Clearly this does not represent any material change. It was simply a stupid "legal" argument to throw anything at the developer to get out of the contract in my view. I can't believe any judge is going to buy the argument I would buy in a building with 210 units but not 213. "I draw the line at 211".

2) I have little sympathy for developers or developer's agents who goudge their clients either. I recall the Star article in which there was a purchaser, I believe from Kitchener who bought 2 units and can't close. I find it poor that the sales person "resold" their unit at a profit. I am not saying it was wrong but it sure did not look very good to an "outsider". That said, again, the buyer had to beware.

3) Good luck trying to chase the Korean investors in Korea. However, they may lose their down payments. I believe anyone who agreed to extensions will find it difficult to now use that argument to successfully get out of the contract, even if the couple after 2 years was successful. I assume they had not signed the extensions. If they had, then perhaps there is some hope of success. I do not know if the US couple who were successful represents "a precedent".

This whole issue of foreign investors brings up a broader question: how many "foreign investors" are there in projects across the city....4S; 1 Bloor, Aura, SL(my guess is that perhaps SL is among the most heavily foreign invested because the name is so well known and respected in Asia). How many of these foreign investors if they read articles like this decide to bail on "Canada's safe haven status?"

4) I fear articles like this will tarnish the Trump condo project. The Ritz condos are selling at discounts on resale, at least that is my understanding, compared to last developer prices.

Now the question is: how will all this impact SL and the 4S, the other 2 condo hotel projects. Trump is a different project due to the hotel units. The other 3 are different projects without the "hotel units" sold to investors (at least that is my understanding) but will these be lumped together anyhow? Alternatively, does it mean that would be investors in hotel condo buildings who would have been buyers at Trump now flock to the other 2 or 3 hotel condo projects. For the uninitiated, at SL my understanding is the hotel is owned by the developer. It was not marketed to individuals who bought hotel units. Only condo units are bought, people cannot rent for under 1 year in the condo portion so you do not have a pool of investors who bought with a certain cash flow understanding going in. At least that is my read. I believe the same holds true for Ritz and 4S.

5) Finally, the best that the buyers can hope for is some small reduction in price in exchange for not pursuing the law suits in my view. However, I am sure the developer will play hardball. After all, if Mr. Aaron is correct, and the contracts are signed and "air tight", then why would he agree to the losses. Also, it was reported in other media that the hotel units are around 85% sold so he still has 15% units here and the condo units over 60% which means he has a lot of product to sell yet. I cannot confirm these numbers but seem to recall reading this in print media recently. I would have to believe that at these type of numbers if correct the project is not yet profitable or just barely so but I clearly do not know the true costs/revenues and this is just shear speculation on my part.

Any thoughts from you guys about this article?
 
2 simple thoughts-

1. The hotel investor model is obviously flawed. We saw this with Stinson. The situation is pretty similar. The condos should be fine but I'm sure the market will adjust down to relative value given the poor location. With all the issues at he Ritz I think condos here will probably run below $800 psf on average.

2. Interested,my dear Internet friend, you are painfully verbose in your postings! Please cut it down so we can actually enjoy your thoughtful comments.
 
2 simple thoughts-

1. The hotel investor model is obviously flawed. We saw this with Stinson. The situation is pretty similar. The condos should be fine but I'm sure the market will adjust down to relative value given the poor location. With all the issues at he Ritz I think condos here will probably run below $800 psf on average.

2. Interested,my dear Internet friend, you are painfully verbose in your postings! Please cut it down so we can actually enjoy your thoughtful comments.

Sorry, it comes from my tending to over think things.

I appreciate this last post in particular was long. It was meant to provoke more discussion.

I will try and cut down future posts.
 
I speak as one who is (and I am completely stunned by this) apparently a member of the 6% in Canada (according to an Oct 2011 Maclean's household income calculator). However I also live in downtown Toronto, and according to reported household income levels in a recent city of Toronto report on people living downtown, my household is merely a member of the 30% here.
Where is the calculator?

And yeah, the numbers for Canada as a whole don't necessarily apply to Toronto. Many jobs get much higher pay here.

a bidding war in Brampton? how much under market was it listed for to even be in a bidding war?
i've actually heard there are foreclosures happening in Brampton so i don't know if his r/e agent is doing him any favours.
Depends where in Brampton. Hell there are areas in Toronto where I would not buy, even for a 20% foreclosure discount.
 
OK, Maclean's says the top 1% is $169000 or higher. It seems downtown Toronto has a lot of one-percenters, which isn't surprising. (The $150000 refers to household income in that PDF though as you said, but I'm sure a lot of downtowners have individual incomes of $150000 or higher too.)

I then sat for 10 minutes and plugged some random numbers into the Maclean's calculator. Here are the ranges:

Top 0.71%: 250000 or higher
Top 2.07%: 150000-249999
Top 5.66%: 100000-149999
Top 7.51%: 90000-99999
Top 10.28%: 80000-89999
Top 14.05%: 70000-79999
Top 19.2%: 60000-69999
Top 26.1%: 50000-59999
Top 31.6%: 45000-49999
Top 35.9%: 40000-44999
Top 41.8%: 35000-39999
Top 48.1%: 30000-34999
Bottom 51.6%: 29999 or lower (I didn't bother checking out the other tiers below 29999.)

Note that Top 48.1% and Bottom 51.6% adds up to 99.7%.
 
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These figures seem to be all over the place. Based on Statistics Canada, the 1% threshold for individual income was determined to be $181,000 in 2004. For household income, it was tabulated to be $305,000 again in 2004.

Link to the report: www.statcan.gc.ca/pub/75-001-x/2007109/article/10350-eng.pdf

Using Statistics Canada's Consumer Price Index from 2004 to 2012, that would be approximately $212,000 for individual income and $357,000 for household.
 
Interested, I don't think I could disagree with you on any of your comments to the Toronto Star article. As CN Tower duly noted, haven't we all learned from Harry Stinson? Investors got burned once they realized they'd be paying commercial property taxes, not to mention the higher than residential monthly fees. If anyone simply did their homework prior to plopping down tens of thousands of dollars, they'd learn from the past.
 
These figures seem to be all over the place. Based on Statistics Canada, the 1% threshold for individual income was determined to be $181,000 in 2004. For household income, it was tabulated to be $305,000 again in 2004.

Link to the report: www.statcan.gc.ca/pub/75-001-x/2007109/article/10350-eng.pdf

Using Statistics Canada's Consumer Price Index from 2004 to 2012, that would be approximately $212,000 for individual income and $357,000 for household.

But wages haven't kept up with the rate of inflation, right?
 
Interesting article about the condo market with reference to downtown TO. From the Toronto Star:
For the first time I would say I am seeing an article suggesting what we have been talking about for a while here re condos in the core.

http://www.moneyville.ca/article/1163620--toronto-condo-price-hits-average-of-360-892

Toronto condo price hits average of $360,892
New condos can be seen being built just west of York St., north of the Gardiner Expressway and Lakeshore Blvd. in March.

New condos can be seen being built just west of York St., north of the Gardiner Expressway and Lakeshore Blvd. in March.
VINCE TALOTTA/TORONTO STAR

By Susan Pigg | Wed Apr 18 2012

Recommend (2)

Last year’s record pace of condo construction is starting to be felt across the GTA, with listings up 14 per cent in the first quarter of 2012.

Sales, on the other hand, were up by just 2 per cent over the same period as condo buyers appear to be taking more of a wait-and-see attitude, hopeful that an increase in supply could start pushing prices down, some realtors say.

The average selling price of a GTA condo was up 3.7 per cent in the first quarter of 2012 — $334,952 compared to $322,857 year over year, according to statistics from the Toronto Real Estate Board (TREB.)

Related: The true cost of home ownership? Ouch!

Related: Five housing hot spots in Toronto

But prices downtown, where the vast majority of construction and sales occurred, hit $360,892 in the first three months of 2012, up from $348,779 a year ago.

That’s a far cry from the 10 per cent price jump seen in house prices during the same period, largely because of an unusual shortage of inventory that has been fuelling bidding wars and driving up prices.

Things are much different in the condo sector where downtown realtors say they are seeing fewer bidding wars for condos as more supply comes on the market, with the exception of a few high-demand areas where inventory remains low, such as the St. Lawrence Market area.

In fact, investors trying to sell their units in newer, higher-priced condo towers seem to be having a more difficult time just since January, said realtor Andrew la Fleur who specializes in the downtown condo market.

“I think the greatest fear underlying this whole condo boom is affordability. If units get too expensive, people will just stop buying them — no matter how beautiful they are or what an investor paid for them three years ago,” says la Fleur.

Since March of 2011, the so-called sales to listings ratio — a key real estate barometer for determining whether it’s a seller’s or buyer’s market – has gone from 49 per cent to 40 per cent. Thirty per cent is considered a buyer’s market.

While there is still lots of demand for downtown condos where you don’t need a car, buyers seem less willing to get involved in bidding wars, says realtor Mark Savel.

“There are some buyers who think that with the amount that’s being built right now, there will be more supply than demand. But I tell them a lot of those units have been sold already — it’s not like developers are just putting up vacant units.

“I’m still seeing a lot of demand for downtown so I tell them I think the market will remain pretty balanced.”

Meanwhile Wednesday, a condo poll by TD Canada Trust found that 81 per cent of condo buyers in Toronto worry about being able to afford their mortgage payments.

Yet they are more willing than any other Canadian condo dwellers to pay the highest monthly maintenance fees — 17 per cent said they’d pay more than $600 per month, compared to 10 per cent nationally — for the convenience of living near transit and other amenities.
 
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TORONTO, April 18, 2012 – Greater Toronto REALTORS® reported 4,557 transactions through the TorontoMLS system during the first two weeks of April 2012. This result represented an increase of almost seven per cent in comparison to the same period in April 2011. The number of new listings grew over the same period, but by a lesser annual rate than sales, which means market conditions tightened compared to last year.

“Competition between buyers remained strong in many parts of the Greater Toronto Area during the first half of April, with many listings attracting a lot of attention. Strong competition meant that, on average, sellers priced within market value range received offers that matched their asking prices within three weeks,†said Toronto Real Estate Board President Richard Silver.

The average selling price during the first two weeks of April was $506,954 – up by five per cent compared to the first half of April 2011. The annual rate of price growth was stronger in the GTA regions surrounding the City of Toronto.

“Growth in listings has not kept up with growth in sales. In the City of Toronto, new listings for low-rise home types during the first half of April were actually down compared to last year. This helps explain why some of the tightest market conditions in the GTA can be found within the ‘416’ area code,†said Jason Mercer, TREB’s Senior Manager of Market Analysis.


http://www.torontorealestateboard.c...market_updates/news2012/nr_mid_month_0412.htm

"416" prices up 2.3% y/y

"416" condo prices up 4% y/y
 
As an investor in 1 King, I can tell you that there was some pain in the initial years but it has turned into a profitable investment that I am able to enjoy as an "Urban Cottage". I have to laugh at the investors in Trump. I did the math years ago and there is no way that development makes any sense. There are units for sale in 1 Kingthat will casflow. We may not have quite the finish of the Trump tower, but 1 King is no slouch. I think all the initial bad press we had has kept prices artificially low. There are some steals in our building!
 
^^^
Out of curiousity, for those who choose to buy in 1 King or Trump hotel units; do they have to partake in the hotel pool. And if not, and they rent for over 30 day periods at a time or for 1 year leases, do they pay "hotel/commercial" taxes or would they pay condo/residential tax rates?
Also, in 1 King since there are 45 for sale on the MLS of over 500 units: 8-9% for sale I think represents a fairly high amount in a building so I am guessing that the "initial bad press" continues to keep prices low. Whether it is artificially low or properly priced I guess time will tell. Maybe Trump will help 1 King if the cash flow is much better.
 

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