Baby, we got a bubble!?

[ponyboy]

In response to NorthYorkEd's concerns about rentals a few posts above, I had a look at the availability of rentals through craigslist, MLS, Viewit. I looked for a couple of hours and generally feel that for our housing type (2bedroom apartment), there is sufficient availability and prices remain stable compared to last time I looked 6 months ago. I was looking in the downtown west side, north of queen, south of davenport, west of spadina and east of dufferin.

 

[NorthYorkEd]

Yeah, we've been crunching numbers (over and over and over) and figure that it's best to stay renting right now. Any unit we'd consider buying would have to be 1200-1400 sq ft, and those come with a hefty monthly fee ($800 +). Of course, you often get a lot included with that (pretty much all utilities except internet), but we do not need cable, a pool, or the often poor excuse for an "exercise room". I understand bulk discounts and the advantages of having all that stuff, but I'd really like to only pay for what I use.

To buy a similar unit to what we're renting would not only drain around $90-$100K from our investments for a 20% down payment (not paying a DIME to CMHC gangsters), but also include substantial closing costs, moving expenses, and paying off the government shakedown artists (i.e. land transfer). With property taxes and maintenance fees, you are easily looking at a carrying cost in the high 2K's, or more, depending on interest rates. That is substantially more than what we are paying in rent.

(Yes, you can buy -- and rent -- cheaper, but we are more interested in location and actually enjoying where we live.)

We currently save about $1200-$1500 each month, which goes directly to our investments. My feeling is that housing values are a bit precarious right now, especially when the global economy is on such wobbly legs. Sure, people move here and there is demand, but they don't all have a lot of extra cash and stable jobs. And most are sitting on a colossal SH*TLOAD of debt. Much of it due to housing and using the Bank of Mortgage Renewal to finance trips, gadgets, and Canada Goose jackets for the entire family. The lunacy has to end, and I think there is a black swan just visible on the horizon.

We all know how things got so out of control, and things can quickly change, as they have in the past. It is never really "different this time". I don't consider myself a loser for sitting on the sidelines. We made out pretty good when we sold our home a few years ago, and we continue to save and invest each month, while renting a great unit with everything we need within a 5-10 minute walk. Real estate is but one tool for investment growth and it has been a gold mine for a long time now. It might continue, and it might not, but I think we'll be ok following our strategy of frugal, sensible living and continuing to save and invest.

 

[uto123]

Yeah, we've been crunching numbers (over and over and over) and figure that it's best to stay renting right now. Any unit we'd consider buying would have to be 1200-1400 sq ft, and those come with a hefty monthly fee ($800 +). Of course, you often get a lot included with that (pretty much all utilities except internet), but we do not need cable, a pool, or the often poor excuse for an "exercise room". I understand bulk discounts and the advantages of having all that stuff, but I'd really like to only pay for what I use.

To buy a similar unit to what we're renting would not only drain around $90-$100K from our investments for a 20% down payment (not paying a DIME to CMHC gangsters), but also include substantial closing costs, moving expenses, and paying off the government shakedown artists (i.e. land transfer). With property taxes and maintenance fees, you are easily looking at a carrying cost in the high 2K's, or more, depending on interest rates. That is substantially more than what we are paying in rent.

(Yes, you can buy -- and rent -- cheaper, but we are more interested in location and actually enjoying where we live.)

We currently save about $1200-$1500 each month, which goes directly to our investments. My feeling is that housing values are a bit precarious right now, especially when the global economy is on such wobbly legs. Sure, people move here and there is demand, but they don't all have a lot of extra cash and stable jobs. And most are sitting on a colossal SH*TLOAD of debt. Much of it due to housing and using the Bank of Mortgage Renewal to finance trips, gadgets, and Canada Goose jackets for the entire family. The lunacy has to end, and I think there is a black swan just visible on the horizon.

We all know how things got so out of control, and things can quickly change, as they have in the past. It is never really "different this time". I don't consider myself a loser for sitting on the sidelines. We made out pretty good when we sold our home a few years ago, and we continue to save and invest each month, while renting a great unit with everything we need within a 5-10 minute walk. Real estate is but one tool for investment growth and it has been a gold mine for a long time now. It might continue, and it might not, but I think we'll be ok following our strategy of frugal, sensible living and continuing to save and invest.

My number crunching ended up with a different result than yours, but I think it's also because I'm not looking at such a large unit.
For me, purchasing would cost less than renting and I also don't expect to move in the near future so I'm hoping to be able to weather out any imminent price correction. If I can't, I figure I'll just rent the unit out if I do end up moving.

 

[ponyboy]

I would love to see some specific cases where buying in Toronto today trumps renting when considering all the costs. Usually people leave out important things when trying to make that case.

 

[TheKingEast]

I would love to see some specific cases where buying in Toronto today trumps renting when considering all the costs. Usually people leave out important things when trying to make that case.

There are benefits on both sides it really depends on one's needs. Also, there are some factors that you can't put a $ value on.

 

[Migos]

There are benefits on both sides it really depends on one's needs. Also, there are some factors that you can't put a $ value on.

From a qualitative standpoint, there are many reasons why you may prefer either renting or buying. I think ponyboy's point was that it would be very difficult to find any cases in Toronto where it makes financial sense to buy rather than rent in the current environment.

 

[ponyboy]

TheKingEast -- Absolutely, there are other considerations besides money. I was just responding to the previous comment

..
For me, purchasing would cost less than renting ...

 

[gentlepuppies]

History (most recently the US housing collapse/recovery) shows that property appreciation averages 5% a year over the long term, hence the true value should be about 75% higher than the price at the start of the boom circa 2003-04. A 600sf unit in downtown Toronto was worth $180K in back then, should be worth <$300K today, instead of the current $375K. Houses should be closer to $650K, not $800K

 

[Migos]

History (most recently the US housing collapse/recovery) shows that property appreciation averages 5% a year over the long term, hence the true value should be about 75% higher than the price at the start of the boom circa 2003-04. A 600sf unit in downtown Toronto was worth $180K in back then, should be worth <$300K today, instead of the current $375K. Houses should be closer to $650K, not $800K

5% a year? Not in the U.S. After inflation, price gains are less than 1% annually.

Wiki has a good overview if you're unfamiliar: https://en.wikipedia.org/wiki/Case–Shiller_index

 

[nrb]

Below is a link to guest column on BuzzBuzz Home by Ben Myers, he's the Senior VP of Market Research at Fortress Real Developments.

Ben always provides an interesting perspective on the housing market. This article is particularly interesting as it provides various forecasts from 2015 about the housing market.

http://news.buzzbuzzhome.com/2016/01/big-data-with-big-ben-smarter-than-housing-analyst-2016.html

Dude stop registering sock puppets and spamming your own site. We all know you're Ben Myers lmao.

 

[ponyboy]

http://www.nytimes.com/2016/01/14/us/us-will-track-secret-buyers-of-luxury-real-estate.html

this is from a week ago. It seems to me that authorities in the U.S. are more willing to admit that money laundering may be a problem in supporting high-rise condo boom.

from the article
"It is the first time the federal government has required real estate companies to disclose names behind cash transactions, and it is likely to send shudders through the real estate industry, which has benefited enormously in recent years from a building boom increasingly dependent on wealthy, secretive buyers.

The initiative is part of a broader federal effort to increase the focus on money laundering in real estate."

 

[Migos]

Toronto in bubble territory
In Toronto, rapid price acceleration in the past year has led to prices that are just too high for detached homes, but CMHC is also monitoring the city for the potential emergence of overbuilding, especially in the condo market.

In a report released Wednesday, the Toronto Real Estate Board estimated the number of resale condo listings in the city rose 3.3 per cent in the fourth quarter of 2015, but sales were 5,596, an increase of 12.6 per cent.

That tightening of the market has pushed up condo prices, which rose 4.1 per cent to $382,070.

But CMHC is concerned about the acceleration in building of Toronto condos in the final quarter of the year, saying developers need to monitor inventories to prevent further overbuilding.

The rise in housing prices in Toronto has not been matched by a rise in disposable incomes, CMHC said.

http://www.cbc.ca/news/business/cmhc-housing-prices-risk-1.3422284

Even the CMHC is sounding the alarm, but it's not stopping them from insuring the very same mortgages!

 

[uto123]

If there's overvaluation and overbuilding, does that mean there will be a correction soon?

 

[mig174]

There has been overvaluation and overbuilding for the past 3-4 years. I've been hoping for prices to go down, but honestly, it is hard for me to expect that to happen, especially in Toronto, for several reasons:
1. Canada is very friendly to foreign investment in real estate and housing here is now at a significant discount given the drop in CAD. I'd expect huge outflows of currency out of China as nobody is certain how long the RMB will stay the way it is before significant devaluation.
2. Canada is in recession: Interest rates are low (therefore carrying costs for large mortgages are down) and stimulus spending/further currency devaluation is coming. Canada will not want let the housing sector collapse as it represents almost 10% of the economy. I believe Ottawa will try to at least keep things stable or bubbling until there is significant growth in other sectors.
3. Toronto price-to-income is about 5.5x, far below the 8x in Vancouver and I think the demand for housing here is greater than Vancouver. There is much room to grow still.

 

[yin_yang]

If there's overvaluation and overbuilding, does that mean there will be a correction soon?

no, because we still have a long way to go until we are like NYC, London, Hong Kong. people see great deals here. at least i do, and if and most of my friends do, then i imagine most of the rest of the intelligent wealthy people worldwide see value as well.