Baby, we got a bubble!?

[simuls]

Hi Simuls,

Your steady eddy 9% is an assumption. From 1992-2004, in Toronto, housing prices appreciated 0% above the rate of inflation.
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I have no idea where you got this from. I'm going to leave it you to prove it to me.

Here you go.

http://www.torontohomes-for-sale.com/4a_custpage_2578.html

As you'll note, I was wrong, and housing prices have just caught up with their value in 1989. That means a 0% increase in the last 20 years if you'd bought at peak in 1989. If you'd bought in 1992 or 1987, you wouldn't have earned a dime until about 2004.

It is true that if you'd bought in 1996, you would've done well - although I would suggest that this is mostly relegated to the detached home market. Condos were still selling for under $200/ft in 2001 - the same as they were selling at in 1988.

I'm not saying there's not money to be made. This condo run has been very very good to me and given me returns I simply could not have dreamed possible and if I believed I could continue this trend I would. But everything I see indicates otherwise.

As for the 15 000 new units in the downtown core. These are not part of the "inventory" of unsold units. These are units that have already been bought by someone. Conservative estimates suggest 30% investors. Who is moving into these units? People who've been living with their parents? Sure. Some of them. But more likely? People who are already renting condos. This has the potential to lead to a double or triple whammy effect on supply. Only 1500 new units have registered in the downtown core in the last 18 months - that is why there is low supply. 15 000, in such a concentrated area, in the next 18 seems too scary a number to just dismiss.

 

[TrickyRicky]

Speaking of risk aversion and being cautious, I've been interested in the experiences of those investors who have been very successful over a life-time.

I think one of the most successful strategies is to be generally patient and cautious but be prepared and take actions decisively when they present themselves. Let's face it, over time most of us are wrong as much as we are right no matter how smart we think we are. The trick is to in general act decisively when you tend to be right and be cautious or patient when you tend to be wrong.

You actually don't need to make very many decisive correct decisions in your life to be highly successful financially or otherwise. This runs contrary to the pressures exerted on CEO's and financial gurus etc. People expect them to be right all the time or to make consistent small good decisions. I think this is a mirage, it virtually can't be done but for luck.

 

[Jaguar4u]

I've been gung ho on the housing and especially the condo market in Toronto for about the last 6 years, but in the past few months I've seen some alarming trends that seriously suggest a massive bubble is being created that'll explode as soon as interest rates increase and/or the supply of condos goes through the roof in the next 17 months. The article below deals with some of the problem, but the 8% increase in home debt during a recession is also worrisome. What's your take?

http://www.movesmartly.com/2009/11/toronto-real-estate-prices-up-94-in-4-months.html#more

They said the same thing three years ago in the last boom before the recession. The boom slowed down during the recession. Now we are catching up from a lack of supply for the demand.

Toronto is Booming again, but this time there are several new office towers also going up all over the downtown core, close to the financial district and Union Station. We weathered the recession well and got great publicity worldwide, attracting international investors. Some go as far as predicting Toronto will become the next major financial capital.

I am not worried about a bubble. The film industry and other major financial players are investing in Toronto and expanding their operations in our great city

 

[Jaguar4u]

Also, the housing prices in Canada is very low. Toronto as well is very cheap compared to other major and desirable cities of similar size and growth.

 

[simuls]

The film industry and other major financial players are investing in Toronto and expanding their operations in our great city

I'm not sure what you're reading, but the new waterfront Studio was sold to Shepperton because there was NO BUSINESS and it couldn't survive on its own. The hope is that the name will drive production here, but the reality is, the 95c dollar has made the phones stop ringing. The film industry is my industry, and it's in the tank at 50% of the business it was doing in 2000 - not including inflation which would put it about 65% less.

 

[Monaco]

I'm not sure what you're reading, but the new waterfront Studio was sold to Shepperton because there was NO BUSINESS and it couldn't survive on its own. The hope is that the name will drive production here, but the reality is, the 95c dollar has made the phones stop ringing. The film industry is my industry, and it's in the tank at 50% of the business it was doing in 2000 - not including inflation which would put it about 65% less.

EDIT: I agree.

I was always under the impression that our low dollar was the main attraction of Toronto/Vancouver. Of course proximity and having many skilled people here also made it more attractive, but only because the dollar was also low. I like recognizing scenes filmed in Toronto though!

 

[cdr108]

I was always under the impression that our low dollar was the main attraction of Toronto/Vancouver. Of course proximity and having many skilled people here also made it more attractive, but only because the dollar was also low. I like recognizing scenes filmed in Toronto though!

what's your idea of low dollar ... 95c dollar is not low, 70c would be acceptable to alot of US and Cdn export companies

 

[Monaco]

what's your idea of low dollar ... 95c dollar is not low, 70c would be acceptable to alot of US and Cdn export companies

No, I don't think 95c dollar is low.

Meant to convey that I agree that our low dollar (in the past) was a strong incentive to film here, along with a number of other attractive features - but these have very little weight without the support of a low dollar.

 

[simuls]

Phones for the film industry start ringing around 85c US.

 

[Eug]

Correct me if I'm wrong, but my understanding was that incentives for the film industry are better in places like BC, which is why a lot of stuff still gets filmed there with the dollar at 94 cents.

 

[simuls]

Ontario has great incentives for film/tv and in fact has solidified its position in relation to this as opposed to many US states that have scaled back their tax breaks because of the recession. Certain tax incentives are odd however. For example, you get an extra tax break if you shoot outside of Toronto (eg.Hamilton) vs. Toronto, so many shows will have their headquarters here, but make sure they shoot more than 50% outside of Toronto to get this extra break. It's silly, as all the casting is still done in TO, the crew is from TO, etc., just the location for the shoot will be outside. Affects businesses like catering, etc.

BC is also in the toilet, but has done better than Toronto over the past 3-4 years because of its proximity to LA (90 min flight, vs 5 1/2 hour flight). Toronto is more a feature film/MOW town, and Vancouver is more of a TV series town.

Sorry mods, we've gone waaaaay off topic. Anyhoo, my point is, Toronto is NOT booming again. It seems like it, but all the cranes you see in the sky are building things bought 3-4 years ago. Toronto's skyline will be decidedly emptier and the construction business in a severe downturn within 1-2 years. With more than 10% unemployment - and expected to go higher, you'll also see office vacancies rise. I do think we're well placed to weather this storm, but there's no doubt, a storm is-a-comin'.

 

[Eug]

TREB Dec. 3 update

Greater Toronto REALTORS® reported 7,446 sales in November – slightly more than double the November 2008 result when GTA home sales had dipped markedly due to the economic downturn.

Year-to-date sales were up 14 per cent compared to the first 11 months of 2008.

The average price for November transactions was up 14 per cent year-over-year to $418,460. The average price year-to-date was up four per cent to $394,464.

In November, the median price was $353,800, from the $312,250 recorded during November of 2008.

As a comparison, average price was $393,757 in November 2007. So, Nov. 2009 represents an increase in price of 6.3% over Nov. 2007, or 3.1% per year averaged over two years.

 

[simuls]

Sales to listing ratio is 81% in downtown condos (balanced market is 20%). Last time it was like that was just before the big bust in '89.

 

[clarkean]

Doom & Gloom

It was interesting to note today, i was reading a blog on msn money about the shape of our real estate market and there was only 1 positive comment. All the other comments predicted a bust and a collapse of the housing market when the interest rates start to increase etc. They all bashed the pster of that 1 comment of being a dreamer and unrealsitic etc.

I personally don't believe its going to be severe as everyone is predicting, if at all. I know interest rates will rise but i doubt there ever going to go as high as back in the 80's. I doubt the government would allow it to ever get back to those levels again.

Though real estate numbers are showing record housing prices, caution should be taken on the selling price for resale homes. In most cases these are over inflated due to the new practice by real estate agents of inflating the price so that the buyer can have enough for a down-payment etc. I'm sure we all know a real estate agent/buddy who does that.

I myself have a lot of buddies who have rental units from before and during the recession and have done pretty well for themselves. I have a rental unit i picked up and within a week of closing i had over 10 serious renters to my surprise.

To summarize its good to be cautious and feed on the doom and gloom but could someone list a better long term investment than real estate?
I see everyone bashing it but no ones providing any other viable solutions.

 

[UrbanVigor]

So long as rent can cover the mortgage and maintenance costs then your investment is simply your down payment and your return is the appreciation. RE can certainly be a good investment under the right conditions.

However, it also has a greater PITA factor (Pain In The Ass) than investing in equities and over the long run stocks have greater returns than real estate which usually tends to grow around 2% a year. I'd say RE is safer than investing in stocks, but over a long term investment horizon, stocks have a greater growth rate. Of course, in a bad year, as we've recently seen, stocks can tumble huge. Greater the risk, greater the reward.