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Baby, we got a bubble!?

Anyone care to chime in on the rise in oil prices and whether this will have any effect on housing prices? Are housing prices expected to go up further in the next 12 months especially in regard to downtown condo market. I recently sold my townhouse so I really want to know;)
Quote Originally Posted by Monaco View Post
I'm not sure exactly since I do not have access to sold data, just the asking price. During the lull in early 2009, I purchased for ~$420 psf including parking and locker. Later in 2009, similar units were listed for $30+ psf more (again I don't have the sale prices). Since then, prices seem to be up by $30+ psf again. I would not buy my unit at $480 psf today.
where did you buy dt? that sounds like a good price with parking and locker.

You may still find such properties in the DT core. For example, the price for the following condo, located at the college park, is just around $432 psf including both parking and locker:
Canada's home price index snaps slide

Canadian home resale prices broke a three-month string of declines in December as five of six metropolitan markets rose, the Teranet-National Bank Composite House Price Index showed on Wednesday.

The index, which measures price changes for repeat sales of single-family homes in six metropolitan areas, showed overall prices were up 0.3% in December from November.

Overall prices were up 4.1% from a year earlier.

Heavily-weighted markets Vancouver and Toronto reported price advances of 0.5%, and 0.2%, respectively. Teranet said January data from the Canadian Real Estate Association showed "generally balanced" conditions in major urban markets. "Toronto and Vancouver could even be considered rather tight markets," Teranet said.

The Calgary market posted its first gain in five months, up 0.1% in December, while Montreal gained 0.5%.

Halifax prices jumped most, up 3.6%, but Teranet noted its impact on the overall index was marginal.

The Ottawa market was the only decliner in the month, down 0.4%, and it marked the fourth straight monthly decline.
I always smile a bit when I read about this.
If the valuation is $432/sq.ft. instead of say $600/sq.ft. for new. Let's say the condo fees are 45 cents instead of 70 cents. That is $0.25 x 1100 sq.f.t or $275/month which is $3300/year. Now at $about 480K for this unit vs. $660K for the new unit of similar size, the difference in taxes will be about 180K x 0.0085 approximately or $1500. Hence the additional cost to live is $1800/year. However, one is not presumably mortgaging another 180K nor incurring the interest charges one is paying out on this 180K. Even at 3% the interest charges alone are $5400/year. So factoring in interest at an extremely low interest rate still leaves one $3600 behind per year ($5400-$1800).
I appreciate older buildings will have more repairs.
Will the new appreciate more than the old going forward?
I am not so sure it will.
However, it appears that about 2- 5 years seems to have the most appreciation and by 10 years, buildings are already being considered "old".
I guess my point is from a financial point of view, unless you really like the new building, does it really make sense. Thus far, the market is paying significant premiums for new but will this continue?
Just a thought I have.
Yeah, but the maintenance fees on that unit are a whopping $778 per month. That tends to offset the sq ft list price somewhat.

but the question that needs to be answered is what does the $778/m maintenance fees cover?
also, considering the size of the unit @ 1100 sqft with parking + locker, the fees maybe $0.60 psf.

in newer build, most utilities such as electricity and sometimes gas are separate, yet they still charge $0.50 psf and that's based on the builder teaser rate to get people to buy. fees are pretty much guaranteed to increase after the 2nd year !
cdr is of course correct bringing up what is covered in the maintenance.
Newer condos reward those who conserve whereas older buildings you are at the mercy of all your other residents. Often the hot water and A/C are common. One problem with this is that you are at the mercy of the condo corp as to when they elect to turn on the A/C for the summer because it involves turning off the heat. Individuals in individually controlled units can decide what they wish. This can be very important in some buildings. For eg. the North side of a building may be up to 5 degrees colder than the South side which may be the difference of being comfortable or uncomfortable.
However, cdr, I believe the main reason fees are higher on a monthly basis in an old building is that the monthly condo fees include more repairs and the reserve fund which generally in older buildings have more things to be done more immediately than in new buildings. Some of the newer buildings have more efficiencies. However, good older buildings with good condo boards do make intelligent decisions regarding retrofitting to gain efficiencies as well.
I do believe that builders have to make a reasonable estimate of what the expenses are. However, especially in the past few years; with condos often closing 2 or 3 years later (with the corresponding increases over what was initially promised) and with the large increases in oil and electricity charges, it is understandable that the builder rate is in fact going to be understated. However, apart from the 2 or 3 year delay with the price increases, older units will also have experienced the large oil and electricity charges.
You can't compare a $480k property and a $660k property. With leverage and opportunity cost you will be ahead on the $660k property as long as there's a modest increase in property value.
You can't compare a $480k property and a $660k property. With leverage and opportunity cost you will be ahead on the $660k property as long as there's a modest increase in property value.

Indeed.:cool: And its always best to invest in the stock market (or anything else) with the maximum possible leverage, because this will maximize your profits as long as there is an increase in the value of your stocks.

ps. sure, some people might suggest that the stock market (or any other market) might decrease in price. But the key to smart investing is to ignore that possibility. Damn the torpedoes and full speed ahead!!!
Which would be fine if you are in the business of selling immediately or almost immediately since you use your say 15% levlerage..

With prices at their present levels, while this was the case in the past 14 years, it will not necessarily be the case going forward. Remember leverage is a 2 way sword. If prices go down, your "15% leverage" is destroyed much faster. (The mortgage figure is a constant and your equity is destroyed at a much faster rate.

Consider as well the opportunity cost of the extra capital (the $180K difference). One could make other investments that may return as much, eg. stock market; not that I am advocating this; but especially if margined or options traded, could result in the similar gains. You might say that is risky but buying with leverage because one "expects price increases to justify the leverage" is a risky strategy.

It has worked since 1996 -2010. Property prices increased yearly because bond prices and hence mortgage rates have been more or less on a steady decline.

It would not have worked from 1989-1995. It worked very well from 1985-1989. This is for Toronto.

Didn't work so well in the US from 2007-2010. Worked great from 2000-early 2006.

My point is if you believe that the present $100 or so on average in the core of Toronto downtown premium for future appreciation on new construction is sustainable or for that matter will increase, then TCW you are correct in my view. If prices decrease or the perspective of the market is such that there is no or minimal price escalation to come in the next 3-4 years, the gap between new and resale could easily narrow from the $100 which would negate the leverage gains and could result in losses.

One final point; investors view real estate as you are suggesting. I am not talking speculators/flippers. Most presumably can afford to take a longer term view and can survive if they have a negative value investment for a time. People buying to live who might well be stretching to carry the mortgage on the more expensive property once closed and carry it on an ongoing basis have to consider in my example that they are gong to be giving up something to make up the $3600/year difference and may be stretching themselves to meet the additional $300/month payments.

Carrying the logic to the extreme, one should buy the most expensive property once can with the least amount down. The potential returns are the greatest. So are the risks.
The slightest downturn and one "no longer sleeps at night". Of course, if one can invest with 15% down but has another 15% accessible (to allow for say a 15% downturn in prices), one can undertake the risk.

I just read daveto's comment. Thanks dave for saying in 1 sentence that which took me a thesis defence to present. I feel like an idiot. LOL
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I understand the impact of leverage and the impact it can have given market appreciation/depreciation. I'm not saying people should buy the most expensive house they can afford with the most amount of leverage possible, I'm just pointing out you left the impact of capital appreciation and leverage out of your calculations which makes the biggest impact when comparing the two properties you posted in the above scenario. In your example, you are assuming the buyer takes out an additional $180,000 mortgage with no additional down payment and buying in the old building will put you ahead by $3,600 per year. If the market increases more than 2%, the buyer in the new building will "make" more than the $3,600 per year in property value increase. Therefore, what you really should have said in your calculation is if you believe the market will increases more than 2%, you will be ahead in the new building, if you believe the market will increase less than 2% or drop, you will be ahead in the old building.
I believe TCW, daveto and I are on the same page. Still, it only works in an ever increasing valuation market.
The point with the example was that for the majority of buyers, an additional $180K on $480K I would suggest would be a big stretch. Being able to live in a 1100 sq.ft. condo at $480K is quite manageable in downtown today for alot of buyers. Most buyers will compromise and end up with 800 sq.ft. and buy at $480K because I believe for most people the budget is essentially fixed and the sq. footage is what gives. So I think the person who could buy the $660K property and close it will do so because he can carry $660K. He may choose to only carry $480K. The reverse scenario does not work and if stretching oneself to get to $660K to get the 1100 sq.ft. in new digs, one places oneself at risk.
Finally, working on the assumption of even 2% increases may be risky given that trends tend back to the norm and the past 10 years anyhow in Toronto, real estate prices have been increasing beyond the average long term historical rates of return.