Baby, we got a bubble!?

[azureray]

Yes, and thus we see an economic way of neighborhood transformation. There are young and single lawyers, bankers and doctors who will choose to pay more to stay in the core, while typical renters will be forced out further. Which is what happened to other cities like Manhattan or Hong Kong island many decades ago.

^^^
I think that is a very dangerous assumption.
Rents were quite stagnant over the past 8-10 years. They are up perhaps 20%. There was a large increase the past year.
With the extra product coming on line and presumably more choice, this may in fact not be the case.
I personally would hope for 4%/year but I certainly would not plan on it. Wages are not going up 4%/year and there is as such a limit to how much renters can pay.

 

[interested]

^^^
Maybe aureray but let me suggest to you that they will rent if it is negative cash flow.
If it is positive cash flow, bankers, lawyers and doctors will buy if they choose as these will be in a position to easily carry a mortgage. You are talking about highly paid professionals here.

I still believe the bigger risk as has been eluded to is the interest rates being at all time lows.

As far as investment goes: if interest rates stay this low it is because the economy is not doing well. So presumably we have had our price appreciation to date so there is not going to be a lot of that left. Prices have gone up due to interest rates dropping and they can't go down further (or much further).

If interest rates go up most people can't afford the rent increase required to make the rent justify the carrying costs. If there is inflation the property may rise in value but presumably the carrying cost deficit will eat away a lot of this.

I guess what I am wondering about is.....where do you think you are going to make your money on this. Since you are already acknowledging break even or negative carrying costs, it has to be that you think prices will continue their march upward. I am not so sure that is a good assumption but I don't have a crystal ball to know for sure.

 

[azureray]

Yeah I dont have a crystal ball either and I'm not a realtor, so I want to see this from an objective viewpoint.

Frankly speaking, Toronto is still one of the most affordable world class cities...comparing to London, NYC and Beijing Shanghai, let alone Hong Kong. Both buying and renting are affordable. I know many people here think the market has went crazy in the past many years, but I would say it's only leveling to the fact that Toronto is becoming a true world-class city. That being said, it does not answer the question of where we can make money. I guess the sure bet is buying a freehold in downtown core...there wont be more of these.

As for condos, we say when the water rises, the ship will rise. Is there room for price increase further, I'd say hell yes, from a historical standpoint, its inevitable. $1000 / sqft should be the normal of downtown core in a decade, maybe sooner. But Im not sure if that pace will happen in 5 years. Theres a lot need to be done before we get there. Immigration, population, art and culture, Toronto's very world class status. But we are getting there.

Is there a bubble yet? I dont think so. But it is harder and harder to be a condo investor, unless you prepare for all the risks and you are willing to hold longer.

^^^
Maybe aureray but let me suggest to you that they will rent if it is negative cash flow.
If it is positive cash flow, bankers, lawyers and doctors will buy if they choose as these will be in a position to easily carry a mortgage. You are talking about highly paid professionals here.

I still believe the bigger risk as has been eluded to is the interest rates being at all time lows.

As far as investment goes: if interest rates stay this low it is because the economy is not doing well. So presumably we have had our price appreciation to date so there is not going to be a lot of that left. Prices have gone up due to interest rates dropping and they can't go down further (or much further).

If interest rates go up most people can't afford the rent increase required to make the rent justify the carrying costs. If there is inflation the property may rise in value but presumably the carrying cost deficit will eat away a lot of this.

I guess what I am wondering about is.....where do you think you are going to make your money on this. Since you are already acknowledging break even or negative carrying costs, it has to be that you think prices will continue their march upward. I am not so sure that is a good assumption but I don't have a crystal ball to know for sure.

 

[interested]

^^^
It sounds to me azureray that you are at least factoring in for a prolonged hold which is good.
At least if you are well capitalized enough, you should be able to ride out the storm if happens.

 

[azureray]

Maybe I sounded too much like an investor, lol actually Im only an urban dreamer. I love Toronto so I want it to do well. I care more about heritage preservation and good architecture than real estate price, however I think a stronger and healthier market will help elevate these.

My heart aches when I pass Parkdale...why beautiful heritage and architecture got ruined and people let it happen? It wont be the case in any other major city only Toronto...preservation needs capital, and the best way to achieve that is a stronger RE market. When the core rises, it will impact other hoods. People will start appreciating those areas 10 min away from the core more. Thats what happened to other cities.

^^^
It sounds to me azureray that you are at least factoring in for a prolonged hold which is good.
At least if you are well capitalized enough, you should be able to ride out the storm if happens.

 

[drewp]

Azureray, what is wrong with resale? Your basing your decision on speculation. At least you know now what the interest rates will be, how the economy is performing, the rental rates...etc. There are some good options right now. Although Great Gulf is a reputable builder, I am sure you will be paying well over 700 sqft when you are ready to sign on the dotted line after accounting for upgrades, locker, and floor premium.

I was thinking about 1000 Bay when I drove by today, and thought about those poor investors who paid well over 800sqft. Now that is criminal.

 

[ISYM]

Azureray, does your estimated purchase price include an HST rebate?

On another note, within five years I foresee prices for condos under 700sf, even 1000sf suffering as downsizing boomers battle young families for the limited larger spaces.

 

[azureray]

No it doesn't. But isn't HST rebate just what goes to the developer? Regarding larger units, I agree with you. There are fewer larger units for downsizing boomers and young families, but these population will not necessarily compete in the downtown core, somewhere midtown and up or along the expanded subway lines, even mimico or lakeshore.

Azureray, does your estimated purchase price include an HST rebate?

On another note, within five years I foresee prices for condos under 700sf, even 1000sf suffering as downsizing boomers battle young families for the limited larger spaces.

 

[daveto]

TREB data is out
http://www.torontorealestateboard.com/market_news/market_watch/2013/mw1304.pdf

Sales down 5% YOY (note that TREB's quote of 2% decline is a preliminary 2013 to final 2012 basis. Final is always lower than prelim)
Prices up 1.7% YOY (ie 0% net of inflation. Lowest YOY change since 2009. Again, note that TREB's quote of 2% is prelim 2013 to final 2012)

New listings up 11% (note that March/13 new listings ranked 7th highest in the past 10 years, whereas April/13 new listings ranks 3rd highest)
Active listings up 13%

One interesting statistical item. Note that the TREB report shows price increases for 416 detacheds of 2.5%, for 905 detacheds of 2.2%, and yet combined 416/905 of only 1.1% (!). This happens because detacheds sales volumes decreased by more for 416 than 905, thereby skewing the combined average lower due to fewer more expensive properties. This illustrates how changing product mix can overstate or understate the true change in the average price. Note that the opposite happened with condo sales (ie average was skewed higher, due to a greater decrease in the sales of the less expensive 905 condos)

Finally, new home sales are down 35% for the first 3 months of the year (compared to 2012). Note that new home sales are typically 1/3rd of resales (ie. the market is 75% resale, 25% new homes)
http://www.realnet.ca/march-q1-2013-gta-new-homes/

 

[interested]

^^^
Thank you dave for helping point out the nuances in the data.

 

[azureray]

Sounds like TREB are still optimistic. How much of the market slowdown was due to the tightened lending regulations? Or the rush to buy before it was implemented last year?

“The condominium apartment segment in the City of Toronto was a key driver of price
growth in April, with both the average selling price and the MLS HPI apartment index
up on a year-over-year basis. The improved condo sales picture, with Toronto sales
down by only one per cent compared to last year, suggests that interest in condo
ownership may be improving," said Jason Mercer, TREB's Senior Manager of Market
Analysis

^^^
Thank you dave for helping point out the nuances in the data.

 

[azureray]

The Star report is also out today:

http://www.thestar.com/business/rea...owntown_condos_lead_broad_rise_in_prices.html

 

[urbandreamer]

What would the costs at that Yonge + Rich condo unit at 5% interest?

 

[azureray]

A lot, so that we have to do this:

What would the costs at that Yonge + Rich condo unit at 5% interest?

 

[cdr108]

What would the costs at that Yonge + Rich condo unit at 5% interest?

every 100 basis point(1.00%) increase would equate to 8-10% increase in payment.
so estimate ~20% more than what you had calculated before.

A lot, so that we have to do this:

that's funny but very likely.