Baby, we got a bubble!?

[azureray]

I dont think so. Thats just my personal opinion, but no, I dont think we are there yet to have a crash. We can see if its true in five years time.

BTW, I remember all of us were having the same discussion back in 2010. Deja vu.

seriously !?!?!
you don't think a $300K unit can go under $280K in 5 years? that's only a loss of 7%.

 

[daveto]

I dont think so. Thats just my personal opinion, but no, I dont think we are there yet to have a crash. We can see if its true in five years time.

BTW, I remember all of us were having the same discussion back in 2010. Deja vu.

Exactly!

btw, in 2010 an actuary told me I had 3% chance of dying in the next three years.
But here I am in 2013, very much alive.
ergo, I will live forever!

 

[CN Tower]

Exactly!

btw, in 2010 an actuary told me I had 3% chance of dying in the next three years.
But here I am in 2013, very much alive.
ergo, I will live forever!

I expect weaker sales for the rest of 2013 and then a rescue package from the Finance Minister rolling back some of the tougher mortgage criteria, ie down payments, amortization periods, investment units, etc.

Personally I'd rather see Canada stands on it's own 2 legs than be propped up by govt incentives. Might cause some short term pain but well worth it in the long run.

 

[azureray]

And also very likely Jason Kenney will step down and CIC will bring back immigration. BTW skilled worker class immigration program was halted for a couple of years by Jason and has just restarted this spring.

Unless we are arrogant and racist enough to close our doors as a country, the growth will continue.

The Harper government have been so focused on developing Alberta, however they can't afford to let Ontario fall. Not a chance.

I expect weaker sales for the rest of 2013 and then a rescue package from the Finance Minister rolling back some of the tougher mortgage criteria, ie down payments, amortization periods, investment units, etc.

Personally I'd rather see Canada stands on it's own 2 legs than be propped up by govt incentives. Might cause some short term pain but well worth it in the long run.

 

[rbt]

Any source on that? Financing, i.e., lending money to someone, is not 'investment in real estate'.

What's he's doing was spelled out in the article above. He bought shares in a developer who is using it to close their funding gap (self-finance at least part of their sold buildings construction).

What he isn't doing is buying individual condo units to rent or resell.

 

[azureray]

One thing we have not talked about a lot here is immigration, which hugely impacts the RE market. Here's our immigration policy change (Wikipedia: http://en.wikipedia.org/wiki/Jason_Kenney )

"On June 26, 2010, Kenney announced changes to the Skilled Worker Immigration Program. Skilled worker applicants are now required to either have an offer of arranged employment, or possess one of 29 eligible occupations (out of 520 occupations described in the NOC) for their application to be processed. A cap of 20,000 applications per year from skilled workers in the 29 occupations was also introduced. As of July 1, 2011, a maximum of 10,000 Federal Skilled Worker applications will be considered for processing in the subsequent 12 months. Within the 10,000 cap, a maximum of 500 federal skilled worker applications per eligible occupation will be considered for processing each year."

Consider a two year lag of all these significant changes of policies attempting to reduce the number of new immigrants, plus much tightened lending rules, the recent housing market cool down seems to be not so much of a surprise.

 

[hodgkinsken]

seriously !?!?!
you don't think a $300K unit can go under $280K in 5 years? that's only a loss of 7%.

It's actually way more than that in inflated dollar terms. Using an inflation rate of 2% the $300k unit should be worth $331k 5 years later. If it is only worth $280k then you've got a loss of $51k or 17%.

I've used 2% as its the "normal" inflation target people use. In fact one could argue that with the availability of 5 yr GICs in the 2.5-2.85% range that the loss could be higher.

 

[azureray]

True. That's why holding cash is the worst way of asset management, as cash loses value over time. GIC can beat a 2% inflation by 0.5% which means you are just barely holding the value of your assets, minus capital gain tax, almost no chance of return. Any type of investment is a balance between risk and return. RE has risk, but in exchange also a high probability of return.

300k unit's value five year late:

20% chance 350k and above
20% 320k - 350k
20% 300k - 320k
20% 280k - 300k
20% 280k and below

Rough numbers for arguments sake of course, but you get the idea.

It's actually way more than that in inflated dollar terms. Using an inflation rate of 2% the $300k unit should be worth $331k 5 years later. If it is only worth $280k then you've got a loss of $51k or 17%.

I've used 2% as its the "normal" inflation target people use. In fact one could argue that with the availability of 5 yr GICs in the 2.5-2.85% range that the loss could be higher.

 

[interested]

^^^^
azureray,
I am a believer in holding real estate for rental return. I appreciate the returns are not good and people argue you can make more buying REIT's. I think there are a number of people who think like me, especially those who have been through the tech melt and the 2008 meltdown. I appreciate memories are short and people always say look how much they made in the short term but it is the long run which is relevant. How many knew to sell in 2000, buy back and sell in 2007 and then buy in 2009. If one has the stomach and the where with all to hold on and live with that, fine. Most investors say they do but it is difficult when you watch your investment 1/2.

Real estate can do the same thing....but so long as one has a revenue and is not forced to sell...this is OK. Are there better investments. Sure. It is just a risk/reward argument.

However, I appreciate your rough numbers above but I think you have to allow with the current climate that a $300K condo today being over $350K as much less than 20%. Allow a lower limit of $200K on the downside because if things do come down hard, this is certainly conceivable. I am not saying I expect it. Just that I think putting an equal weighting to going above vs. falling below and allowing only 6.7% decline (280K vs. 300K) but 16.7% rise ($350 vs. $300K) given the straight rise over all these years is a risky way to look at things.

 

[azureray]

Agreed. Sorry those equal weighted ball parking was just me typing on an iPad and eating at the same time lol.

We always say you make three times the gain with a RE investment:

- Growth in equity when you pay your mortgage on time
- possibly make a rental gain, if you are lucky to get a positive cash flow (I'm one of the lucky ones, with a high return on a loft rental)
- save tax by running it as a business, no capital gain and you can expense loss.

You can also put in sweat equity, and sometimes your taste and good sense of design can turn simple things into a gain of equity.

All in all, you said it well. Hold on to your RE investments, think thoroughly and expect worse case scenarios, then you are a sure winner.

^^^^
azureray,
I am a believer in holding real estate for rental return. I appreciate the returns are not good and people argue you can make more buying REIT's. I think there are a number of people who think like me, especially those who have been through the tech melt and the 2008 meltdown. I appreciate memories are short and people always say look how much they made in the short term but it is the long run which is relevant. How many knew to sell in 2000, buy back and sell in 2007 and then buy in 2009. If one has the stomach and the where with all to hold on and live with that, fine. Most investors say they do but it is difficult when you watch your investment 1/2.

Real estate can do the same thing....but so long as one has a revenue and is not forced to sell...this is OK. Are there better investments. Sure. It is just a risk/reward argument.

However, I appreciate your rough numbers above but I think you have to allow with the current climate that a $300K condo today being over $350K as much less than 20%. Allow a lower limit of $200K on the downside because if things do come down hard, this is certainly conceivable. I am not saying I expect it. Just that I think putting an equal weighting to going above vs. falling below and allowing only 6.7% decline (280K vs. 300K) but 16.7% rise ($350 vs. $300K) given the straight rise over all these years is a risky way to look at things.

 

[azureray]

Oh I forgot to mention market appreciation. Funny everyone was talking about a crash I almost ruled out the probability of market appreciation hahaha.

Agreed. Sorry those equal weighted ball parking was just me typing on an iPad and eating at the same time lol.

We always say you make three times the gain with a RE investment:

- Growth in equity when you pay your mortgage on time
- possibly make a rental gain, if you are lucky to get a positive cash flow (I'm one of the lucky ones, with a high return on a loft rental)
- save tax by running it as a business, no capital gain and you can expense loss.

You can also put in sweat equity, and sometimes your taste and good sense of design can turn simple things into a gain of equity.

All in all, you said it well. Hold on to your RE investments, think thoroughly and expect worse case scenarios, then you are a sure winner.

 

[recharts]

Here is another article to cool you off a little bit:

http://www.torontocondobubble.com/2013/05/how-many-condo-owners-are-investors.html

Conclusion:

Based on my calculations I derived the following conclusions:

1. Rental condo vacancy rate is much higher in downtown Toronto than it is in the rest of the city. If we assume that 100% of condos are owned by investors who rent them out, then the vacancy rate would be 2.4% compared to the 1.4% vacancy rate for the city of Toronto. If we assume that 50% of all condos are owned by investors, then the vacancy rate would 4.8%.

2. The less investors there are, the higher the vacancy rate will be! For example, there are 5 units for rent in a building with total number of units of 100. If 100% of the owners are investors then the vacancy rate would be 5%. If only 50% of the owners were investors, then the vacancy rate would be 10%.

3. I would estimate that way more than 50% of condo owners in downtown Toronto are investors. I base this on the fact that during the first quarter of 2013, 1 bedroom rents went up by almost 4% in price. If the vacancy rate was 5%, rents would be falling in price, not rising!


This gave me an idea...
I can probably collect better data than he did but use his methodology
If I would only have time and interest for this...that would make things to happen.

 

[recharts]

"The GTA is currently accounting for just over 30% of all new immigrants arriving to Canada, down from 45% as recently as 2006" -CIBC

 

[rbt]

Here is another article to cool you off a little bit:

http://www.torontocondobubble.com/2013/05/how-many-condo-owners-are-investors.html

Huge flaw to assume that a unit available for rent is currently vacant. You can only make that assumption if they are for immediate occupancy. Any rental with a date attached (I.e. June 1st) is not yet vacant; it is likely occupied by someone who knows when they will be leaving (given notice or has a purchase closing date).

Very few investors will wait for the unit to actually be vacant before starting to advertise.

 

[azureray]

Exactly! I think that would be the case most of the time, certainly in my own experience.

Huge flaw to assume that a unit available for rent is currently vacant. You can only make that assumption if they are for immediate occupancy. Any rental with a date attached (I.e. June 1st) is not yet vacant; it is likely occupied by someone who knows when they will be leaving (given notice or has a purchase closing date).

Very few investors will wait for the unit to actually be vacant before starting to advertise.