Baby, we got a bubble!?

[Condo George]

George, a good 70% of the condo's sold in 2006/07 will be occupied/registered in the next 10 months - a ton in 2011. Those are some HUGE numbers and a ton of supply that's coming. Just in Liberty Village alone, you have over 1000 condo's that willl be registered within 6 months. Add West Queen West's Bohemian Embassy, West Side Gallery Lofts, those things across the tracks east of Dufferin and in half a square kilometre you have 2300 new condos online - of which 50% are investor owned. Condo vacancies are rising, rents are dropping. At current rent, $1500/1 bedroom LOSES money at a rate of about $200/month with a 35 years amortization of $220 000 plus condo fees plus taxes (assuming 2007 average selling price of about $265 000 for a 1 bedroom). Why, as an investor would I continue to own a negative cash flow investment that has peaked in value? As for purchasing now, at $350 000 for a one bedroom, unless you're putting $200 000 down, the cash flow is negative and your ROI is around .3% - brutal vs. even a crappy investment alternative like a GIC - those at least can get you 4%. For the life of me, I can't figure out even one scenario that makes now a good time to buy - I wish I could!! As for RE vs. the stock market - the stock market is infinitely more manageable. Anybody could've invested, and did, in the RE market over the last 10 years and looked like a genius, but in reality, most "investors" just got lucky. What we'll see over the next 3-5 years will separate the men from the boys.

Also - "sold conditional" is a phrase we haven't heard in a long time and also suggests a rapid change of events. Seriously, while our bubble burst will be for completely different reasons than the States, the rhetoric from the RE industry is alarmingly identical, but no surprise. Someone should start an RE agency that tells the truth and says things like - don't buy unless you absolutely have to right now - or don't sell unless you absolutely have to right now. If more agents did that, supply and demand would work it's way through the system in a much more even handed way rather than troughs and valleys. Everyone would be better off.

I do tell the truth and thats one of the reasons I am a bit successful.

Carrrying $350,000 one bed, mortgage $262,500

@ 2.75% line of credit fully open is $602 a month, $300 maint, $200 tax, $1102 carrying costs, use the positive $400 to hammer down the debt, or go with a variable prime -.70 or 2.05% or 35 or 25 yr am it will still will be under $1500.

I invest because I love Toronto's potential, I love the location of the condos I invest in, I dont have anywhere else to put my money and finally in 4 years I firmly believe we will be alot higher than we are today.

I buy and coach investors to buy condos in strategic locations, I just dont sell any site because there is a door and a dollar sign there.

In this past year, I have turned down 6 sites downtown and have promoted only 2, just a bit of history on me just in case some here think its all about the money for me as a broker. That seems to be the stereotype.

I never buy resale, only pre construction at the first available buying opportunity and have access to units that come back in default, its this process that has been so rewarding, usually investors are very happy with the returns on their deposit and really didnt have to do anything. We all have ours ways to achieve success if we want it, one thing with me is I have never given up before I get to the start line and I never let fear or the herd of negativity stop me in my pursuit of financial freedom.

 

[interested]

Laughing out loud? Really? Sort of like these americans in 2006, maybe?
http://www.youtube.com/watch?v=60CLQse27p8

It is interesting to hear how he was the lone voice predicting doom. That said, I expect prices down (10=15%) but not a "crash" of the magnitude of the US. That said, none of the others saw it either. I hope I am not sitting here with blinders on.
Incidently, I predicted a 30% correction in Florida in 2003. I was too early. I saw the bubble there but as stated in other posts, I recall a property I had double in 2 years. It went on to double from my 2003 selling price and today it is worth similar or somewhat less than I sold it for in 2003.
If the US experience has taught us anything, it is that prices can get on a downward spiral very quickly and go down far greater than one can anticipate standing at the top of the hill.

 

[interested]

Hi all,

I'm currently living downtown near the St. Lawrence Market, but for various reasons my wife and I are looking to move to Oakville. Like everywhere else in the GTA, the market is slow - with few sales in July and price reductions. However, the average and median selling prices in Oakville are still higher now than they were in 2009. I'm looking at one particular property right now - and the only comparables on the street are from March 2009 and September 2009, respectively. The particular property I'm looking has had a few upgrades, but is still priced 20% higher than the September 2009 comparable - my agent's justification is that "the average selling price in Oakville is 10% more in June 2010 vs. September 2010, so if you take that into account plus the upgrades.. it is priced fairly.".

I'm not oblivious to the market conditions - I'm also tracking the TREB numbers and know that July sales will be brutal. I imagine that Oakville and the outlying suburbs will experience a similar drop off in sales figures. However, as a buyer, how do you reconcile a market with slowing sales but average selling prices that have continued to rise? Is it a no win situation?

I live in Oakville and I can tell you the market has definately slowed down. Signs are up much longer than before and I spoke to an agent who told me there is a world of difference the past 1 to 2 months compared to previous.
Historically, I note that Oakville always seems to lag the City of Toronto by about 3-6 months. We go up slower and then we seem to recover a bit later than Toronto.

I don't know what you are looking for. Oakville especially in more established areas does not have massive movements of people leaving so prices tend to hold a bit better. I don't know if you can wait but I believe it is unlikely that Oakville will maintain it prices if everything around it falls though as I said, due to desirability (and until now that they released all the land North of Hwy 5) there was land constraints but now this is changing and prices I am sure will reflect this.

As well, builders hyave long complained that Oakville's development fees are higher than the surrounding areas by a significant amount, and hence new buy property tends to be higher.

Just my observations as a resident here for almost 30 years

 

[interested]

This is standard for RE. It is a slow moving market. Both buyers and sellers are equally slow to adapt to changing supply and demand realities. They typically prefer to wait it out, presuming (hoping?) that that things will tilt back into their favour. Excess inventory is a standard precursor to decreased prices, but it takes time for the good ship "price of real estate" to change directions. If you need to buy now, and you can't wait, then you that's a bit of a sticky wicket for you.

Well said and totally accurate in my view as well

 

[Condo George]

Well said and totally accurate in my view as well

Yes agreed, sitting on the fence has been a not so rewarding strategy in the past.

 

[interested]

Yes agreed, sitting on the fence has been a not so rewarding strategy in the past.

I appreciate your humour. Of course you appreciate this is not at all what I was implying.

About your post on costs from above:

Carrrying $350,000 one bed, mortgage $262,500

@ 2.75% line of credit fully open is $602 a month, $300 maint, $200 tax, $1102 carrying costs, use the positive $400 to hammer down the debt, or go with a variable prime -.70 or 2.05% or 35 or 25 yr am it will still will be under $1500.

The only reason line of credit will stay at 2.75 or variable at -.7% is because things are bad in teh economy. I doubt rents will hold at $1500 as well. Taxes ib $350 K will be closer to $250/month. What else can possibly improve to make this anything but marginal. As well, what about the opportunity cost of $87,500. And if any of these variables changes for the worse, your positive cash flow will reverse direction.

My point is if these figures are marginal at best, why should prices increase from here when you have "investors barely breaking even according to your calculations. How do prices go even higher with this model? I just don't see how you can say it is a good investment today at these prices since there appears to me to be more downward likelihood and very limited upside potential since money won't get much cheaper but may go up, rents are unlikely to go up but likely down(though not by more than $100-$200/month.

I agree even with slight negative cash flow, alot of investors can/will hold but the business decision if you are an investor is: Is this a good investment and I fail to see anything you have said here that makes it so.

However, if you could get an assignment at 2 or 3 year old price, perhaps that may make more sense but then the 1 bedroom will not be $350K either but rather closer to $300K.

 

[Ashtangi]

I live in Oakville and I can tell you the market has definately slowed down. Signs are up much longer than before and I spoke to an agent who told me there is a world of difference the past 1 to 2 months compared to previous.
Historically, I note that Oakville always seems to lag the City of Toronto by about 3-6 months. We go up slower and then we seem to recover a bit later than Toronto.

I don't know what you are looking for. Oakville especially in more established areas does not have massive movements of people leaving so prices tend to hold a bit better. I don't know if you can wait but I believe it is unlikely that Oakville will maintain it prices if everything around it falls though as I said, due to desirability (and until now that they released all the land North of Hwy 5) there was land constraints but now this is changing and prices I am sure will reflect this.

As well, builders hyave long complained that Oakville's development fees are higher than the surrounding areas by a significant amount, and hence new buy property tends to be higher.

Just my observations as a resident here for almost 30 years

Thanks for this - much appreciated. I've always suspected there was a lag between Toronto and Oakville. Our agent does a lot of work in Milton and Burlington too, and has said that they've slowed down much faster than Oakville, but to me - it's only a matter of time before Oakville does too.

However, this particular property we're looking at is 20 years old in a more mature area (altho still north of QEW), so like you said, it's possible that prices may hold a bit firmer or be slower to come down - it's a short street, with only 2 comps from 2009.

 

[interested]

Thanks for this - much appreciated. I've always suspected there was a lag between Toronto and Oakville. Our agent does a lot of work in Milton and Burlington too, and has said that they've slowed down much faster than Oakville, but to me - it's only a matter of time before Oakville does too.

However, this particular property we're looking at is 20 years old in a more mature area (altho still north of QEW), so like you said, it's possible that prices may hold a bit firmer or be slower to come down - it's a short street, with only 2 comps from 2009.

I am guessing you are talking about Glen Abbey or River Oaks.
I live in Glen Abbey and can tell you that while there is more product, things on smaller streets seem to be holding. In fact, I had an agent knock on my door asking if we would sell with a client who has been looking at our street and another for 2 years. There has only been 3 houses come up for sale and sold at full but onlly 1 went recently.
Can I ask where you are looking. May be able to provide some insight. You can private message me if you prefer
and no, I am not a real estate agent, just someone who lives in the area.

 

[simuls]

I do tell the truth and thats one of the reasons I am a bit successful.

I'm not trying to call into question your own integrity George and I appreciate your candour, but many in the RE industry have a problem. That being said, your figures are hardly honest either, condo fees on a 1 bed 600 ft w parking will be closer to $350, taxes closer to $250 and if you change the equation from a line a credit to a 35 year mortgage and variable open at 2.75%, your $602 goes up to $971. Immediately, you've added $469 and wiped out your magical $400 cash flow and turned it negative by $69. Factor in the taxes you pay on the income your property generates, a property that won't increase in value for several years, subtract inflation which devalues the property for every year it's gains don't exceed the inflation rate and that investor is actually losing money unless the property appreciates at a rate of about 6% year. 6% a year is a completely unrealistic expectation in an RE market. Even a market with as much going for it as Toronto. Remember, it's only since 2005 that anybody who purchased between 1989 and 1994 has made any money on their property. That's a looooong window. I wish it were different. Like you, the market's been really great for me over the past 7 years and I traditionally have not been a doom/gloomer, but about 8 months ago I changed my mind because the metrics just don't work anymore. They might in 3 or 4 years, if prices drop 20% and rents increase 20%. Otherwise, the stock market will be a better bet - which sucks, cause I suck at the stock market. I'd love to follow Urbandreamer's advice but he's switched from a double dipper this year to a bull in less than 4 months so that's out the window now!

 

[CN Tower]

I do tell the truth and thats one of the reasons I am a bit successful.

Carrrying $350,000 one bed, mortgage $262,500

@ 2.75% line of credit fully open is $602 a month, $300 maint, $200 tax, $1102 carrying costs, use the positive $400 to hammer down the debt, or go with a variable prime -.70 or 2.05% or 35 or 25 yr am it will still will be under $1500.

I invest because I love Toronto's potential, I love the location of the condos I invest in, I dont have anywhere else to put my money and finally in 4 years I firmly believe we will be alot higher than we are today.

I buy and coach investors to buy condos in strategic locations, I just dont sell any site because there is a door and a dollar sign there.

In this past year, I have turned down 6 sites downtown and have promoted only 2, just a bit of history on me just in case some here think its all about the money for me as a broker. That seems to be the stereotype.

I never buy resale, only pre construction at the first available buying opportunity and have access to units that come back in default, its this process that has been so rewarding, usually investors are very happy with the returns on their deposit and really didnt have to do anything. We all have ours ways to achieve success if we want it, one thing with me is I have never given up before I get to the start line and I never let fear or the herd of negativity stop me in my pursuit of financial freedom.

Condo George,

You sound remarkably similar to the character Seth Davis from 'Boiler Room'. Careful with your 'coaching' friend. I have seen this blow up in people's faces (ie lawsuits) more than once when the tide invariably recedes.

I hope and trust that you are completely aware that you are 100% committed and liable for the full purchase price for all these pre construction units that you are buying. Furthermore you obviously know that you will need a minimum of 20% down for each of them.

Budgeting based on a LOC or a variable prime rate loan is very very dangerous.

 

[Condo George]

Condo George,

You sound remarkably similar to the character Seth Davis from 'Boiler Room'. Careful with your 'coaching' friend. I have seen this blow up in people's faces (ie lawsuits) more than once when the tide invariably recedes.

I hope and trust that you are completely aware that you are 100% committed and liable for the full purchase price for all these pre construction units that you are buying. Furthermore you obviously know that you will need a minimum of 20% down for each of them.

Budgeting based on a LOC or a variable prime rate loan is very very dangerous.

Coaching means saying no too folks.

Seth Davis low blow

One bedrooms dont come with parking that I sell, you have to buy a one and den to get the parking, typically one beds are around 500 to 525 sq ft

 

[Condo George]

I'm not trying to call into question your own integrity George and I appreciate your candour, but many in the RE industry have a problem. That being said, your figures are hardly honest either, condo fees on a 1 bed 600 ft w parking will be closer to $350, taxes closer to $250 and if you change the equation from a line a credit to a 35 year mortgage and variable open at 2.75%, your $602 goes up to $971. Immediately, you've added $469 and wiped out your magical $400 cash flow and turned it negative by $69. Factor in the taxes you pay on the income your property generates, a property that won't increase in value for several years, subtract inflation which devalues the property for every year it's gains don't exceed the inflation rate and that investor is actually losing money unless the property appreciates at a rate of about 6% year. 6% a year is a completely unrealistic expectation in an RE market. Even a market with as much going for it as Toronto. Remember, it's only since 2005 that anybody who purchased between 1989 and 1994 has made any money on their property. That's a looooong window. I wish it were different. Like you, the market's been really great for me over the past 7 years and I traditionally have not been a doom/gloomer, but about 8 months ago I changed my mind because the metrics just don't work anymore. They might in 3 or 4 years, if prices drop 20% and rents increase 20%. Otherwise, the stock market will be a better bet - which sucks, cause I suck at the stock market. I'd love to follow Urbandreamer's advice but he's switched from a double dipper this year to a bull in less than 4 months so that's out the window now!

10 minute coffee with me and you will turn bullish

 

[urbandreamer]

^The very fact that you're spending so much time on UT posting shows how dead the presale market is right now. I'm expecting that MBA dude Yossi Kaplan will come and post aggresively on UT again, and maybe even Andrew la Fleur will start posting again.... Those nasty Q2 numbers out now don't reflect the true picture--aka, July has been terrible, while q2 only reports for period ending June 30. Q3 will be worse imho.

When would I buy, if I was interested in presales? February 2011, during a snowstorm. $159-169k imho for a prime downtown 1 bedroom presale.

What's that about 16 year cycles?

 

[Condo George]

^The very fact that you're spending so much time on UT posting shows how dead the presale market is right now. I'm expecting that MBA dude Yossi Kaplan come and post on UT, and maybe even Andrew la Fleur will start posting again.... Those nasty Q2 numbers out now don't reflect the true picture--aka, July has been terrible, while q2 only reports for period ending June 30. Q3 will be worse imho.

When would I buy, if I was interested in presales? February 2011, during a snowstorm. $159-169k imho for a 1 bedroom presale.

What's that about 16 year cycles?

lol

 

[CN Tower]

Condo sales in Toronto drop for first time in 16 years

lol

http://www.theglobeandmail.com/repo...op-for-first-time-in-16-years/article1660475/

Cheer up George- it's only money you've lost. Hopefully you're young enough to recover.