So, um, when are condo prices supposed to drop again?

[Woodbridge_Heights]

There are far too many other variables when comparing prices on an international level. Avg salary, taxes (property, income, consumption, etc), other incidental costs related to living in the city (transit costs, food, etc). All these factors affect what a buyer can put aside for shelter. I'm certain that the average salary paid in Manhatten is greater than that paid in Toronto therefore (without knowing what the differences in the other factors are) I can assume that a Manhattenite can afford more than a Torontonian.

 

[Eug]

I wouldn't be afraid of plunking say 500 psf for a condo such as m5v or festival tower. If you can still get it at that.

500 psf in downtown Toronto is expensive. Sometimes that expense is justified, for a luxury building, but most of the time it is not.

If you are selling then the market meets you at the market price.

Real estate 101.

Real estate 101 also tells us if you don't need to sell/move during a market downturn, then you just don't.

That's one of the reasons (besides interest rates) why prices haven't dropped much in Toronto. The inventory is much lower than it used to be, because people didn't feel like selling at a lower price.

 

[Nebakenezer]

Does it make any difference whether they have to sell? If you are selling then the market meets you at the market price.

Real estate 101.

LOL, you guys are funny. Its only worth what someone pays for it. The market can fluctuate all it wants. Hence yes it absolutely matters if they need to sell or not. My point is, the pressure is to keep prices close to where they are, so don't expect prices to fall so rapidly.

The economy is bad, yes, yet sales are continuing. Thankfully, we live in an area that is relatively stable.

 

[iheartproperty]

My point is, the pressure is to keep prices close to where they are, so don't expect prices to fall so rapidly.

Neb,

See attached chart. It's the best I could find at the moment. You might want to re-consider your comments. Real estate prices can move and have moved quite rapidly here. I don't think that the forthcoming GM bankruptcy is going to be a positive force for the GTA housing market, do you?

Wait until all those $1200+ per square foot spec buyers in the 5-Star projects walk away from their deposits when their buildings are finished and they find they are only worth $850. It's happening in Calgary right now.

 

[daveto]

Real estate 101 also tells us if you don't need to sell/move during a market downturn, then you just don't.

That's one of the reasons (besides interest rates) why prices haven't dropped much in Toronto. The inventory is much lower than it used to be, because people didn't feel like selling at a lower price.

I've heard a lot of anecdotal evidence of people who "need" to sell for a certain price, and won't list otherwise. I think there are a lot of low equity owners with white knuckles out there who simply can't afford to sell unless prices increase.

There are structural differences in the Canadian & American mortgage markets. The Americans get mortgage stability from 30 yr mortgages. Canadians get to benefit more from drops in the BoC rate with 3% mortgages (compared to 4.5% for Americans). Americans get jingle mail. Canadians get CMHC insurance.

I think we're going to see a long slow descent in RE prices of an extra 25% over the next 5 years in Canada (and Toronto). I'm standing by my original prediction of a 20% drop in Toronto RE prices from the Aug 08 peak by the end of the year. (although I admit that it might come in closer to 15%)

 

[Eug]

I think we're going to see a long slow descent in RE prices of an extra 25% over the next 5 years in Canada (and Toronto). I'm standing by my original prediction of a 20% drop in Toronto RE prices from the Aug 08 peak by the end of the year. (although I admit that it might come in closer to 15%)

My original prediction was a drop in Toronto of 10% from 2007 prices, which would put them closer to the 2005-2006 range, which is probably around your guess of -15% from 2008 peak, but over the next couple of years.

Now, in May prices have been closer to 2008 levels, but overall pricing has been closer in 2009 to 2007 levels. IOW, I think prices could drop another 10% in Toronto from 2009 levels, before leveling out.

 

[TrickyRicky]

In my previous post where I described how central bankers and economists are attempting to essentially freeze valuations and will not quite be able to, keep in mind that they will also succeed to some extent.

What this means is that while I still believe we will see price declines, those looking for massive price collapse may also be highly disappointed. There can be no doubt however that the recovery moving forward will be a punishingly difficult and slow grind. An analogy would be that we just enjoyed 15 years or so of watching a boulder roll down a mountain and now we have to drag it back. The average Canadian will be worse off financially years from now then they are today.

 

[Nebakenezer]

Wait until all those $1200+ per square foot spec buyers in the 5-Star projects walk away from their deposits when their buildings are finished and they find they are only worth $850. It's happening in Calgary right now.

I doubt many are gonna walk away. Most of initial buyers bought when prices were 650-800psf anyways. And people who bought recently at $1200 probably know prices are not gonna climb higher for awhile at least, so can most likely afford it. Also, from what I've heard, buyers at todays price may possibly be international businessmen, possibly from New York, London, Hong Kong, or Mumbai for example where prices are much much higher. 5 star luxury in Toronto is a bargain to them.

It would have to be a very very dire situation for these people to walk away from there 250K+ deposits, especially with mortgage rates so low.

Lastly, this is not Vancouver where the Ritz was selling at 2300psf, or Dubai where the trump was selling at 3000psf. Heck a regular, nothing special tiny apartment in manhatten is 1000 psf, nevermind luxury. People who can afford these units can afford to travel and know they are getting a deal.

That being said, there might be the odd one, two, or few that were really stretching it to buy ultra luxury, and got affected by the downturn enough to not be able to afford it, who knows, until it happens.

 

[Nebakenezer]

Calgary is an oil, commodity based economy. No real significance to Toronto.

Boom bust cycles there coincides with the price of oil.

 

[Bentley]

I doubt many are gonna walk away. Most of initial buyers bought when prices were 650-800psf anyways. And people who bought recently at $1200 probably know prices are not gonna climb higher for awhile at least, so can most likely afford it. Also, from what I've heard, buyers at todays price may possibly be international businessmen, possibly from New York, London, Hong Kong, or Mumbai for example where prices are much much higher. 5 star luxury in Toronto is a bargain to them.

It would have to be a very very dire situation for these people to walk away from there 250K+ deposits, especially with mortgage rates so low.

Lastly, this is not Vancouver where the Ritz was selling at 2300psf, or Dubai where the trump was selling at 3000psf. Heck a regular, nothing special tiny apartment in manhatten is 1000 psf, nevermind luxury. People who can afford these units can afford to travel and know they are getting a deal.

That being said, there might be the odd one, two, or few that were really stretching it to buy ultra luxury, and got affected by the downturn enough to not be able to afford it, who knows, until it happens.

The fact of the matter is if it costs less to walk away than it does to hold on and close the deal, people will walk away. There is no rational reason to justify why someone wouldn't. Doesn't matter if they can afford to hold on, or they're international businessmen, or any other reason you may suggest. If it's cheaper to get out, they will.

Also, while it's in some peoples best interest to have asset values sustained, it's not in everybody's. Anybody who doesn't own anything (most of the population) would love to see prices tank. The last 10 years has seen a huge polarization in classes and wealth, so if asset values drop significantly it will narrow that gap. That polarization when it becomes extreme has adverse effects on economic activity and over time actually contributes to the destruction of the capitalist system. Read Das Kapital, you'll understand what I mean.

I still stand by my feeling that prices drop to nearly pre-boom levels. Not quite 2002 levels which hit the same levels at the peak of 1989, but maybe 2004 levels. That should be a 20-25% drop or so. There certainly was a bubble in Toronto and like all bubbles, it will eventually deflate. Governments can try their hardest to prevent that from happening, and in all honesty they may delay it, but free market forces always win out in the end.

Oh and if you need one more reason why prices haven't dropped too much yet, look at interest rates. Historical lows. They can't stay there forever. when rates start going up, watch prices come down.

 

[TrickyRicky]

^Rates must go up but they are locked in at present levels until at least this time 2010. So the board is already set. Everything is priced to perfection and the name of the game is stall stall stall. Our generation (under 35) doesn't even understand a world where property doesn't appreciate in value every year. The next generation won't even understand what capital appreciation is.

 

[Bentley]

Well I'm not sure which generation I'd fall under, this or next. I'm 24.

But I will say much of the upcoming generation is going to have an exceptionally hard time with this. Through the current baby boomers prosperity, a lot of children have become increasingly entitled. No work ethic, no real concept of money or value. That is going to become a very serious problem and a lot of these kids will have a serious wake up call when they find out the tap is dry.

 

[Eug]

Well I'm not sure which generation I'd fall under, this or next. I'm 24.

But I will say much of the upcoming generation is going to have an exceptionally hard time with this. Through the current baby boomers prosperity, a lot of children have become increasingly entitled. No work ethic, no real concept of money or value. That is going to become a very serious problem and a lot of these kids will have a serious wake up call when they find out the tap is dry.

Meh. That's what people say about every new generation. I find this to be largely myth.

 

[Bentley]

Meh. That's what people say about every new generation. I find this to be largely myth.

Maybe you're right, maybe not. But based on my observations and discussions, it's not myth. In any event, there is no question that the future generation will have to adjust to a vastly different lifestyle.

 

[urbandreamer]

^Rubbish. 10% become very successful, 20% can afford a middle class lifestyle, while the rest generally will be average to below average.

Taking a look at the peak in late 07, using fib's, a pullback to 03 pricing is very likely to happen.