Time to invest in resale?

[AKS]

^Reality check: take a close look at google earth in the GTA: there's enough empty land (including parking lots, brownfield, and open virgin space) to build three brand new GTA's!

Then take a look at the K-W to London corridor: millions of acres of land for homes!

I think many have bought into the "green" crap and the developers' marketing: it's all a scam. Most of this organic/green stuff is about inflation, creating a class of wealthy consumers, it's not democratic at all....sorry for ranting.

There are lands, but they're going to build condos or town houses there. No more detached houses. Also I'm sure there are tons of land outside of Toronto. But it's a lot of travelling time. You could probably buy 4 acres of land for 400k or less in Orangeville. But how many people want to live there?
There are probably ones who don't mind the commute cuz many seem to be moving to pickering but I think many also want to live in the city and near subway stations. It would be difficult to find affordable ones near the subway with shops and everything nearby. And even if you find a house, the energy costs would be high because it's old so it takes more energy to heat or cool.

I have also thought of moving to a house. But I have to weigh it against the travel time to get to work. Our transit system is not exactly like HK or Tokyo. There's always some problem or other to cause delays. And we don't exactly have that many lines. After weighing the pros and cons. I still believe living in downtown is probably the best because of the travel time saved and frustration with delays.

Also another lifestyle difference is doing house work. I don't think the new generation or maybe even the old generation is crazy about doing housework. Why have such a big house which takes more time to clean but you don't want to clean it. Living in a small space at least there's less to clean. How many people spend time cleaning a 2000-3000 sq ft + house? At least the rich ones living at pent houses or 5000 sq ft houses probably have maids cleaning for them.

 

[cacruden]

It started slowly a year ago and will continue for another 2 years at least.
Property values will decline during that time and will stagnate for at least another 3 years thereafter.

What many don't want to accept (or don't know) is that the economy and housing markets are cyclical. We had a decade long boom, which was longer than the norm, and now we face the trough.

I have to agree with cdr, the market will be soft for the next 2 years - it will not "pop" like a number of cities in the US (mainly because we did not rise as high or as quick as a number of cities in the US) -- but it will probably decline a little for two years - and then not really go up for quite a while. Basically, don't plan for a quick flip and quick profit.... if that is not your goal.

 

[Johnzz]

The job losses that are occurring in Ontario are not in Toronto for the most part. That's not to say that there won't be job losses in Toronto, but manufacturing in Ontario is firmly situated outside of the city and the people live there. We are becoming an increasingly urban population and people (as in all bad times) tend to flock to cities to find jobs.

This is true. Underneath the current economic cycle is a much more profound urban transformation. Most people have lost sight of this powerful trend and now only see short term (5 years) doom and gloom. Don't you worry, cental Toronto real estate will be just fine. Now suburban sprawl is another story...

http://www.theatlantic.com/doc/print/200903/meltdown-geography

March 2009
The crash of 2008 continues to reverberate loudly nationwide—destroying jobs, bankrupting businesses, and displacing homeowners. But already, it has damaged some places much more severely than others. On the other side of the crisis, America’s economic landscape will look very different than it does today. What fate will the coming years hold for New York, Charlotte, Detroit, Las Vegas? Will the suburbs be ineffably changed? Which cities and regions can come back strong? And which will never come back at all?

by Richard Florida

How the Crash Will Reshape America

No place in the United States is likely to escape a long and deep recession. Nonetheless, as the crisis continues to spread outward from New York, through industrial centers like Detroit, and into the Sun Belt, it will undoubtedly settle much more heavily on some places than on others. Some cities and regions will eventually spring back stronger than before. Others may never come back at all. As the crisis deepens, it will permanently and profoundly alter the country’s economic landscape. I believe it marks the end of a chapter in American economic history, and indeed, the end of a whole way of life.

Whither New York?

At first glance, few American cities would seem to be more obviously threatened by the crash than New York. The city shed almost 17,000 jobs in the financial industry alone from October 2007 to October 2008, and Wall Street as we’ve known it has ceased to exist. “Farewell Wall Street, hello Pudong?†begins a recent article by Marcus Gee in the Toronto Globe and Mail, outlining the possibility that New York’s central role in global finance may soon be usurped by Shanghai, Hong Kong, and other Asian and Middle Eastern financial capitals.

Lean times undoubtedly lie ahead for New York. But perhaps not as lean as you’d think—and certainly not as lean as those that many lesser financial outposts are likely to experience. Financial positions account for only about 8 percent of the New York area’s jobs, not too far off the national average of 5.5 percent. By contrast, they make up 28 percent of all jobs in Bloomington-Normal, Illinois; 18 percent in Des Moines; 13 percent in Hartford; 10 percent in both Sioux Falls, South Dakota, and Charlotte, North Carolina. Omaha, Nebraska; Macon, Georgia; and Columbus, Ohio, all have a greater percentage of population working in the financial sector than New York does.

New York is much, much more than a financial center. It has been the nation’s largest city for roughly two centuries, and today sits in America’s largest metropolitan area, as the hub of the country’s largest mega-region. It is home to a diverse and innovative economy built around a broad range of creative industries, from media to design to arts and entertainment. It is home to high-tech companies like Bloomberg, and boasts a thriving Google outpost in its Chelsea neighborhood. Elizabeth Currid’s book, The Warhol Economy, provides detailed evidence of New York’s diversity. Currid measured the concentration of different types of jobs in New York relative to their incidence in the U.S. economy as a whole. By this measure, New York is more of a mecca for fashion designers, musicians, film directors, artists, and—yes—psychiatrists than for financial professionals.

The great urbanist Jane Jacobs was among the first to identify cities’ diverse economic and social structures as the true engines of growth. Although the specialization identified by Adam Smith creates powerful efficiency gains, Jacobs argued that the jostling of many different professions and different types of people, all in a dense environment, is an essential spur to innovation—to the creation of things that are truly new. And innovation, in the long run, is what keeps cities vital and relevant.

In this sense, the financial crisis may ultimately help New York by reenergizing its creative economy. The extraordinary income gains of investment bankers, traders, and hedge-fund managers over the past two decades skewed the city’s economy in some unhealthy ways. In 2005, I asked a top-ranking official at a major investment bank whether the city’s rising real-estate prices were affecting his company’s ability to attract global talent. He responded simply: “We are the cause, not the effect, of the real-estate bubble.†(As it turns out, he was only half right.) Stratospheric real-estate prices have made New York less diverse over time, and arguably less stimulating. When I asked Jacobs some years ago about the effects of escalating real-estate prices on creativity, she told me, “When a place gets boring, even the rich people leave.†With the hegemony of the investment bankers over, New York now stands a better chance of avoiding that sterile fate.

America’s “Fast†Cities: Crisis and Reinvention

Worldwide, people are crowding into a discrete number of mega-regions, systems of multiple cities and their surrounding suburban rings like the Boston–New York–Washington Corridor. In North America, these mega-regions include SunBelt centers like the Char-Lanta Corridor, Northern and Southern California, the Texas Triangle of Houston–San Antonio–Dallas, and Southern Florida’s Tampa-Orlando-Miami area; the Pacific Northwest’s Cascadia, stretching from Portland through Seattle to Vancouver; and both Greater Chicago and Tor-Buff-Chester in the old Rust Belt. Internationally, these mega-regions include Greater London, Greater Tokyo, Europe’s Am-Brus-Twerp, China’s Shanghai-Beijing Corridor, and India’s Bangalore-Mumbai area. Economic output is ever-more concentrated in these places as well. The world’s 40 largest mega-regions, which are home to some 18 percent of the world’s population, produce two-thirds of global economic output and nearly 9 in 10 new patented innovations.

Some (though not all) of these mega-regions have a clear hub, and these hubs are likely to be better buffered from the crash than most cities, because of their size, diversity, and regional role. Chicago has emerged as a center for industrial management and has rolled up many of the functions, such as finance and law, once performed in smaller midwestern centers. Los Angeles has a broad, diverse economy with global strength in media and entertainment. Miami, which is being hit hard by the collapse of the real-estate bubble, nonetheless remains the commercial center for the large South Florida mega-region, and a major financial center for Latin America. Each of these places is the financial and commercial core of a large mega-region with tens of millions of people and hundreds of billions of dollars in output. That’s not going to change as a result of the crisis.

 

[Johnzz]

Part 2:

Along with the rise of mega-regions, a second phenomenon is also reshaping the economic geography of the United States and the world. The ability of different cities and regions to attract highly educated people—or human capital—has diverged, according to research by the Harvard economists Edward Glaeser and Christopher Berry, among others. Thirty years ago, educational attainment was spread relatively uniformly throughout the country, but that’s no longer the case. Cities like Seattle, San Francisco, Austin, Raleigh, and Boston now have two or three times the concentration of college graduates of Akron or Buffalo. Among people with postgraduate degrees, the disparities are wider still. The geographic sorting of people by ability and educational attainment, on this scale, is unprecedented.

The University of Chicago economist and Nobel laureate Robert Lucas declared that the spillovers in knowledge that result from talent-clustering are the main cause of economic growth. Well-educated professionals and creative workers who live together in dense ecosystems, interacting directly, generate ideas and turn them into products and services faster than talented people in other places can. There is no evidence that globalization or the Internet has changed that. Indeed, as globalization has increased the financial return on innovation by widening the consumer market, the pull of innovative places, already dense with highly talented workers, has only grown stronger, creating a snowball effect. Talent-rich ecosystems are not easy to replicate, and to realize their full economic value, talented and ambitious people increasingly need to live within them.

Big, talent-attracting places benefit from accelerated rates of “urban metabolism,†according to a pioneering theory of urban evolution developed by a multidisciplinary team of researchers affiliated with the SantaFe Institute. The rate at which living things convert food into energy—their metabolic rate—tends to slow as organisms increase in size. But when the Santa Fe team examined trends in innovation, patent activity, wages, and GDP, they found that successful cities, unlike biological organisms, actually get faster as they grow. In order to grow bigger and overcome diseconomies of scale like congestion and rising housing and business costs, cities must become more efficient, innovative, and productive. The researchers dubbed the extraordinarily rapid metabolic rate that successful cities are able to achieve “super-linear†scaling. “By almost any measure,†they wrote, “the larger a city’s population, the greater the innovation and wealth creation per person.†Places like New York with finance and media, Los Angeles with film and music, and Silicon Valley with hightech are all examples of high-metabolism places.

Economic crises tend to reinforce and accelerate the underlying, long-term trends within an economy. Our economy is in the midst of a fundamental long-term transformation—similar to that of the late 19th century, when people streamed off farms and into new and rising industrial cities. In this case, the economy is shifting away from manufacturing and toward idea-driven creative industries—and that, too, favors America’s talent-rich, fast-metabolizing places.

 

[Johnzz]

Part 3:
Cities in the Sand: The End of Easy Expansion

For a generation or more, no swath of the United States has grown more madly than the Sun Belt. Of course, the area we call the “Sun Belt†is vast, and the term is something of a catch-all: the cities and metropolitan areas within it have grown for disparate reasons. Los Angeles is a mecca for media and entertainment; San Jose and Austin developed significant, innovative high-tech industries; Houston became a hub for energy production; Nashville developed a unique niche in low-cost music recording and production; Charlotte emerged as a center for cost-effective banking and low-end finance.

But in the heady days of the housing bubble, some Sun Belt cities—Phoenix and Las Vegas are the best examples—developed economies centered largely on real estate and construction. With sunny weather and plenty of flat, empty land, they got caught in a classic boom cycle. Although these places drew tourists, retirees, and some industry—firms seeking bigger footprints at lower costs—much of the cities’ development came from, well, development itself. At a minimum, these places will take a long, long time to regain the ground they’ve recently lost in local wealth and housing values. It’s not unthinkable that some of them could be in for an extended period of further decline.

To an uncommon degree, the economic boom in these cities was propelled by housing appreciation: as prices rose, more people moved in, seeking inexpensive lifestyles and the opportunity to get in on the real-estate market where it was rising, but still affordable. Local homeowners pumped more and more capital out of their houses as well, taking out home-equity loans and injecting money into the local economy in the form of home improvements and demand for retail goods and low-level services. Cities grew, tax coffers filled, spending continued, more people arrived. Yet the boom itself neither followed nor resulted in the development of sustainable, scalable, highly productive industries or services. It was fueled and funded by housing, and housing was its primary product. Whole cities and metro regions became giant Ponzi schemes.

And then the bubble burst. From October 2007 through October 2008, the Phoenix area registered the largest decline in housing values in the country: 32.7 percent. (Las Vegas was just a whisker behind, at 31.7 percent. Housing in the New York region, by contrast, fell by just 7.5 percent over the same period.) Overstretched and overbuilt, the region is now experiencing a fiscal double whammy, as its many retirees—some 21 percent of its residents are older than 55—have seen their retirement savings decimated. Mortgages Limited, the state’s largest private commercial lender, filed for bankruptcy last summer. “We had a big bubble here, and it burst,†Anthony Sanders, a professor of economics and finance at ASU, told USA Today in December. “We’ve taken Kevin Costner’s Field of Dreams and now it’s Field of Screams. If you build it, nobody comes.â€

Will people wash out of these places as fast as they washed in, leaving empty sprawl and all the ills that accompany it? Will these cities gradually attract more businesses and industries, allowing them to build more-diverse and more-resilient economies? Or will they subsist on tourism—which may be meager for quite some time—and on the Social Security checks of their retirees? No matter what, their character and atmosphere are likely to change radically.

The Limits of Suburban Growth

To a surprising degree, the causes of this crash are geographic in nature, and they point out a whole system of economic organization and growth that has reached its limit. Positioning the economy to grow strongly in the coming decades will require not just fiscal stimulus or industrial reform; it will require a new kind of geography as well, a new spatial fix for the next chapter of American economic history.

Suburbanization was the spatial fix for the industrial age—the geographic expression of mass production and the early credit economy. Henry Ford’s automobiles had been rolling off assembly lines since 1913, but “Fordism,†the combination of mass production and mass consumption to create national prosperity, didn’t emerge as a full-blown economic and social model until the 1930s and the advent of Roosevelt’s New Deal programs.

Demand for houses was symbiotic with demand for cars, and both were helped along by federal highway construction, among other infrastructure projects that subsidized a new suburban lifestyle and in turn fueled demand for all manner of household goods. More recently, innovations in finance like adjustable-rate mortgages and securitized subprime loans expanded homeownership further and kept demand high. By 2004, a record 69.2 percent of American families owned their home.

For the generation that grew up during the Depression and was inclined to pinch pennies, policies that encouraged freer spending were sensible enough—they allowed the economy to grow faster. But as younger generations, weaned on credit, followed, and credit availability increased, the system got out of hand. Housing, meanwhile, became an ever-more-central part of the American Dream: for many people, as the recent housing bubble grew, owning a home came to represent not just an end in itself, but a means to financial independence.

On one level, the crisis has demonstrated what everyone has known for a long time: Americans have been living beyond their means, using illusory housing wealth and huge slugs of foreign capital to consume far more than we’ve produced. The crash surely signals the end to that; the adjustment, while painful, is necessary.

But another crucial aspect of the crisis has been largely overlooked, and it might ultimately prove more important. Because America’s tendency to overconsume and under-save has been intimately intertwined with our postwar spatial fix—that is, with housing and suburbanization—the shape of the economy has been badly distorted, from where people live, to where investment flows, to what’s produced. Unless we make fundamental policy changes to eliminate these distortions, the economy is likely to face worsening handicaps in the years ahead.

Suburbanization—and the sprawling growth it propelled—made sense for a time. The cities of the early and mid-20th century were dirty, sooty, smelly, and crowded, and commuting from the first, close-in suburbs was fast and easy. And as manufacturing became more technologically stable and product lines matured during the postwar boom, suburban growth dovetailed nicely with the pattern of industrial growth. Businesses began opening new plants in green-field locations that featured cheaper land and labor; management saw no reason to continue making now-standardized products in the expensive urban locations where they’d first been developed and sold. Work was outsourced to then-new suburbs and the emerging areas of the Sun Belt, whose connections to bigger cities by the highway system afforded rapid, low-cost distribution. This process brought the Sun Belt economies (which had lagged since the Civil War) into modern times, and sustained a long boom for the United States as a whole.

But that was then; the economy is different now. It no longer revolves around simply making and moving things. Instead, it depends on generating and transporting ideas. The places that thrive today are those with the highest velocity of ideas, the highest density of talented and creative people, the highest rate of metabolism. Velocity and density are not words that many people use when describing the suburbs. The economy is driven by key urban areas; a different geography is required.


The Next Economic Landscape

The housing bubble was the ultimate expression, and perhaps the last gasp, of an economic system some 80 years in the making, and now well past its “sell-by†date. The bubble encouraged massive, unsustainable growth in places where land was cheap and the real-estate economy dominant. It encouraged low-density sprawl, which is ill-fitted to a creative, postindustrial economy. And not least, it created a workforce too often stuck in place, anchored by houses that cannot be profitably sold, at a time when flexibility and mobility are of great importance.

The Stanford economist Paul Romer famously said, “A crisis is a terrible thing to waste.†The United States, whatever its flaws, has seldom wasted its crises in the past. On the contrary, it has used them, time and again, to reinvent itself, clearing away the old and making way for the new. Throughout U.S. history, adaptability has been perhaps the best and most quintessential of American attributes. Over the course of the 19th century’s Long Depression, the country remade itself from an agricultural power into an industrial one. After the Great Depression, it discovered a new way of living, working, and producing, which contributed to an unprecedented period of mass prosperity. At critical moments, Americans have always looked forward, not back, and surprised the world with our resilience. Can we do it again?

 

[jb007]

I agree with simuls's points. I personally would never live in a house if given the choice. I've lived in condos around the world for the majority of my life and love being downtown. The liveliness and close proximity to everything (work, restaurants, shops) is great and i would pay a premium for that. Another plus is not requiring a car. I also believe renting out a condo downtown will be much easier than renting out a large house. Owning a house limits the rental market for your place to families and ppl with cars.

to the original poster - its safer to wait. as other have said - property prices are expected to continue dropping.

 

[cacruden]

I agree with simuls's points. I personally would never live in a house if given the choice. I've lived in condos around the world for the majority of my life and love being downtown. The liveliness and close proximity to everything (work, restaurants, shops) is great and i would pay a premium for that. Another plus is not requiring a car. I also believe renting out a condo downtown will be much easier than renting out a large house. Owning a house limits the rental market for your place to families and ppl with cars.

to the original poster - its safer to wait. as other have said - property prices are expected to continue dropping.

Well, if given the choice - I would like to live in a house.....

On top of a 60 floor condominium.... downtown...

 

[jaycola]

For investment purposes I'd be looking at older units with bigger square footage. Newer units are tiny and fewer, true 2 bedroom units, are built now than ever before. and forget about affordable 3 bedroom units.
There is a particular cache in owning a unit in a new building and there are many disirable aspects of the newer buildings in terms of design and amenities but for rental purposes, a larger unit will be a rarer commodity.
As well as the new buildings age, I expect there will be a leveling in terms of $ per Sq ft.

 

[TKTKTK]

I want a little house downtown with a tiny backyard and a little cottage/garage in the back for my car I want the whole thing to creak a bit, and possibly be haunted.

 

[luxome]

wow, lots of great responses.

i've decided to call up my realtor and have him keep an eye out for some bargains.

as some of you have mentioned, I personally do prefer living in a condo as oppose to a house in the suburbs simply because there is less to clean and maintenance to worry about. Also the proximity to my livelihood so much more interesting (e.g., bars, restaurants, shopping centres, etc).

However, i do agree that some prices, especially the new/pre-construction condos are slightly overpriced. For instance, some condos @ Yonge/Sheppard are at or close to downtown pricing.

 

[JackLondon]

wow, lots of great responses.

i've decided to call up my realtor and have him keep an eye out for some bargains.

as some of you have mentioned, I personally do prefer living in a condo as oppose to a house in the suburbs simply because there is less to clean and maintenance to worry about. Also the proximity to my livelihood so much more interesting (e.g., bars, restaurants, shopping centres, etc).

However, i do agree that some prices, especially the new/pre-construction condos are slightly overpriced. For instance, some condos @ Yonge/Sheppard are at or close to downtown pricing.

Good attitude Lux.
Forget hunting for bargains. Somebody else always finds those.
Get a good deal in a great neighbourhood. Have your agent do the sale history on two or three quality buildings in a traditionally good area. Do some hard research. Make up a short list and go look at a few.
Forget about catching the absolute bottom of the market. Good value in a good location is always a winning strategy in times like this. We are certainly in a trough. This side of the trough has the best choices and you as a buyer get to call the shots.
Good luck!

 

[cabbagetowner]

before you buy learn how to calculate the cap rate and roi. then run the numbers for these units that your agent shows you. then realize that condos don't make good investments.

 

[TrickyRicky]

I have raised this point several times but it is worth repeating: Wealth and hence the capacity to purchase or invest is more relative than it is absolute. Only you know your own financial position and strategy but on average the average person is erroneous in their belief that impending price reductions mean it is a good time to buy or that they will be able to do so. The average person's capacity to purchase will erode as prices erode, infact this is self-evident. If the average person's capacity to purchase was not eroding prices would not erode. So while i'm sure many here and in the general public will find the next few years an opportunity to purchase, for the marjority of average people they will be just as unable or even less able to buy as prices fall.

 

[luxome]

before you buy learn how to calculate the cap rate and roi. then run the numbers for these units that your agent shows you. then realize that condos don't make good investments.

i personally would love to invest in detached homes, but i find it much more difficult to manage than condo units when renting out the unit (due to extra maintenance and unexpected repairs to worry about).

If you disagree, please provide some input, maybe i'll start looking into detached homes.

I have raised this point several times but it is worth repeating: Wealth and hence the capacity to purchase or invest is more relative than it is absolute. Only you know your own financial position and strategy but on average the average person is erroneous in their belief that impending price reductions mean it is a good time to buy or that they will be able to do so. The average person's capacity to purchase will erode as prices erode, infact this is self-evident. If the average person's capacity to purchase was not eroding prices would not erode. So while i'm sure many here and in the general public will find the next few years an opportunity to purchase, for the marjority of average people they will be just as unable or even less able to buy as prices fall.

Well said. I guess this is when people who have the money in hand to start investing. Resulting in greater income polarization as "rich gets richer, poor gets poorer". (just my opinion, you don't have to agree with me).

 

[cabbagetowner]

i personally would love to invest in detached homes, but i find it much more difficult to manage than condo units when renting out the unit (due to extra maintenance and unexpected repairs to worry about).

If you disagree, please provide some input, maybe i'll start looking into detached homes.

couldn't agree more. it's a massive headache. i think it's difficult to do if you're not hands on. having to hire someone for the smallest thing can be expensive. something that have worked for me is to find someone that is living in one of the units to become the "property manager", but it's hard to find someone that is handy.