SafetyinNumbers Posted October 25, 2017 Share Posted October 25, 2017 Tripleoptician, Based on the numbers you've listed I assume you have something like a $1M mortgage @2.6%. Assuming you've but 20% down that would make the house 1.25M your price of 1.5M market. There's not much to criticize about your decision. It looks like you've looked at the situation carefully, understand all the details and risks and you're ok with it. Based on the numbers it looks like it could have gone either way. That $4,000 rent is pretty high. You don't get rents that high in Toronto. Enjoy the place. :) I disagree on not seeing those types of rent in Toronto. Obviously depends on location and size. Link to comment Share on other sites More sharing options...
clutch Posted October 25, 2017 Share Posted October 25, 2017 Speaking of the "floor" - at least in Toronto, prices of descent condos and townhouses have been very steady (for prime locations they have risen) even during the slight downturn last few months. I think there are enough buyers who have been priced out and are waiting to purchase these types of homes whenever the momentum reverses a bit. Anecdote: I work at a large tech company where many of my colleagues are 30-40 years old who make well over 6 figures in salary and yet are renting. They are all waiting for the moment when the prices of homes come down so they can enter the market. It's a different story with those $2M+ houses but for the lower ends of the market, I believe there is definitely a solid floor. Link to comment Share on other sites More sharing options...
SharperDingaan Posted October 25, 2017 Share Posted October 25, 2017 Couple of thoughts after talking to some property brokers. House buying is not rational. All the metrics in the world are meaningless as soon as your significant other informs you that 'this is the one'; you will pay whatever it takes, and twist the financial logic until it supports your decision. In the short-term the supply of product is fixed - and vertical on the Supply/Demand graph. If demand is static (most places), price change is entirely driven by self fulfilling sentiment. If you think prices will be higher later - you don't put your house on the market, reducing the number of listings (supply), and raising the price. The same process is readily observable in Bitcoin/Ether cryptocurrency valuation. If you believe that fiat currency debases over time (there will be inflation over the next X years), the price you pay today really doesn't matter much. The property will sell for more later, and the mortgage will be less in today's $, leaving you with an inflation 'equity'. And the higher the price paid, & the longer you hold the property - the higher this 'equity' will be. Case in point. In Toronto there are numerous 'box' houses in neighborhoods along the Bloor subway line, that were erected shortly after WWII as the supply solution to housing shortages driven by returned servicemen - who were starting families. At the time, these houses were at the 'end of the line', land was both cheap and plentiful, and a house might cost $70K (a lot of money at the time, to the people who bought them to live in). 70-80 years on, Toronto has grown well beyond these neighborhoods - and these same houses now go for 1M+ on a bad day. The 1M gain is almost entirely attributable to inflation over the years, and 'affordability' today is no different to what it was 'back then' - the numbers are just bigger (they have inflated). Apparently the major distinction between the different markets in the same urban centers is really mindset. The $3M condo owner views the market entirely differently than the $1M condo owner, who just wants a place to live. Hence it's entirely rationale. We typically just don't like what it says to us. SD Link to comment Share on other sites More sharing options...
Liberty Posted October 26, 2017 Author Share Posted October 26, 2017 Forty-two per cent of respondents said they don’t think they can cover basic expenses over the next year without going deeper into more debt. The same number said they're within $200 of not being able to cover monthly expenses. http://www.bnn.ca/canadian-households-nowhere-near-prepared-for-higher-rates-survey-finds-1.892780 Link to comment Share on other sites More sharing options...
scorpioncapital Posted October 27, 2017 Share Posted October 27, 2017 I'm confused about the claim of inflation and real estate values. Some commentators say higher rates mean lower REIT prices, others say, higher inflation (higher rates?) means higher real estate prices that compensate for the higher rates so it's a wash. Link to comment Share on other sites More sharing options...
SharperDingaan Posted October 27, 2017 Share Posted October 27, 2017 I'm confused about the claim of inflation and real estate values. Some commentators say higher rates mean lower REIT prices, others say, higher inflation (higher rates?) means higher real estate prices that compensate for the higher rates so it's a wash. Long term view. Inflation increases rents, offsetting the higher discount rate. It largely washes out. Short term view. Rents haven't increased yet, but the discount rate has. Lowers the PV, lowers price. As there is always a lag between 'rent adjustment' and higher rates - in rising rate rate environments inflation lowers prices. In falling rate environments it increases prices. SD Link to comment Share on other sites More sharing options...
Liberty Posted October 27, 2017 Author Share Posted October 27, 2017 Couple of thoughts after talking to some property brokers. House buying is not rational. All the metrics in the world are meaningless as soon as your significant other informs you that 'this is the one'; you will pay whatever it takes, and twist the financial logic until it supports your decision. I don't believe that's correct. There are definitely non-economic factors at play, just like with buying a car (what brand projects the type of image that I want to show? Will it attract a mate? etc), but money is still a big factor and not everyone is driving a Tesla or Maserati just because that's what they'd really want deep down. Right now what pushes people to overpay for real estate is the belief that prices can't go down for any period (so FOMO + fear of being priced out + we'll just take the equity out later to pay for consumption). If that psychology changes, or if lots of people start being unable to make ends meet as interest rates keep raising and RE rules are tightened, things will change... If you adjust for inflation, most generations in the past didn't buy the equivalent of million+ dollar houses (especially not ones that are just regular houses and not luxury mansions). Link to comment Share on other sites More sharing options...
gary17 Posted October 27, 2017 Share Posted October 27, 2017 Couple of thoughts after talking to some property brokers. House buying is not rational. All the metrics in the world are meaningless as soon as your significant other informs you that 'this is the one'; you will pay whatever it takes, and twist the financial logic until it supports your decision. I don't believe that's correct. There are definitely non-economic factors at play, just like with buying a car (what brand projects the type of image that I want to show? Will it attract a mate? etc), but money is still a big factor and not everyone is driving a Tesla or Maserati just because that's what they'd really want deep down. Right now what pushes people to overpay for real estate is the belief that prices can't go down for any period (so FOMO + fear of being priced out + we'll just take the equity out later to pay for consumption). If that psychology changes, or if lots of people start being unable to make ends meet as interest rates keep raising and RE rules are tightened, things will change... If you adjust for inflation, most generations in the past didn't buy the equivalent of million+ dollar houses (especially not ones that are just regular houses and not luxury mansions). car depreciates over time real estate may have correction but generally appreciates. most people know that Link to comment Share on other sites More sharing options...
Liberty Posted October 27, 2017 Author Share Posted October 27, 2017 car depreciates over time real estate may have correction but generally appreciates. most people know that Doesn't change anything about what I'm saying. When deciding to buy, cars get compared to cars, houses to houses. Link to comment Share on other sites More sharing options...
rukawa Posted October 29, 2017 Share Posted October 29, 2017 car depreciates over time real estate may have correction but generally appreciates. most people know that Well lets quantify that. This graph shows housing price in Toronto http://i.huffpost.com/gen/5026956/original.jpg Looking at it, if you bought in 1989 in Toronto you would have waited until about 2009 before the price of your house would have caught up to its inflation adjusted buying price. So yes if you are willing to wait 20 years after a peak it will appreciate. I would guess given the fact that this housing bubble is bigger and that Canadian households have double the household debt to gdp of their 1989 counterparts that the length of time may be significantly longer than 20 years...lets say 30 years. https://tradingeconomics.com/canada/households-debt-to-gdp. It should also be noted that this is all assuming your house is new. That means if you bought your house in 1989 and somehow froze it in time for 20 years and somehow its design was still fashionable, only then would it appreciate back to its original inflation adjusted price. But older houses sell for less than newer houses. The following paper attempts to quantify the depreciation and comes up with a rate of 2.5% a year http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.571.5618&rep=rep1&type=pdf. This means that after 20 years your house would be worth (0.975)^20 = 60% of its original value. And after 30 years less than 50% of its original value. Link to comment Share on other sites More sharing options...
rukawa Posted October 29, 2017 Share Posted October 29, 2017 House buying is not rational. All the metrics in the world are meaningless as soon as your significant other informs you that 'this is the one'; you will pay whatever it takes, and twist the financial logic until it supports your decision. If its not rational than its doubtful it will retain value over time. Everyone assumes that the tastes of today will be the tastes people will have in 20 years (e.g. tatoos). Now everyone wants to live in a detached house in the city. In 20 years everyone may decide that they want to spend their lives endlessly travelling from city to city worldwide while telecommuting to work. You may find people spending 6 months in temporary accommodations in one city and then another and then another. The idea being stuck in a house in one place may at that time may seem ridiculous and incredibly limiting. Even the idea of raising children in a single location may seem like something only poor bad parents do. In the 1960's people thought that cities were horrible and suburbs were the dream. None of them would be able to understand what is going on today. Link to comment Share on other sites More sharing options...
Rod Posted October 29, 2017 Share Posted October 29, 2017 I always wonder why should a house in Toronto cost roughly triple the price of a house in Ottawa? Average income in Ottawa is much higher too. Either Toronto is grossly overpriced, or Ottawa is a fantastic bargain. Link to comment Share on other sites More sharing options...
ICUMD Posted October 30, 2017 Share Posted October 30, 2017 The CDN realestate market will correct, given the proper conditions. It is not unlike the stock market, both of which are propelled by 'investors' utilizing low interest rates to borrow. In 2002, I purchased a 780 sq ft Toronto Condo for 200K (to rent was $1600/mo). This was less than its new construction price of ~350K in 1988. The price of this condo continues to rise and similar units are listed today at ~420K (to rent, still only ~1700/mo.). Maintenance fees increased from ~$325/mo to $700/mo over the same time. Interestingly, during the financial crisis of 2008, prices came down suddenly to about $250K, then continued their upward trajectory afterwards. New condos command an even higher premium of ~ $400 - 500K for 550 sq ft. Things that may cause a correction: 1. Increase in interest rates. (certainly). 2. Tighter regulation on mortgages. 3. Foreign buyer taxes. 4. Creditors get tapped out - leading to higher default rates. When will this happen? It should have happened 5 years ago. Aside from this, it could happen at any time I suspect, but it WILL happen. To have rent/ purchase price disparity of this sort with ongoing maintenance fee and tax increases means that something has to give. I don't think rent prices will increase which leaves a deflation of house prices. Wages have not increased significantly during this time. Link to comment Share on other sites More sharing options...
clutch Posted October 30, 2017 Share Posted October 30, 2017 I don't think rent prices will increase which leaves a deflation of house prices. Wages have not increased significantly during this time. Source? Link to comment Share on other sites More sharing options...
ICUMD Posted October 30, 2017 Share Posted October 30, 2017 I don't think rent prices will increase which leaves a deflation of house prices. Wages have not increased significantly during this time. Source? Based on my personal observations - in 2002 - when Condo 1 bedroom rent prices were $1600/mo and 2017 rental prices where I can get no more than $1700/mo. today. Of course I cannot predict the future, but I don't see rental prices increasing anytime soon. Inventory has at least tripled I would say since 2002. Wages haven't increased significantly. Ergo, the frothiness in condo prices I think is due to cheap credit. Convince me otherwise... Link to comment Share on other sites More sharing options...
alertmeipp Posted November 6, 2017 Share Posted November 6, 2017 Couple of thoughts after talking to some property brokers. House buying is not rational. All the metrics in the world are meaningless as soon as your significant other informs you that 'this is the one'; you will pay whatever it takes, and twist the financial logic until it supports your decision. I don't believe that's correct. There are definitely non-economic factors at play, just like with buying a car (what brand projects the type of image that I want to show? Will it attract a mate? etc), but money is still a big factor and not everyone is driving a Tesla or Maserati just because that's what they'd really want deep down. Right now what pushes people to overpay for real estate is the belief that prices can't go down for any period (so FOMO + fear of being priced out + we'll just take the equity out later to pay for consumption). If that psychology changes, or if lots of people start being unable to make ends meet as interest rates keep raising and RE rules are tightened, things will change... If you adjust for inflation, most generations in the past didn't buy the equivalent of million+ dollar houses (especially not ones that are just regular houses and not luxury mansions). If you understand Mandarin, listen to those Chinese radio station in Toronto, its commercials are mostly ask ppl to buy houses. Link to comment Share on other sites More sharing options...
gurpaul88 Posted November 6, 2017 Share Posted November 6, 2017 It is the same thing if you listen to any south Asian station, probably worse. Not only commercials but programs dedicated to real estate. The euphoria is real and has been for several years. Link to comment Share on other sites More sharing options...
alertmeipp Posted November 6, 2017 Share Posted November 6, 2017 The general thinking or misunderstanding is real estate is risk free always go up or can't come down too much and is best way to save up for retirement. The return is huge tho. 20% down and house up 30% yoy... Thats 150% return. And most just flip assignment so capital cost is even lower. Get in before it's too late. Unfortunately those ppl have been right for last two decades. We will see what next decade brings. Link to comment Share on other sites More sharing options...
wisdom Posted December 6, 2017 Share Posted December 6, 2017 https://www.bnn.ca/do-the-right-thing-laurentian-bank-s-ceo-urges-honesty-on-mortgage-applications-1.936257 First Home capital and now Laurentian uncovers misrepresentation on mortgage applications. Lying on mortgage application is systemic in Canada. Link to comment Share on other sites More sharing options...
obtuse_investor Posted December 6, 2017 Share Posted December 6, 2017 We all heard it. He said “everything’s fine”. Link to comment Share on other sites More sharing options...
rb Posted February 18, 2018 Share Posted February 18, 2018 Interesting article in The Globe about drug dealing, moving money in and out of china, and money laundry all done through Vancouver real estate. https://www.theglobeandmail.com/news/investigations/real-estate-money-laundering-and-drugs/article38004840/ Link to comment Share on other sites More sharing options...
Liberty Posted May 15, 2018 Author Share Posted May 15, 2018 https://twitter.com/alex_macdonald/status/996416773057474561 Link to comment Share on other sites More sharing options...
alpha Posted May 15, 2018 Share Posted May 15, 2018 https://twitter.com/alex_macdonald/status/996416773057474561 Some of the articles and statistics coming out about the GTA real estate market this year have been crazy. Like this one about a Nigerian bus driver grandma that owns two $950,000 homes but is unable to come up with 30k cash to get more favorable financing when her pre-construction investment home lost 100k in value. https://www.thestar.com/business/real_estate/2018/01/29/how-a-softer-housing-market-has-crushed-pre-construction-home-buyers-dreams.html There have been many more about middle class people losing 400-500k in real estate deals that are falling through because of declining prices. On the other hand condo prices in GTA have sky rocketed. Young buyers are now paying 600k for 1 bedroom shoe box condos. Link to comment Share on other sites More sharing options...
Liberty Posted May 15, 2018 Author Share Posted May 15, 2018 With the rates on the 5-year bonds going up in Canada, it'll be interesting to see what happens when mortgages start going higher again. Link to comment Share on other sites More sharing options...
obtuse_investor Posted May 15, 2018 Share Posted May 15, 2018 I was researching Ontario political party platforms last night. Not surprisingly, pc party doesn't have a published platform. Although their public ramblings seem to suggest that they do not appreciate the recent regulation that may have tempered the Toronto prices. They are doing very good in the polls. Could the animal spirits return to Toronto real estate if Ford wins? Or is this price slide caught in the downward spiral? Disclosure: I rent in Toronto. I would like to buy at reasonable prices. Link to comment Share on other sites More sharing options...
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