Baby, we got a bubble!?

[Riverdale Rink Rat]

RRR; you are living in it and enjoying it. Unless you figure you are prepared to downsize, take out some equity, and forgo what I assume is your home, why even consider this unless you are stretched with mortgage payments, would like to eliminate debt, or feel that the downturn will be severe. After all, consider all the costs and figure that $100K of your equity will go immediately assuming you use realtors and buy something else (LTT, legals, moving costs etc.).

Both of you have sound advice. However, we're serial renovators and our kids are now about to move on, so downsizing and/or finding a new 'project' (while eliminating our mortgage) has a lot of appeal to us. As you say, the transaction cost in real estate is extremely high -- however, the capital gains exemption on your profit makes the 'trade' much more appealing on an after-tax basis.

 

[Kenny]

However, personally I think AAPL at over $600 is more risky to buy now than Toronto real estate, to be honest.

What about these two scenarios:

100% into Toronto real estate

vs

99.9% into Toronto real estate 0.1% into AAPL

Risk is usually lessened by diversity. 'course, that's how the whole derivatives market got sold to investors...

 

[interested]

Both of you have sound advice. However, we're serial renovators and our kids are now about to move on, so downsizing and/or finding a new 'project' (while eliminating our mortgage) has a lot of appeal to us. As you say, the transaction cost in real estate is extremely high -- however, the capital gains exemption on your profit makes the 'trade' much more appealing on an after-tax basis.

Just one thought...people pay a lot for a ready "renovated" place in a good market.

I bought a condo in Florida in September 2011 which was expensively renovated in 2006 (not only that but decorated by a designer beautifully with gorgeous furniture and only used sparingly as a 2nd home). The market is different in Florida but I essentially got the reno for less than 1/4 what it cost and the furniture for 25%.

My point is that in a bad market, one does not get the reno costs back. Ironically, the market is improving in the past 6 months and I was offered already 20% more by someone who would also pay the transaction costs.

In a good market, especially if there is a paucity of product, it works well. Just remember as serial renovators in Toronto, you have been in a "good market" since 1996.

 

[Eug]

Yes, that makes sense. Serial renovators, with kids growing up.

I've come to the conclusion that to make consistently good money off renos, you usually have to do a lot of the work yourself or else have enough clout or contacts to have good rates from your tradespeople, or else you have to cut corners.

BTW, I'm not saying you're the latter. It's just a comment on some of the flips out there - we purchasers really have to be careful. A friend of mine got burned. With my own reno, I could have EASILY cut 35% off the cost of the reno (and possibly more) if I were doing a flip, and it would have looked as good.

What about these two scenarios:

100% into Toronto real estate

vs

99.9% into Toronto real estate 0.1% into AAPL

Risk is usually lessened by diversity. 'course, that's how the whole derivatives market got sold to investors...

For equities, these days I'm just an index fund guy. Following individual stocks is too stressful if I've got a lot of cash on the line.

I think that might be why some foreign investors like real estate. Even if a real estate market crashes, it might "just" drop 30%. OTOH, if Nortel tanks, it goes bankrupt, and your stock is worthless.

 

[interested]

Both of you have sound advice. However, we're serial renovators and our kids are now about to move on, so downsizing and/or finding a new 'project' (while eliminating our mortgage) has a lot of appeal to us. As you say, the transaction cost in real estate is extremely high -- however, the capital gains exemption on your profit makes the 'trade' much more appealing on an after-tax basis.

To me RRR, in the bolded section you have summarized the real reason and the logic for doing what you are doing, and it makes perfect sense. Especially, if you believe as I do that one can't pick the top but that prices are near the top, you can decrease or eliminate your mortgage(lowering expenses and stress), and further meet your needs/desires to downsize with the kids about to move on, it is eminently logical to do what you are proposing. In fact, you are better off than most of us as not only is it perhaps time to move on but you can do the renovations and improve the value of the property you are going to while meeting your upcoming needs.

 

[interested]

Yes, that makes sense. Serial renovators, with kids growing up.

I've come to the conclusion that to make consistently good money off renos, you usually have to do a lot of the work yourself or else have enough clout or contacts to have good rates from your tradespeople, or else you have to cut corners.

BTW, I'm not saying you're the latter. It's just a comment on some of the flips out there - we purchasers really have to be careful. A friend of mine got burned. With my own reno, I could have EASILY cut 35% off the cost of the reno (and possibly more) if I were doing a flip, and it would have looked as good.



For equities, these days I'm just an index fund guy. Following individual stocks is too stressful if I've got a lot of cash on the line.

Studies have consistently shown that the experts cannot outperform the market on a continuous basis. I think index makes a lot of sense. I use some index. I also purchase some Reits, have bank shares to provide me with a source of income. You are still working.

Your comment about Nortel makes sense and a stock can go to worthless. The house will have some value, but on the other hand, if forced to sell, it can be difficult, costly, and is probably a much larger single value asset than the position one would hold in any one stock for most people. Of course, as we both know, living in the house provides enjoyment which a piece of paper cannot match.

 

[marsh]

Economy Lab
IMF debt study a wakeup call for Canadians
kevin carmichael
WASHINGTON— Globe and Mail Blog
Posted on Tuesday, April 10, 2012 1:03PM EDT
New research by the International Monetary Fund strengthens the case for Canada to get a handle on its runaway household debt.
The IMF analysis shows that not all housing busts are equal. A relatively solvent economy can absorb a sudden drop in home prices. However, when the collapse is preceded by a large expansion in household debt, the reduction in economic activity is much larger. Similarly, when housing busts trigger recessions, the recessions are nastier when household debt is higher. The downturns tend to last for at least five years.
Often the reflex explanation for the drop in economic output is the wealth effect: a less valuable home makes consumers feel poorer, so they spend less.
But the IMF study concludes that price effects are an unsatisfactory explanation for the scale of the decline that follows a housing bust that was preceded by a big increase in household debt. “It seems to be the combination of house price declines and pre-bust leverage that explains the severity of the contraction,” the authors write. In other words, the wealth effect combines with an impulse to pay off debt that severely crimps overall consumption.
The findings explain why the Bank of Canada ranks Canada’s household debt – which is equal to more than 150 per cent of gross domestic product – as the biggest domestic risk facing the economy. The potential consequences of doing nothing are severe.
The conclusions are based on a sample of 25 economies, which yielded a sample of 99 housing busts. The authors divided those busts into two groups: those that involved a large run-up in the household debt-to-income ration during the three years leading up to the bust, and those that did not.
The results add to a growing body of evidence that suggests the heavy debt load households in developed countries took on ahead of the financial crisis will impede the recovery. With economic growth still weak in the United States almost three years after the recession ended, that appears to be exactly what is happening.
Canada’s unemployment insurance system and relatively tough banking regulations could soften the blow of any housing collapse.
The IMF study examined seven policy responses to housing busts, and suggested that the economic impact is muted when consumers can rely on state assistance. A weak banking system exacerbates the downturn by retrenching from credit markets. Because Canada’s financial institutions are forced to hold substantial buffers, they should be able to weather an economic storm.
However, the suggestion on the value of safety nets was based on an analysis of Scandinavian countries in the 1990s, where governments provided unemployment insurance payments equal to 65 per cent of wages, on average. That was well above the OECD average of 47 per cent.

 

[detroitbootybass]

What is everyone's thoughts on this:

http://www.counselcorp.com/files/Co...ap New Mortgage Lending Program Apr 10-12.pdf


Notice how they are re-branding subprime mortgages as 'near prime'.

"We're very pleased with Street Capital's decision to expand, prudently, into near prime residential mortgage lending, a market segment we believe is underserved and one that offers potentially higher profit margins," said Counsel CEO Allan Silber.

Eek! Prudently?!?

 

[Eug]

Speaking of Apple, here's Apple's valuation vs. all of the companies in Greece, Spain, and Portugal combined.

Obviously it's not a direct comparison in any way, but like some of the real estate doom and gloomers here might say, Apple's stock price curve is somewhat reminiscent of the US real estate boom, just before the bust.

 

[macookie]

Speaking of Apple, here's Apple's valuation vs. all of the companies in Greece, Spain, and Portugal combined.

Obviously it's not a direct comparison in any way, but like some of the real estate doom and gloomers here might say, Apple's stock price curve is somewhat reminiscent of the US real estate boom, just before the bust.

Apple is really at all time just a few steps away from a patent lawsuit that could aways force them to stopping selling there two main income sources.

Just imagine an injunction forcing Apple to withdraw the i-Phone or i-Pad from all their stores... and where that event would take their shareprice. Other blackswan event that could bite at Apple future earnings, like a massive strike at Foxxcon.... or even a "new" product that we haven't even thought about replacing our beloveth i-Phones or i-Pads with... and then Apple is.... uuummm.... just another RIM. But, $1,001 shareprice in the near term is more likely.

But... Booms are followed by busts and echos... So really Apple is in the shortterm a better bet and longterm a risky bet than RE in Toronto.

 

[Riverdale Rink Rat]

But... Booms are followed by busts and echos... So really Apple is in the shortterm a better bet and longterm a risky bet than RE in Toronto.

I can't comment on the patent issue (and since they're all suing each other, I have to believe it's a bit of a Mexican standoff) but currently AAPL is only sort-of expensive. On a price to earnings or price to book value basis, the stock is really not expensive until it gets to (gulp!) $850 or so.

But, given that it's a much more liquid market, AAPL or any other stock can then immediately turn around and head back to levels its traded at before, in the blink of an eye. Toronto RE will be a much slower grind, in both directions.

 

[interested]

The Apple story as both previous posters have pointed out are potential bubbles.

We can all talk about what we could have made or did not make by buying, not buying either R/E or Apple.

However, each has to be judged on its own merit.

Personally I think buying either of these for investment purposes today at these prices makes no sense simply because the downside risk I believe outweighs the upside potential. So I won't make a fortune but hopefully will not lose my shirt either.

I think there are more prudent though hard to find investments to be made. Just my view

 

[Eug]

OSFI is recommending that HELOCs be limited to 65% loan-to-value, instead of 80%. I too think 80% is too much, but think another possibility that could have worked was say 75% up to a certain amount, and the 65% after that. Banks already do that with expensive homes, with the limit being 80% for the first half-million or so, and then say 65% after that.

What's curious is that they did NOT recommend tightening mortgage lending rules. What they did suggest is tight adherence to the existing rules, since they're still seeing occasional examples of where banks are not doing their due diligence (although it's never been anything like what happened in the US market).

http://watch.bnn.ca/#clip652504

 

[macookie]

Rec'd this summary from Remax about an hour ago... (looks like the potential for the beginning of the end of higher prices for condos downtown.)

Is The Market Hitting The Top?
Toronto Real Estate Market Report Analysis For March 2012

March MLS sales totalled 9,690 houses and condominiums in all the districts.

This sales number was up almost 8% from one year ago but up almost 18% above the average for March since the year 2000.

Just under one-third of the market sales were condo townhouses and high-rise suites with 2,933 units changing hands during the month.

The March average sale price came in at $504,117 - up 10.5% from one year ago.

East of Yonge and south of Bloor in the C08 downtown TREB district, the condo sales price average dropped to $397,870 while west of Yonge in C01 the average was down $10,000 to $417,000.

 

[interested]

Actually McCookie I would be very cautious about the C08 district in Toronto.

there is some very high end and low end mixed in that area. Depending on the mix, I think that will dictate the prices. I think it is clear $400K implies something more than price movement for the same properties.

The C01 being down by $10K is down by 2.4%. We have noted the very high end eg. the Ritz and high end is not moving at prices over $800/sq.ft. very well and there are rumoured difficulties acheiving $800/sq.ft. in C01 and if the mix has changed, prices will be dropping if more units selling are in the lower or mid range. Also, as prices go up, people are buying smaller units so perhaps the sales show this.

Please understand, I am not trying to make any excuses or "explain away" the results. However, I know some on the forum have been waiting for prices to "adjust" . I consider myself among that group I would not however jump to conclusions based on any preconceived ideas or hopes that prices have or will or are dropping. I think we require a bit more information. I personally could accept that C01 may have dropped 2.4%. However, I am quite sure there is something to the C08 story. I also don't know but suspect there may be other areas in the core were prices are up if the average March sale price is up overall from a year ago though I gather from other data condo sales were up 2% year on year vs. SFH which were up I believe for TO over the 10% mark.