Baby, we got a bubble!?

[Auraz]

new member here from Vancouver, bc
You have me worry, we're in the market for a condo for my kid who will start at York this Sept. we're looking in the Downsview area, is it worth an investment or should I just rent him a condo instead?

BTW , still cant figure how to post a new thread, help please?

I'd advise to not invest in a condo in the Downsview area but to go more east towards Yonge/Sheppard that area is being transformed with a lot of new builds and located on the Yonge Subway line. Renting could be an option in the downsview area but even then choices are varied.

 

[TheKingEast]

new member here from Vancouver, bc
You have me worry, we're in the market for a condo for my kid who will start at York this Sept. we're looking in the Downsview area, is it worth an investment or should I just rent him a condo instead?

BTW , still cant figure how to post a new thread, help please?

I wouldn't invest in that area. Might be better to lease for the time being. I don't see that area as a good investment and it's a boring place to live anyways.

 

[TheKingEast]

Because economic principles don't suddenly suspend application when you reach the GTA or Canadian border.[/url]

You don't see a difference between our market and what happened in the US? They were completely different. You had people buying property with no money. Hell, in some cases they were being paid to buy property. That did not and does not happen in Canada.

 

[kEiThZ]

You don't see a difference between our market and what happened in the US? They were completely different. You had people buying property with no money. Hell, in some cases they were being paid to buy property. That did not and does not happen in Canada.

Bunk. By US definition, every Canadian using CMHC would be considered sub-prime. And that makes our sub-prime market even more massive than theirs at peak. And people buying with no money? Until recently, we had that with all the zero percent and cashback mortgages. Good thing that ended in Canada. And we still have our own version no-doc mortgages. Just self-declare your income if you're self-employed. That's thankfully being tightened up.

But here's what I can't get past:

1) With 70% home ownership rates, who the hell is renting all those investment properties?

2) Median FAMILY income in Toronto is something like 72k. Average price for a new condo is $545k. Average price for resale condo is $347k.
http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/famil107a-eng.htm
http://www.cbc.ca/news/business/gta...-of-2-cities-condos-vs-family-homes-1.2566931
And that's condo that we're talking. Not single family homes. We can actually assume that a lot of those condos are being carried by a single income, not a family income. Even worse is the fact that a ton of folks in the GTA work in the FIRE sectors which will be hit the hardest in any downturn. Major cyclical risk for the GTA market, I'd say.

Again, I'd like someone to explain to me how a family making 72k per year can afford the average resale condo at 347k. Even with 20% down, that's a ~280k mortgage. At least $1300 per month in today's payments. Add in property taxes, condo fees, home insurance, hydro and heat and we are easily looking at $2100-2200 per month. This is for a family that takes home $4700 per month after taxes (according to Ernst and Young http://www.ey.com/CA/en/Services/Tax/Tax-Calculators-2014-Personal-Tax), less if they have other deductions at work. With $2500 per month, this average TO family has to manage food, child care, cable TV, internet, cellphones, public transit, etc. And given our car ownership rates, I'd throw a car in there too, which would easily eat up $500-$1000. And that's all math at a resale condo. There's much less than $2500 per month for this family in post-housing income if they choose to buy a new condo (mortgage payment up to $2100 at least) or if they put only 5% down (90% of buyers in one recent survey). And given 70% ownership rates, that also means there's a ton of families with less than median income owning homes, so they have far less than $2500 per month to live on too.

So I'd say there's a ton of house poor folks in the GTA that may be dropping off their keys at the bank with even a small economic downturn. A return to 5% interest rates would increase monthly mortgage payements by 20%.

But hey, maybe I'm wrong and maybe a negative savings rate is sustainable in this country for a very long time. Perhaps, we'll somehow prove to be an absolute exception to these economic principles that held true everywhere else throughout history.

 

[kEiThZ]

One thing I notice whenever there's discussions about real estate is that there's always those who own who are saying that there won't be a crash.

This does not make sense. If you own, you are not in the market. You are not the marginal buyer driving the market. You got in when prices were lower. And you've probably also benefited by mortgage rates going down and reducing your mortgage payments. Today's buyer, faces a high mortgage payment (easily 25% of post-tax income) at historically low rates. When rates go up (and it's not if, it's when), they'll either be extremely house-poor (sucking life out of the rest of the economy) or they'll be defaulting.

Saying you bought in 2004 and that's why you think a downturn can't happen makes no sense. You will just be less impacted by a downturn than everybody else because you have a lot more cushion in your home value to play with.

What drives home prices is affordability. And the question quite frankly is whether Torontonians can afford to keep living in Toronto much longer if things keep going up the way they are.

 

[kEiThZ]

new member here from Vancouver, bc
You have me worry, we're in the market for a condo for my kid who will start at York this Sept. we're looking in the Downsview area, is it worth an investment or should I just rent him a condo instead?

BTW , still cant figure how to post a new thread, help please?

I actually work in Downsview. It depends on your objective. There's a condo across the street from where I work (at the base) right across from Downsview station. 1BR there is nearly $1500 per month. Owning it would most definitely cost more. So buying here wouldn't make sense as an investment to begin with. But then again, most condos are cash flow negative in the GTA. So it's not really different as an investment landscape than Vancouver. You want to invest? Get one of the townhouses near York. Stick your kid in one room and rent out the rest of them. That's a sensible investment.

 

[James]

...
Again, I'd like someone to explain to me how a family making 72k per year can afford the average resale condo at 347k. Even with 20% down, that's a ~280k mortgage. At least $1300 per month in today's payments. Add in property taxes, condo fees, home insurance, hydro and heat and we are easily looking at $2100-2200 per month. This is for a family that takes home $4700 per month after taxes (according to Ernst and Young http://www.ey.com/CA/en/Services/Tax/Tax-Calculators-2014-Personal-Tax), less if they have other deductions at work. With $2500 per month, this average TO family has to manage food, child care, cable TV, internet, cellphones, public transit, etc. And given our car ownership rates, I'd throw a car in there too, which would easily eat up $500-$1000. And that's all math at a resale condo. There's much less than $2500 per month for this family in post-housing income if they choose to buy a new condo (mortgage payment up to $2100 at least) or if they put only 5% down (90% of buyers in one recent survey). And given 70% ownership rates, that also means there's a ton of families with less than median income owning homes, so they have far less than $2500 per month to live on too.
...

I think the short answer is "they can't." I'm not trying to justify the market prices, but keep in mind that Toronto mean or median household incomes are for a very large area and population size. If you look at specific demographics in the areas where condos are being bought downtown, you'll note that the average household income is typically much higher than $72k. Conversely, the areas where there are more rented condos, you'll notice the income is less.

What I would conclude is that home ownership (including condo ownership) is quickly getting out of reach for most average households. Higher income households are still capable of buying...but they are getting less for their money. Those on the cusp are likely stretching or waiting on the sidelines until the market corrects. I still believe there is a lot of money in Toronto and higher income individuals will continue to buy good properties, especially single family homes.

 

[Glen]

The justifications used to argue that Toronto RE prices justified are no different than ones used elsewhere.

From Dean Baker's book: Plunder and Blunder: The Rise and Fall of the Bubble Economy

Once again, the boom-time intoxication set in. As long as

house prices kept rising, there was little need to ask questions.

In Los Angeles, the average price of a home rose from $161,000

1
in 1995 to $228,000 in 2000. It then soared to $585,000 in

2006. But everyone knows that Los Angeles has a great cli-

mate and a rapidly growing entertainment industry.

Tampa also has a great climate. With tens of millions of

baby boomers retiring over the next two decades, Tampa

would be inundated with snowbirds. Th e average price of a

home in Tampa rose from $84,000 in 1995 to $102,000 in

2000. It then spiked to $229,000 in 2006. Tampa enthusi-

asts noted that their prices were still low compared to those

of other metropolitan areas, including Miami’s, where house

prices rose by 218 percent from 1995 to 2006. Phoenix also

experienced a boom. Th e average price of a house there rose

from $92,000 in 1995 to $124,000 in 2000 before peaking

at $268,000 in 2006. Th is was an increase of 192 percent in

one decade.

But prices weren’t rising only in the Sun Belt. In Seattle,

the average house price rose from 145 percent between 1995

and 2006, increasing from $147,000 to $361,000. Th is was

explained by the fact that Seattle was a clean, vibrant city

surrounded by mountains and Puget Sound. Also, thanks to

Microsoft , Seattle was at the center of soft ware development

for the whole world.

San Francisco saw the average price of a home increase from

$234,000 in 1995 to $753,000 in 2006, a rise of 221 percent.

San Francisco is one of the most beautiful cities of the world,

dominated by streets lined with charming homes built in the

early years of the last century.

Aft er some tough years in the 1970s and 1980s, Chicago

was revitalized in the 1990s. Th e average price of a house in

Chicago rose from $136,000 in 1995 to $274,000 in 2006, an

increase of 101 percent.

Property values in New York and Boston had long ranked

near the top in the country, but that didn’t mean they couldn’t

go higher. Th e price of an average home in Boston rose from

$159,000 in 1995 to $402,000 in 2006, an increase of 153

percent. In New York, the average house price rose by 173 per-

cent, from $172,000 in 1995 to $469,000 in 2006. Boston has

enormous charm and history, plus a vibrant economy result-

ing from the spin-off s and start-ups emerging from research

and development in the area. As a major cultural and fi nancial

center, New York was creating many high-paying jobs.

And so the stories went. Wherever house prices went

through the roof, residents and realtors explained the trend in

terms of their city’s unique appeal. After all, there’s only one

Miami, Tampa, Phoenix, San Francisco, Los Angeles, Seattle,

Chicago, Washington DC, New York, and Boston. And,

whatever else happened in the economy, homeowners in these

cities were confi dent that their investments were safe.

 

[TheKingEast]

I actually work in Downsview. It depends on your objective. There's a condo across the street from where I work (at the base) right across from Downsview station. 1BR there is nearly $1500 per month. Owning it would most definitely cost more. So buying here wouldn't make sense as an investment to begin with. But then again, most condos are cash flow negative in the GTA. So it's not really different as an investment landscape than Vancouver. You want to invest? Get one of the townhouses near York. Stick your kid in one room and rent out the rest of them. That's a sensible investment.

Where are you getting this from?

 

[TheKingEast]

One thing I notice whenever there's discussions about real estate is that there's always those who own who are saying that there won't be a crash.

This does not make sense. If you own, you are not in the market. You are not the marginal buyer driving the market. You got in when prices were lower. And you've probably also benefited by mortgage rates going down and reducing your mortgage payments. Today's buyer, faces a high mortgage payment (easily 25% of post-tax income) at historically low rates. When rates go up (and it's not if, it's when), they'll either be extremely house-poor (sucking life out of the rest of the economy) or they'll be defaulting.

Saying you bought in 2004 and that's why you think a downturn can't happen makes no sense. You will just be less impacted by a downturn than everybody else because you have a lot more cushion in your home value to play with.

What drives home prices is affordability. And the question quite frankly is whether Torontonians can afford to keep living in Toronto much longer if things keep going up the way they are.

Who are you talking to? I'm confused.

 

[HelloToday]

FYI, bidding wars on SFHs in Toronto are back and with a vengeance.

Hell, even the pre-sales this year have gone on ridiculously quick (look at Core Condos and YC Condos).

And this is just the beginning of Spring ... the weather is still crap ... The banks just brought back 2.99% rates ...

Up, up, and AWAY we go.

 

[Eug]

Bank of Montreal is back advertising their 2.99% 5-year rate.

Bunk. By US definition, every Canadian using CMHC would be considered sub-prime.

-snip-

Uh, you have no idea what sub-prime means. I didn't bother reading the rest of the post.

Anyhoo, subprime lending is when you have borrowers who have lower than the required credit scores. This is vastly different from CMHC. CMHC insures those with low down payments.

ie. If you have a 500 score, you will not get a "prime" mortgage whether it's with CMHC or not. You'd have to go to a sub-prime mortgage lender.
If you have an 800 score, you may still have to get CMHC insurance if your downpayment is not big enough, but that does not make it a sub-prime loan because you still have to meet the credit and income requirements.

Furthermore, the minimum downpayment amount requirement to avoid CMHC insurance isn't even fixed. For a lot of Toronto homes, some lenders may not give you a non-CMHC insured mortgage even if you have a 20% downpayment. This is true for some lenders on the million+ dollar homes, even if you have an 800 FICO score.

BTW, for reference, 800+ FICO scores are considered ultra high. Lots of professionals with stable well-paying jobs and who have very good credit have FICO scores below 800.

 

[ducati0000]

I actually work in Downsview. It depends on your objective. There's a condo across the street from where I work (at the base) right across from Downsview station. 1BR there is nearly $1500 per month. Owning it would most definitely cost more. So buying here wouldn't make sense as an investment to begin with. But then again, most condos are cash flow negative in the GTA. So it's not really different as an investment landscape than Vancouver. You want to invest? Get one of the townhouses near York. Stick your kid in one room and rent out the rest of them. That's a sensible investment.

true but I heard the city is going to crack down on dangerous rooming houses in York village.Insurance companies don't like taking extra risk when a two bedroom house becomes living quarters for 10 students.Your correct though about the condos around the Wilson,Shep,Allen Road area I know a few people there who bought in about 4 years ago and their profits from selling their units is practically zero after commissions and lawyer fees.

 

[CN Tower]

Bank of Montreal is back advertising their 2.99% 5-year rate.


Uh, you have no idea what sub-prime means. I didn't bother reading the rest of the post.

Anyhoo, subprime lending is when you have borrowers who have lower than the required credit scores. This is vastly different from CMHC. CMHC insures those with low down payments..

Eug, it appears that ending your name in a capital 'Z' is the antithesis to ending your name with not one but TWO '$$'. Have I your agreement?

 

[James]

Interesting to see how BMO's move on their 5-year fixed rate is going to (if it does at all) affect other major banking institutes. This rate is already offered by other lenders but anytime one of the major banks makes a move, the general public notices. There are further restrictions on pre-payment but most people will focus on the 2.99% figure which can be a catalyst to the spring real estate market, given the rough winter has affected consumer spending in the US, and in effect, Canada.