Baby, we got a bubble!?

[Eug]

The data does suggest sales volume decreased, but mainly because of decreased affordability. Why decreased affordability? Not because of an increase in home prices, but due to the added cost of the tax. Given a total maximum amount for affordability for a buyer, the added cost of the tax limits what a buyer can spend for the actual sale price of the home.

However, data from CD Howe suggests the the effect is worse at the lower price points than the higher price points, suggesting that in the higher priced markets, buyers are less sensitive to the tax than at the lower price points, ie. first time home buyers.

---

BTW, this thread started at the beginning of November, 2009.

The Teranet House Price Index was 118.27 for Oct. 2009, and is now 165.20 as of the end of 2014.

That means average prices have increased 40% (!) since this thread started.

---

Also BTW, home build costs have also increased significantly in that time period. Between my quote in 2014 and my quote in 2007 my home build cost was estimated by the insurer to have increased by around 30%. (I'd have to check that to make sure, but it's in that ballpark.) I disputed that, so they actually sent a real appraiser out to my house for the second time 7 years later. (They allowed that added appraisal because although I was with the same insurer, I was switching underwriters as I got a new discount through my workplace, so they could justify the formal re-appraisal.)

It turns out the appraiser was the exact same guy that did my appraisal 7 years earlier. Now, I had had some renovations done in the interim so that affects the numbers, but he said that since the renos were to the basement with no additions, the amount wouldn't change that much as compared to if I had kept everything the same. IIRC the new appraisal came in about 28% more than my original one, after 7 years, so pretty close to my insurer's original sight-unseen paper estimate.

So even if we were to take a conservative estimate, after 5 years and a bit we'd expect a home build to have increased around 20% in cost. What that means is that say a detached home build in 2009 (when this thread started) cost $500000, by 2015 it should cost around $600000 for the same house just to build it. That doesn't consider land costs at all.

 

[interested]

I really don't believe this. Would have to see the data.

I can't provide data but to me it would make sense TheKingEast.
Additional land transfer taxes means the house is just that much more expensive putting it further out of reach.
If one has to pay 2 land transfer taxes, that acts to down the amount that one can pay as I am sure the mortgage lenders take that into consideration and it also lowers the amount of money one has to put as a down payment.

However I think the issue of the LTT pales when compared to very low interest rates on mortgages. Afterall, what is another 10K or even 15K tacked onto a a $700K mortgage that is at 3% or less mean to the monthly payment...the way most seem to look at it.

sorry. I had not seen Eug's latest post which addresses the issue as well

 

[interested]

The data does suggest sales volume decreased, but mainly because of decreased affordability. Why decreased affordability? Not because of an increase in home prices, but due to the added cost of the tax. Given a total maximum amount for affordability for a buyer, the added cost of the tax limits what a buyer can spend for the actual sale price of the home.

However, data from CD Howe suggests the the effect is worse at the lower price points than the higher price points, suggesting that in the higher priced markets, buyers are less sensitive to the tax than at the lower price points, ie. first time home buyers.

---

BTW, this thread started at the beginning of November, 2009.

The Teranet House Price Index was 118.27 for Oct. 2009, and is now 165.20 as of the end of 2014.

That means average prices have increased 40% (!) since this thread started.

---

Also BTW, home build costs have also increased significantly in that time period. Between my quote in 2014 and my quote in 2007 my home build cost was estimated by the insurer to have increased by around 30%. (I'd have to check that to make sure, but it's in that ballpark.) I disputed that, so they actually sent a real appraiser out to my house for the second time 7 years later. (They allowed that added appraisal because although I was with the same insurer, I was switching underwriters as I got a new discount through my workplace, so they could justify the formal re-appraisal.)

It turns out the appraiser was the exact same guy that did my appraisal 7 years earlier. Now, I had had some renovations done in the interim so that affects the numbers, but he said that since the renos were to the basement with no additions, the amount wouldn't change that much as compared to if I had kept everything the same. IIRC the new appraisal came in about 28% more than my original one, after 7 years, so pretty close to my insurer's original sight-unseen paper estimate.

So even if we were to take a conservative estimate, after 5 years and a bit we'd expect a home build to have increased around 20% in cost. What that means is that say a detached home build in 2009 (when this thread started) cost $500000, by 2015 it should cost around $600000 for the same house just to build it. That doesn't consider land costs at all.

The bolded part only makes sense. Someone who is buying a million dollar home is not going to be swayed by $30K vs. 15K LTT if he has a downpayment of over $200K (and probably more as he is probably trading up) and also probably has a much higher paying job..
On the other hand, the guy trying to get into the market at over$400K who I assume does not get the pass on the Toronto LTT is looking at $80K downpayment. Probably working to get it and adding another $8K to $80K is huge, when the initial $80K is already a big burden.
I guess what I am saying is that people buying more expensive homes generally have more disposable income...though in some cases just more ability to buy on further credit.

 

[TheKingEast]

The bolded part only makes sense. Someone who is buying a million dollar home is not going to be swayed by $30K vs. 15K LTT if he has a downpayment of over $200K (and probably more as he is probably trading up) and also probably has a much higher paying job..
On the other hand, the guy trying to get into the market at over$400K who I assume does not get the pass on the Toronto LTT is looking at $80K downpayment. Probably working to get it and adding another $8K to $80K is huge, when the initial $80K is already a big burden.
I guess what I am saying is that people buying more expensive homes generally have more disposable income...though in some cases just more ability to buy on further credit.

When you put it that way, OK. But what about the person who doesn't have much of an income but bought their house 10 years ago? They're staying put. Even the high income earners your'e talking about. Many are staying put because they simply don't want to pay just $45K alone for LTT, then 5% to sell the property, moving costs etc to move up into a flip or a house that needs a bunch of work. Add to the fact that house prices keep escalating...why would you sell when you can just stay put?
Anyways, I see both sides.

I'm not talking about the young couple that is looking to buy after owning a condo. I'm talking about the home owner that bought a house in Riverdale 10 years ago for $400K that is now worth $1M. Why sell? I know many in this situation. Unwilling to sell because they don't want to pay the extra costs no matter how much money they have. Just like how some people will refuse to break a mortgage even though they can easily cover the cost of doing so. There just isn't any supply right now and I think the dual LTT plays a factor in that.

 

[interested]

When you put it that way, OK. But what about the person who doesn't have much of an income but bought their house 10 years ago? They're staying put. Even the high income earners your'e talking about. Many are staying put because they simply don't want to pay just $45K alone for LTT, then 5% to sell the property, moving costs etc to move up into a flip or a house that needs a bunch of work. Add to the fact that house prices keep escalating...why would you sell when you can just stay put?
Anyways, I see both sides.

I'm not talking about the young couple that is looking to buy after owning a condo. I'm talking about the home owner that bought a house in Riverdale 10 years ago for $400K that is now worth $1M. Why sell? I know many in this situation. Unwilling to sell because they don't want to pay the extra costs no matter how much money they have. Just like how some people will refuse to break a mortgage even though they can easily cover the cost of doing so. There just isn't any supply right now and I think the dual LTT plays a factor in that.

To the bolded point...I agree.
I have always said if you are going to make a move, it should be a big one....whether up or down.

I don't know if I told this story in the past on this forum but if I did I apologize.

I recall my neighbour decided to downsize many years ago from his home as 2 of his kids were going to University, he wanted / needed the equity to finance, and he thought he would make a fair amount of money.

I recall he sold his SFH of about 3000 sq.ft. for $360K at the time with swimming pool. Bought an upper scale large 2200 townhouse in the same neighbourhood essentially for $220K. Then he paid the commissions, land transfer tax, the moving expenses, the updating of the townhouse, the window coverings, the garden. Anyhow, I was at a party where he was present 1 year later and he regretted selling. He ended up spending $80-100K and had only $40 to 60K left over. Now we can say he was naive but in fairness his point was that had he known he would have only netted $50K, he would not have given up his SFH with pool for a townhome without it.

My point is that if you are going to move, it had better be in the neighbourhood of a 50% bump up or down. Going from $700 to $900K only makes money for everyone else and most of your equity bumbup is lost to others..

 

[TheKingEast]

To the bolded point...I agree.
I have always said if you are going to make a move, it should be a big one....whether up or down.

I don't know if I told this story in the past on this forum but if I did I apologize.

I recall my neighbour decided to downsize many years ago from his home as 2 of his kids were going to University, he wanted / needed the equity to finance, and he thought he would make a fair amount of money.

I recall he sold his SFH of about 3000 sq.ft. for $360K at the time with swimming pool. Bought an upper scale large 2200 townhouse in the same neighbourhood essentially for $220K. Then he paid the commissions, land transfer tax, the moving expenses, the updating of the townhouse, the window coverings, the garden. Anyhow, I was at a party where he was present 1 year later and he regretted selling. He ended up spending $80-100K and had only $40 to 60K left over. Now we can say he was naive but in fairness his point was that had he known he would have only netted $50K, he would not have given up his SFH with pool for a townhome without it.

My point is that if you are going to move, it had better be in the neighbourhood of a 50% bump up or down. Going from $700 to $900K only makes money for everyone else and most of your equity bumbup is lost to others..

Indeed. But with house prices going through the roof, how many people can really make that move up? I find unlike your friend, many people have done the math and have decided to just stay put. I know someone who wanted to buy a house in Cabbagetown over the last 5+ years. It would have been a nice bump up for her. Well, she kept waiting for prices to come down a bit...well...they went in the other direction and now she's staying put because she can no longer move up. All she can do is move down or laterally. I think many people are in this bucket. IMO the move-uppers are the young and rich who are moving from condo to house. Only so many of those folk around. Would be nice to get some hard data on this. I'm only going by what I see and what I hear.

 

[interested]

I can tell you personally I made that decision.
A couple of years ago we redid the kitchen, master bathroom, the powder room...put down marble on the main level replacing the existing tile.
I figured out that the renos equated to the real estate, LTT and soft costs, moving costs and prep costs based on the same example.

I know that perhaps the higher up property may have gone up more but the same in percentage terms. Hopefully the money we saved got invested to make up the difference of the property. However, what I don't have to make up is the lost revenues and the upgrades have increased the value of the present house.

We have had discussions about down sizing but in the end, it simply makes no sense at this time.

 

[Eug]

My wife may not agree, but I'd strongly consider downsizing at retirement. Why? Less maintenance time and less maintenance costs.

My ex-boss did that. Sold their ginormous house and got a ginormous luxury condo, for not much less, and they're extremely happy with their decision. The pay their condo fee and spend no time themselves on maintenance at all.

I guess the take home message here though is the benefit of downsizing may be more the change in lifestyle and reduced maintenance time. There's more to downsizing than just capturing equity.

P.S. My neighbour didn't downsize but spent 5-digit $ to get rid of the pool they had. A pool is a big maintenance headache and because their kids are now adults and have long ago moved out, they just couldn't justify maintaining it any longer. Another neighbour the next house over did the exact same thing. They actually had a dedicated poolhouse but after their children moved out they filled in the pool and use the poolhouse as a giant storage area and workshop.

 

[PinkLucy]

We sold a ginormous house and moved to a large (but not ginormous!) condo. Great decision for us, we don't regret it for a minute

 

[TheKingEast]

We sold a ginormous house and moved to a large (but not ginormous!) condo. Great decision for us, we don't regret it for a minute

Even with the ginormous condo fees?

 

[aiekon]

So, is it best to hold on to them or should we perhaps look into selling in early 2016? Two years ago it took me less than 24 hours to find a tenant for my furnished 1+1 unit at 21 Nelson. Now, it took just over two months with zero increase to the rent. I can already feel with all the units out there available, that it's harder to find tenants...

Related to this post: Fiurnished rentals are a different breed. They can rent out quickly but they are definitely more difficult as a rule to rent out than unfurnished. What has happened I believe if I look at the market is that the premium for furnished has come down quite a bit in the past 2 years over unfurnished. May perhaps explain why Aiekon had a longer wait.
1 day was very fast. I don't think over 2 months is particularly long since 1 month is the norm. Maybe we are just seeing law of averages at play here. One time fast rent, one time slightly slower. But he may be right that there is more product now to chose from and maybe we are reaching saturation.
Should be interesting to see if we start seeing differentiation between buildings close by each other and what is contributing to the differentiation...layout, price point, view etc.

Reflecting back on my first tenant, I think it was just a lucky coincidence that I had found her. Long story short, something had occurred between her and her husband (now ex) and she wanted to get out of that situation asap and had no interest starting from scratch with an empty unit. With that being said, after my current tenant decides to leave I will be either selling or renting the unit unfurnished.

 

[PinkLucy]

Even with the ginormous condo fees?

It's worth it in terms of the time we now don't have to spend mowing, shovelling, gardening, etc. Our natural gas charges were high with such a big house, and we paid far more in hydro so all in all, our annual costs are actually less

 

[James]

In most neighborhoods in central Toronto where there are a large number of seniors (of course, which neighborhood in central Toronto is not deemed upscale these days, right?), there are many more contractors milling about all over the neighborhood. You'll see everything from irrigation system experts to snow removal services to plumbers to electricians to miscellaneous contracted handymen to home security installers to lawn care contractors...I think that, as others have stated, when you factor in the costs of hiring these contractors, it's still fairly reasonable versus paying, say, $0.75/sq.ft. condo fees on a 1,200 sq.ft. condo. That's $900 per month or $10,800 a year! You definitely don't pay $10k a year on basic maintenance for your single family home.

 

[Eug]

In most neighborhoods in central Toronto where there are a large number of seniors (of course, which neighborhood in central Toronto is not deemed upscale these days, right?), there are many more contractors milling about all over the neighborhood. You'll see everything from irrigation system experts to snow removal services to plumbers to electricians to miscellaneous contracted handymen to home security installers to lawn care contractors...I think that, as others have stated, when you factor in the costs of hiring these contractors, it's still fairly reasonable versus paying, say, $0.75/sq.ft. condo fees on a 1,200 sq.ft. condo. That's $900 per month or $10,800 a year! You definitely don't pay $10k a year on basic maintenance for your single family home.

Maybe not $10000 for a small house but you'd be surprised what you might spend on maintenance for a big home, esp. in a posh area. Imagine if you lived in central Toronto on a 50x100 ft lot and paid someone to do your gardening, fertilize your lawn, trim the hedges, rake the leaves, maintain your sprinkler system, cut your lawn, shovel your snow, etc. That alone would be several thousand dollars per year. However, that's a cost people don't factor in because they do it themselves, but then they pay for that in time spent (and some material and equipment costs too).

In my case I have a very big garden (big lot in Scarborough), and I pay someone several thousand a year just for the gardening alone (partially because my wife likes expensive plants), but I cut the lawn and shovel the snow myself. I also pay extra in the winter for my garden because some of the plants sit in a solarium over the winter with an electric heater on, so they don't freeze. I also paid someone this year a few thousand to re-do my shed, which looks like a little wood cabin, because I don't like those ugly Home Depot metal sheds.

And that's not even factoring in maintenance costs for the house (eg. roofing) or new fences or stuff like that. The benefit of owning your home though is you can choose what to fix and when to do it, unlike with a condo. For example, we redid a fence on the right side of the yard shortly after I moved in. We redid the fence on the other side a couple of years ago. On the right side, I talked with my neighbour and we decided to just do basic work ourselves to save money. We installed extra fence posts to shore up the existing fence posts and then replaced damaged boards as necessary. Total cost between the two of us was a couple of hundred bucks, but many hours of our time, to get a fence that looks acceptable but not great. On the other side of the yard, my neighbour wanted the old fence completely ripped out and a new one professionally installed, and I agreed to it. Cost us each a few thousand bucks, but no time on our parts, aside from a couple of walk-throughs to tell the guy what we wanted, and it looks very nice.

 

[NorthYorkEd]

So, is anyone still thinking of buying in 2015 with all this uncertainty and the faint (but getting louder and louder) ring of alarm bells?

Does anyone think there will be downward pressure on rents? I would imagine much of the newer stock will have to be increasingly competitive to attract good tenants (excessive supply, lower quality), but will established units hold their current rates or be pressured upwards? I would think demand for decent liveable units will likely grow.