Time to invest in resale?

[luxome]

Do you think this is the time to invest in resale? i'm looking at downtown condos along the lakeshore and yonge/sheppard area. Since the pre-construction prices are way more $/sqft than existing condos/homes.

What do you guys think?

 

[terrafirma]

Bad idea

I believe that you are ill-advised to think that Toronto residential prices are headed anywhere but steeply down in the near future. With the enormous job losses and the paralyzed markets for mortgage financing the value of existing homes (freehold, town, condo) will only weaken for the foreseeable future. The majority of buyers need a mortgage to buy a home and a job to get a mortgage. Right now far more jobs, an alarming number in fact, are being lost rather than gained in Toronto/Ontario.

Buying may be an attractive lifestyle choice for you but it's seems to me to be an absolutely dreaded investment choice now and for many years to come.

 

[BobBob]

Banks here are still happy to issue mortgages, as far as I know.

 

[Josef]

You can't go wrong buying by the lake.

 

[simuls]

While I don't think it's all going to come up roses, I firmly disagree with Terra Firma. 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.

His assertion that the markets are paralyzed for mortgages is 100% incorrect. There were more loans and mortgages (as a percentage of how many were asked for) in the last 3 months than in the corresponding three months a year earlier. The tight credit conditions have nothing directly to do with the Cdn real estate freefall. In fact, the mortgage rates that exist right now offer some serious bargains. Will you be able to get the same kind of mortgage in 2 years? Will the lower price offset that?

That being said, it really is a guessing game as to what happens in the next couple of years. Personally, I would wait and see what happens this summer and then make a decision. A lot of finished, new product will come on the market in the next couple of years and it's possible that there will be a further correction. Right now, the only reason the real estate market has collapsed is consumer confidence, not high prices - Toronto is still very affordable contrary to popular belief, but if the condo market is flooded with investor/speculator 2007 purchases and all the new buyers are still sitting on the sidelines, then the price could drop substantially - although i highly doubt it will drop to anything lower than the average 2006 price.

 

[TrickyRicky]

I concure with terrafirma. However, it really depends on your investment strategy. I suspect the correction in condo prices will be notable and lengthy in duration. Over the long-term, in contrast to other forms of housing or property, condos tend not to hold their inflation adjusted value. However this tends to mean that the longer you own a condo the less valuable it becomes as an investment vehicle. Location, location, location still holds and will go with or buck the general trend. Why I mention the long-term is that it will be doubtful that you will be able to realize short-term goals. Both the value of your property and the strength of the condo rental market stand to decline in the short-term. How long does short-term mean? We can't say but people who bought in 1989 had to wait over 15 years for values to recover. Is it different this time around? Who knows but "it's different this time around" are the most famous last word in any form of investing.

 

[cabbagetowner]

i'm not sure when it has ever been a good time to invest in condos. i think more and more people are starting to realize this. hopefully after this correction, everyone will share this opinion.

 

[AKS]

i'm not sure when it has ever been a good time to invest in condos. i think more and more people are starting to realize this. hopefully after this correction, everyone will share this opinion.

I think the option for owning a house is dropping as years go on. There's not enough land to own houses. We used to have a lot of detached houses built, now it's only in the urbs we have them. Toronto only seems to build town houses or condos these days. Also as houses get old, they would need a lot of fixing which costs money. Sooner or later those would have to be sold or torn down for rebuilding. With our transit system currently, people want to live near train stations, but we don't have many. Hence land prices on those are going up.

If one does insist on owning a house, unless you can fork out a lot of money and own a car, many people have been sprawling into the 905 area and the outskirts of that. If you want to live in the city, near public transit and not a shady area, you will have to fork out a lot of money and for an old house? Unless you plan to tear it down and rebuilt a new one on the land. That will end up costing over a million.

 

[urbandreamer]

^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.

 

[TOBoy]

A lot of factors and questions come into play when this "to purchase or not to purchase" issue is raised. One of which is are you currently renting. If so, and you want to wait for 2-3 years before you buy, what is your opportunity cost? Does it justify the drop in house price?

It's all a question mark at this point. I wish I have a crystal ball and see where the condo market will be in the coming years. But since I don't and I prefer ownership, I bought.

 

[Therion]

Prices will fall for at least the next two years. I'm waiting until at least the end of this year to upgrade my condo to a house. In the meantime, I'm tracking housing prices in the areas I'm interested in.

 

[terrafirma]

Our (Canadian) banking system is just as vulnerable as the American system, it is just that our legislator don't cause an uproar when socialist policies are implemented because socialism is so firmly ingrained in our culture already unlike in America.

In November (I believe it was November, please correct me if I am mistaken) the Big 6 had something like $50B of mortgaged stranded on their balance sheet and no bids. The Big 6 desperately needed that capital redeployed in the financial marketplace in order to function properly. In the usual course those mortgages would be sold off through securitization vehicles but with no bids the banks were frozen. In swooped the government to purchase those mortgages from the Big 6 and effectively rescue them from certain failure.

Yes, the banks are lending still but their underwriting standards are substantially more stringent and borrowers are required to provide more equity today than in the boom years.

I think that some posters here truly underestimate to extent of the economic calamity that is befalling this City. The underpinning strength of the housing market has been the steady flow of immigration that, met with stable employment, was a dependable formula for housing demand. Our economy (the GTA) is incredibly dependent on the auto sector and also the housing/construction industry. Toronto doesn't exist in isolation from the GTA, rather it is its nuclear pulse and the devastation that is engulfing the region will be felt prominently at its centre.

 

[cdr108]

Our (Canadian) banking system is just as vulnerable as the American system, it is just that our legislator don't cause an uproar when socialist policies are implemented because socialism is so firmly ingrained in our culture already unlike in America.

In November (I believe it was November, please correct me if I am mistaken) the Big 6 had something like $50B of mortgaged stranded on their balance sheet and no bids. The Big 6 desperately needed that capital redeployed in the financial marketplace in order to function properly. In the usual course those mortgages would be sold off through securitization vehicles but with no bids the banks were frozen. In swooped the government to purchase those mortgages from the Big 6 and effectively rescue them from certain failure.

Yes, the banks are lending still but their underwriting standards are substantially more stringent and borrowers are required to provide more equity today than in the boom years.

I think that some posters here truly underestimate to extent of the economic calamity that is befalling this City. The underpinning strength of the housing market has been the steady flow of immigration that, met with stable employment, was a dependable formula for housing demand. Our economy (the GTA) is incredibly dependent on the auto sector and also the housing/construction industry. Toronto doesn't exist in isolation from the GTA, rather it is its nuclear pulse and the devastation that is engulfing the region will be felt prominently at its centre.

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.

 

[Therion]

I for one, am looking forward to being able to afford a decent sized single detached house in Toronto on a non-six-figure income. If you look at what 50s era bungalows go for in Willowdale ($600,000), for example, it is completely out of the realm of reality.

 

[simuls]

While I agree with much that has been said above, I would like to say that there has been a significant cultural shift over the past 5 years that will continue to grow, and that is that condominiums (or apts/co-ops in New York, or flats in London/Paris/Shanghai, etc.) are now the new norm for Toronto and are in fact, more desirable by many, than a house. We've simply caught up to the world - who mostly live in condos. And while there may be a lot of room to build houses in the GTA or in the corridor, who the hell would want to live there? People want to live close to shops, restaurants, theatre, dance, LIFE and they don't want to have to drive. Oil will go up (watch fo $60 by the summer) inevitably and this will further the pace to live close to where you work and not commute into the city.

In 1989, owning a condo was something someone felt a little bad about. "I couldn't afford a house so I HAD to buy a condo, but I still want a house." While there are certainly some who still feel this way, the vast majority of condo owners I know are completely the opposite. During this condo boom, a condo has become a desirable thing to own, there's a sense of pride. When a person or a couple outgrow their 1 bedroom condo, they don't want a house, but a bigger condo so that they can still enjoy the lifestyle that only a condo can provide.

A significant, if overlooked, strength of the condo market is that, unlike in 1989, there are virtually no new rental properties being built in downtown Toronto. New condo's have picked up the slack for this and will continue to do so. I have rented out my condo several times and it's never taken longer than 2 days with several interested people each time. The vacancy rate is approximately 2% in condo's and that's because people are willing to pay a small premium for a premium space with gym, location, etc. If the rental market can absorb some of the new product coming online in the next 2 years, it will buffer the correction in prices. Toronto, even at it's peak, was never unaffordable or overpriced - especially for being the largest city in Canada. Immigration will pick up over the next few years as well and will hopefully buffer this as well.

As I said, I don't think it's all going to come up roses and would definitely wait another 6-12 months before jumping in (real estate is actually far less a good investment than the market), but I'm not as gloomy as most. I do agree though, that it'll take until at least 2012-13 to see prices at their Jan 2008 peak again.