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A Lurker
that's Ms Lurker btw
Premium Member
join:2007-10-27
Wellington N

A Lurker to EUS

Premium Member

to EUS

Re: [Rant] House prices in Toronto

said by EUS:

If 1.5M turns into 6M, I wonder at what level salaries will be at, and how much will 2 liters of milk will cost?

It will depend. Going from 1.5 to 6M might be a stretch, but you never know. I purchased about 15 years ago and the house is more than doubled, but not quite tripled in value. I've changed careers since then, however, my income is probably double what it was when I purchased.

I remember talking to a relative about purchasing homes (they were involved in real estate for about 30 years). When they originally purchased their first home they bought something double the value of the husband's annual salary. They did look at something three times that number, but decided it was out of their range (although technically they would have qualified for a mortgage). That bought them a brand new, small 2-storey 4 bedroom home in a nice area (unfinished basement, no air, no fence, no garage, unpaved driveway, etc.) The second income in the family was extras. In fact, paid for the air, finished basement, fencing, vacations, etc.

That's part of what has changed over the years. Picking a number out of thin air, let's say you're making 60K in Burlington (where I live). There are two condo properties under 125K, 9 more added if I go to 175K. Hamilton, I do see plenty (areas I'm not so sure about). In most markets today you have to base that purchase on both incomes. Burlington is still a little pricey, but tons more choices.

The other part that has changed is the houses that they build. Square footage is higher, most have a garage, fireplaces, etc. New homes have gone higher end. Resales already have the bells and whistles installed. This makes it higher for first time buyers to get in. They have to go condo or townhouse, but they don't want to. They want what their parents had (or grandparents depending on ages) right out of the gate. The catch is that they didn't have that to start with.

EUS
Kill cancer
Premium Member
join:2002-09-10
canada

EUS

Premium Member

Doubling happens, but quadrupling in a decade would mean something is really amiss.
I live in the west island of Montreal (Pointe Claire). The market doesn't make sense anymore.
The flipping I'm seeing reminds me of the USA in 2006.
But as long as interest stays low, and people only concern themselves with monthly payments, the bubble will not burst.
I'm almost mortgage free, and cannot imagine buying something at the prices I'm seeing today.
However, thanks to all the HGTV shows (yes, I'm blaming TV), the wife is insisting that we look for an upgrade. Personally, I believe she's trying to cause a brain aneurism, and collect the life insurance.

A Lurker
that's Ms Lurker btw
Premium Member
join:2007-10-27
Wellington N

A Lurker

Premium Member

said by EUS:

But as long as interest stays low, and people only concern themselves with monthly payments, the bubble will not burst.

I think some markets are almost at the tipping point. They may not correct, but they will slow.
said by EUS:

Personally, I believe she's trying to cause a brain aneurism, and collect the life insurance.

As long as she hasn't increased the amount that it pays out recently you're probably okay.

I do think a lot of the media is what drives people to live beyond their means at times. If you watch all the shows it's no longer a patio with a cheap table and chairs, it's an outdoor entertaining space.

(full disclosure - I have a bricked patio with a very nice patio set, but I bricked it myself, and the patio set was paid for years ago with a tax refund, and it did have a 10-yr warranty )

AR

join:2000-09-21
Toronto, ON

AR to EUS

to EUS
People here are buying 3 homes at the same time in Milton --- 2 to flip and 1 to live in. And driving an Audi at the same time.

So I don't know how people have so much money.

Wtf am i doing wrong?

EUS
Kill cancer
Premium Member
join:2002-09-10
canada

EUS

Premium Member

We're both doing fine in our careers, but we ask ourselves how the @#$% does so many people appear to have so much money?

It's gotta be old money, grow ops, or heavy credit.

nitzguy
Premium Member
join:2002-07-11
Sudbury, ON

nitzguy to AR

Premium Member

to AR
said by AR:

People here are buying 3 homes at the same time in Milton --- 2 to flip and 1 to live in. And driving an Audi at the same time.

So I don't know how people have so much money.

Wtf am i doing wrong?

Like EUS said, old money...some old person who paid probably $100k for their house in the 1970s is turning around and realizing a HUGE profit on that house that sells for avg $500k (lets say for fun sakes)...

That's $500k of cold hard cash as their parents were frugal and they died and left everything to Junior....

Then using that to leverage to buy the new house....that's the only way I can see it either...because you just can't generate that kind of money otherwise....not out of 2 people who combined make $200k/yr..

But that's the secret, once you get to a 20% down payment, banks seem to have uber flexibility in regards to rates, amortizations and whatnot since it doesn't have to go through CMHC/High Ratio financing place that would scrutinize the purchase a lot more....

AR

join:2000-09-21
Toronto, ON

AR

But some of the stories i heard yesterday:

a. 28 year old, newly minted Real Estate lawyer buys 3 homes in Milton - 2 to flip and 1 to live in. Drives a new Audi too. Parents have still got to be alive because he's 28. So where's the cash?

b. Old 50-something guy, SAP consultant for IBM buys a 900k home in Mississauga. Single earner for the family.

c. At my work -- this particular individual with a combined income of approximately 250k tops moves from Vanc and buys a 1.6M PALACE in Pickering. We got to see their finances (long story) and whereas they had 800k in RRSPs, RESPs and savings, 1.6M is a lot of money!

So where's the money coming from!! How are these people taking this kinda debt on themselves?
booj
join:2011-02-07
Richmond, ON

1 edit

booj

Member

How? Low mortgage rates, plus giant CMHC premiums that place the risk of default on the taxpayer.

Rules are changing to end easy CMHC insurance. Banks are going to stop giving away houses for low monthly cost and real estate price decline will begin.

Not a good time to speculate on housing prices with these new rules. 2006 was.

elwoodblues
Elwood Blues
Premium Member
join:2006-08-30
Somewhere in

elwoodblues

Premium Member

said by booj:

How? Low mortgage rates, plus giant CMHremiums that place the risk of default on the taxpayer.

Rules are changing to end easy CMHC insurance. Banks are going to stop giving away houses for low monthly cost and real estate price decline will begin.

Not a good time to speculate on housing prices with these new rules. 2006 was.

And who created those rules in 2006... OH yes "The Harper Government", so now they have to step back fix the mess they created.

IIRC correctly the taxpayer pays off the bank, but CHMC still comes looking for the money from the mortgagee.

A Lurker
that's Ms Lurker btw
Premium Member
join:2007-10-27
Wellington N

1 edit

A Lurker to AR

Premium Member

to AR
said by AR:

People here are buying 3 homes at the same time in Milton --- 2 to flip and 1 to live in. And driving an Audi at the same time.

Can't speak to individuals, but an old friend used to flip. It's a talent (people who are good at it). Identify an underpriced house in a neighbourhood, do minimal clean-up, resell. I got to say his methods were a tad sleazy and he worked with a realtor. Best homes to flip are in established neighbourhoods with long term residents who suddenly need to sell. Think death in the family. A neighbour's husband passed away a couple of years ago and her home was a perfect flip. Think old faded wallpaper and linoleum. Really just needed a big clean-up, and a small amount of cosmetic repairs. However, it showed badly - worn furnishings as well (too much of it made rooms look smaller as well). Sold for at least 100K less than comparables (likely closer to 150K). I had enough equity I considered doing it myself. I suggested she pay someone to do the changes so she could get more. Happily the person who bought it did the renos and stayed.
said by AR:

Wtf am i doing wrong?

When did you first start thinking about buying property? How much time has passed? You keep talking about buying after the bubble bursts, but meanwhile prices keep going up. I think once I even looked up and suggested resale condos for you in the area you were interested in. I'm not sure how far back that was, but I bet properties in the same buildings have appreciated since then.

You need to start somewhere, build equity, and keep going. Of course it likely means spending less on other things. I think you mentioned once that you didn't cook much. You need to track where your money goes, and if that's where you want it to go.

I've helped a couple of friends with money management. I'm absolutely no expert, but the first step is to know exactly where you currently spend your money. I worked with one guy who was always broke, and eating out was his killer. Coffee and breakfast on the way in, lunch out, coffee run in the afternoon - they added up to more a week than even he thought.
A Lurker

A Lurker

Premium Member

Okay, since I'm bored:

(from Dec 2010) - »Re: [Serious] Real estate in Toronto

289,000 (1 BR, 1 BA) 38 THE ESPLANADE ST (guessing 11th floor)
- I removed the link as it's no longer valid

Today....
324,900 (1BR, 1BA) 38 THE ESPLANADE ST (guessing 14th floor)
»www.realtor.ca/propertyD ··· 11852544

12% increase in value in less than 2 years (and you wouldn't have been paying rent). I know, I believe that was slightly above your range - I did give you a cheaper alternative, but there isn't a unit for sale in that building.

AR

join:2000-09-21
Toronto, ON

AR

Back in Dec 2010 and now in Aug 2012 --- I'm still priced out of the RE market if i consider the increase in housing cost by means of ownership versus the rent I pay. I do not want to end up house poor or struggling to make mortgage payments.

Rent for the $330,000(600 sq ft at $600 per sq ft) 1br condo I pay: 1250. Mortgage/insurance/maintenance --- well, you know it's going to be much more than 1250. Long term equity benefit is doubtful.

But I do put aside 20% in my RRSP and another 5% of my gross income as savings.

TOPDAWG
Premium Member
join:2005-04-27
Calgary, AB

TOPDAWG

Premium Member

said by AR:

Back in Dec 2010 and now in Aug 2012 --- I'm still priced out of the RE market if i consider the increase in housing cost by means of ownership versus the rent I pay. I do not want to end up house poor or struggling to make mortgage payments.

Rent for the $330,000(600 sq ft at $600 per sq ft) 1br condo I pay: 1250. Mortgage/insurance/maintenance --- well, you know it's going to be much more than 1250. Long term equity benefit is doubtful.

But I do put aside 20% in my RRSP and another 5% of my gross income as savings.

well once you're ready to retire you can move to a much cheaper place to live. shit long as where you live has a walmart you'll have everything you ever need.

A Lurker
that's Ms Lurker btw
Premium Member
join:2007-10-27
Wellington N

1 edit

A Lurker to AR

Premium Member

to AR
I did another response, but I guess I didn't hit post. The thing is, you're paying the guy's mortgage on the condo while he builds equity. You end up just paying rent. Anyway, in the end it's up to you. However, it's not likely going to get better. It may not be in an area you want to live in, but here's a development (new) in the low 200s.

»www.realtor.ca/propertyD ··· 62810362
»www.realtor.ca/propertyD ··· 45833858
»www.realtor.ca/propertyD ··· 67073995

There's not a huge amount of choice if you stick under 250K, but there still are some.

Oh, and from that original post I made, I found the studios at 1 King West (there are a few more up for sale). Was 197,500 then... now, two up for sale:

219,000
»www.realtor.ca/propertyD ··· 66806023

223,000
»www.realtor.ca/propertyD ··· 66806023

So, that 197,500 investment would have brought you a better return. In the end, it's up to you. You rent or you own.

ETA - because of location and the hotel services to my mind the 1 King West condo fees are too high, but it was the other one I had picked.

Wolfie00
My dog is an elitist
Premium Member
join:2005-03-12

Wolfie00 to AR

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to AR
I honestly think you're cheating yourself, AR, but I admit that I know nothing about the condo market, which is a very specialized area.

But look at some numbers and how I've always experienced them in the housing market.

Take for the sake of argument a $300K house, $100K down, amortization of 20 years, closed 5-year variable @ 3.2%

You'd be paying $1129.33 (or $969.36 for a 25-year) and that's pretty much fixed, varying only with interest rates. Plus taxes and maybe condo fees.

Hard to imagine that you could get that same place for a rent of just $1000, since the landlord has all the same expenses you would, but I imagine if the owner bought it a long time ago and the rental market was weak he'd let it go at that. But even so if the rent was going up 5% a year, you'd be paying $1629 by the beginning of the tenth year, and have absolutely nothing to show for all that money spent. The classic thing about a mortgage is that it's not affected by a rise in property values, so you get established owners paying a pittance in mortgage for a house that would rent for ten times that amount. Owning, you are building equity, have the freedom to do what you like with the place, and are very likely going to be benefitting from appreciation.

I realize that financial wizards can spin the numbers to make it look like renting is far superior, yet my own personal experience is that this is an example of where intuition is actually right.

elwoodblues
Elwood Blues
Premium Member
join:2006-08-30
Somewhere in

elwoodblues

Premium Member

I'm not a fan of condos, strictly because of the fees. A buddy of mine is paint nearly $500/month for a 700 square ft unit, it includes hydro and water gym, pool BBQ on the roof.

He never uses the latter 3, heat/air con are in his unit, thus his responsibility, I don't think I've ever spent 500/month to live in my house (capital/repair costs aside).

Wolfie00
My dog is an elitist
Premium Member
join:2005-03-12

Wolfie00

Premium Member

Yep, condo fees can be killers.

milnoc
join:2001-03-05
Ottawa

milnoc

Member

One of the reasons I sold my condo years ago was because of the increasing condo fees, taxes and interest payments. It was costing me as much as rent.

I sold it just as the market peaked for more than double what I paid for it.

elwoodblues
Elwood Blues
Premium Member
join:2006-08-30
Somewhere in

elwoodblues

Premium Member

People look at Condos and see all the amenities that come with it, not realizing, they'll be paying for those amenities has long as they live there, whether they use them or not.
Robrr
join:2008-04-19

Robrr to Wolfie00

Member

to Wolfie00
said by Wolfie00:

I honestly think you're cheating yourself, AR, but I admit that I know nothing about the condo market, which is a very specialized area.

But look at some numbers and how I've always experienced them in the housing market.

Take for the sake of argument a $300K house, $100K down, amortization of 20 years, closed 5-year variable @ 3.2%

You'd be paying $1129.33 (or $969.36 for a 25-year) and that's pretty much fixed, varying only with interest rates. Plus taxes and maybe condo fees.

Hard to imagine that you could get that same place for a rent of just $1000, since the landlord has all the same expenses you would, but I imagine if the owner bought it a long time ago and the rental market was weak he'd let it go at that. But even so if the rent was going up 5% a year, you'd be paying $1629 by the beginning of the tenth year, and have absolutely nothing to show for all that money spent. The classic thing about a mortgage is that it's not affected by a rise in property values, so you get established owners paying a pittance in mortgage for a house that would rent for ten times that amount. Owning, you are building equity, have the freedom to do what you like with the place, and are very likely going to be benefitting from appreciation.

I realize that financial wizards can spin the numbers to make it look like renting is far superior, yet my own personal experience is that this is an example of where intuition is actually right.

The problem is you forgot EVERYTHING else about owning a house in your figures.

A more realistic figure for what your example house would actually cost is about $1500/month.

To help compare that, over a 5 year period you would be looking at spending $90000 for a house vs approx. $66000 for renting.

Wolfie00
My dog is an elitist
Premium Member
join:2005-03-12

Wolfie00

Premium Member

That's true, and that's the standard argument used to argue for rent. I was trying to keep it simple to illustrate the fact that in a purchase, the vast bulk of the monthly payout is tied and limited forever to the purchase price of the property, whereas rents just go up. The addition of property taxes and maintenance just increases the payback period for owning, it doesn't change the fundamental equation. If you like, you can add in broker's commission and an estimate of capital appreciation to make the equation more accurate, as well.

And BTW I was working this out over 10 years in the example, not 5.

So to take your number of $1500 which is probably a reasonable estimate, after ten years of ownership you'd have paid $180,000. At that point a decently structured mortgage would probably be paying most of the payment directly against the principal, you'd already have significant equity, and the house would likely be worth a lot more. And you'd be at the point of a rapidly disappearing mortgage. And your monthly payments, if interest rates were the same, would still be $1200 + expenses, probably not much more than they were ten years ago.

Now if you rent, you'd have paid out less -- $151,000. And in return for that you would have: exactly nothing! And your new rent, starting with the 11th year, would be $1711 based on my 5% escalation. Now who's better off? Maybe you would have one thing -- I would hope you'd get a nice thank-you card from the landlord for paying his mortgage for a decade ... lol!
Robrr
join:2008-04-19

Robrr

Member

And after 10 years of paying a mortgage, you still own exactly nothing!

Lose your job and start missing payments, well lets just call that house and all the money you poured into it gone. Maybe the bank, will send you a thank-you card?

So really at the end of the day, I might as well keep that $30,000 in my pocket and bank it because unless you can afford the house outright, your don't own anything until it is paid off.

So really, you might as well bank the difference and then use it to buy a house outright when the money comes available because otherwise your gonna lose.

milnoc
join:2001-03-05
Ottawa

milnoc

Member

Even if it's fully paid, you can still lose the house if you don't pay the taxes.

Wolfie00
My dog is an elitist
Premium Member
join:2005-03-12

Wolfie00 to Robrr

Premium Member

to Robrr
You might want to ask any [successful] business person whether they make decisions by assuming that every possible outcome will turn out in the worst possible way, and then stuffing all their money in a mattress.

You might also want to poll the folks who have sold houses in Toronto after 10, 15, or 20 years and see if they agree that they ended up with "nothing"! A friend of mine owned a house in Toronto (quite a bit longer than I did), and when the company he worked for shut down and laid him off he laughed, sold his Toronto house, moved out of the city to a country estate and retired.

AR

join:2000-09-21
Toronto, ON

AR

I have to read your and A Lurker's previous posts and reply later but your friend's situation was a snapshot in time...RE isn't always going up up up. Right?

I mean, we just bought a home in CA which late 2005/early 2006 was worth 600k. It went for 245k now. So if your friend was in CA and laid off right now, that magical equity would have been non-existent and he'd have sell his home at a loss or come out with no appreciation.

To me: there's a concept of "inherent value". "Market value" is more of a snapshot in time and it fluctuates.

Quick examples of fluctuating "market value":

a. Co-worker bought his 3000 sq ft place in Stoufville (spelling? north of Markham?) for 450k a few years back. New ones going for 800,000 now. He's shocked.

b. Another co-worker bought his home 10 years ago, 2600 sq ft in Mississauga for 300k and now it's 600-something.

So my questions around this kind of "market value" are:

a. Have wages doubled like home prices?
b. Has cost of living come down by 100%?
c. If not, why are home prices the only thing going up and nothing else? And this is in Mississauga and Stouffville.....land is abundant there.
d. Are people who're buying these 600/700/800k homes saving anything? I'm personally paranoid about saving.
e. If these are double income households, will a single income carry the mortgage in case of a job loss or life event?

I don't mind paying my landlord's mortgage because I only pay 1200/month for living dead center downtown. Where in GTA would my housing costs be 1200? And considering that my landlord has built 140k equity in 10 years on this unit, that's what....7% return per year? That's not a giganormous amount of money where I'd feel comfortable in buying a condo that starts at 500k here in downtown.

A Lurker
that's Ms Lurker btw
Premium Member
join:2007-10-27
Wellington N

A Lurker to Robrr

Premium Member

to Robrr
said by Robrr:

And after 10 years of paying a mortgage, you still own exactly nothing!

On a 200K mortage, 5 year variable, closed... etc. etc. etc. After 5 years you will have paid 28,332.41 off the original 200K. So you've gained 30K of equity if values haven't risen by one cent. I'd say there are few, if any, markets in Canada where that would be true.
said by Robrr:

Lose your job and start missing payments, well lets just call that house and all the money you poured into it gone. Maybe the bank, will send you a thank-you card?

And if you're renting, you think the landlord won't toss you out if you can't afford rent? If you've built enough equity a number of banks will work with you. I had friends who went through a lay-off of one of them and they had enough equity in their home that the bank refinanced for them.
said by Robrr:

So really, you might as well bank the difference and then use it to buy a house outright when the money comes available because otherwise your gonna lose.

Very few people can afford to pay rent and save enough money to pay cash for a house. Unless you live in a cheap rental market, cheap house market, and make lots of money. Investing may not be able to keep up with increases in housing costs either (unless you chose high risk investments, and there's a reason they call them high risk).
A Lurker

A Lurker to AR

Premium Member

to AR
said by AR:

I don't mind paying my landlord's mortgage because I only pay 1200/month for living dead center downtown. Where in GTA would my housing costs be 1200? And considering that my landlord has built 140k equity in 10 years on this unit, that's what....7% return per year? That's not a giganormous amount of money where I'd feel comfortable in buying a condo that starts at 500k here in downtown.

Depending on when they bought, how much down, interest rates, they may be making more than the mortgage payment, so that ROI may be higher. Again, we're not talking about purchasing to rent (as that's a different animal), but the idea of building equity vs paying rent.

And don't get me wrong, I wouldn't be looking at a 500K condo, or the higher end of the market in any area. If I were buying in Toronto I'd be looking at the lower end (think resale). I really don't think we'll see the US style corrections, primarily based on different lending practices. I do see some markets where values may stagnate.

ie. There are a good number of 200K to 500K homes in Burlington. Then you have areas (if you avoid the lakeshore) where they creep into the 600s. Yet, when I pulled up and scanned what's available there are a few areas in the 800K range. If I were buying now I'd do what I did many years ago - look in that first range, avoid the upper ones. As long as the area is decent you're probably safer. The 800K ones might be a little too high end of the range for this city. Also, I'd say that my 50-yr old house is better built than the ones built a couple of years back. Again, this is avoiding the lakeshore where people will always be willing to pay more.

Styvas
Who are we? Forge FC!
Premium Member
join:2004-09-15
Hamilton, ON

Styvas

Premium Member

We moved from a rented one bedroom apartment in Oakville to a three bedroom house we bought in Hamilton, and it's an additional $25 per month all in. Best decision we've made.

elwoodblues
Elwood Blues
Premium Member
join:2006-08-30
Somewhere in

elwoodblues

Premium Member

But you moved from Oakville, one of the most expensive places in the GTA to the arm pit of Ontario. Bad example.

But you're right ownership for 25 bucks more, you can't go wrong.

Styvas
Who are we? Forge FC!
Premium Member
join:2004-09-15
Hamilton, ON

Styvas

Premium Member

We're loving it. The snobs can stay in T.O. and pay through the nose.