Dave April 4, 2008 at 12:20 p.m.

And still the house across the street sold this February after being on the market for 1 week. Isn't it possible that the market is going from 'overheated' to 'normal'? Of course, 'meltdown' makes a much nicer headline I suppose.

Flav April 4, 2008 at 12:35 p.m.

But this headline says "plummeting" not "meltdown."

dr April 4, 2008 at 1:49 p.m.

I have always been astounded by the assumption that rising real estate prices are somehow "good". Good for whom? People wanting to buy a house? Not really as the net worth of tenants is strikingly low as demonstrated by U of T professor David Hulchanski. People wanting to sell a house and move to a larger one? Not really as the rise in prices is exponential making the next house's price too high. The only ones for whom a flyaway market is good is real estate agents. Another example of how the "market" distorts societal values, warps perceptions, and reduces the quality of life of citizens. Another victory for capitalism!

George April 4, 2008 at 4:31 p.m.

I read TREB's take on the market and seldom do they attribute the wobbling to prevailing economic headwinds. I don't know about anyone else, but I am so so tired of groups manipulating information for self interest. My trust level in TREB (and many others) is nil.

For every individual who is excited at the prospects at rising values, I'd venture to guess that there are 10 who wonder how they will ever claim their little piece of the pie.

Not until we begin to view things from a holistic perspective can we ever claim to be 'civilized'.

Dave McDonald April 4, 2008 at 6:41 p.m.

I am old enough to live through 2 crashes.

In both, right up to the last moment Agents were sell, sell, sell with ridiculous enthusiasm. In the first in the early 80's I lost my home and essentialy went bankrupt.

In the second I had saved enough to buy another and was looking in the early 90's and recall Agents telling me what a great deal this one or that one were. I held off and waited 3 years until the market bottomed and saved $100,000 on a $250,000 house.

Question; What good can you say about used car salesmen.
Answer; They are more honest that Real Estate Agents.

Buyers beware.

Newguy Vancouver April 5, 2008 at 1:02 p.m.

To the first poster, Dave, who states that maybe the market is just going to 'normal'. We have seen an extrememly large run-up in prices above inflation, which is irrational, because home prices only increase with inflation over the long term, and inevitably return to the mean.

Because real estate is far less liquid than equities, a crash takes longer to play out, but it does follow a specific pattern. First, listings rise, followed by price declines 6-9 months later. The reason for the lag is that sellers are loathe to realize losses in thier homes.

Follow the link below for a university professor's lecture on the crashing of housing bubbles. We are clearly on the pathway precisely as described.

http://www.youtube.com/watch?v=uyOWuczlJ...

Location Location ..boys April 6, 2008 at 1:18 a.m.

Urban areas will intensify with development as fuel prices increase. As young people realize suburban life is drab and boring.Only the ones with sufficient cash flow will be able to participate...know any one buying in downtown Manhattan?...people who can afford it do.Many houses can be found in the GTA for under 250K...firdt time buyer homes.Now if affordability dwindles as you approach the most expensive areas?... it was ever thus and people have always been excluded from those markets.Do you really think the end of the real estate world is coming? All those rentals that are owner operated are going to be owned by the bank? It's silly and absurd.

Chelsea Queenton April 6, 2008 at 2:32 a.m.

Downtown Manhattan? Is that near the Bear Stearns HQ?

FuzzBuckett April 6, 2008 at 10:14 p.m.

Luxury Estate homes are still selling fast. I live in Markham and the agents (Kenny Brienza and George Politis)sold 62 Cachet Parkway at $2.6, in a week and a half. This must be a record for Markham for higest sale. How can we look that up?

Toronto Bear April 6, 2008 at 11:25 p.m.

The economy is going into a recession. People will lose jobs, then they will miss their mortgage payments. The same thing that is happening in the US will happen here. It starts with denial and the "it's different here" mentality. Then as Newguy points out, sales drop, listings rise, and then the fun begins. The sooner the speculators get out of the game and the banks stop fueling artificial demand (hint: we are NOT richer than we think, Scotiabank, despite your Zero-down, 40-year mortgages), the sooner the crash can come and we can get back to normal.

What is normal? Normal means that home prices grow equal to inflation and do not exceed growth in wages. Anybody who doesn't understand the fundamental that prices of homes cannot exceed incomes in the long term is a fool.

The only way current buyers can "afford" to buy now is b/c of exotic mortgages. I think we need to institute strict lending regulations....20% down, and 25-year terms. and you should NOT be allowed to raid your RRSP savings.

RealEstateDude April 7, 2008 at 1:10 a.m.

Quit your whining. The market is doing fine. You can't have a record year each and every year. 2007 was unique due to its extremely mild Winter. All the Spring buyers came out in January and bought. The weather has a huge impact on real estate sales.

Well priced homes are still selling quickly. Its all the morons out their that are asking 10% + above market value that are sitting unsold for weeks. They have to learn that they can't just ask a ridicuous amount of $$$ for their homes.

Inventory levels are low. Decent, well-priced homes are hard to come by. Sales volume might be down but prices are still up...

Condos are still hotter than ever...for now!

Toronto Bear April 7, 2008 at 8:46 a.m.

Realestatedude,

Do you not understand the basic economics of supply and demand? Yes I'll grant you that supply is still relatively low, but that is largely due to the fact that the "demand" in the market is truly artificial. First off, demand in real estate is influenced heavily by emotion, psychology, and envy. People have forgetten that markets are cyclical. Sure everyone wants a home, but realistically very few people can afford them. It's only the advent of zero-down (or gosh, 5% down) and 40-year mortgages that actually keeps the "demand" going. It's the month-to-month mentality that plagues our societies today...nobody thinks long term...why pay double in interest over 40 years instead of getting it done in 25 years like normal? The answer...because they cannot AFFORD homes at current prices. It's not surprising since personal savings rates are at all time lows...where the heck can a down payment actually come from when people don't save??

Yes the condo market is still hot...for now, but I bet you those speculators at One-bloor will live to regret those purchases.

Realtors as an organization are masters of propaganda. "Prices always go up". "Homes are a great investment". "Now is a great time to buy a home". "Buy now or be priced out forever". "Why throw your money away on rent when you could own?" I love the last one especially. considering you are paying what, 6% interest on an "investment" that historically only increases at the rate of inflation. Conversely, given how cheap it is to rent right now, most current rents are approx 3% or less of what it costs to own the same place. In otherwords, you are throwing twice as much money away to own as you would to rent. (That does not include repairs and taxes, which take you up to about 9%, so it's 3-times as much money being "wasted" on owning). Sure if you buy at the bottom and sell at the top you can make a killing, but if you buy now, soon you will be watching your "equity" (if you actually have any which is unlikely for most zero-downers these days) disappear.

When a person with median/average income cannot afford the median/average-priced home, that is the best indication that a correction is coming. Bank on it.

Annoyed April 7, 2008 at 11:39 a.m.

I am annoyed that people such as Phil are even given the opportunity to write articles with no real analysis.

One month does not equate to a meltdown. Lets wait and see the numbers for April, May and June. If the numbers are still down then lets start talking about a slowdown in the market and the reasons why.

Phil's article says nothing, is based on nothing and Toronto Life should think twice about publishing useless, baseless articles.

MetroMan April 7, 2008 at 2:14 p.m.

Annoyed! Phil's analysis won't be as difficult to swallow as the impending losses on your over-valued real estate. 1. People were standing in line at Yonge-Bloor a couple of months ago and now the snow is stopping them. I guess it never snows in Toronto in the winter. 2. People were willing to shell out whatever the developers gouged them for shoddy upgrades and now the LT tax increase is stopping them. I guess $150.00+ for a $5.00 cable outlet is a good deal to you. 3. And (drumroll, pls...) the Ontario economy is boooooming!!!

Nobody is forcing you to agree with Phil. Listen to the impartial (huh!) folks in the TO RE industry instead (aka listening to the impartial folks in the US RE industry in 2005 - yes I know there is supposedly no subprime mkt here - blah blah blah).

Toronto Bear April 7, 2008 at 2:18 p.m.

Good point Annoyed.....the article is pretty low on facts and high on sensationalism. It is very hard to draw such drastic conclusions from one month of stats.

I am still very negative on the market, but i wish the media would stop over interpreting (or misinterpreting) data and just the facts speak.

Toronto Bear April 7, 2008 at 2:29 p.m.

Metroman,

I really wish there were more people who think like you do. Our society is full of Trump-wannabees. People seriously think we can make the economy prosper by simply creating wealth out of thin air by selling houses back-and-forth to each other for higher and higher amounts! It's insane!

MetroMan April 7, 2008 at 3:58 p.m.

And speaking of Trump - didn't he or his companies go bankrupt, at least once?

Normal sitizen in Toronto April 8, 2008 at 3:32 a.m.

I need 100 years (Jumbo)mortgage with zero down to afford a detach house in Toronto.blah blah blah).
Torontian

CrackBaby April 8, 2008 at 2:29 p.m.

Metroman should have written this article but people will wait for the anecdotal evidence to pile up before they want to actually think about what a mortgage is economically speaking (but they'll sure jump into one if the kitchen is nice).

torontolifer April 8, 2008 at 3:07 p.m.

Man, all you have to do is take a walk around your neighbourhood, the market is fine. Last weekend, beautiful days in the beach, open house signs of every corner, droves of people, homes popping up like every other year. Preville, learn to look beyond the press release.

Matt April 8, 2008 at 5:53 p.m.

The people responding to this article with such a negative tone...this is for you....

You sound like you are mad because you don't own and don't have enough to get into the market.

In Toronto if I were to try and sell, there would be a bidding war over my house with people just like you.

TOGirl April 8, 2008 at 6:34 p.m.

Matt, 'People just like you' are in a bidding war for your house but they 'don't have enough to get into the market'. That explains everything!

Lise April 9, 2008 at 12:19 a.m.

I know hundreds of homeowners, but don't know of anyone from the 80's or 90's who lost their home due to their inability to pay their mortgage. I do agree that affordability is so strained right now, and that the market isn't advantageous by any means for the average buyer. So many factors play into this debate. One sided answers and theories are misguided to say the least.

Lurin April 9, 2008 at 9:25 a.m.

I need a Condo for my child in Toronto Downtown and I am witnessing the trend that whatever price you quote someone else beats you. It has been 5 weeks and 25% increase in price quoted but no success, demand is huge. Also the Real Estate prices are at high levels. I don't know of the complete industry but at Toronto Downtown Condos the market is booming, may be Location is the Key word.

Torontolifer April 9, 2008 at 2:37 p.m.

Anyone looking to live in a decent area of Toronto has to pay through the nose, that's just reality -- but the prices here aren't even as bad as cities such as Vancouver, Victoria and Calgary, and I think the economy here is, despite a recent fall, more secure and diverse over the long term.

Still, there are cheaper places to live, plenty of them. It is all about priorities. If you're waiting for the prices to fall, you might as well just look at other options. It isn't going to happen.

Chelsea Queenton April 9, 2008 at 3:39 p.m.

Torontolifer said "If you're waiting for the prices to fall, you might as well just look at other options. It isn't going to happen."

Is this Miami? Is this 2005? Time to hit the beach! My bod looks 3 years younger!

Toronto Bear April 9, 2008 at 4:42 p.m.

For all of you bubbleheads who believe prices in Toronto will never correct, here is a little stat I bet you didn't know:

In 2007 dollars, the average price of a home in Toronto was $400,000 in 1989. Seven years later in 1996, the average price was $250000 in 2007 dollars!

Yes everyone who is negative on the market is just a jealous renter "throwing money away on rent". Market prices shouldn't be related to fundamentals since it's different here, prices should always go up. That is the apparent consensus of all the cheerleaders and realtors these days.

Get it through your head....median price of a home should be approx 3 times the median income, end of story. home prices cannot rise more than incomes. yes of course incomes vary in various neighborhoods and so the home prices tend to reflect that....same applies from city to city. But it's affordability (ie, price/income) that is the real measure of when the market has reached bubble status or not. Maybe you feel economics 101 doesn't apply, but I guarantee you that all markets are cyclical, just like the poor schmucks who bought in 1989 found out!

Ignore that if you like and keep spending $350,000 on 800 sqft boxes (oops i meant condos) with your stainless steel and granite. I could care less how you spend your money. If you think that is "value" then you should buy. If you don't, then don't.

Lise April 10, 2008 at 1:12 a.m.

I agree that it is about affordability in the end. Don't buy if you can't afford, fine. That being said, many of the "the poor schmucks" who bought in 89, were first time buyers, and ready to own a home and start a family. Asking new families to just keep renting and to wait for ten years to buy is obviously not a reasonable request. Most of us are aware of fluctuating prices and cycles in real estate. Most of us are not looking to become millionaires with our home purchases. Most of us are just looking to own a home and find a way to make our mortgage payments, on time.

Toronto Bear April 10, 2008 at 4:56 p.m.

Lise,
You say that it is "obviously not a reasonable request to just keep renting". Please elaborate.

When the typical person "buys" (maybe we should say lease-to-own) they are typically paying around 6% interest on the mortgage. Plus they are paying another ~3% on property tax and repairs, so a total of 9% of mortgage value per year that is essentially going to the trash. On the other hand, renting typically costs about 3% of the home price...so you would be saving a LOT (9%-3%=6%) of money by renting...money that could go towards saving for a larger down payment in the future, or putting into a child's college fund, (or more likely for the current canadian family to pay off credit card debt). Given current price/income levels and own/rent levels, it's actually a financial no-brainer to rent.

I don't understand the negative stigma associated with renting. There are a lot of fantastic rental homes to choose from in which to raise a family. I am not talking high-rise apartments, but actual detached homes in nice neighborhoods.

Rentals have the added benefit that you are not tied down to a huge financial obligation with an illiquid asset. If the market takes a downturn and you lose your job, and thus your ability to pay, you may be headed straight for bankruptcy (ie, what is happening right now in the US). On the other hand, if you had been renting, the massive amounts of money you would have saved would be a nice cushion to get you and your family through some rough patches. The guarantee of money saved by renting is a fact, whereas the current bubble mentality of "always increasing home prices" is your only hope to avoid bankruptcy in such a consideration. In fact, it is this month-to-month struggle to own a home which puts the greatest stress on the family.

So I ask again, why is it obviously not acceptable to rent and wait to own? I'm not trying to suggest there aren't benefits to "owning" because there obviously are, but given the current own/rent ratio, not only is "acceptable" to rent, it is the rationale thing to do in the best interests of your family.

skube April 10, 2008 at 5:48 p.m.

Toronto Bear, I think you may indeed be correct. Perhaps it is common knowledge, but I am young and I would like to simply verify historic housing prices in Toronto. Where did you get your statistics? Or does anyone know of a good source of reliable accurate statistics?

Lise April 10, 2008 at 9:03 p.m.

Call me old fashioned. I still believe in the pride of "lease to own"-ership and having a family home that belongs to us. I am also confident about being able to afford mortgage payments into the future. I do agree that there is an extreme financial burden attached to owning which is why I opted for an income generating property located in a central part of the city.

homeless April 10, 2008 at 10:14 p.m.

Hi,

Thought I'd pipe in.
We are a "(a-)typical" family in Toronto; Double income with 2 kids. Our combined income is well over 200K.

We had a house in richmond hill and decided to sell because of the commute. And yes, we did make a modest profit.

We could not afford to buy a house in toronto in a neighborhood which is conducive to raising a family.

Certainly we could have bought a home in some areas. However, the idea of having to deal with hookers and crack-heads were some of the reasons as to why we did not buy. So we are renting for now.

We do not wish to be house poor. In our present area, homes are going for 700K+ and with bidding, they're in 800K ranges. We saw one recently where the home sold for over 900K when the list was at 830K.

If we can not afford the mortgage (well within 1% of the population), how is it possible that these homes are going for such a rate?

I don't really care how some of you have justified the price of an average home. IMHO, if someone like us can not rationally afford a home, I just don't see how folks who are less fortunate than us (in terms of finances) can afford to hang on indefinitely.

At one point, we offered 102K over asking and we did not get the house. At that point, we came to our senses. "This is crazy!!!"

I'm not crazy about renting. If we're to buy now, say 700K. our mortage payment (at 700K @ 6%) would be above 50K per annum, if we were to include principle as well as property tax.

As opposed to renting, I would be responsible for roughly 30K per annum. So, where is the rationale?

Some would say, Hey, if you put down 350K, your mortgage would only be 350K. But why would I do that? I get no return on my 350K at all. Rather. If I get better than 6% on my 350K, I would be better off to invest my 350 somewhere and take the 6% hit on the cost of borrowing.

Home hits everyone emotionally. And IMHO, I feel that some of you will be homeless like me in the future. The difference will be that I will be able to afford to buy a home, and some will be losing their home along with their life savings.

If I'm wrong, I'll just be another idiot....

Regards,

Toronto Bear April 10, 2008 at 11:15 p.m.

Skube,
Unfortunately, in Canada and in particular Toronto it is indeed difficult to find links to historical data. If you can believe it, I actually got those numbers from a Real Estate Agent website named Marisha Robinsky. Google that name. Look at the market trends link on her page, and you can see her figures. I would however encourage you to look deeper and find some data for yourself.

The best indicator of home prices in my opinion is the Case-Shiller index which is used in the United States. It is superior since it tracks the sales prices of the same home over the years. While there is no comparable index in Canada (unfortunately), there is a clear cut trend from that index which shows that since 1890 (yes, 1890), the average return of investment on a home the US is essentially to inflation. Sure enough there have been some ups and downs throughout the years, but nothing in comparison to the bubble that happened since 2001. Just do a google search on the historical case-shiller index to get an idea of just how bad it has gotten. I belive the same index showed that from 1950-present (excluding the current bubble) that the BEST city for returns on investment in the US was San Fransico, with a ROI of only 2.9% after inflation.

Lise,

I respect your opinion and as you point out, everybody has a different situation. My comments are not directed at anyone in particular, rather just at the average (or more accurately, the median) person. Responsible people like you are not the ones who are feeding the irrational behavior in the market, and are, as you point out, just good "old fashioned" people looking to raise a family. But at least you have thought it through and not just blindly jumped into a mortgage you can't afford which is what the typical person/family is doing these days.

Toronto Bear April 10, 2008 at 11:19 p.m.

Homeless,
Great post. I admire how you took into account your other options with what to do on your down payment. Imagine also what would happen if the market had a 30% correction (possible in my opinion)! Ouch....$100,000 gone just like that! Actually I have to admit you have a similar story. Our incomes are in the top 10% but the only thing we can "afford" by historical lending standards are tiny condos in the crack-addict neighborhoods. I mean, nearly $300,000 for a box at Lansdowne and Bloor????? A place like that shouldn't be more than $100,000. People truly have lost sight of the value of money when they are willing to pay those prices.
Also, i think you are underestimating the price you'd be paying for ownership on that $700,000 home. Mortgage payments alone would run you over $50,000, and with property tax and upkeep you are probably looking at another $15000-$25000 a year. A friend of mine has a $1.1M home and the upkeep runs him just over $30,000 a year.

But I would really like to clarify something. Renters are NOT HOMELESS! This is a perception being driven by the media (in particular relating to foreclosure "victims" in the US). In the VAST majority of cases, when someone loses their home (ok it was never THEIR home in the first place, it was the bank's) they naturally do what they did before and what they should have been doing before and RENT. I am really annoyed at the media portrayal of these subprime "victims" as becoming HOMELESS. Homeless in north-american vocabularies is meant to describe a person living off the streets, and this is clearly not what is happening. Furthermore most of these people are not real victims in my opinion....they lied about their incomes to get loans they couldn't afford all in the notion that they would refinance in 2 years when their mortgage rates reset and sell at a profit, since they were told (and naturally believed) that housing only goes up, usually 10% a year or more. So when the reset came and they couldn't refinance b/c their house (gasp) was worth less than what they owed, they are now VICTIMS and HOMELESS?????? I don't get it. And let's not even talk about the sob stories you read about so-and-so who've had their house in the family for 60 years who are now losing their homes too! These people also believed the bubble hype and in many cases took out HUNDREDS of thousands of dollars to finance trips, remodeling, new car purchases, big screen TV's etc. Insane.

Toronto Bear April 10, 2008 at 11:22 p.m.

Part 3:

Needless to say, I have spent a lot of time reading about all these issues. I was very close to purchasing my first home about 2 years ago, and I was a typical kool-aid drinker believing all the hype about the housing market. Thankfully I have a co-worker who is really informed and he led me to some resources where I could do my own research and make my own conclusions based on the fundamentals instead of what the real estate agents and newspapers (who's major funding source comes from the RE industry) are spewing.

I encourage all of you to do the same....do your research, compare to history, and see if buying at these prices makes sense to you. After all, it will be the biggest purchase of your life, so you want to be well informed. In my opinion the fundamentals are not in place, and I am extremely happy saving a tonne of cash every month, waiting for the inevitable market correction. Will it happen this year, next year, or later on, I don't know...but my guess is that it will start to unwind later this year and we will begin to see a price correction by middle of next year. First, watch for rising inventory and reduced sales, that will be the first indicator. Prices are a lagging indicator of a softening market, and price declines take awhile to materialize because sellers will be stubborn in the initial stages of the correction.

The proliferation of the 0-down 40-year mortgage was the signal of the beginning of the end. The rest of the pieces will soon undoubtedly fall into place.

Cheers everyone!! I really enjoy reading your thoughts!

Torontolifer April 11, 2008 at 9:51 a.m.

I remember five years ago people like Toronto Bear saying the same things, just wait, it'll come down, just wait. I bought a home for $235K in East York, one of the last affordable neighbourhoods in Toronto, close to the subway, the Don Valley etc. I sold it for $390 last year, and used the proceeds to buy a nicer home in the beaches neighbourhood, kept my payments down, kept to a 20-year mortgage. The house I purchased was under under $500K, has parking, nice yard and all that. And it is in the community my wife and I have wanted to live in since we moved to Toronto.
Sure, our home price might not go up by 10% this year, maybe only 4 or 5%, but if we waited another year or two, would it be easier to buy? Hardly. Even if the market "cools" like all the so-called experts have been saying for a decade, if you sell and buy in the same market it doesn't matter at all.
If you decide to rent, you risk getting permanently shut out of the market, unless you are diligent enough to invest your money wisely, and pump it into a tool earmarked for your downpayment. If you can do this, good on you. When I was renting, I hard a much harder time being disciplined enough, and decided buying at a level I could afford and trading up over time was the solution and it worked out fine.
I think a lot of problems have to do with people thinking they need a certain house, say $700K, in a certain neighbourhood, say the Annex, and that's that. There are plenty of areas in the city that offer the same amenities with a better housing stock and lower price.
I still don't think home prices will fall, everyone spouts 1989, but the conditions were completely different. I read a recent real estate roundtable with the leading lights of T.O., people who have the pulse of the economy such as Sherry Cooper of BMO, and they were adamant about getting into the market, buying now, buying a home you a comfortable with in terms of enjoying the home, and in terms of a realistic budget. Get in and get going.
Renting might work for a few folk, but I don't think the majority of people will feel settled and part of a community, and rooted by renting. But that's just my opinion.

another homeless April 11, 2008 at 12:19 p.m.

As we are into life stories let me tell you mine. Started looking for a house around 2001. Prices were high though not crazy yet. What stopped me from getting into “homeownership” was the uncertainty in regards to the job market (in the light of a imminent nasdaq crash). I had another go around 2003-2004. That was already crazy (or that is what I thought). Little did I know about the real estate bubbleology and yes yes the “irrational exuberance. However I begun learning about it. There was already a lot of info on the net about all this and were it is going to end. ”. Shiller with the historical us home charts, affordability ratios, the respective roles of Fed, Fanny and Freddy were well known to a small group of educated individuals... Still the irrational exuberance started to possess the masses and the repeat of still ongoing Japan bust seemed imminent.

It happened. Just like it was advertised. And the scary part – this only the begging. Yes (pick you choice of a trustworthy re spokesmen), of course it could have happened any place but here. Do you see it is different here. (immigration, gaud does not make any more land, ppl just catch up to whatever should have happened long ago etc etc mad etceteras). Here is something less obvious. The only thing that is indeed different is the almost total lack of freely available reliable historical RE data for any Canadian market and the complete lack of opposition to the ever so friendly re propaganda machine. Even the internet is (almost) moot when one tries for an alternative (dare I say objective?) explanation of what is going on the Toronto market (astonishing contrast with US circa 2004-2005) and it sucks.

My personal financial situation is comparable to that of homeless. I have kids and am renting. As him and others I would like to get my place though it is not going to happened for quite some time. The bubble is going to explode no doubt. One thing bothers me though. As we see now with the shameless bear stearns bailout and desperate congress agonizing to prep the re market down south… I am afraid it going to happen here too. The sane ppl that leave according to what they can afford and save for a better day will get screwed big time. Not to mention the re induced recession is going cost many of us our jobs (and not all of us are re agents).

Yes that is what scares me.

ps.
For a very nice article (http://www.domain.com.au/Public/Article....)

Toronto Bear April 11, 2008 at 12:45 p.m.

Lifer,
First...I concede you make some good points notably that timing the market is very difficult, although I think you are still missing out on the fundamental issue which is that home price increases can only be sustained by parallel growth in incomes. Also, I think I disagree (generally speaking) about upsizing within the same market, unless of course homes in the Beaches didn't appreciate as much as they did in East York during those years). Sure if you can pick an up-and-coming neighborhood you'll do better, that is obvious.
Regardless, as soon as someone mentions the phrase "being priced out forever" (or similar) to me that is the red flag which tells me this person has lost track of TRUE fundamentals and has let emotion and/or hype (and/or conflict of interest) get the better of their thinking.

I don't care whether that person is a financial big shot or not. Name dropping the likes of Sherry Cooper - this does not impress me in the slightest. Look at what has happened to the so-called best and brightest during the nearly catastrophic collapse in the financial world the last 8 months (CEO's of Merrill, Citibank, and look what happened to Bear Stearns). They had no idea the toxic mess they had gotten themselves into and everybody was cheerleading the same slogans regarding rising real estate prices. I think a good portion of these people are either brainwashed and actually believe the nonsense they spew, or, perhaps more frightening, are purposefully misleading the public.

All of these so called geniuses have serious credibility issues not to mention direct conflicts of interest. The stock markets and the housing markets are very similar in my opinion. The only people GUARANTEED to make money with NO RISK are the agents/brokers who take slices of commission. Naturally the more you "invest",the more they make, so higher prices and high transaction volume are their lifeblood. Is it really a surprise to hear these people telling us to invest in their products?
The average Joe is not going to get rich in the financial market nor is he going to get rich from the housing market. At least that is my opinion....I want to hear the day when a real estate agent or a stock broker actually says that "now is a horrible time to buy". I mean, if economics 101 tells us that all markets are cyclical, if there are so many "great times to buy", shouldn't there be corresponding "horrible times to buy"?
Well the answer to that is obviously yes. The reason you won't hear it from realtors/brokers is because they would be out of a job.

Toronto Bear April 11, 2008 at 12:55 p.m.

Another Homeless,
Great post! I couldn't agree more with what you said about the appalling lack of historical statistics for Canada.

Why are we as a society obsessed with high home prices? Wouldn't low home prices be better for everyone who wants to buy? We don't proudly walk around bragging that we paid $5000 for a used TV that was only $3000 a year before! Wouldn't lower mortgage payments be a good thing?? Of course they would be. It's just that such a high percentage of peoples' "net worth" is tied up in their illiquid housing asset that they cannot help to be emotionally biased in their opinions.

PS
I read that article awhile back too. It's so simply put you just have to appreciate the sanity.

Geoff April 13, 2008 at 9:56 a.m.

I don't know anyone that would proudly walk around bragging that they house they bought last year is now worth 20% less than it is now. However, they probably wouldn't even think about it unless they were planning to sell their house in the near future. One thing no one has mentioned is gas prices - I personally know two people thinking about moving out of the sticks (sorry Oshawa/Stouffville/Mississauga but that's what it is) because they're burning too much gas - an non-capitalized expense. That's just one of about a billion factors that go into house prices, beyond society's irrational exuberance that is.

homeless April 13, 2008 at 11:36 a.m.

toronto lifer,

I see what you're saying, I think. Don't worry too much about the current market conditions but work within your means and do the best you can. I think a lot of people would agree with that.

More over, if you timed the market better than us, congrats. I don't think anyone is trying to take that away.

I disagree about renting though. As per my previous post, suppose I went in and bought a home for 700K. I'm in it for the next 25 years. Suppose the cost to carry is 50K per annum. As TO Bear suggests this figure is optimistic. In five years, I've spent 250K. (Probably it will be more like 300K) The principle earned would be somewhere around 75K.

If I rent for the next 5 years, I'll be out 150K. The difference is 100K in my favor, 25K (to 75K) more than if I had owned.

Further, this is based on the assumption that the housing price stays flat. If it rises, owning makes more sense. If it falls, say by 10% in the next five years, 75K principle is gone and I'd still be up 100K. So, it is not true that renting adds the risk of taking you out of the market.

Regardless of what anyone says, if you think the market will not tank, you're going to buy. If you believe it will tank, like me, we're renting.

BTW, I'm renting because it made sense to me to do the opposite of what the mass is doing. Namely, throwing down insane amount of money on property.

Regards,

The Best April 16, 2008 at 12:39 p.m.

The Toronto market has been on the decline for the last 3 months and will continue. Affordability is at the level it was in 1990 before the bubble burst. Speculators beware.

ssssssss April 17, 2008 at 5:48 p.m.

I do earn 70 000$ a year and I have sold my condo for 103 000$
extra in 3 years.I am currently renting for 450$ with my partner,and insurance gas food etc,I save 2000$ a month.

I think renting is a GOOD deal is rent is LOW.That is comparable with owning a property.

ttttttttt April 21, 2008 at 10:15 p.m.

Good for you for getting rid of a condo.

Just curious- will you save and invest your 103 000 and 2000 extra per month?

It's sometimes more beneficial to keep an investment long term if you don't have the financial discipline to save and invest.

just a thought April 26, 2008 at 5:21 p.m.

I also used to wonder why people paid huge amounts of money on a house when renting was relatively much cheaper.

However, what I failed to realize is that while, yes, in the short run, renting is cheaper - the amount paid in interest alone may equal or exceed rent payments - the difference is that over the 25 year life of a mortgage, the portion of the mortgage payment devoted to interest declines and the amount devoted to principal increases correspondingly. During the life of a mortgage, a point is reached where the amount you are spending on interest is less than the amount you would be paying on rent.

Moreover, the mortgage is based upon the original purchase value of the house, while the house probably continues to increase in value, at least at the rate of inflation. At the end of those 25 years, you own a house, with whatever market value it bears 25 years later. Assuming you have a moderately priced home, the cost of property taxes and maintenance will be less than rent would be on a similar property.

Over the same 25 year period, rents will continue to increase, also at least with inflation. At the end of 25 years of renting, you just keep paying rent, which continues to increase over time.

Toronto Bear May 1, 2008 at 3:56 p.m.

just a thought...

everything you said is true....but a couple of things you failed to recognize.

1) Buying at the peak of a market prior to a natural market correction means that your house may not even break even for a long period of time. Ask the people who bought in Toronto at the peak of the boom in 1989. Adjusted for inflation many homes purchased in 1989 are still worth less today than they were then!

2) With the money saved each month by renting (probably between $1500-$2000 a month), that over the course of the 25 years you are talking about a nest egg of between $450,000 and $600,000 and that is only if you put your money under your mattress! If you invest that money semi-conservatively and get 5% returns you are looking at between $900,000 and $1.2 Million. You are correct that you will not own a house, but you will probably have nearly a million dollars in liquid assests that you have at your disposal.

The caveat to this like TTTTTTTT said of course is that you have to have the financial discipline to put that money towards savings and not blow it on useless things. On the other hand, if you are like me and choose the compromise, you put 80% of the monthly savings into your nest egg, and use the extra 20% to travel and enjoy life instead of being tied to a house with no extra spending money.

It's all a matter of timing. Under many situations owning is a fantastic idea, but now, like 1989, is not the time to take the plunge. Not when the cost of ownership is so high relative to renting. Under current market conditions, it is a no-brainer that first-time buyers should continue to rent, from a purely fiscal perspective. Moreover, those "owners" (i use the term loosely as most people own only a small fraction of their home) would be wise to consider selling and locking in their profits, if they truly view their home as an investment. Buy low, sell high...isn't that the basic fundamental of investing? The major difference between the housing and stock market is that at least in housing there are many excellent leading indicators to follow in order for even the average joe to make an informed decision if the market is in a bubble or a bust. HINT: Don't listen to the mainstream media's interpretation of stats, especially those of the realtors...they make money when sales volumes and sales prices are high....DUH...they work on commission.

kay May 23, 2008 at 9:38 a.m.

Rarely do theoretical explanations ever really help solve real life situations for the average person...

In Tokyo and New York, nobody owns, everybody rents and the down side of that is that money earned is usually wasted on impulsive, habitual, status-conscience spending. That is historically the long term result of choosing to let others own property, while you "save money" to rent in a growing metropolitan city, which is not necessarily a bad thing, but could be if your goal is to own in central Toronto. The reality is that few people are disciplined enough to benefit to the extent described in this forum from renting. No situation is ideal right now, so it's best to be realistic and really discuss the pros and cons of both sides.

And it's also not the best idea to take advice from someone who is obsessed with making predictions about a real estate market. It's a bit fanatic. Weigh your options and you may find that your solution is a personal one and not based on all of this hype.