Risk Assessment: a neighbourhood-by-neighbourhood guide to the safest places to buy real estate in Toronto
No neighbourhood will react the same way to a burst bubble. We talked to market watchers, economists, mortgage brokers and seen-it-all real estate agents for the scoop on where to park your money, what streets to avoid and when to sell, sell, sell
The Bridle Path is the place people go to flash their money, and prices here are based as much on bragging rights as market value. Though the high end of the market is more stable, average home prices took a tumble between 2008 and 2009, from more than $4 million to less than $2 million. In 2007, a two-storey villa at 12A Park Circle was listed at $6.25 million, and when it was on the market again in 2009, it dropped to $4.9. Properties below the $2‑million mark, for which there is more demand, are usually safe.
Risk Assessment: Medium
There are two sides to Forest Hill. The lots on the classic inner streets—Dunvegan, Old Forest Hill Road—are about as safe as it gets in Toronto. Forest Hill is also (relatively) tear-down tolerant, unlike Rosedale. But there are the less prestigious and riskier streets like Heath, just north of St. Clair, where people buy to say they’re in Forest Hill. These streets, bordered by apartments and rentals, don’t have the same cachet. The house at 35 Heath, originally listed in January 2008 at $2,325,000, dropped six months later to $2,079,000.
Risk Assessment: Very low
Some experts say the quintessential Toronto establishment neighbourhood has suffered financially from its historical designation. Fewer options for renovation and practically none for tear-downs (Heather and Gerry notwithstanding) make it a like-it-or-lump-it community. Those who like it like it a lot, and you don’t see much price spiralling on Cluny or Binscarth or Beaumont during bubbles. Crashes? Sure, a lot of brokers and traders live here, but Rosedale’s residents aren’t often worried by interest rates.
Risk Assessment: Very low
The Annex is a gem, if not a flawless one. Values here will remain more stable than most in the city, but the closer you get to Dupont, the more house prices are subject to correction once the market cools down. One unrenovated Dupont house right beside the tracks was listed for $549,000 and sold for $715,000 this past April after getting multiple offers. When this bubble deflates, those buyers are going to start hearing that train and feeling the walls shake, and future buyers will be reluctant to meet the same inflated price.
Risk Assessment: Low
Yorkville is big with the money people, who like the narrow Victorian houses and the plush new condos for their proximity to financial industry watering holes like L’Unità. According to one agent who specializes in the area, Yorkville became a dead zone in 2008 while easily spooked buyers waited and watched. Then it spun on its heels; this year, prices rocketed (one house that was listed at $2.6 million in 2006 was relisted at $3.9 million this spring) and buyers lined up.
Risk Assessment: Very low
This is the very definition of a stable neighbourhood. Buyers put down roots and stay put. Such streets as Prince Edward and King Georges, Wendover and Kings Lynn will not lose their value except in the most extreme circumstances, like a worldwide financial meltdown. There are a few exceptions, including houses beside the railroad along Westrose Avenue. 106 Westrose was listed at $829,000 in October 2008, before the downturn had registered in some sellers’ minds. It was back on the market a year later, and the price had fallen to $679,000.
Risk Assessment: Very low
Roncesvalles is one of those hot neighbourhoods surrounded by less gentrified strips, and, as such, not every street is prime. The centre of the ’hood is strong, among the fastest and most steadily appreciating neighbourhoods in the city according to the CMHC. Garden, Galley, Fern and the middle section of Sorauren are highly sought after by young families. The riskier streets are to the north and south, bordering stagnant commercial stretches of Dundas West and Parkdale.
Risk Assessment: Low
Small-scale development in this neighbourhood is catering to 30‑something buyers who want a piece of the West Queen West action but think the cheaper properties west of Dufferin are a little too remote. The neighbourhood includes such perpetually upward-trending spots as the Ossington strip and the streets surrounding the park, like idyllic Gore Vale, Claremont and Crawford. The construction around CAMH guarantees a good investment on such nearby streets as Fenning, Brookfield and Givins.
Risk Assessment: Low
According to the CMHC, one of the few organizations that reliably crunches real estate data on a neighbourhood level, Danforth Village, with an average house price of about $425,000, is one of the areas that offers the highest potential for price growth in the mid-term. It is also a prime candidate for precipitous depreciation, since cautious buyers would be less likely to take a chance on the next-big-thing area during uncertain times. The farther east along the Danforth, the less likely it is that houses will retain their value in a downturn.
Risk Assessment: Medium-high
The Beach is one of those neighbourhoods dominated by middle-aged, double-income people who, in the minds of some mortgage brokers, are striving a little too hard for what they think they deserve and, as a result, commit too large a proportion of their income to a mortgage. These are the people who are most likely to be tipped over the edge by even modest increases in interest rates, which could result in block after block of “For Sale” signs in the not too distant future. The safest spots, value wise, will be the closest to the lake.
Risk Assessment: Medium
This neighbourhood of artsy 30-somethings was up-and-coming a decade ago and has now mostly arrived. The stock is still dominated by modest two-storey semis, and the renos have been minimal, kept mostly to interiors. The weak spots here are along the railroad to the east, busy thoroughfares Gerrard, Queen and Eastern, and the seedy bits between Coxwell and Woodbine.
Risk Assessment: Medium-high
Average house prices here were about $740,000 this year, or half what they are in Bennington Heights, immediately south of Leaside. With most of the same amenities and proximities, this would make Leaside a good bet for value retention, were it not for that pesky demographic of over-reachers looking for the poor man’s Moore Park and Lawrence Park. Many residents are young families with stretched resources, making them especially vulnerable to rising interest rates.
Risk Assessment: Medium
Despite all the hype, the cool cafés and the gourmet chocolate shops, house prices in this not-quite-arrived part of town sit at the
relatively low average of $455,000. The main commercial strip on Dundas West is still gap-toothed, with vacancies and junk shops in the spaces between the new doggie daycares and raw food bars. As High Park and Bloor West Village continue their climbs, the Junction will continue to benefit from the runoff, but the fact that it’s not Bloor West Village tends to loom larger when the market wobbles.
Risk Assessment: Medium-high
Once the very definition of Toronto grit, Parkdale has followed a familiar gentle upward arc out of the bargain basement. But, like the Junction, the grit hasn’t been totally eradicated, and the plethora of dollar stores, payday loan companies and soup kitchens is still a huge disincentive. A detached Victorian at 1586 King West demonstrates the fragility of the newly high Parkdale prices: listed at $589,900 in the heady days of early 2007, it was back on the market at a humbled $539,000 exactly two years later, an 8.6 per cent drop in 24 months.
Risk Assessment: Medium-high
BLOOR WEST VILLAGE
Bloor West Village is another well-established neighbourhood, close to High Park and ritzy Baby Point, out of the downtown fray but near enough by car and transit. Eighty per cent of houses, mostly detached homes built between 1946 and 1970, sell for between $500,000 and $750,000—higher near Bloor’s commercial strip. Prices are less stable to the north, where Dundas is a light-industrial mayhem of auto body shops and KFCs, and to the west, close to Jane Street’s modest bungalows and low-end commercial strip.
Risk Assessment: Low
The average unit price in condo town is about $350,000. There are plenty of jittery first-time buyers moving in, possibly not entirely aware of the ramifications of changing interest rates. It’s also prime investor territory. According to the CMHC, between 30 and 40 per cent of Toronto’s condos are owned by people who either rent them out or flip for a profit. In CityPlace, that figure is likely even higher. Investors are a fickle lot, and even a slight downturn or increase in interest rates could prompt a wave of sales, which by definition would dampen prices.
Risk Assessment: High
YONGE AND SHEPPARD
Though the neighbourhood is undoubtedly gaining in value in the long term, with the enormous amount of condo development, a Whole Foods moving in, and easy access to the TTC and the commuter highways, Yonge and Sheppard stands to lose a lot from a bubble deflation. It isn’t yet established as a neighbourhood per se, which means people could very well be buying just because interest rates are low, rather than being especially attracted to the place itself. And simple laws of supply and demand suggest prices will take a tumble.
Risk Assessment: Medium-high
This is one of the city’s can’t-go-wrong neighbourhoods, its upward rise seemingly unstoppable. Given its proximity to the core and to Withrow Park, plus the healthy commercial strip on Danforth, there’s little chance prices will suffer from a burst bubble. Even the demographic is more stable than, say, the Beach, which has the same working-age cohort but more children and, as a result, far more stretched lines of credit.
Risk Assessment: Very low
Yonge and Eglinton has the advantage of being a destination neighbourhood. There is a Yonge and Eg type: young but not too young, family just started. Tucked between Forest Hill and Lawrence Park, the area is aspirational without being out of reach, which may be the root of its one problem: the neighbourhood’s $500,000 to $800,000 houses are within reach of double-earning new parents but an interest-rate percentage point away from being too much to handle.
Risk Assessment: Medium
Though it’s increasingly known for high-end condos, this is also one of the most popular neighbourhoods for first-time buyers looking for homes below the GTA average price. They tend to find these in the mid-range buildings (like 3 Rean Drive), which go for less per square foot than their downtown counterparts. Bayview Village’s weak spot is its single family dwellings, especially its 1960s bungalows. They often sell as tear-downs for $500,000 and are easy targets for a price correction.
Risk Assessment: Medium-high
21 thoughts on “Risk Assessment: a neighbourhood-by-neighbourhood guide to the safest places to buy real estate in Toronto”
Toronto in General is a solid investment, no matter where you buy. It’s a very young city with lots of upside and potential. In my view, te Toronto market is taking brief breather to absorb the stricter qualifying rules, the introduction of the HST and a slight increase in interest rates. Resistance to those forks in the road are temporary, while new solutions on how to pay for them are worked out. By Autum, the city’s real estate market if not sooner will be moving at a good clip. If you’re in the market to buy, now’s a good time.
You sure sound like you’ve got a vested interest in this market. Realtor? Builder? Speculator? Just a hunch.
There are hundreds of reasons this market has nowhere to go but down. You’ve named two of them (HST and tighter CMHC rules).
Let me add a few more:
1) Interest rates are at almost zero percent. They have nowhere to go but up. The Bank of Canada has publicly said that they’re aiming to “normalize” rates… Which would mean mortgage rates of 6-8% or so in the near future. If interest rates rise then affordability falls, and prices have to come down.
2) It’s significantly cheaper to rent in Toronto than buy. It costs almost twice as much to borrow the money than to borrow the house.
3) Canadians are tapped out. With debt-income at 145% and a savings rate of roughly 2% (after a huge recession), Canadians are out of real money and soon, credit too. As the cost of that money rises (ie, interest rates) expect it to be harder for many to pay those loans back causing a severe drag on the housing market.
4) The amount of overbuilding in Toronto is astounding. We build (several multiples) more condos here than major world cities like NYC with much larger populations and far greater desirability. Maple Leaf Square (down near the ACC) has 110 rental units available on MLS right now. The waterfront in general has a HUGE glut of condos. Clearly people didn’t buy those to live in them — they’re speculators. As those investments fail to pay off, many owners will be forced to sell, absorbing people who want to buy to live in them, pulling prices down across the city.
There are hundreds of other reasons that I could pull out. But I welcome you to defend you position that now is a good time to buy with some facts.
What about Markland Wood out in Etobicoke? Solid neighborhood for 50 years.
You point out reasons to be concerned, but what about all the reasons to be optimistic?
#1 – Interest rates are still very low. Even if they go to 6%, it is not going to have a major impact. There are a lot of people in the market already paying 6%.
#2 – It is not significantly cheaper to rent. In fact it is really difficult to find a decent place without competing with 15 other people.
#3 – Population trends are driving the speculators. Two things are currently happening. First, baby boomers are moving out of the city, but keeping a condo in the city in order to feel connected. At the same time, the echo is entering the workforce and buying their first homes/condos. We are just at the beginning of this. And let’s not forget that immigration continues to increase the population of the GTA.
#4 – We’re running out of space! With the burbs filling up, people now have to go to Burlington or farther to get a decent home at a reasonable price. As the commutes get longer, there will be upward pressure on downtown housing. You can’t buy a place in Markham anymore for a decent price.
Point is, while there are reasons to be concerned, there are still a lot of reasons to be optimistic.
@Fraser, Thank you for the response. Allow me address each of your points:
#1: “Interest rates are still very low… a lot of people in the market already paying 6%.”
Almost 30% of Canadian borrowers are on variable rates. (Source CMHC: http://www.cmhc-schl.gc.ca/en/hoficlincl/mobase/upload/r303a-eng.pdf)
If you need help interpreting: Pool 980 is Adjustable Rate Mortgage, 985 is Variable Rate Mortgage, and 987 is Weighted Average. Together, they make up almost 30% of all Canadian mortgage backed securities and CMHC MBS represents the vast majority of new mortgage issues.
There was a huge spike in VRMs in 2008 and another one in 2010. Add to that the people who bought in 2008 and 2009 on fixed rates as low as 3.69%. A jump of a few percentage points in mortgage rates will be extremely painful to more than half of Canadian homeowners.
Beyond that, mortgages are written every day, so prices will align to mortgage rates before your mortgage comes up for renewal.
#2 “It is not significantly cheaper to rent. … Difficult to find a place to rent…”
I won’t go through the calculations here on why it’s cheaper to rent, but trust me, it is cheaper by about half and that’s not including asset depreciation.
Instead, I’ll suggest you visit http://www.ingdirect.ca, click on their “Rent Translator” in the mortgage calculator and punch in some numbers. I know of several 3BR houses renting along Danforth for around $1550/mo and on sale at the same time for more than 400K. According to ING, that monthly payment will get me a house worth $280,331 at *today’s* interest rate of 4.49%. ING Direct of course, has a vested interest in selling you mortgages, so that’s a sunnier calculation for home ownership than most people would use. Real calculations include several other variables, but that alone should be proof enough for most people.
On your second point, there’s no shortage of rental housing in Toronto. Maple Leaf Square alone (next to the ACC) has over 100 brand new rental units on MLS waiting for someone to take them over… Drive around the city, check Craig’s List and MLS, and I promise you that you’ll find plenty of rental housing where you don’t have to compete. In fact, according to the Toronto Real Estate Board, rental prices have hardly budged in nominal terms over the past decade, and they only represent a fraction of rental transactions.
#3 “Population trends are driving the speculators.”
Yes, and the speculators are about to find out why they got it wrong. If Baby Boomers are moving out of the city and liquidating their real estate like you say (I have no evidence either way, so I can’t comment), but keeping condos that means that hundreds of thousands of dollars are being drained out of the real estate market in this city as we speak. Where do you think that puts prices over the next few years if the baby boomers keep liquidating their real estate as you say?
As for the echo generation, they can’t afford houses at these prices. Median Toronto family income (before taxes) is 66,560 in 2007 (Statscan: http://www40.statcan.ca/l01/cst01/famil107a-eng.htm). Accounting for some retirees and poor people plus some inflation, let’s bump that number up to $86,000, which I think is fair for two echo’ers at this point. Using that same ING calculator, we find that this echo generation cohort that are coming to save the day need more than $25K for a down payment in cash (5%), plus closing costs. They can afford a $384,000 house (with $2500/yr in property taxes). What do you get for $384,000 these days? What happens when interest rates rise?
And lastly, when it comes to immigration, there just aren’t enough immigrants to keep it going either. Setting aside that not all immigrants have a lot of money, people also leave the city and Torontonians also die. That leaves Toronto with an annual growth rate of 0.2% (Wikipedia: http://en.wikipedia.org/wiki/Demographics_of_Toronto), not enough to sustain these prices either.
#4 “We’re running out of space!”. (aka “They’re not making any more land”.)
This is a classic straw-man argument. Real estate is driven by incomes, affordability, and availability of financing. Interest rates go up, prices go down. Mortgage rules tighten, prices go down. Incomes drop, prices go down. And of course the reverse is true, too. We just spent a decade with loosening rules, reasonably flat incomes, and falling interest rates. What does the next decade hold? Probably just the opposite.
It’s true that there is less space in Toronto today than there was a few years ago, and certainly decades ago. But that is surely more true in Tokyo, which literally has nowhere to build. Tokyo didn’t have anymore land either, but its real estate bubble burst. San Francisco, LA, Miami, New York, and Chicago also had no more land, but even New York arguably the most desirable city in the world for real estate suffered a 20% decline in prices.
Prices are a function of what people can afford, and that’s a function of local salaries for the most part.
“Point is, while there are reasons to be concerned, there are still a lot of reasons to be optimistic.”
It’s possible that in the short term this bubble will continue to inflate (though I don’t think likely). But what cannot be sustained ultimately will not be sustained. Predicting the timing of a bursting bubble is a fool’s game. But burst it will and it will hurt families. My condolences in advance to all those who get caught in this when the tide turns.
Well said Fraser. The Real Estate Market is cyclical, like any market. If we experience a softening of the market it will only be temporary. So, let’s just get on with life…there will always be buyers and sellers out there.
Bloor West Village: “mostly detached homes built between 1946 and 1970”. Where do you get your information from? I’ve lived in BWV for over 10 years. My first house was built in 1914 (as were most of the others around it, based on the City archive search we did) and our current house was likely built in 1918, based on the newspapers we found in the walls during renovations. Did you even visit the neighbourhood when writing this article? If so, it would have been blatantly obvious that most of the houses were built before 1930. Disappointing to see such errors in Toronto Life. Happy you gave the ‘hood a nod, but not that you misdescribed one of the key reasons (the character of the homes) why people seek to move there (aside from access to the subway, great shopping on Bloor, proximity to High Park, etc. etc.).
Toronto is gentrifying at a rapid pace and that pace is increasing. For example, consider the rapid gentrification of Queen East from the DVP to the beach. Places like the following ….http://www.wickerhead.com/ which is about to open in the beach is just one many places that keep popping up everywhere. You are getting a virtuous cycle developing in many neighbourhoods like the beaches. The virtuous circle goes like this: higher income earners move into a neighbourhood and this creates a demand for better shops and restaurants which inevitably open. When these shops and restaurants open, it attracts even more high income earners which further fuels the opening of better shops and restaurants. Once this cycle starts, it is difficult to stop.
This gentrification cycle has been fueled to a large extent by increased traffic (lets call it gridlock) and ever expanding suburbs. This is being caused by continued population growth combined with the fact that Toronto is landlocked by Lake Ontario to the south and ever increasing restrictions on building to the north (i.e. Oak Ridges Moraine and other restricted areas.)
Now that being said, real estate prices are quite high relative to incomes- i.e about 5 to 5.5X incomes. Historically, this ratio has been 3-4X. But due to the factors above, we may not get a severe correction.
Also note that some have a theory regarding traffic and gridlock that goes like this: gridlock does not grow in constant proportion to cars on the road. At some point, as traffic grows, gridlock grows at an increasing rate. And eventually traffic will reach a critical point where gridlock is constant. When that happens, there will be huge demand for condos and houses close to the core. This is what happened to London, England. Some believe that Toronto is getting close to that critical point where you’ll basically have constant gridlock. Traffic is already a huge problem: note that in survey after survey, Toronto is rated worst for traffic in North America- worse than Los Angeles, Chicago and NYC.
Re: “are you kidding me?” — Your post is compelling but the analysis is selective. I agree with your assertion but the factors don’t add up to a definite “don’t buy” in every case, as you seem to suggest.
1. Of the 70% of fixed mortgages, some are in the 5-6 percent range (locked in from earlier years) and some are rock-bottom rates. Recent mortgagees who got the lowest fixed rates are the ones with the most equity in their home. 4 out of 5 mortgages have amortizations of 25 years or less and the majority of fixed rates are 5 year terms which help boost the stability of the market. Frankly, this isn’t a line of reasoning that particularly supports your argument.
2. Your basic arguments here are correct. The assumptions that support them, however, mean that they do not apply to home purchases.
You are correct – there is a glut of rentals. This glut, however, is almost exclusively comprised of 1 and 2 bedroom apartments in old apartment buildings and new condos.
The rental market for lofts and house flats is quite competitive and rental bidding wars are common, for many neighbourhoods. Rental space is tightest in terms of 3 bedroom units – particularly single family homes – within walking distance of the subway.
You are correct that is always cheaper to rent. But that’s not the issue. If people crunched the numbers and made purely binary financial decisions no one would ever buy a car either. The real question is “how much cheaper?” is renting vs. owning. And it is that marginal cost that drives people into home buying. Because for many, it’s pretty small.
At 1550$ rent for a three-bedroom house – you are correct, not worth purchasing. $1550 for a three bedroom house is very inexpensive (and awesome for you!) The majority of three-bedroom apartments within subway distance go for 1700$ish, with house rentals generally topping out above 2000$. Not inclusive of utilities. And at that cost, the higher cost of homeownership gets pretty slim in comparison to rent.
2200$ in rent would get you a 380 000$ mortgage and with a 75 000$ downpayment gets you a 450 000$ house. That’s reachable for some middle and most upper-middle class families. Your 380 000$ house with 25 000$ down example works for people willing to live a bus-ride from the subway – bungalows near Eglinton West, neighbourhoods in and around Keele/Dufferin, the furthest reaches of St. Clair Avenue West, or the Danforth etc. Not prime cuts but family areas nonetheless.
I mean, you can pay 1700$ for an apartment or 2200$ and ‘buy’ your own home with a yard. Just like you can pay $2000 per year in transit passes and taxis or $8000 in insurance and gas and car maintenance. I can see why lots of people choose the latter in both cases.
3. No comment here because like you I don’t know if that trend is true or not.
4. On its own, yes that argument is a straw man. Taken in context, it is not: a) Ontario is consolidating. There is any increasing concentration of the province’s well-paying jobs in Toronto, particularly downtown; and b) When people say “they’re not making any more land” in reference to Toronto, what they’re really saying is “they’re not building any more subways.”
Those two factors together will continue to drive a need for housing in downtown Toronto. Not record appreciation like we’ve seen in recent years (agreed, that’s toast) but demand will remain.
Overall, your assertion that the party is over is correct. But the idea that anyone buying anything now in Toronto will be screwed is flawed and lacks analysis. Personally, I think the Toronto real estate story is something like this:
Most condo buyers will be lucky to make back what they paid when they sell, unless it is a high-end loft or boutique unit.
Long-term buyers who bought a house within walking distance of the subway with a significant downpayment (25 percent or more) are probably fine, particularly if it is a detached house.
Anyone who bought anything with very little down at the top of their affordability is in trouble.
Short-term buyers, speculators or flippers may be in trouble.
Anyone who doesn’t need to leave their rental or need more space and pays reasonable rent probably shouldn’t buy right now.
Oops, I meant
“2. Your basic arguments here are correct. The assumptions that support them, however, mean that they do not apply to ALL purchases.”
I appreciate your arguments and the reply.
In the end, I think we’ll have to agree to disagree, but this is a case where time will tell.
Re: #1, fixed rates and amortizations. Your argument is true on an *individual* level, but mortgages are written every day and price adjustments take place immediately on a market-level. Just because you don’t have to renew your mortgage today, it doesn’t mean you neighbour doesn’t have to renew his tomorrow.
Where “most” mortgages are less than 35 years (I would certainly hope so!) it’s the new originations that matter — and the vast majority of them now are for more 30 year or more. You can verify that on the CMHC website if you like.
In realtor-speak, these people are “The bottom rung of the real estate ladder.” That’s why first-time home buyers are so important and always being courted by governments and sellers alike. If they disappear, the bottom rung of the ladder falls out.
Re #2: Rentals. Agreed, there is a glut or rentals. If our market follows the experience in the U.S. house rental prices will also come down while all of those surplus condos are absorbed. I don’t know enough about the current rental market so I’m not in a position to comment much further than that.
The difference between buying a car vs. renting a Metropass is that they’re very different things: one is a car that offers other benefits (runs on your schedule, goes anywhere), the other is public transit which is very limiting by comparison.
Cars aren’t sold as an investment. Houses are. You expect your car to depreciate. You expect your house to appreciate — in fact you bank on it. That may not be the case for anyone who buys now or bought in the last few years.
I can rent roughly the same house or apartment and get identical benefits from it whether I rent it or own it. That is not true for a car vs. a Metropass.
Plus if I rent a house, I take zero risk. If I buy a house, I have hundreds of thousands of dollars tied up in what could be a depreciating asset. Worse, I could end up owing more than I own and never be able to move. That’s the definition risk.
With real estate, you have a choice: you can rent a house or you can rent the money. In both cases, you’re renting whether you like it or not.
If you’re not going to get capital appreciation greater than the interest you pay (+ taxes maint realtor etc) and there’s a risk of depreciation, then chances are it’s better in the current market to rent the house, save money, and be liquid until the dust settles.
Now, if you’re talking “pride of ownership” or about any emotional reason, that’s another story. If those emotional reasons are worth more than a hundred grand to you, go for it. My “pride of ownership feeling” starts to be offest once I start losing more than $20,000, but people have to choose their own dollar figure for that pride of ownership feeling.
If you’re looking at a house a an investment (or even just savings) which is how they’re marketed, now is *not* the time to be getting into this market.
Re #4: I respectfully disagree. I think you’re looking at a lot of “sunny-day” scenarios. Not everyone moves by choice. Job loss, divorce, transfer, or simply a new school district for their kids be reasons to move. Canadians move on average every 7 years. A move can easily cost $40,000 or more after realtor fees and taxes alone.
While you’re right that these people *can* stay in their houses as long as they want (in your sunny-day scenario), it’s not the point. If they want to move, they either take the loss or they’re stuck in their house that they don’t want to be in until the market “returns” (aka inflation).
Renters can can pick up and leave to another rental without spending $40,000 in taxes and realtor fees. Big difference right there.
Re your last point, “Anyone who doesn’t need to leave their rental or need more space and pays reasonable rent probably shouldn’t buy right now.”
By the way, I didn’t say it’s “always” cheaper to rent. I said it’s *currently* cheaper to rent.
Returning to your car example, while I do own my car, if someone offered me a Honda Civic for rent at $150 per month (with maintenance, insurance and taxes included) instead of buying it for $18,000, I’d rent that, too.
That’s roughly the equivalent of renting vs. buying a house in Toronto today.
New York, London, Vancouver………Toronto. Buy now while you can still afford to get something you can afford in this amazing city. With 7 Billion people living in a very war torn world, Toronto is where thousands of foreign investors are parking there money in real estate because it’s a safe city. At the very least their condo/home will be worth the same in a year’s time.
Psst… New York and London real estate dropped 20% over the past two years.
Pass it on.
Re: AYKM!, Thanks
1. Yes, but if your neighbour has to renew tomorrow, it’s likely because he locked in for the past few years at a rate that is higher than he’ll be renewing for. Either way, it’s not all doom and gloom – the people who locked in earlier at higher rates will be getting lower to similar rates as they renew, while the people who are getting five year fixeds will be renewing at a higher rate in five years, but on a lower amount as they’ve had five years of paying down their mortgage to reduce their principal.
Re: 35 year amortizations, there are many homeowners with 35 year amortizations that have the capacity to and are paying their mortgages off at a 25 year rate, only choosing the 35 amortization for flexibility’s sake. Now, they could all get lazy or hit financial hardship and choose to pay their mortgage off slowly, yeah it’s a risk, but to assume everyone with a 35 year amortization is a bottom-of-the-barrel owner that’s gonna capitulate once rates hit 8 percent is just an assumption.
Re: Metropass vs car, well, you’re entering your preferences into the equation and that’s clouding your argument by pushing out the scope of your analysis. The benefits of the car like ‘goes anywhere’ and ‘runs on your schedule’ are corollary to the ‘pride of ownership’ arguments for homeowning. Any scoped, rational financial assessment of TTC vs car along the lines that you are applying to renting/homeowning (risk, financial appreciation/loss, and nothing else) would come out with the TTC. But we all know we don’t make decisions that way…so to expect someone to factor only appreciation and financial risk into buying a house is faulty from the start. There are a number of benefits to home ownership that go beyond standing on your front lawn with your hands on your hips pretending you’re the master of your own domain. ;) You expect your house to appreciate (seemingly), others do too, but for many others it’s just about living where they want in a building they control and getting to the point where they don’t pay rent. I don’t totally disagree with your assertion that, if you are treating your house as an investment now is not the least risky time. My assertion is that most people don’t treat it that way – and that renders three-quarters of the “don’t buy now – bubble is coming” panic we’ve been hearing for three years kinda meaningless for a huge swath of the home-buying public. The vast majority of people are investment minded when it comes to a house, just like you and I aren’t financially-minded when it comes to transportation.
There are risks with renting too. Dealing with other tenants, dealing with multiple units, facing an illegal rent increase, dealing with your landlord, having the property change hands, getting evicted, having the toilet break and not having the landlord fix it and therefore having to do it yourself on your own dime two weeks later (ok, that was from personal experience). Some are likely, others not, but they’re risks. Some financial, some not. I’d liken your Honda example to renting the Honda from a car-lord…who may comment on how you drive, how you wash it, want his permission before you take it to Collingwood, want to OK every bit of maintenance, require you to bring it in for oil changes every three weeks, wants you to drive only between 6 am and 12 noon, etc. That’s been my renting experience thus far. I don’t know if I’d rent that car.
I’ve always found this whole renting vs owning argument perplexing. Because I was a serial renter determined to never own a property. But once I needed more space, I realized that in order to live where I wanted to I’d end up either living on top of a store on a major artery for $1700 per month, or upwards of $2300 to live in the residential area. And then I did the math and realized that I’d be spending less on interest and property taxes than I would on rent, and with rough calculations of maintenance costs, I bit my tongue, took the plunge and I gotta say … I pretty much would never go back. I can do what I want, when I want with my house, inside and out. Sometimes that sucks (eg. maintenance! neighbours!) but those are problems I had in rentals too. Most times it is fantastic. And I never had that as a renter.
Being rental-minded, I do envy your seemingly problem-free rental and your problem-free landlord who rents to you below cost (OK, I’d do back to that!) but for the majority of renters that’s just not the reality.
You’re forgetting an important tidbit: the market needs “new blood” (ie, first time homebuyers) in order to sustain itself. Without them, a black hole develops at the bottom of the market. For prices to appreciate, people need to move up. In order to move up, (most) people need to first sell their old house.
Without that first time homebuyer, nobody goes anywhere. I’m suggesting that 0/40 / 5/35 mortgages, low interest rates, qualifications based on variable rates and the like sucked the most marginal buyers in.
April 19th was a magical day: the government tweaked the CMHC rules causing a rush to beat the deadline and sales ground to a halt immediately following.
If Canadians were so well qualified, why the rush? And why did sales stop after that day?
Why are Toronto sales down a whopping 37% year over year all of the sudden? I’ll give you the answer: Because the most marginal buyers have now bought, and even at the lowest interest rates in history, even with variable interest rates that are lower than inflation (!!!), the money is now spent.
There simply aren’t enough buyers left anymore.
The US housing market cracked when prices hit 5.5x income. Toronto-416 is somewhere around 7x income, and Vancouver is over 9x. Are Canadians, who can’t deduct mortgage payments, who have a much higher burden, a savings rate of < 2%, and a debt to income ratio of 146% in better shape than Americans? I don't think so.
2. The Metropass vs. Owning a car are two very different things. A Metropass won't get me to Muskoka and it doesn't run on my schedule or my route.
3. I've never had a problem with a rental or a landlord in Toronto. The rental market has such a high vacancy rate right now that landlords are scrambling for tenants and loathe to lose them. I expect that is changing (and will continue to change the further we get into this mess)
But there is so much excess capacity right now (especially in condos) that rental rates have barely budged in a decade, while house prices have doubled. If we're running out of land, why are rental prices not moving?
If you don't like your rental you can leave for $500 in moving costs. Don't like your the house you bought? It'll cost you at *least* $40K in realtor fees and land transfer taxes. Forty thousand dollars is a lot of months of rent.
Even if you think the market will stay flat (it won't), unless "pride of ownership" is worth at least $100K to you, buying is a fool's game right now. Risk is at an all time high. Potential return is very low even if the stars somehow align.
Wait it out and diligently save. You'll be glad you did.
Where are these magical rental units with perfect landlords, low rents, and quiet thoughtful neighbours???
My experience with renting in Toronto went something like this:
– spent 3 months looking for a one bedroom under $1100/month that wasn’t filthy, in a basement, or populated by drug addicts, prostitutes or other undesireables
– Found a nice quiet place that I liked then “he” moved in next door. “He” was quite the ladies man and apparently had many hidden talents as he brought home a new woman every night and the pair of them would inevitably keep me up until 4 am carrying on in his bedroom.
– every year my rent would increase while the condition of the building deteriorated and new tenants were signing on at reduced rates.
– every weekend someone would get hammered and puke in the stairwells.
– Every month or so, someone would get the bright idea to break into the pay washing machine and take all the money leaving the laundry machines completely unusable.
I like to sleep. I like privacy. I like to live in a clean well maintained place. So I did what countless others have done – and will continue to do – I bought a house so I can have control over those little things.
There will always be buyers.
The $1100 you were willing to pay in rent would get you a house worth $205,000. Where did you find that? I’ll take two!
Sure, there will always be buyers. But who says they’re willing to pay what you’re asking?
Buying a house is no guarantee of good neighbours.
There are tons of Yonge and Eglinton apartments for less than $1100 that are clean, well maintained, and quiet. Can you buy anything, house or condo, close to that that for $1100/mo? Didn’t think so.
– Toronto sales plunged 34% last month alone
– Prices have fallen a bit, but price erosion will accelerate in a matter of months
– Mortgage rules have tightened (April 19)
– Interest rates simply can’t go down any further
– Canadians have a debt to income ratio of 146%, the highest rate since ever
– Incomes and inflation are stagnant
What catalyst could possibly exist now for rising real estate prices? Really. Name just one.
Sit back, pop some corn and watch. The great Canadian real estate correction is about to begin.
I sure hope the correction’s coming… I’m moving to Toronto in November and have $750k to spend.
Where are the tons of nice apartment for rent at less than $1100 in Yonge/Eglinton?
I live there, and I’ve found nothing for less than $1300 (one bedroom).
Go to the Park Property Management or Greenwin website and poke around. There’s lots of 1 BRs for under $1100.
If you’re willing to go south a bit to Davisville or toward Mt. Pleasant, there’s even more.
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