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As a local, I prefer to think of it as "it just is". When I bought my loft in 2002, people told me toronto prices were overheated and a correction was imminent; didn't happen. When my wife and I bought in 2007, my father in law thought we were crazy. I still think house prices are going to fall; but you have to get both the event (falling prices) and the timing (????) right for a good prediction and I have no idea on the timing. Yes, prices will go down eventually. But there's a big difference from them falling in the next 3 months to them falling in the next 50 years, and I'm out of guesses on the timing.
What non-locals don't get about Toronto prices though is most people are simply trading one currency (money) for another currency (time) if they have to get to work downtown. I have coworkers who bought in Burlington, Brampton, Richomnd hill etc to 'save' money and end up taking 2 hours one way door-to-door to get to work. To me, that's crazy. But then again I live in a small 1200 sq. ft house and they live in 2800 sq. ft mansions. ....
It will come down. The prices right now are unsustainable. Unless salaries rise by 30% in the next few years to pick up the slack (will never happen), the housing prices will have to fall.
It will come down. The prices right now are unsustainable. Unless salaries rise by 30% in the next few years to pick up the slack (will never happen), the housing prices will have to fall.
Yes, I think this is key.
I am not from Toronto, but here in Chicago we had a similar speculation period fueled by overseas speculators who were buying in early (pre-construction) with the hope of flipping quickly since the rental market could not sustain the cost of ownership.
For a while it works since people believe that appreciation will compensate for loss in short term ownership costs. The first crack in the Chicago market came when large new inventory began to flood the market and there weren't sufficient wealthy buyers who were willing to buy from the speculators at $600+ sq. ft. rate (mostly in the South Loop area). Once prices began to fall, panic set in as speculators tried to dump their properties as quickly as possible. Finally the market settled in at about $400 sq. ft. The biggest problem with these new condo units were that they were tiny and no one wanted to live in them. They became ghost towns that large investors took over and turned back into rental property. $300 sq. ft. they were good rental property investments.
I am not sure what the situation is with Toronto and upcoming inventory. But this report summary is an interesting read:
"Anecdotal reports suggest investors account for a significant share of Toronto’s condominium sales, especially in the pre-construction phase. Many units currently under construction may not be absorbed, but rather returned to the rental market. This should be welcome news for renters, as the Toronto CMA has one of the lowest apartment vacancy rates in the country, at just 1.4%. The vacancy rate for rental condominiums is just 1.1%.
For investors, however, the additional rental supply can be expected to put downward pressure on rents, and rental returns."
Every situation is always different but the question remains, once speculators are no longer able to flip, what will happen to the prices for small, expensive one and two bedroom units?
It will come down. The prices right now are unsustainable. Unless salaries rise by 30% in the next few years to pick up the slack (will never happen), the housing prices will have to fall.
Thanks for your posts. Toronto sounds a lot like Vancouver, where prices have been steadily going up and up even though sales may have slowed.
When will house prices fall? No one can tell, just like no one can tell when the perfect time to buy a stock would be. How far will they fall? Same answer, no one can tell, but a I think even with a correction in Vancouver's market, prices will still be above what they were 4 years ago. I bought a small 1-bedroom for $350K in 2008, now worth $400K, and even a 10% decline today would put me ahead.
Are prices going to go into such a decline that we see prices like they were 10 years ago (when condos in Downtown Vancouver were selling at low- to mid- 200s for a 1-bedroom condo) - probably not, because (1) the materials needed to make these homes have gone up (and therefore, new developments might not be as cheap) and (2) we are in a period where there is inflation and more inflation. I remember bus far in Vancouver used to be 75cents and the small sized slurpees at 7-11 were 79 cents and gas used to be 39.9 cents a litre - I don't see any of those going down (even when gas was less than $80 a barrel, gas prices in Vancouver were still above $1.20 a litre.
AlsoNotMe - I agree with you. I would rather pay extra to live close to where I work and not be stuck in traffic for 2 hours each way. Much of our time in the future probably won't be spent in traffic.
I've been hearing arguments on both sides of the buy-now or wait-for-the-correction question.
On one hand, the types who rely on RE for a living are still in full pumping mode, with arguments such as "affordability does not cause prices to fall, only an economic recession can do that" and "places like NY and London have always been unaffordable", etc. My feeling is that as great as TO is, it is NOT in the same class as an NYC or London. Yes, we have a constant influx of immigrants and remain a hub of financial, technical, creative, and innovative activity. But we are not in the same league as other world-class cities where housing costs remain stratospheric.
On the other side are folks saying that the fundamentals are not stable, that incomes have not kept pace, and speculation and greed combined with low-interest rates and easy access to large loans has caused a bubble that HAS to pop eventually. When this will happen is still anyone's guess. But there is no doubt that the crazy appreciations in housing values over the past decade are mostly illusory and have to either flatline or correct. Many people have accumulated substantial debt in disguise as "wealth".
The 2BR/2BA condo we currently lease would list for somewhere between $435-455K. This to me is completely insane for a 800-900 sq foot unit. Our current lease is for approx 2K monthly, so even with 20% down, the mortgage combined with property taxes and maintenance fees would still be substantially more than our rent. So our current strategy is to continue renting while stashing money each month into our investment portfolio.
The fear is that a correction could still be years away, and that we might miss an opportunity to buy in before prices go even higher. Of course, that is the fear that the RE people market so effectively...
Does anyone else think that it is best to wait for maybe another year or so before purchasing? Especially in light of recent changes to lending rules and CMHC policies. While I have positive feelings about TO's future (and the prospects of our desired neighborhood, NYCC), I'm not so sure that the current pricing trajectory is sustainable.
The price of houses in the Old City sickens me. In run-down, working class neighbourhoods like Wallace Emerson, Triangle Junction, East Toronto, Parkdale, and even East York, the asking price for an un renovated semi is often $750,000.
IMO, there are so many professional flippers in Toronto, along with real estate speculating that once a house in a blue collar nabe sells for a good price, everybody in the area thinks they can start asking $600,000+ for whatever crap hole they own. It's a travesty that working people who make good money either cannot afford any kind of house in Toronto, or they have to leverage themselves so much that default is pretty much inevitable when interest rates rise.
I think the prices being listed in many areas, for many houses in OT are immoral. Just browse through this site if you want to see what I'm talking about: the MASH.
My brother bought a beautiful, large semi in Bickford Park in 2007 for $750,000, fully renovated. In only five years its value has risen to $1,000,000+ despite having no further work done to it.
My other brother bought a beautiful, large, fully reno'd detached (with a large two-level addition that increased living space by nearly half, and a basement that had been underpinned and finished in hardwood floor with beautiful wood trim, baseboards, and chair rails) in Northwest Riverdale in a perfect lot for $800,000 in 2008. It's now worth well over $1,000,000.
I think prices will experience more adjustment pressure once interest rates increase and we are about 1.5 years away from that happening (today's estimate). Super low interest rate has made money almost free and with a turbulent stock market, people flock to real estate. This cycle happens everywhere in the world. But volumes are dropping and it takes longer for property holders to sell at lower prices (human nature) but it will happen at some point because our debt per capita is too high for comfort right now. An interesting (and perhaps comparable) case is Australia which has had a run up longer and higher than Canada. RE didn't crash in Australia but after a peak reached in 2010, it has slowly tempered a bit downward over the past couple of years and probably will continue to do so for many years while 'real' demand (not speculator driven demand) catches up with supply. My guess is that the same will eventually happen here with more pressure on condos than houses.
The price of houses in the Old City sickens me. In run-down, working class neighbourhoods like Wallace Emerson, Triangle Junction, East Toronto, Parkdale, and even East York, the asking price for an un renovated semi is often $750,000.
IMO, there are so many professional flippers in Toronto, along with real estate speculating that once a house in a blue collar nabe sells for a good price, everybody in the area thinks they can start asking $600,000+ for whatever crap hole they own. It's a travesty that working people who make good money either cannot afford any kind of house in Toronto, or they have to leverage themselves so much that default is pretty much inevitable when interest rates rise.
I think the prices being listed in many areas, for many houses in OT are immoral. Just browse through this site if you want to see what I'm talking about: the MASH.
My brother bought a beautiful, large semi in Bickford Park in 2007 for $750,000, fully renovated. In only five years its value has risen to $1,000,000+ despite having no further work done to it.
My other brother bought a beautiful, large, fully reno'd detached (with a large two-level addition that increased living space by nearly half, and a basement that had been underpinned and finished in hardwood floor with beautiful wood trim, baseboards, and chair rails) in Northwest Riverdale in a perfect lot for $800,000 in 2008. It's now worth well over $1,000,000.
Nobody says people have to live in houses. They take a lot of land, the price of which only increases.
I have said it before and am saying it again, the time when average middle income families can afford to buy a free hold house anywhere near the city center is gone. People will just have to deal with one of the three options: smaller houses or condos; longer commute, or rent.
Price may correct somewhat (doubt it will be more than 10%), but don't hold your breath waiting for deals to fall from the sky. Houses will only be less affordable unless something disarstrous happens with Toronto/Canada's economy.
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