Ridiculous

This is my 1st day here in the forum and 1st post at this forum. So, please be nice! ))

I am also an active member at a real estate forum and have some cash flowing rental units here in Ontario. The group, I am with to learn about RE, is meeting once a month in Toronto, too, to discuss the local Ontario market.

If I remember right is the highest numbers of potential new condos in Canada here in Toronto (roughly 14,000 in planning or already in building process until 2011), what I read in my documents a few months ago- even more than Vancouver. So, yes there will be a condo market correction coming, FMPOV.

Comparing these prices to Europe, where I am from..... it would be a bargain.

Last years were "Tiger Woods" years in RE in Canada, but still in controlled growth, because of CMHC financing and the banking systems.

@ OhGreatGuru: Couldn't you say the same about stocks or any other investment: ....is "worth" whatever the market is willing to pay for it."

CU,

Northern Alex.

Rickson9 said:

Crash back to earth anyone? I am desparately hoping for a huge crash in the RE market.

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Your wish will be granted very soon . Families with $100K gross income buying houses in Toronto for $600K with 0% down - this will end beyond bad!

I remember reading that the Toronto's condo market is the most overbuilt in North America. Factor in that maybe 15-20% of the condos bought in the last few years were bought as investment properties. Factor in that we are at the top of the house price/buying cycle. Factor in ultra-low interest rates that are bound to go higher. Considering all these factors it is likely that very soon there will be a mad rush to get out of the door and sell before it's too late. This can be triggered by any number of factors, like another major stock market crash (likely), a small increase in interest rates (inevitable), EI running out for 10s of thousands laid off this year, etc.

The way I see it, there will be a decline of between 35%-50% from top to bottom. You may not like it, but you better be prepared for it.

I know what you're saying Rickson

I bought my house about 10 years ago and according to what RE agents are saying it's worth about $300,000 which is absolutely ridiculous. I paid about $130,000 for it. I did some work on it but still. Point is it's very modest. It's a two bedroom bungalow for crying out loud.

I think we are in a bubble and i have been saying so for years now. I thought prices would readjust and they did for a while but now we're back up there again.

I think that one sign that you're in a real estate bubble is that no one can put a 25% down payment on a house and rent it out to pay the mortgage.

Even the more commercial landlords are drinking the Kool Aid. They are buying 4 and 5 cap properties right now downtown and that is foolish.

It does worry me quite a bit being in the business. I also am noticing in my travels that there seems to be a lot of commercial vacancy.

Interesting to see others thoughts on Garth Turner. I've just "discovered" some of his books and it's certainly a bit unnerving. Having only owned a home for 2.5yrs if he’s right it would mean my wife and I would be in negative equity for the foreseeable future unless we get out quickly.

Out of interest I found some numbers on average house prices in Ottawa from 1956 to 2008 and compared them to inflation between the same period (taken from Bank of Canada website). I keep hearing that the average Canadian family hasn’t done much better than inflation pay wise so I thought that would be a good indicator.
Basically it showed that inflation had caused the 2008 “average basket of goods” to be about 8 times the price it was in 1956. The 2008 home price was a whopping 21.7 times the price it was in 1956.
I’m unsure if shelter is included in the average basket of goods.

Now I only picked Ottawa because I found that cities numbers first and I have no knowledge of any special market conditions that might have caused such a large jump. I also have no idea if taking this back past 1956 would make the figures better or worse. I just did it for interest after reading a few of Garth Turners books.

Has anyone else looked at this for other cities or got any comments?

Supposedly a RE agent said that he could fetch $300K for the place. Assuming that he can, I think that's ridiculous.

There is no way an investor for that property can use the condo to make their money back. If a buyer put 25% down that would be $75K carrying a $225K mortgage.

RBC gives a prime + 0.3% mortgage on a 5 yr closed which comes out to 2.5%. With a 25 yr amort this will come out to $1,000 per month.

Condo fees are $300 p mo., property taxes are $200 p mo., and he can slap on some insurance for $30.

So his total fixed expenses are $1530 p mo. Rent in the area is $1200 (lower if you want to be competative and ensure fewer vacancies). This buyer would be bleeding cash every month unless they put a lot bigger down payment and neuter their ROI.

If rates moved the wrong way, there would be trouble.

I don't see it. Not something I would do anyway.