Toronto Loft Conversions

Toronto Loft Conversions

I know classic brick and beam lofts! From warehouses to factories to churches, Laurin will help you find your perfect new loft.

Modern Toronto Lofts

Modern Toronto Lofts

Not just converted lofts, I can help you find the latest cool and modern space. There are tons of new urban spaces across the city.

Unique Toronto Homes

Unique Toronto Homes

More than just lofts, I can also help you find that perfect house. From the latest architectural marvel to a piece of our Victorian past, the best and most creative spaces abound.

Condos in Toronto

Condos in Toronto

I started off selling mainly condos, helping first time buyers get a foothold in the Toronto real estate market. Now working with investors and helping empty nesters find that perfect luxury suite.

Toronto Real Estate

Toronto Real Estate

For all of your Toronto real estate needs, contact Laurin. I am dedicated to helping you find that perfect and unique new home to call your own.

 

Dissecting the Condo Bubble

Both arguments for and against are weighted. And the verdict is…

By Chris Denda – Eye Weekly

If you were born after 1975 you probably haven’t experienced a housing bubble first hand. Between 1989 and 1995, housing prices in the city plummeted, dealing a devastating blow to tens of thousands of homeowners and their savings. This was the last major real-estate bubble Toronto faced, and if history truly does repeat itself, the emergence of another housing bubble is not a question of “if” but “when.”

Comment: Huh? A bubble is dropping prices? No, it most definitely is not.

Instead of running out and selling your condo before it’s too late, take heed and remember that rising condo prices and a dozen or so cranes downtown don’t trigger bubbles alone. The ultimate health of our 2010 condo market will be determined by much more. Is there a condo bubble and will it burst this year? Let’s look at arguments for and against. In the end though, you’ll be the judge.

THE ARGUMENTS FOR A BUBBLE

Condo prices continue to rise
Since the last major Canadian real-estate bubble burst in ’89 and prices finally bottomed in ’95, the appreciation of condos in Toronto has been unprecedented. “In the last five years, [the GTA condo market] has gone up by 8 per cent compounded per year, so it has well-exceeded inflation,” says Paul Dydula, a  real-estate analyst with N. Barry Lyon Consultants Ltd. This rate of appreciation extends beyond that five-year horizon all the way back to 1995. It’s visibly evident on a Toronto condo price graph that price levels from ’95 to present have not experienced any significant correction.

Comment: What is a correction? Prices of everything go up over time, that is an economic fact. That is why your grandparents paid $0.25 to go to a movie and you pay $12.95. Why does everyone insist that real estate prices must go down? Should the prices of cars, bananas and pants also drop 20% to make them more “normal”?

There is an oversupply of condos in Toronto
With over 40 condo projects recently completed or currently under construction in the Toronto core alone, and over 26,000 new high-rise occupancies forecast across the GTA in 2010, there is no denying the market is, and has been, hot. So far, demand has absorbed these new units, but can the city support this pace of development? Will job growth and the overall need to migrate into the city’s core be enough to absorb the seemingly endless supply of new condos hitting the market?

Comment: Uh, if all the condos are selling, then there is no oversupply. Are there 20 closed sales centres with their windows boarded up? No, there aren’t. So how can there be an oversupply if the market is easily absorbing them all?

Speculative investors are artificially inflating prices

Many of the city’s condos aren’t purchased by end users. Rather, they’re often bought by investors who rent them out. If they can’t rent them, the alternative is to place them back on the market for resale, further adding to the city’s condo supply. Barry Lyon, president of N. Barry Lyon Consultants Ltd., sees this as a possible concern. “We’re all watching the rental market carefully. Thirty per cent of the condo market is defacto rental investor — some offshore but most are local.”

Comment: When there are a bunch of similar units for sale in any one building or complex at the same time, it actually pushes prices down. Since investors all tend to buy the same style of unit, they have to compete against each other to sell. Since they tend not to upgrade much, the only real way to get ahead of the competition is to price their unit a little cheaper. And again, if the resale condos are bought and easily absorbed into the market, then there are not too many and the supply is just right. In fact, we have seen a shortage of listings – both houses and condos – over the past 12-18 months. That is why there have been so many bidding wars, because buyers are fighting for the few available properties.

THE ARGUMENT AGAINST A BUBBLE

Condo prices have gone up, but Toronto is still affordable

There is a distinct difference between a condo bubble and a boom. While it’s true that the major cause of bubbles is extremely low interest rates, those rates must be coupled with other factors such as loose mortgage lending regulations, widespread speculative investment, and demand and pricing based on hype instead of intrinsic value, to name a few, resulting in a perfect storm.

Comment: We do not have loose mortgage lending. We have some investor buying, but it is not like the speculation of 20+ years ago. Whether prices are based on hype or not is up for debate. The fact is, prices are based on almost 100,000 annual sals, so there is more to it than simple hype.

Toronto’s early-2010 condo market does not meet the criteria necessary for that perfect storm to occur. There is no question we are well into a condo boom, however, the 8 per cent average annual compounded appreciation rate of condo prices over the past five years is much less than appreciation levels seen during the last bubble build-up of the late ’80s. Toronto’s condos are still considered inexpensive by global standards. “Toronto proved itself to the international market,” says John Mehlenbacher, Chief Operating Office of The Condo Store, a pre-construction condo brokerage. “[Globally, Toronto has] always been undervalued and conservative, and in these lean times, this approach allowed it to grow and prosper.”

Additionally, much of the recent demand for condos is a result of the pent-up demand from consumers who have delayed their buying decisions during the recession and are now acting.

A steady supply of new condos is healthy
Although there seems to be a new condo release every week, we are a city in constant evolution. New neighbourhoods are being created, new live-work communities are being formed, Toronto is growing and the opportunity for even a young professional to enter the realm of home ownership exists. A consistent supply of condos to the market is key to maintaining affordability in the core and furthering this positive evolution of our city.

“Affordability is the hallmark of the Toronto market,” Lyon says. “We all need to focus very carefully on that. The reason we are enjoying these big volumes of condo sales and community formation is that we are relatively affordable. And I think that’s the biggest challenge facing the community — holding [affordability] in check with an ongoing good supply. If we lose affordability we lose the great depth of market that we are servicing.”

Condo purchases by investors are not what they used to be
The reality is that investors do, in fact, represent a significant portion of condo buyers in Toronto. However, since the last real-estate bubble, stringent government regulations that limit investor over-speculation and artificially inflated prices have been imposed. Lyon explains how investors were viewed with a lot of suspicion in the earlier years.

“In the late 1980s, everyone was an investor, the cab driver, the barber, everyone was picking up a condo to flip it. Today’s investor is savvy. Foreign investors are required to put 35% deposits down; in the ’80s, that was 5%, they could just walk out of [the deal].”

Comment: Actually, deposits were as low as $1,000. That was the problem, that is easy enough to walk away from.

In addition, Canadian regulations outlaw zero-down mortgages and 40-year amortization structures as opposed to the lax mortgage-lending practices that sparked the sub-prime mortgage crisis in the US in 2007. Recently, the Canadian government is under additional pressures to further tighten these mortgage-lending restrictions.

Truth be told, a predominant view among many of Toronto’s condo experts is that, over the coming year, neither bubble argument will actually pan out. “I don’t think there’s a bubble,” Mehlenbacher comments. But the condo boom and Toronto’s hot market will, more than likely, cool. However, this is not necessarily a bad thing. Lyon forecasts a flattening market moving into 2010-2011. “I think we’re going back to 2005-2006 levels, still healthy but less inflationary. We get somewhat nervous when the market takes off. It’s not in our interest. We definitely favour a balanced market.”

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Contact the Jeffrey Team for more information  –  416-388-1960

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