Last edited by OhGreatGuru; 2009-07-27 at 09:49 AM.
My friend who lives in Midland, Ontario owns 22 rental units and is looking to sell. I'm not big into indicators, but that's saying something...
Last edited by Rickson9; 2009-07-28 at 01:11 AM.
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.
Garth Turner is usually right about things. Everyone really should check him out.
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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 heís 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 hasnít 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 ďaverage basket of goodsĒ 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.
Iím 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.
Last edited by Rickson9; 2009-09-11 at 11:13 AM.