Ridiculous

[OhGreatGuru]

...

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

Yes, but people often don't think of it that way. They will think "a 600 sq.ft. apt. simply isn't worth that much", assigning some imaginary intrinsic value regardless of market conditions. As a real estate investor you would be more accustomed to thinking of it in relation to the market value of other kinds of investments. Perhaps I misinterpeted the tenor of the initial post.

[Rickson9]

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...

[coin purse]

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...

I wouldn't take one person selling their assets as any indicator of an overall trend. Who knows why their selling...it could have nothing to do with their long / short term thoughts on the market.

[Rickson9]

Who knows why their selling...it could have nothing to do with their long / short term thoughts on the market.

I know why he's selling. We've had long talks about it. However, like I said, I don't really believe in anybody being able to predict the future. Hell, if somebody offered me $1M tomorrow for my tiny condo I'd sell too!

[canadianbanks]

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

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.

[Berubeland]

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.

[rbabi18]

Garth Turner is usually right about things. Everyone really should check him out.

[Rickson9]

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.

This would be awesome if it came true!

[Stompie79]

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?

[Rickson9]

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.