Single-income household - how much condo would you buy?

[konfusion666]

If you were a single-income household, making about the avg. income (say $50k to $60k, so use $55k as an example), how much would you spend on a condo?

Let's say you work in a field which appears to still be perfectly stable, even in the recession - and you've got enough downpayment (and then some) for a 20% downpayment to skip CMHC fees.

I know what you will say... depends on a whole host of variables and personal lifestyle aspects... so tell me what you personally would do.

[pitz]

$90-$125k. No more for a condo. Especially in this market where there's an epic glut. There's not a reason in the world why prices should be any higher than those of the mid 1990s.

[AllWheelDrift]

I'd aim for 3x gross income, which would be $165k, but that probably doesn't get you much. Some people would suggest up to 5x gross income which would be $275k but that seems way too high for my taste.

[pitz]

When I say $90-$125k, I am, of course, referring to an average condo. Not a dump somewhere in the middle of a ghetto that is in desperate need of maintenance.

3X, maybe 4X income (at the most) would be more suitable for a detached house in most of Canada. Personally I wouldn't do the full 3X multiplier on a condo.

[EugW]

$90000 in Mississauga will get you a closet in a crackhouse.

[pitz]

$90000 in Mississauga will get you a closet in a crackhouse.

Yeah, completely unsustainable. I've seen houses in Mississauga that would fetch, at the most, $250-$300k in Houston or Atlanta, go for ~$1M. With that kind of pricing, the GTA is a clusterf*ck waiting to happen.

[konfusion666]

$90000 in Mississauga will get you a closet in a crackhouse.

Hehe... not in 'Sauga. Probably something on the Yonge-University subway line.

Even better would be near my office, which is located in North York's "condo alley". That would reduce my "commute to work cost" from about $400 (gas + parking) to $0.

[caliente]

This is what I'm aiming for:
Salary $50,000
Downpayment 20% (to avoid CMHC fees and rules)
Purchase price ~ $295,000

[speedyforme]

Isn't Yonge University more expensive than Sauga? I would those condos there would cost around the same as a decent townhouse in Miss.

[playanav]

Rent

[pitz]

This is what I'm aiming for:
Salary $50,000
Downpayment 20% (to avoid CMHC fees and rules)
Purchase price ~ $295,000

Ummm 1/3rd your salary wouldn't even cover the interest expense on such a condo, lol.

[JAC]

This is what I'm aiming for:
Salary $50,000
Downpayment 20% (to avoid CMHC fees and rules)
Purchase price ~ $295,000

That leaves you with a mortgage of $236,000. With a 25-year amortization and an interest rate of 3.5%, that gives you a weekly payment of $272.

With an After-Tax Income of approximately $40,000, you take home about $770 weekly, leaving you $500 a week after mortgage payment. If you don't plan on owning a car, you might be able to pull it off.

[EugW]

Isn't Yonge University more expensive than Sauga?
Yes.

[Rehan]

Back in '99 when my wife and I were double-income-no-kids with total income about twice that, we were looking at condos at around the $120k-130k price point. Ended up getting a semi-detached for more than that, though.

Today, those same condos are $170k-$180k. That's still what I would choose for a condo... You can find cheaper places in Mississauga, but not where I'd want to live.

Good luck finding something in that price range near your work, though. Along Yonge or University, you'll be looking at $200k+.

[pitz]

That leaves you with a mortgage of $236,000. With a 25-year amortization and an interest rate of 3.5%, that gives you a weekly payment of $272.


You really think that interest rates are going to remain that low over the full 25-year amortization?



With an After-Tax Income of approximately $40,000, you take home about $770 weekly, leaving you $500 a week after mortgage payment. If you don't plan on owning a car, you might be able to pull it off.

You forgot condo fees, utilities, depreciation, etc.

[AllWheelDrift]

This is what I'm aiming for:
Salary $50,000
Downpayment 20% (to avoid CMHC fees and rules)
Purchase price ~ $295,000
Well, I guess that answers the question of who is supporting these insane valuations...

[speedyforme]

my friend just bought a $403,000 condo downtown with maintenance fee of $670, not including taxes or hydro. It's easily $1,000+ forever just to live there, not including mortgage!

[konfusion666]

Isn't Yonge University more expensive than Sauga? I would those condos there would cost around the same as a decent townhouse in Miss.

Yes, but with gas prices at 0.90, my commute to work cost is at least $400/mth right now, with a "time cost" of 2 hours per day. If gas goes up to $1.2 and beyond, my figure may increase to $450(+).

My commute to work cost would decrease from $450 to $90 if I live on the subway line and the time cost would most likely reduce as well.
And If I find something nice in one of the condo's neighboring my work (I think I have like 20 buildings to choose from) my time cost reduces to 15 minutes per day and $0 per month.

To be honest, Mississauga is the worst place to buy a condo, IMO. Condo's are really meant for an "urban" lifestyle, and pedestrian-unfriendly Mississauga is the opposite of that.

This thread seems like "deja vu" already... which I suppose is typical for this forum...

[mmhassa2]

Yes, but with gas prices at 0.90, my commute to work cost is at least $400/mth right now, with a "time cost" of 2 hours per day. If gas goes up to $1.2 and beyond, my figure may increase to $450(+).

My commute to work cost would decrease from $450 to $90 if I live on the subway line and the time cost would most likely reduce as well.
And If I find something nice in one of the condo's neighboring my work (I think I have like 20 buildings to choose from) my time cost reduces to 15 minutes per day and $0 per month.

To be honest, Mississauga is the worst place to buy a condo, IMO. Condo's are really meant for an "urban" lifestyle, and pedestrian-unfriendly Mississauga is the opposite of that.

This thread seems like "deja vu" already... which I suppose is typical for this forum...

OP I have no “advice” for you but a few years back when we purchased our first condo DH was making a little over $65K a year (single income household here as well) and we purchased our condo for $210, with maintenance fees a little under $400 which included everything except cable (but somehow there was free basic cable when we plugged in the TV lol). Along with the condo, we had car payment of $300 and all the other expenses. I see many here suggest X times your income etc but seems like many people are pulling of living comfortably with a moderate income in a condo/house worth about $250-$300K.

[speedyforme]

Oh I agree, never buy a condo in Miss.

My commute is about 3hr altogether. From leaving my house at 6:30am to getting to work at 8am and then leaving work at 4pm to getting home at 5:30pm. Go Transit costs me $210, gas for just driving to station and back is probably less than $50 a month since it's a 10 min drive.


Yes, but with gas prices at 0.90, my commute to work cost is at least $400/mth right now, with a "time cost" of 2 hours per day. If gas goes up to $1.2 and beyond, my figure may increase to $450(+).

My commute to work cost would decrease from $450 to $90 if I live on the subway line and the time cost would most likely reduce as well.
And If I find something nice in one of the condo's neighboring my work (I think I have like 20 buildings to choose from) my time cost reduces to 15 minutes per day and $0 per month.

To be honest, Mississauga is the worst place to buy a condo, IMO. Condo's are really meant for an "urban" lifestyle, and pedestrian-unfriendly Mississauga is the opposite of that.

This thread seems like "deja vu" already... which I suppose is typical for this forum...

[Germack]

This is what I'm aiming for:
Salary $50,000
Downpayment 20% (to avoid CMHC fees and rules)
Purchase price ~ $295,000


That leaves you with a mortgage of $236,000. With a 25-year amortization and an interest rate of 3.5%, that gives you a weekly payment of $272.

With an After-Tax Income of approximately $40,000, you take home about $770 weekly, leaving you $500 a week after mortgage payment. If you don't plan on owning a car, you might be able to pull it off.

LOL. This would be a quick way to bankruptcy. No money left for a car, vacation, kids etc. What do you do when interest rates increased to more normal levels e.g. 5-6%?

[EugW]

What do you do when interest rates increased to more normal levels e.g. 5-6%?
Or 7%+.

I don't think it's unreasonable to factor in a possible 7-8% interest rate in 2014, when that 2009 5-year fixed rate mortgate gets renewed, although I do agree a rate closer to 6% is more likely.

I do think it's rather unlikely we'll see double-digit interest rates though.

[pitz]

Or 7%+.


7-9% is the historic 'norm' for mortgage rates in Canada. Mean reversion isn't outside the realm of possibility at all.



I don't think it's unreasonable to factor in a possible 7-8% interest rate in 2014, when that 2009 5-year fixed rate mortgate gets renewed, although I do agree a rate closer to 6% is more likely.


If you look at 1970-1980 rates on the Bank of Canada website, it didn't take all that long for rates to spike far more.

And usually, when you have mean-reversion, periods of abnormally low interest rates are followed by periods of abnormally high interest rates. Since there's overcapacity in the marketplace, this could be an absolutely toxic combination.

[Muncher]

Play around with some scenarios using something like

http://www.canadamortgage.com/calculators/affordability.cgi?CFID=2894695&CFTOKEN=57305739

or buy this and see if you can afford some prepayments

http://www.amortization.com/mortgage2_pro.htm

(I used Mortgage2 Pro and updated it every month to reflect my current situation - it's very helpful and also scares the ... out of you when you see how much interest you end up paying!)

[Germack]

I am always surprised what some people are willing to give up for owning a home. Yes, they own their condo/house but they have no money left for a car, vacation, going out with friends, eating out, kids, toys etc. This sounds like a sad live to me.

[EugW]

If you look at 1970-1980 rates on the Bank of Canada website, it didn't take all that long for rates to spike far more.
I'm well aware of that period. I also think it's rather unlikely for 2014, as I've already said.

Just because you seem to like fear mongering, doesn't mean the rest of us have to buy into it.

[konfusion666]

I am always surprised what some people are willing to give up for owning a home. Yes, they own their condo/house but they have no money left for a car, vacation, going out with friends, eating out, kids, toys etc. This sounds like a sad live to me.

Some people have very frugal lifestyles. I am sure there are people who don't own OR rent and still are not big on owning a flashy new car, going out to expensive clubs every weekend, hitting a Caribbean resort every 6 months, etc.

Which is why I've always been suspicious of the "don't spend more than XX% on your living expenses" rule. It seems to be predicated on a particular "pleasure-heavy" lifestyle, IMO.

[ssainani]

i think you need to spend 190-230k to have a reasonable nice condo in the 416

this is a 1 bedroom in a proper non crackhouse building with parking .. so you should aim around here

you can spend 60k and buy a 2 bedroom dump on kipling and dixon .... but it'll be worth even less in 4 years ---

[pitz]

I'm well aware of that period. I also think it's rather unlikely for 2014, as I've already said.


And why do you think that? I think the opposite, due to overcapacity in the housing industry, a large need for industrial and government credit, and a limited base of savings to draw upon, especially with relatively low employment and capacity utilization.



Just because you seem to like fear mongering, doesn't mean the rest of us have to buy into it.

You're spreading fear by saying that interest rates won't go up to such an extent that savers get compensated enough to keep up with inflation.


this is a 1 bedroom in a proper non crackhouse building with parking .. so you should aim around here

The dillema for the OP, or anyone wanting to buy a house/condo/etc. right now is whether they should accept that the market is fairly and efficiently pricing the future, given all of the trends, demographic and economic, or whether the market is completely wrong.

Its a tough one; if there's extremely strong salary inflation (ie: salaries double or triple in the next couple years), then maybe paying current market prices makes sense.

To me, the whole situation looks like the tech bubble though; houses essentially have no earnings (once you properly subtract for depreciation items, and unrealistically low cost of debt financing), but are still trading at sky-high prices.

[hhh]

$90-$125k. No more for a condo. Especially in this market where there's an epic glut. There's not a reason in the world why prices should be any higher than those of the mid 1990s.

lol, where can you buy a condo in Toronto for that price range??

[bmw_xperience]

That leaves you with a mortgage of $236,000. With a 25-year amortization and an interest rate of 3.5%, that gives you a weekly payment of $272.

With an After-Tax Income of approximately $40,000, you take home about $770 weekly, leaving you $500 a week after mortgage payment. If you don't plan on owning a car, you might be able to pull it off.

+1 so true..
the $500 would need to pay for food, networking, taxes, utilities, cell phone bills, Cable, internet, gas, car/TTC fare.

[pitz]

lol, where can you buy a condo in Toronto for that price range??

You can't; that's exactly my point. Prices have to fall in order for the average housing unit to be affordable to the average person.

:( :( :(

[mark2000]

I have to agree with people on the thread. Unfortunately, $50k income really won't leave you with much of an option. I live in the heart of downtown in a decent 650 sq ft one-bedroom. Taxes, condo fees and interest are $900 ALONE combined - that's before anything is put down on the principal.

[konfusion666]

I have to agree with people on the thread. Unfortunately, $50k income really won't leave you with much of an option. I live in the heart of downtown in a decent 650 sq ft one-bedroom. Taxes, condo fees and interest are $900 ALONE combined - that's before anything is put down on the principal.

What do you mean, "people in this thread"? Everyone here is saying something different!

What do YOU think a $50k income person should be spending?

[mark2000]

What do you mean, "people in this thread"? Everyone here is saying something different! What do YOU think a $50k income person should be spending?Nothin'. You can't really afford a condo at that salary in Toronto.

[rems]

If you were a single-income household, making about the avg. income (say $50k to $60k, so use $55k as an example), how much would you spend on a condo?

Let's say you work in a field which appears to still be perfectly stable, even in the recession - and you've got enough downpayment (and then some) for a 20% downpayment to skip CMHC fees.

I know what you will say... depends on a whole host of variables and personal lifestyle aspects... so tell me what you personally would do.

Budget.

Figure out how much you will spend on entertainment,food, hydro, transportation, internet, and all other expenses on top of the property tax, condo fees and mortgage.

If you can still save after all those things, then buy the place.

[champlinD]

Hehe... not in 'Sauga. Probably something on the Yonge-University subway line.

Even better would be near my office, which is located in North York's "condo alley". That would reduce my "commute to work cost" from about $400 (gas + parking) to $0.
I don't see a problem here. Lots of people have been doing this for years.
The problem I see is your "Alley" is bit expensive upwards 225,000. But if you move near Fairview Mall Don Mills area, then its cheaper like 200,000. That area is not bad.

This is RFD and you will see lots for and against. Mind you its your money and you are responsible for spending wisely. All I/We can say is, I told you so when things go wrong.

But yes its doable if you wish. First two years will test you and will be tight.

Edit:Checkout www.realtor.ca site
http://img37.imageshack.us/img37/577/condo1.th.jpg (http://img37.imageshack.us/my.php?image=condo1.jpg)

[konfusion666]

Nothin'. You can't really afford a condo at that salary in Toronto.

I guess I have to say I disagree then...

That said, I do think the poster who makes $50k and is going to buy a $295k place is a bit crazy. Personally, I am sitting at $60k and have given myself an upper cap of $240k if I end up with a place walking distance from my office, or $230-$235k if I need to take TTC/drive.

[EugW]

I guess I have to say I disagree then...

That said, I do think the poster who makes $50k and is going to buy a $295k place is a bit crazy.
I guess it depends somewhat on the condo fees, but then again, I suspect that the condo fees for a $295000 condo are going to be relatively high. And if they aren't high, one has to wonder if the condo corporation has enough in their emergency fund.

Anyways, the mortgage on a $295000 place at 3.75% and 20% down is "only" ~$1000 a month. However, that's with the amortization maxed to the hilt at 35 years. Not recommended if that $1000 is all you can afford.

At the end of 5 years, there is still $218000 left on the mortgage. If interest rates are just 7.2% at that time, then you're SOL. Monthly payments would go up by $400 (40%!) per month to over $1400, and that's with renewing again for a 35 year amortization. Even just a 6% rate would bring the monthly payment to $1230 with a 35 year amortization.

[konfusion666]

At the end of 5 years, there is still $218000 left on the mortgage. If interest rates are just 7.2% at that time, then you're SOL. Monthly payments would go up by $400 (40%!) per month to over $1400, and that's with renewing again for a 35 year amortization. Even just a 6% rate would bring the monthly payment to $1230 with a 35 year amortization.

Yeah but doesn't everybody have to deal with that? i.e. here's a scenario of a more "sane" person.

initial mortgage amount - $192k
25 year period
3.6% - 5 year fixed
payment amount $969

after 5 years, 26k of principal has been paid off.

he renews mortgage... for a 20 year amort period.

new mortgage amount - $166k
20 year period
6.25% - 5 year fixed

payment amount $1206

increase of 24.5%!

sidenote: $969 after 5 years of 3% inflation becomes $1123. $1206 is only 7% higher than $1123. so not that bad, in "real" terms.

Moral of the story: Everyone serious about paying off their mortgage should be making pre-payments!

[mark2000]

Moral of the story: Everyone serious about paying off their mortgage should be making pre-payments!Forget that... why be bound the rules of a mortgage. A Home Equity Line of Credit is a much better option... then you can pay it off how you want, when you want, and the interest rates tend to be much lower on those.

[i6s1]

Rent.

You'd have to be insane to buy a condo now. Condos don't usually appreciate more then inflation, and any increase in value is essentially reduced by the increased strata costs as the building ages. It's only been between 2000 and 2008 that they significantly increased in value. That's not normal, and it won't be in the future.

Just wait 6 months, and you'll see. Layoffs started around Christmas of last year. This fall, the EI benefits will start running out for the first victims of the downsizing. We'll see a lot of selling, and prices will plumet.

I guarentee that house prices will fall over the next year. For many people, buying a condo in a major city now will be the worst financial decision in thier lives.

[JAC]

You really think that interest rates are going to remain that low over the full 25-year amortization?
Obviously not. But in five years, a lot can change. He can get a raise, he can get married and have two incomes paying the bills.


You forgot condo fees, utilities, depreciation, etc.

LOL. This would be a quick way to bankruptcy. No money left for a car, vacation, kids etc. What do you do when interest rates increased to more normal levels e.g. 5-6%?

It all depends on his priorities, and how much he wants to own his own place.

[evoviii]

Some people have very frugal lifestyles. I am sure there are people who don't own OR rent and still are not big on owning a flashy new car, going out to expensive clubs every weekend, hitting a Caribbean resort every 6 months, etc.

Which is why I've always been suspicious of the "don't spend more than XX% on your living expenses" rule. It seems to be predicated on a particular "pleasure-heavy" lifestyle, IMO.

It's a matter of balance, I wouldn't want to house rich and cash poor. Part of the value of a condo is proximity to amenities/attractions which is sometimes why I don't understand condos in suburban areas.

I'm not a fan of condos at this point in the market given the run up in construction, if there's no hurry it doesn't hurt to wait.

Rates are amazing but most taking out mortgages are more than likely signing for the 5 year fixed specials. One would have to factor increasing mortgage rates as economy recovers and inflation becomes a concern.

[EugW]

It's a matter of balance, I wouldn't want to house rich and cash poor. Part of the value of a condo is proximity to amenities/attractions which is sometimes why I don't understand condos in suburban areas.
Being house rich and cash poor is not necessarily a bad thing for many people. Frugality and accelerated mortgage payments often go hand-in-hand. Also, it's nice to be where the action is, but that doesn't mean one has to go out every second night either. Condo living is for the convenience factor, and condo living near more amenities increases that convenience factor. It's even more convenient if that condo is very near work.

As for condos in suburban areas, they do command lower prices, but they're still convenient.

Anyways, I was house rich and (relatively) cash poor for years... but ended up being significantly further ahead financially years down the line than several acquaintances with somewhat similar circumstances. Personally, I never saw the need to get a more expensive car, eat out 5 days a week, or fly somewhere exotic every year.

[dealguy2]

Don't do it man. You'll be priced in forever.

[rekearb]

This is an interesting point. Though, I've heard the opposite that a lot of downtown condo prices are in their construction stage right now and are quite cheap and will rise once they are completed. Is there anymore news to read about this?


Rent.

You'd have to be insane to buy a condo now. Condos don't usually appreciate more then inflation, and any increase in value is essentially reduced by the increased strata costs as the building ages. It's only been between 2000 and 2008 that they significantly increased in value. That's not normal, and it won't be in the future.

Just wait 6 months, and you'll see. Layoffs started around Christmas of last year. This fall, the EI benefits will start running out for the first victims of the downsizing. We'll see a lot of selling, and prices will plumet.

I guarentee that house prices will fall over the next year. For many people, buying a condo in a major city now will be the worst financial decision in thier lives.

[speedyforme]

This is an interesting point. Though, I've heard the opposite that a lot of downtown condo prices are in their construction stage right now and are quite cheap and will rise once they are completed. Is there anymore news to read about this?

The question is, are the buyers of the condos speculators or home owners and at what percentage?

[pitz]

This is an interesting point. Though, I've heard the opposite that a lot of downtown condo prices are in their construction stage right now and are quite cheap and will rise once they are completed. Is there anymore news to read about this?

Sounds like Realtor-speak to me, lol.

[rems]

Why must everything be a financial investment?
If you want your own place and can afford it, why not get it?
Not everything has to be about how much you can resell the condo for or how much it will appreciate in value.
You still get something out of owning a condo than how much the future value of this place will be.
And I don't mean to say to disregard the future value of the condo outright. But how much it's gonna be worth in the future should NOT be the only deciding factor.

[sleepyguy]

I agree with you somewhat; BUT

"Why must everything be a financial investment?"

Well let's see here... because it will probably be the BIGGEST amount of cash you'll spend in probably your lifetime? I think that says it right there.

[sleepyguy]

Also to OP,

For a 55K salary and marginal spending habits. I would say 2.5x salary MAX mortgage. I'd say wait a bit to build up the downpayment if possible (I'm sure properties aren't skyrocketed in this economy currently) so you can afford a bit more.

On the save side I would say 2x mortgage. You'll be more conforatable with the mortgage payments and have better cash flow and peace of mind. -sg

[rems]

I agree with you somewhat; BUT

"Why must everything be a financial investment?"

Well let's see here... because it will probably be the BIGGEST amount of cash you'll spend in probably your lifetime? I think that says it right there.

very true. But i mean you're gonna live there. It's not just something to make your money grow. If it was an investment property then yes you should definitely make the future value of it a top priority. As long as the value won't drop to something drastic, then why not purchase it if you think the current value is reasonable and you can afford it.

[commie]

I don't really agree with the commonly followed logic of spending X amount of your salary on mortgage/houses..

There is so much more variables to this...your spending habits, your priorities, and where you are in your lifecycle.

you could be making $100K and if you have many expenses like car payments,toys, eating out etc....then 2-3X is not feasible.
Someone else making 50K but has no other expenses, can afford more..

My parents, and i know a lot of other families....made less than the OP....but they were able to buy a house for $300K, when interest rates were much higher..Yet they were able to manage the house payments and raise all the kids through university.. Its a matter of making choices, and deciding on your priorities. Through a few house moves and riding the housing boom and bust ..Their current property is probably worth over $600K mortgage free.

[windstorm]

Why must everything be a financial investment?
If you want your own place and can afford it, why not get it?
Not everything has to be about how much you can resell the condo for or how much it will appreciate in value.
You still get something out of owning a condo than how much the future value of this place will be.
And I don't mean to say to disregard the future value of the condo outright. But how much it's gonna be worth in the future should NOT be the only deciding factor.

^X2. There are advantages to owning that go beyond the financial gain (which you may never realize - you will always need to live somewhere)

Condo buildings are usually a lot nicer and better maintained than rental properties. If you participate in the condo board you will have a say in how the building is run. You can renovate and modify a condo apartment to your liking. IMO If you are looking strictly for financial gains then buy investment properties... your primary residence has more important needs to fill.

Regarding the original question, the most important factor is determinig how much you are willing to spend, per month, on your accommodation. Then subtract property taxes, utilites, condo fees, etc. and do a reverse mortgage calculator on what's left over.. that will tell you what price you can afford.

[AllWheelDrift]

Regarding the original question, the most important factor is determinig how much you are willing to spend, per month, on your accommodation. Then subtract property taxes, utilites, condo fees, etc. and do a reverse mortgage calculator on what's left over.. that will tell you what price you can afford.
But that assumes mortgage rates will remain at all time lows... You should probably do the reverse calculations assuming an interest rate of at least 5%, more like 7-8% if you want to feel secure about what might happen the first time you need to renew your mortgage.

[i6s1]

Why must everything be a financial investment?
If you want your own place and can afford it, why not get it?
Not everything has to be about how much you can resell the condo for or how much it will appreciate in value.
You still get something out of owning a condo than how much the future value of this place will be.
And I don't mean to say to disregard the future value of the condo outright. But how much it's gonna be worth in the future should NOT be the only deciding factor.

You are correct to some extent. There are some benefits and costs to owning that aren't financial. But when all signs (except realtors and banks) are pointing towards plummeting house prices, a person should consider the strong likelyhood that they're going to be losing hundreds or thousands per month to deflation. And they're going to lose everything if interest rates get past 10%. Since there's not much money to be made telling people not to buy something, most people haven't heard that message.

Real estate IS a financial investment, and that fact is unavoidable since it costs so much. A person who enters the market is (usually) making the biggest financial decision of their life.

A person should understand that all signs point to lower housing prices in the future. The average selling price in TO has fallen $1087/month for the last year. In Vancouver, it's $8004/month.

Someone who bought a house a year ago just threw away a year's salary. Were the benefits to home ownership worth that much?

[NuclearBlast]

lol, where can you buy a condo in Toronto for that price range??
Plenty of condos for that price in Jane&Finch area ;)
http://www.realtor.ca/propertyDetails.aspx?propertyId=8170628
http://www.realtor.ca/propertyDetails.aspx?propertyId=8214375
http://www.realtor.ca/propertyDetails.aspx?propertyId=8308506

[konfusion666]

You are correct to some extent. There are some benefits and costs to owning that aren't financial. But when all signs (except realtors and banks) are pointing towards plummeting house prices, a person should consider the strong likelyhood that they're going to be losing hundreds or thousands per month to deflation. And they're going to lose everything if interest rates get past 10%.


No offense, but various people on this forum have been talking about the upcoming "real estate crash" for almost 3-4 years now. There hasn't been a "crash" yet, although there have been "corrections" in a number of areas. So it's a little hard to believe in something like that when we're supposed to be out of the recession by the end of the year.

[caliente]

This is what I'm aiming for:
Salary $50,000
Downpayment 20% (to avoid CMHC fees and rules)
Purchase price ~ $295,000


That leaves you with a mortgage of $236,000. With a 25-year amortization and an interest rate of 3.5%, that gives you a weekly payment of $272.

With an After-Tax Income of approximately $40,000, you take home about $770 weekly, leaving you $500 a week after mortgage payment. If you don't plan on owning a car, you might be able to pull it off.

I guess I should have explained more. The unit I'm looking at is a newer building (less than 2 years old), around 710 sqft with parking and locker (which I intend to rent out), and is right downtown one block from the subway. To rent a similar unit would be $1500-1700.

I don't need a car and since I'm within walking distance to work and play, there is no need for transit fares either. I definitely do not live extremely frugally, but still only spend MAX $1000 per month on "life" costs - sometimes only $500 if I'm working lots. I think I spend much less on food than most people (semi-vegetarian ~$250 monthly from actual grocery stores) and am not into expensive toys like electronics. I think I go out quite often given my work schedule, but I do not have many daily expenses (no coffee habit, bring own lunch usually or provided at work, cheap drunk).

I'm going to stay here for at least 6 years, and will likely rent to family after that. Most importantly, my salary will rise substantially over this time (colleagues earning $100,000 - 350,000 after 3-6 years depending where and how they work) . I also must admit that I have family to fall back on, a luxury others may not have, and they have indicated that they plan to make pre-payments on my behalf should interest rates after 5 years become unmanageable for me.

I'm not looking for this to be an investment. I'd be happy with breaking even in the long run, but realize that I may lose (a lot of) money too. As other mentioned, there are other non-monetary benefits to owning compared to renting. This is an acceptable trade-off to me.

But all of you are correct - the condo is "too expensive" for me at the current time and I had to get a co-signer for the mortgage. I will write back in 5+ years if things turn out terribly though - I'm definitely someone who overestimates potential benefits and underestimates potential negatives.

[i6s1]

No offense, but various people on this forum have been talking about the upcoming "real estate crash" for almost 3-4 years now. There hasn't been a "crash" yet, although there have been "corrections" in a number of areas. So it's a little hard to believe in something like that when we're supposed to be out of the recession by the end of the year.

Supposed to be out of recession this year? This CBC article says it's the worst since the Great Depression.

http://www.cbc.ca/money/story/2009/05/27/f-odd-economic-indicators-canada.html

The IMF says the worldwide recession is worst in 6 decades.

http://www.thestar.com/Business/article/622417

It's not like we've predicted a crash that hasn't come. It's here.

http://www.housepriceindex.ca/admin.aspx?mode=voirHTML&nonews=76&qui=1421&langue=EN

http://www.housepriceindex.ca/images_template/ChartEN02_00030.gif

And this is with the lowest interest rates in history. When the central bank rate hits 0%, it means that they're out of ammo to battle the recession.

[caliente]

No offense, but various people on this forum have been talking about the upcoming "real estate crash" for almost 3-4 years now. There hasn't been a "crash" yet, although there have been "corrections" in a number of areas. So it's a little hard to believe in something like that when we're supposed to be out of the recession by the end of the year.

Supposedly real estate is all about location, location, location:cheesygri
So presumably some areas are more likely to crash/"correct" more spectacularly than others. To me, living in a condo is about convenience and lifestyle. I don't understand people who buy condos where they still have to commute to work, especially if it is over 30 minutes one-way, although I know this is quite common.

[Rehan]

It's not like we've predicted a crash that hasn't come. It's here. Those charts show y/y growth, not a housing price index. In Calgary, if the price of a $200k home rises 10% in 2006, 45% in 2007, 10% in 2008 and then drops 9% in 2009, that's still a 60% rise over 4 years. That's not a crash...none of your charts shows a crash. This (http://www.realcincy.com/wp-content/uploads/2009/05/cincinnati-prices-april.jpg) is a crash -- note that the chart shows the price rather than the rate of growth and the price today is lower than in in the early 90's. The story is similar in many US cities, but it hasn't been the case in Canada.

[pitz]

No offense, but various people on this forum have been talking about the upcoming "real estate crash" for almost 3-4 years now. There hasn't been a "crash" yet, although there have been "corrections" in a number of areas. So it's a little hard to believe in something like that when we're supposed to be out of the recession by the end of the year.

Real estate prices can still drop even if theres not a 'recession' or a recession is over. That's actually a fairly likely scenario; lower priced housing would result in more investable income, which, in turn, would lift us back into economic prosperity.

[i6s1]

Those charts show y/y growth, not a housing price index. In Calgary, if the price of a $200k home rises 10% in 2006, 45% in 2007, 10% in 2008 and then drops 9% in 2009, that's still a 60% rise over 4 years.

Yes... but it's still a 9% drop in one year. The question isn't whether 2006 was a good time to buy or not, it's a question of whether now is a good time to buy.


That's not a crash...none of your charts shows a crash. This (http://www.realcincy.com/wp-content/uploads/2009/05/cincinnati-prices-april.jpg) is a crash -- note that the chart shows the price rather than the rate of growth and the price today is lower than in in the early 90's. The story is similar in many US cities, but it hasn't been the case in Canada.

Before we get too detailed about the definition of the word "crash", let's remember that it was k666's term, not mine. I don't think you can apply the stock market definition, just because house prices move far slower then stock market fluctuations. We've clearly seen house price reductions, which the conventional wisdom said would not happen.

Looking at the (inflation adjusted) chart for Cincinnati, you can see that the price drop took 3 years, with only about 5% coming in the first year.

If you consider a crash to be a 10% price drop in a year, then we have seen a crash in Calgary and Vancouver after inflation.

In fact, it took Cincinnati almost 2 years to drop as far as Vancouver and Calgary did in one year. Toronto is also falling at a faster pace then Cincinnati, just lagging 2 years behind.

Lastly, even if we haven't yet seen a crash, we could still be on the edge of one.

[EugW]

To put things in perspective:

I just went through some calculations elsewhere. In one area in downtown Toronto in 1995, a resale 1050 sq. ft. condo would go for about $152 per square foot. Current pricing is around $383 per square foot for the same type of unit. If we were to say get a 10% drop from 2009 prices in the next two years (which I think is possible, but not guaranteed), that would push pricing to $345 per square foot by 2011.

$152 -> $345 in 16 years means a yearly compounded rate of return of a little over 5%. That is a healthy rise, but not as huge of one as some may think it is.

http://www.wheretrustbegins.com/account/0cd000e1062e605e/pages/9237_2.jpg

BTW, a further 10% drop by 2011 is something I would consider a reasonable correction, not a crash, and I wouldn't be surprised if it bottomed out there.

[pitz]

$152 -> $345 in 16 years means a yearly compounded rate of return of a little over 5%. That is a healthy rise, but not as huge of one as some may think it is.


But the study done by Robert Shiller showed that the long-term price return on real estate is less than inflation. The only return in real estate is the coupon, ie: either being able to live there free (an imputed return), or actual rent.

5% is an outrageous return when inflation, over the past 16 years, has been ~2%, and is completely unjustified.



BTW, a further 10% drop by 2011 is something I would consider a reasonable correction, not a crash, and I wouldn't be surprised if it bottomed out there.

I'd be very surprised if indeed there was a bottom at 'just' 10%. That's hugely optimistic. If inflation takes off, stagnation in prices may very well occur (the stock market would see huge gains, esp. resource stocks).

BTW, your TREB chart is *highly* misleading, as it does not adjust for quality (ie: houses have become much larger), and the curve that is fitted really places too much bias on recent gains, and not enough on the historic trend. A proper exponential fitting probably would put the price closer to $200k, which, incidentally, is more in line with the fundamentals of affordability.

[EugW]

But the study done by Robert Shiller showed that the long-term price return on real estate is less than inflation. The only return in real estate is the coupon, ie: either being able to live there free (an imputed return), or actual rent.

5% is an outrageous return when inflation, over the past 16 years, has been ~2%, and is completely unjustified.
Well, first off, my other calculation was just for specific buildings in downtown Toronto. However, if you want to use historical inflation rates, why don't we do the calculation all the way back to 1953 then, for overall Toronto pricing?

The inflation rate (http://www.bankofcanada.ca/en/rates/inflation_calc.html) since 1953 to 2009 has averaged 3.83%. An average home in Toronto in 1953 went for $14424. Using that 3.83% rate compounded annually for 56 years, average home prices should now in 2009 be $118000.

So, unless you think that home prices in Toronto are going to drop by 70% (!) to what they were over 25 years ago, I'd say you should probably rethink your position on this.

BTW, according to TREB, the average home price in 1995 was $203000. The average price in 2007 was $376000. Let's predict that 2009 prices could be roughly similar to 2007 prices.
With another 10% drop, that'd bring things down to about $338000. Calculations of hypothetical price increases since 1995 yields us this:

Using a 6.2% trend line, home prices in 2011 should be around $530000. I don't believe this will happen obviously.
Using a 5.00% trend line, home prices in 2011 should be around $443000.
Using a 3.90% trend line, home prices in 2011 should be around $375000.
Using a 3.25% trend line, home prices in 2011 should be around $339000.
Using a 1.90% trend line, home prices in 2011 should be around $275000.

So, if we use overall Toronto home prices (and not just specific downtown pricing) with my prediction of another 10% price drop, that'd mean only a 3.25% rate of increase from 1995 to 2011. Not unrealistic at all. Yeah, that's more than 1.9%, but really, not much more, and we've already shown that Toronto home prices have increased more than inflation.



I'd be very surprised if indeed there was a bottom at 'just' 10%. That's hugely optimistic.
Nah, going by historical valuations, it's realistic. Now it's possible the drop could be more, but it's also possible the drop could be less. I wouldn't be surprised either way.


If inflation takes off, stagnation in prices may very well occur (the stock market would see huge gains, esp. resource stocks).
Stagnation in prices is not a drop. It is a drop relative to inflation, but that's a different measure.

[pitz]

So, unless you think that home prices in Toronto are going to drop by 70% (!) to what they were over 25 years ago, I'd say you should probably rethink your position on this.


I think they will drop by 50% in real terms over the next number of years. Also, I made a point earlier about 'identical properties', which is the concept that modern housing includes many more amenities that are not found in the houses build in the 1930s, 40s, and 50s. For instance, square footage has grown enormously. The quality of HVAC is light years ahead of the old systems. Insulation, etc.



So, if we use overall Toronto home prices (and not just specific downtown pricing) with my prediction of another 10% price drop, that'd mean only a 3.25% rate of increase from 1995 to 2011. Not unrealistic at all. Yeah, that's more than 1.9%, but really, not much more, and we've already shown that Toronto home prices have increased more than inflation.


But such increases are not sustainable; rents, which ultimately are reflected in housing prices (with appropriate depreciation and discounting), *are* the quintessential indicator of inflation. To accept that Toronto housing prices grow faster than inflation, is to accept that housing will take an ever-increasing portion of a person's wages as either rent, or debt service, until such a point that a person basically is handing over the entirety of their employment paycheque to their landlord or their bank. Obviously not a sustainable situation. Not sustainable in Vancouver, not sustainable in the GTA.



Stagnation in prices is not a drop. It is a drop relative to inflation, but that's a different measure.

Well the scenario I see is that house prices will remain flat or only slightly down, but consumer prices will rise substantially because of all the liquidity injection and the collapse of industrial production. In Canada, a big driver of such could be a stock market bubble in the resource stocks (which haven't been in a bubble since the early 1980s), where everyone is rushing to sell their excess real estate, and get into the stock market, thus destroying real estate prices.

[EugW]

I think they will drop by 50% in real terms over the next number of years. Also, I made a point earlier about 'identical properties', which is the concept that modern housing includes many more amenities that are not found in the houses build in the 1930s, 40s, and 50s. For instance, square footage has grown enormously. The quality of HVAC is light years ahead of the old systems. Insulation, etc.

But such increases are not sustainable; rents, which ultimately are reflected in housing prices (with appropriate depreciation and discounting), *are* the quintessential indicator of inflation. To accept that Toronto housing prices grow faster than inflation, is to accept that housing will take an ever-increasing portion of a person's wages as either rent, or debt service, until such a point that a person basically is handing over the entirety of their employment paycheque to their landlord or their bank. Obviously not a sustainable situation. Not sustainable in Vancouver, not sustainable in the GTA.
I agree the price increases are not sustainable. However, that's why long term prices increases in Toronto will likely slow over time. And after a while, I think they will also start to more closely mirror inflation. IOW, the curves will start to run more parallel to each other.

However, that's a far cry from expecting prices to drop 30%, 40%, or 50% in value in the near future, even after factoring in inflation.

To put it another way, even if pricing matches inflation at the end of the next 10 years, that means housing prices will increase 22% over that time period. To drop 50% after inflation in that time period means prices would have to be lower by over a third by 2019. That's a pretty unlikely scenario.

To put it yet another way, even if home prices in 2019 are exactly the same as they are today for equivalent homes (which again is unlikely IMO), their "value" after inflation is only 22% lower at recent inflation rates.



Well the scenario I see is that house prices will remain flat or only slightly down, but consumer prices will rise substantially because of all the liquidity injection and the collapse of industrial production. In Canada, a big driver of such could be a stock market bubble in the resource stocks (which haven't been in a bubble since the early 1980s), where everyone is rushing to sell their excess real estate, and get into the stock market, thus destroying real estate prices.
That's a pretty big guess.

[leoben]

This is what I'm aiming for:
Salary $50,000
Downpayment 20% (to avoid CMHC fees and rules)
Purchase price ~ $295,000

How uncanny. I'm doing the same thing. same salary, same down payment, same purchase price, so i guess you're not the only "insane" person according to this board. But I don't see my salary going up to 6 figures in 5 years. But I don't live in Toronto, I live in Ottawa. The nature of most people's jobs here puts a damper on housing prices, or so I think.. no huge increase but no huge drop either. If the rates increase to >5% after 5 years, and my salary in 5 years can't afford that, i'll sell it.

by the way, i have no kids, i dont plan on marrying or anything. if i spend about:

$1100 on monthly mortgage payments
$100 bus pass,
$100 internet + phone
$300 groceries
$300 to the needy and the church

then Ill have a few hundred of dollars to spare. sure, i'm crazy, but it's my life. also, i did not factor in the property tax, but i pay that at the end of the year so i'll think about that, end of year.

[slowtyper]

I'm bumping this because I am also thinking about something similar as the OP. I'm enjoying the discussion and would liek to continue reading if anybody else has more to add.

Also, if anybody has links to other resources that discuss the same, I would like to read those as well.

Thanks

[Germack]

How much condo/house prices are going to fall depends on how much interest rates are going to rise. Let's assume we buy a house for $300,000.

The cost to own this house per year at an interest rates of 3.75% is: ~$20250
~$9000 fixed costs (Maintenance, utilities, taxes etc) + ~11250 variable costs (interest/opportunity costs)

If interest rates should increase to 6% the cost to own this house would increase to ~$27000 (~$9000 fixed costs + $18000 variable costs)

Canadians cannot afford to spend even more money on housing therefore house prices have to fall when interest rates rise. To have the same ownership costs at an interest rate of 6% as compared to 3.75 % the house price has to fall to $187,000 or around 38%

[ssainani]

Canadians cannot afford to spend even more money on housing therefore house prices have to fall when interest rates rise.

what makes you so sure of this? :confused:

[konfusion666]

Looks like we're back in bidding war territory for North York condos. People are paying $15-25k premium over the same unit 4 months ago... I guess that's just the 3.75% interest rate from May at work...

[slowtyper]

Looks like we're back in bidding war territory for North York condos. People are paying $15-25k premium over the same unit 4 months ago... I guess that's just the 3.75% interest rate from May at work...

I'm curious, where do you get this information from? Are you just watching list prices or is there a better way? Any tips on resources where I can read more specifically about the Toronto real estate market?

Thanks

[ullyeus]

What I personally did was spend $200,000 on my condo.

I made about 60k at the time of purchase (about 18 months ago) and now make about 100k.

It was pretty much the cheapest condo you could find in the city at the time.

[slowtyper]

What I personally did was spend $200,000 on my condo.

I made about 60k at the time of purchase (about 18 months ago) and now make about 100k.

It was pretty much the cheapest condo you could find in the city at the time.

What area is the condo is?

[konfusion666]

I'm curious, where do you get this information from? Are you just watching list prices or is there a better way? Any tips on resources where I can read more specifically about the Toronto real estate market?

I am currently in the middle of a condo search in the North York area and am working with a realtor who has access to all that sort of information.

Price-wise, it's not looking pretty if you're looking for a condo in a good location in North York (i.e. NYCC, Yonge/401, etc.)

So I may end up canceling my search and waiting till the winter or something... lol.

[ptownplayer]

I am currently in the middle of a condo search in the North York area and am working with a realtor who has access to all that sort of information.

Price-wise, it's not looking pretty if you're looking for a condo in a good location in North York (i.e. NYCC, Yonge/401, etc.)

So I may end up canceling my search and waiting till the winter or something... lol.



I really didnt think there was bidding wars when it came to condos ...maybe some lakefront condo I could understand that. There is a million condos in the yonge &sheppard/finch area and like 10 condo buildings being constructed. I could understand bidding on a nice single lot home in the area...but a condo? ..not a chance.

[konfusion666]

I really didnt think there was bidding wars when it came to condos ...maybe some lakefront condo I could understand that. There is a million condos in the yonge &sheppard/finch area and like 10 condo buildings being constructed. I could understand bidding on a nice single lot home in the area...but a condo? ..not a chance.

when i say bidding wars i'm really just referring to multiple offers per unit so the SOLD price ends up being waaaay ahead of the LISTED price.

example: there was a unit on Doris avenue in a 12 year old condo building which was listed at $218k.

the seller set up an "offer day" and presumably he/she was flooded with offers on that day...

so it sold for $255k.

ridiculous!

so anyways if you want to act like i'm lying or something, go ahead, i don't really care. :cheesygri

[chrome_dout]

My understanding is that a lot of people buying condos are not from here. They most likely have a lot more money to throw around and this results in the lack of significant condo price drops in the GTA. Also this would explain the lack of 4th floors in many new buildings. :)

[nirianto]

There are lots of upcoming condo on yonge and sheppard area:

- Gibson Square by Menkes. Yonge and Empress. Occupancy Oct 2012
For a 1 bedroom + den (<700sq ft) will cost about ~370k.
There will be retail stores at the lobby and also 20,000sq ft amenities
http://www.gibsonsquarecondos.com/

- Savvy Condo by Menkes. South-East of Yonge and Sheppard. Occupancy Fall 2011
For a 2 bedroom ~900sq ft will cost about ~340k. Similar finish to gibson square but smaller amenities.

- Hullmark Condo by Tridel. Yonge and Sheppard
http://www.tridel.com/hullmarkcentre/

[Joe Camel(Toe)]

There are lots of upcoming condo on yonge and sheppard area:

- Gibson Square by Menkes. Yonge and Empress. Occupancy Oct 2012
For a 1 bedroom + den (<700sq ft) will cost about ~370k.
There will be retail stores at the lobby and also 20,000sq ft amenities
http://www.gibsonsquarecondos.com/

- Savvy Condo by Menkes. South-East of Yonge and Sheppard. Occupancy Fall 2011
For a 2 bedroom ~900sq ft will cost about ~340k. Similar finish to gibson square but smaller amenities.

- Hullmark Condo by Tridel. Yonge and Sheppard
http://www.tridel.com/hullmarkcentre/

You can add Metro Place condos @ Allen Road/Sheppard to the list - other side of the subway line, but a wonderful deal.

[slowtyper]

when i say bidding wars i'm really just referring to multiple offers per unit so the SOLD price ends up being waaaay ahead of the LISTED price.

example: there was a unit on Doris avenue in a 12 year old condo building which was listed at $218k.

the seller set up an "offer day" and presumably he/she was flooded with offers on that day...

so it sold for $255k.

ridiculous!

so anyways if you want to act like i'm lying or something, go ahead, i don't really care. :cheesygri

That is painful...but I guess with the low mortage rates these days, the people who have the money to throw around are up these units which will surely stay popular a few years from now given their location.

[ptownplayer]

when i say bidding wars i'm really just referring to multiple offers per unit so the SOLD price ends up being waaaay ahead of the LISTED price.

example: there was a unit on Doris avenue in a 12 year old condo building which was listed at $218k.

the seller set up an "offer day" and presumably he/she was flooded with offers on that day...

so it sold for $255k.

ridiculous!

so anyways if you want to act like i'm lying or something, go ahead, i don't really care. :cheesygri


$218K seems really low for that specific area. I assume it was a one bedroom? Most one bedrooms in the NYCC are listed at minimum $230k and but average is $240/250K in that area. Seems like a classic, list really low in hopes for multiple offers...and people fell for it hook line and sinker. Why anyone would overpay for a shoebox one bedroom condo is beyond me...Thers tonnes of them in that area and there will always be more that become available.