Should First-Time Buyers Be Blue?

It's tough for first-time buyers right now. I really do feel for them, especially if a house is the property of preference. On top of the Feds making it difficult for first-time buyers to qualify for a mortgage, there is a huge demand for houses at a time when most of the new inventory added to the Toronto housing market have been condos.

I remember when I bought my first house back in east end of Toronto, almost ten years ago. I would proudly tell my friends that I bought a fixer upper in this neighbourhood called Leslieville. Often, they would scatch their heads, and ask me: "What's a Leslieville?"

At the time, Leslieville was only a place between Riverdale and the Beaches (now called the Beach). The Queen East strip was dead at night with a the exception of a few crusty bars that attracted a lot of folks that look like pirates. There were a few coffeeshops, and the beginning of some galleries, but it was not the go-to destination that it is now.

I did some very un-scentific research today with the help of the MLS to see what the prices were like 10 years ago in the month of September compared to the sales in September now. The median price in Leslieville was $251,500 at that time. Today it is $617,000, and that includes a disproportionte number of smaller homes that came out this month. So, to me, it seems that median pirce may be lower than it should be.

If I take a west end neighbourhood, like the neighbourhood I live in now, I can see a similar price appreciation. West Bend, like it's neighbour, The Junction, was considered an early emerging neighbourhood 10 years ago. On the MLS, both areas are a part of "High Park North". Ten years ago, in the month of September, the median price for a  home was $350,000. Today, though there have only been 4 completed solds to date in September, the average sale is $874,000.

All of this info can have two different outcomes, depending on who you are. First, if you own a house in these emerging neighbourhoods or another successful one, you are patting yourself on the back. Yes, we were all smart investors, and maybe a little lucky too.

Alternatively, if you are one of the Torontonians who have not bought property in this city, you may find this news a little depressing. You may even think the writer of this blog is a jerk for bragging about his investments. You may saying to yourself "If only I bought ten years ago, I could live in a great neighbourhood at a great price! It's too late for me!"

But I'm here to tell you otherwise. In many ways, things are not that different now than they were ten years ago. I will easily concede that it's more expensive to buy a house now,  and competition for finding a decent house is stiff.  Still, a lot of the same rules apply when I bought my first place in an emerging neighbourhood as they would today. Here's why:

1. It's Called An Emerging Neighbourhood for a Reason

Okay, today places like the Junction and Leslieville are trendy destination neighbourhoods chock a block of cool restaurants, community involvement and kick-ass farmer's markets, but ten years ago, they were dreary, run-down and didn't have much going for them. The Junction didn't even serve alcohol ten years ago. So, it would be next to impossible to get a profitable restaurant  launched without a liquor licence. People would have rather lived off Roncesvalles where there was more of a neighbourhood feel.

2. You May Have to Go Further than You Feel Comfortable

At one point, the Junction was far way. Moving to Mimico was considered radical. I mean, it's in Etobicoke! And yet, it's now considered one of the best neigbhourhoods to live in - Top 10 in Toronto according to Toronto Life any way. My point is that if you want those first-time buyer houses at a lower price point you will have to go out to Danforth close to Vic Park, and even into Scarborough. If you want to buy a big house for less, you may need to consider Weston or even Caledonia-Fairbanks.  They may not seem like the greatest hoods right now, but after 10 years, they could be the next big deal.

3. You Can Always Buy a Condo

Condos are in much greater supply, but they exist in emerging neighbourhoods as well, and if you want to be central, then they are the perfect option. The good news is that condo prices are not running way out of control at the moment. So, they are still in reach for most first-time buyers, and in some ways the same rules apply. Emerging Neighbourhoods like Corktown will be, in my opinion, worthy neighbourhoods to invest in or own a condo in the years to come.

So, first-time buyers of Toronto, you don't need to despair. Not only are condos in your reach, but houses too. If you want a house, it won't be easy. Currently, it is still fairly competitive to find a house. So, bring your potential goggles, know you may have competition, and hang in there! It can be done!

No, It's Not 1989 Again

Lately, I've been seeing a lot of comparisons between now and the  late 80s. I'm not talking about the return of Dr. Pepper or that Atari is making a comeback, though I would be happy to see both of those again! No, I'm talking about how some people like to compare the real estate bubble of 1989 to now, as if we are all on the verge of falling over the edge into another abyss where prices fall for 7 years. No, there is a big difference between the 1980s real estate market and today's market that don't really make them good comparisons.

Back in the 80s, the baby boomers - you know, the largest demographic in history - were coming of age and discovering how to spend their money. So, you had a lot of people reaching the age they would like to buy a house or a condo at the same time. Also, women were entering the workforce in large numbers for the first time ever. With the usual guys buying homes, plus many more woman buying homes the numbers of buyers were big. Today, we don't have that kind of growing demographic, though we do have some of the boomer's kids buying more properties, and we do have more singles buying properties, the cultural shift is just not as sudden or as large as it was in the 80s. Initially this demand drove up prices, until they crashed.

In both the 80s and now, a lot of condos were, or are, being built. In the 80s, they were being built on spec, financed by banks and lending institutions without significant presales requirements. It took a long time to absorb all of these condos. And since the banks got burned, they changed the rules. Now, pre-sold condos need 70% or more sold before a shovel hits the ground.

And there were a lot of investors. 80s investors were a different animal, though, than today's investors. In my opinion, there was much more speculation going on. The focus was more on flipping condo purchases for short term profits. Today, the investors would rather rent their units or homes out than to sell them. They are less likely to dump their units for a lower price. Sellers don't have to sell and are not forced to do so. 

Today we don't have the same stressors. Yes, interest rates have crept up a little, but they didn't jump one percentage point like they did over a week in 1989. Since everyone is starting to have a more Japan-like economy where growth is slower, and inflation is low, the interest rates will probably not go up by very much.

Also in 1989, we saw a spike in unemployment. Between 1989 and 1996, we saw a decrease in prices of over 50% in Toronto.  We also saw a rise in unemployment in 2008 and the start of the recession, but prices only took a pause before rising again.

Finally, you may find today's prices high, but the pace of price escalation in the late 80s was in the double digits for several years  before the crash. From 1985 to 1989 prices increased by 113% or by an average of $240,992 in 2013 dollars. From 2012 to 2013 the increase in the price of an average home increased by roughly 5%, (Interestingly, if you take just houses and no condos, that number is around 8%).

If we could go back in time to buy a house in Toronto, I think we would want to set our time machines for 1996, the best year to buy a house in this city when the crash of '89 had fully wiped out and begin to bounce back. But since I don't have a time machine, I can only talk about the now and make some guesses about the future.

So, my future guesses would be: rates may rise a little, but they'll stay pretty low; prices in Toronto will still go up, but not by double digits; the government will make it tougher for buyers to obtain a mortgage, and 1989 won't be repeating itself any time soon.

Three Best Toronto Neighbourhoods to Buy a New Condo

There are many reasons why someone should not buy a new condo. For starters, it takes an average of 3.85 years for a typical Toronto condo to move from the initial sales stage to occupation. As we all know, a lot can change in that time - romance, babies, breakups, job relocations, or it could be as simple as you bought yourself a St. Bernard in a building that only allows small dogs. Also, at this particular moment in time, in this city, you can often buy a resale condo at a better price per square foot than a new condo. On top of that, the average Toronto unit is shrunk by 65 square feet in the last four years. So, why buy new?

Well, it's not always a rational decision, and, to be fair, there are some pretty amazing projects under way in this city where SOME of the newer condos can clearly outshine the condos that have been around for a few years or more. In other words, the smart new condos have witnessed how some of the old ones have failed and attempted to improve where others screwed up.

Of course, not all new condos are worth considering, but some are pretty impressive. So, with that said, here are three Toronto neighbourhoods I think would be the best place to buy a new condo right now.

1. Corktown. This River City project where several condos went up all at once was planned perfectly. There is a good mix of midrise condos here so you don't feel like the extreme height of the buildings have blocked most of your daylight. You're still centrally located south of King Street East just west of the Don River. So, it's easy to get around. Best of all, the design behind this place was not a hodge podge of different developers squeezing every last spec of greenspace out of a neighbourhood. Not here. There are parks and promenades and some pretty great new community businesses starting to move in. The best part? Well, you have one of the best green spaces in the city called the Corktown Common. Believe or not, Waterfront Toronto can do something well besides not make decisions. In my recent walk throught the Corktown Common, I was amazed at how well the park was designed. It is overflowing with local plants and wildlife with extended boardwalks throughout. The large marsh also has a practical function as part of the stormwater management system. But it's also a place to play - playgrounds, splashpads, an athletic field and open lawn for informal gatherings. I think this area will be a little undervalued at first. You are investing in a vision, but this one has been well planned, and I think it's a great place to live or invest.

2. High Park North/ West Bend/ The Junction One thing about this area north of Bloor from Dundas to Runnymede, is the amazing collection of historic homes. Not only does it have great infrastructure with the city's largest park nearby, but this neigbhourhood entails an exploding commerical strip that is becoming a new centre for the hip restaurants and cool shops, right along Dundas West in the Junction. There's not a lot of room for condos in this area, but that's why you should consider buying here. When it comes time to sell in the future, your competition with other condos will be limited. It also has a lot of warehouse and church conversions, which I believe is a great buy in any neighbourhood, but especially this one. If you want everything new, there is a great opportunity here to buy right across the street from High Park, where there will never be a building placed in front of you to block your view of miles of green space and well-maintained parkland right down to the lake. If you can care less about the view, then know that it will be gold when it comes to resale down the road. Daniels, the developers, have been waiting a long time to get their hands on this land, but the High Park Condos are on their way! Also, I would suggest the very cool "Duke" condos, just east of Keele on Dundas. This part of the the West Bend/Junction strip is a little under-appreciated, but the design on this place is fantastic and this midrise fits in perfectly with the neighbourhood.

3. Yonge Street South of Bloor If the condo market ever goes down, I often say, it would be best to own something unique and boutique that does not look like every other condo. Alternatively, if you like to be high in the sky, you want to be near the TTC. And by TTC, I don't mean a pokey street car or a smelly bus, but a subway that can actually get you around this city quickly, like the Yonge Subway Line. If you like the views from the bigger condos, the Toronto city by-laws will now allow developers to build higher than ever before on places like Yonge Street. Further south on this main street, you have condos coming up like Yonge and Rich, sure it's a terrible name, but wow, they could sure use some condos with decks down there, which these condos offer. Then there's Aura. Though I don't always think big is the way to go, I think Aura confidently tells us to go big or go home. And at 78 stories, it contains the highest living spaces in Canada, at the corner of Gerrard and Yonge, an area that really needed an infusion of wow. And when you have a perfect walk score of 100, you can practically walk any where, get rid of your car, and rent out your precious parking for lots of money.

If any of these projects tweak your interest at a time where you would like to buy a new condo unit for yourself or for investment, it would not be wise to go marching into the sales centre and buy a unit. Use a real estate salesperson so you have someone working in your corner, and not working for the builder's best interest. If you want to save on new condos, get in early. Though it's always more of gamble to go in early without the sales centre set up, I think you can score some good deals here during the VIP days. Alternatively, wait until the building is registered when a lot of buyers, who have bought years ago, will all be trying to sell at once. At that point, prices can be temporarily be pushed down when there's a flood of new units on the market from the same building. So, if you want to buy new, do it right, and do it in the right neighbourhoods!

Home Ownership in Canada: Some Surprising Stats

I think most Canadians can admit that we are a little home ownership crazy. People like to talk about out-of-control bidding wars and neighbouring properties that never sell like they do about Miley Cyrus on the MTV video awards. Not quite as titilating, maybe, but certainly more impactful to our lives.

But just how does Canada stack up with the rest of the world? Well, it's pretty high up there. Of the 196 countries in the world, Canada is ranked 16th, slightly ahead of the U.S. and slightly behind the U.K. As of 2006, 68% of Canadians own their homes. Some believe that number may have cracked 70% since then.

Many believe that North Americans love home ownership more than Europeans because they have a history of land ownership that dates back centuries. Immigrants once came to the Canada and the U.S. where they were offered land for practically nothing, and if they were lucky a free mule was thrown in. In Europe, land ownership was often geared around the upper class. Peasants would rent from the gentry. As you can imagine, this model does not hold up as well nowadays.

Today, home ownership has a lot to do with the policies of the government, of a particular nation and the culture of that country. In Europe, for example, Germans are super keen on renting. They are a bit more cautious by nature, and the federal government does not make purchasing easy. Taxes are much higher in Germany and a buyer requires a 20% down payment. In addition, the increase in property values across Germany has not increased a great deal in value over the past 10 years compared to other European countries. That is why places like Berlin have a 90% rental rate. Financially, it may be easier to just rent. The UK is quite different. Despite their drop in property values since the recession, the value of their properties have doubled in the past ten years. And when Brits can't afford to buy in expensive cities like London, they go to Croatia and Spain and other parts of the EU to hunt for properties. They see a good return on their investment and they want to own property, even if it's a big commute on a plane or train.

Canada may be slightly lower than the UK, but we prefer home ownership as well. Since 1971, home ownership rates in Canada have plateaued for a short time, then rose steadily.

Some argue that home ownership rates may be peaking now in Canada. The government is making it tougher for first time buyers to qualify. Prices in cities like Vancouver and Toronto are making it costlier for people to get into home ownership, even thought the cost of renting has increased substantially as well. That is why home ownership rates have declined among the lowest income earners in Canda in the last ten years.

In Canada, home ownership also has a lot to do with whether you have children. Even single parents have a higher rate of home ownership than couples with no children. Of course young families with kids are most likely to be owners. The biggest change in Canada, though, has been the fivefold jump in home ownership with unattached youths. From 1971 to 2006 the rate of home ownership jumped from 13% to 60%.

At the end of the day, the question usually becomes: Is home ownership worth it? Well, if you live in Germany, maybe not, but if you live in Canada or the UK in the past 10 years, it's definitely worth it, or at least nearly 70% of all Canadians think so.