Deteriorating Affordability in Toronto: What to Do

The figures are out again, and one more time Toronto real estate  receives a gold star in September with houses selling over 10% higher from September 2014 to September 2015. This kind of news used to be incredibly exciting for me as a first time buyer over ten years ago. I would pull out my calculator and guesstimate just how much my current home, at the time, may have appreciated. But after getting that gold star year after year, you come to expect it, even though you know it can't last forever.

And despite all the condo crash talk of the past few years, they are also on the rise in most condo buildings. Condos are performing better than they have in years. Steady and healthy at the moment - rarely two words assigned to condos since 2010.

For sellers or those who have purchased over a year or more ago, you can breath easy. Buying is even tougher now if you're still looking.

For first time buyer or for those who are keen to buy another property, it may feel like your pace of saving cannot match the rise in prices, especially if you want the very coveted detached house, the golden standard of a dream home in this city. It may feel downright depressing to know your friend who bought three years ago lives in a neighbourhood that you could not afford to buy in now.

This whole thing really does lead to two possibilities:

1. There is a new reality in this city. We are on the cusp of affordablility for housing being completely out of reach for many first time buyers or those without a serious familial investor on their side. The new reality is that houses in the city will be for the wealthier or the second time buyer. First time buyers will be sent to the surburbs or will need to start in a condo. There is something very true about this scenario. There is a shortage of houses in this city, and the city is growing. It's an unavoidable reality.

2. There is a real estate bubble in Toronto. If this is the case, I suspect it is largely because of interest rates. Once they move, that may cool down prices. For me, however, this does not change the fact that there is an increasing demand to live in the city and the city is growing without the proper transit system to move people. So, even if there is a correction, we will return to this same situation where houses are not being built any longer, traffic is lousy, and commuter trains could be a whole lot better set up and intergrated throughout the region with more frequent GO trains that extend further out.

So, if you are planning on buying in the next few years, what would be the best approach? Here are 5 options:

 1. Wait. If you think the market is sure to correct, then wait. You may have prices come down, and you can buy when the market bottoms out before heading back up. Of course, you do run the risk of waiting and watching prices rise even more. There are many people who have been waiting five or even ten years for a price correction, and now they have been seriously left behind.

2. Buy A Condo - Condo prices have not been on a tear the same way houses have. They are affordable, and usually have predictable costs ahead of them. Condos, to a large extent, are the majority housing option in most big cities. Density and condos go hand in hand.

3. Get Out of Toronto - I don't think you should go just anywhere. Not all areas connected to Toronto by the GO Train are the same. I still believe Hamilton is Toronto-like without the same house prices. Yes, it's a long commute, but it's cheap right now. Some areas are sketchy for sure, but things are changing quickly. Did I say cheap?

4. Get Creative - I had clients recently purchase a bike shop. No they are not bike enthusiasts, but with a little renovation, they were able to change a bike shop into a four bedroom home for them and their three kids. It looks amazing. The main floor is enormous. Yes, you will need a renovation budget, but sometimes these storefront with apartment upstairs could be had for less than the houses in a given area. Compared to the houses of the area, I would estimate they paid around $200K less than an equivalent 4 bedroom house.

5. Stay A Step Ahead of the Next Emerging Neighbourhood - There are still emerging neighbourhoods in Toronto where first time buyers could by a house or a larger condo. They are not as close to downtown as the used to be, but they exist. Think neighbourhoods along the new Eglinton Crossway. Great place for appreciation. In the east, consider homes near Danforth and Vic Park or even parts of Scarborough.

The reality is that we are currently moving toward deteriorating affordability in this city. It won't always be this way, but we are also a different city than we used to be ten years ago. Neighbourhoods that were considered fringe then like Leslieville, the Junction and Mimico are rarely the terrain of first time buyers any longer. This won't change. Once neighbourhoods have all you need in walking distance, it's very unlikely they will become cheap again in your lifetime.

Can You Still Afford to Buy A House Near the Subway?

The winter of 2014 may have marked an end to an era for many first time buyers and savvy investors looking to purchase a Toronto house or investment property.  Slowly but surely, neighbourhoods along the Bloor/Danforth line that were once affordable have been disappearing.  Now, it looks like the last two neighbourhoods of house affordability near the subway are turning over. Up until this year, one neighbourhood in the east and one in the west were still in their early stages of emerging as a revitalized neighbourhood for many buyers who wanted to be near the Bloor subway. The Danforth Village and Wallace-Emerson were the last two areas to go. In the west,  Wallace-Emerson has become a place of bidding wars and steep competition. The local indie businesses have arrived here from Body Harmonics Pilates to The Hub, the new indie coffee shop. Nowadays, some are even throwing around the terms "new Queen West" to describe the influx of hip stores and trendy shops arriving. 

In the east, the Danforth Village from Main Station to Victoria Park has been a growing destination for first time buyers, and investors that continue to roll along the Danforth line to the end of the old Toronto city limits. Though it does not quite have the hip factor as far east as Vic Park yet, this is also a place of competitive bidding wars, strollers, and great transit. Though there are a few spots where a first-time homebuyer can pick something up for under $500K at the moment, even affordable houses in this neighbourhood are becoming as rare as spotting a sasquatch in a tutu downtown.

Of course, buyers who have bought here will be thrilled that they have invested early enough to benefit from the rapid price appreciations of these emerging neighbourhoods on the Bloor-Danforth line. Many blossoming investors and first time buyers may feel a little blue at this news. There may be a sense that they have missed out on a time when buying a house near quick and easy transit was possible. 

Before you release those bitter tears from your sad eyes, and  run off to buy a suburban house in Milton, let me tell you that there is hope. The end, for you, is not nye. You can buy a house or investment property in an emerging neighbourhood near good transit in Toronto in the years to come.  The only problem - it's not built yet.

So, perk up first-time buyers and investors because the Eglinton-Crossway is coming! Maybe you do not spend much time up on Eglinton, but it doesn't matter because this transit plan will transform many neighbourhoods and create quick access to downtown. 

How fast will these trains move? Well,  the expert estimations of Metrolinx have a trip from the far west destination of Mount Dennis to the Kennedy station in Scarborough at 40 mins. Not bad at all. That's 60% faster than the current buses plus there is a good portion of this LRT that will be underground from Keele to Laird and a dedicated lane above ground in all other portions of this line, making it traffic proof. For more detail, check out this map.

Who's going to benefit? In the west of Toronto, you will see neighbourhoods like Mount Dennis, Caledonia, Keelesdale and Weston become much more connected to the downtown, turning them from inaccessible outposts to easy transit hubs. And right now, these neighbourhoods carry some of the most inexpensive real estate in the city. Places like Weston even have some incredible Victorian and heritage homes. Again, you don't have the yoga shops and espresso bars yet, but this is why this place is still inexpensive. Eglinton, from east to west, will see an improvement on its commercial strip, though some businesses may suffer during construction.

The big winner in the central location will be Oakwood. Still undervalued, in my opinion, and soon to be a great access point to the rest of the city.  It will make its northern frontiers much more appealing, in addition to being a spillover neighbourhood from the Wychwood neighbourhood to the south.

 In the east, parts of Scarborough will feel significant improvements, especially in neighbourhoods like Clairlea-Birchmount that will also receive the overflow from the Danforth Village once those homes become too expensive for first time buyers and investors on a budget. 

Maybe you're thinking: Houses are too much work. Condos are where it's at.  If that's the case, this transit line should interest you as well. In many of the neighbourhoods mentioned in the east and west section of the line, there is little or no condo development, and believe me, it will be coming, and those first roundsof condos will be priced lower than the ones to follow.  

Service on the Eglinton Crossway is scheduled to start rolling in 2020.  So, you may need to wait to have a good return on this investment. Still, this is the largest transit expansion in Toronto's history that literally crosses the entire city. There are real opportunities to be had. So, make sure you don't miss the discount house prices near good transit. It won't last forever.

The Spillover Effect: How To House Hunt Better

People trust their guts. And for the most part, guts tell people the right things to keep them out of trouble or intuitively lead them to the right decision.

When it comes to buying real estate, it's not always wise to trust your guts - at least not all the time. For example, guts can fall hard for a house that is staged well. They love a dream kitchen, beautiful lighting, edgy, yet tasteful art, and a backyard spilling over with colourful flowers, carefully placed shrubs and and a puppy sleeping by some garden gnomes. 

Guts can also really fall for a neighbourhood. With certain clients, if I drive through an established or some emerging areas with the right buzz on the nearby commercial strip, their guts start responding to the right mix of indie coffee shops, yoga studios and hip restaurants.  An appealing neighbourhood could set off the dream to want to live here. Clients imagine walking down the streets. They time how long it would take to drive to work or walk to the transit stop. They get hooked. 

Some neighbourhoods just sell themselves.  In Toronto, people's guts love Roncesvalles, Little Italy, Cabbagetown, and more recently the Junction, Leslieville and Wychwood. 

If  you can afford to buy in these neighbourhoods, then go to town. They're great! In fact I live in one of them and am quite happy here.  Competition is currently stiff for a great house in a great neighbourhood. If those are the kind of homes you like, then there's a good chance a lot of others will as well. So, there will be a lot of offers and you'll have to have the best one.   If you're the kind of buyer who is on your second home after building a lot of equity in your first house, then you will likely have the deeper pockets to live in some of the great hoods listed above. If you have the sizeable down payment and you can do it! Get in there.

If you are on your first place or are moving to Toronto from a place that is less expensive, you are going to have to look at things differently. If the numbers just don't add up for you to live in a great house in a great neighbourhood, you'll need to dial down the guts and  put on some potential goggles instead. 

Don't give up on your guts all together. At the start of your search, they can be quite helpful.  So, let your guts lead you to the neighbourhood you want to live in. Maybe it's the Annex or maybe it's High Park. Then ask your brain if you can afford it. If not, look at the neighbourhood right next to it. Because, chances are, the people who cannot get into the richer neighbourhood will live next to it, and these emerging neighbourhood transform fairly fast. 

Let me give you a few examples. Let's say you like the Annex. You want to live there. But it's your first house and you can't quite cover it. So, you go a little north to Wychwood. Ten years ago, Wychwood was actually quite a reasonable neighbourhood to look for some first-time buyers, but these days, this neighbourhood has developed a remarkable community with the Wychwood Barns as a centre piece plus better businesses have popped up along St. Clair. So, if you can't afford Wychwood, go north of St. Clair to Oakwood, and you have the same beautiful homes without the same level of reno. Already, I am seeing the desire to live here going up. Next it will be north of Rogers Road. Any way you slice it, it would be a good investment to be in the next spillover neighbourhood.

Now let's do one in the east. Homeowners love Riverdale. And if you can afford to live there, I suspect you will be very happy. Great location. Transit is a dream, and the Danforth has everything you need. If you can't quite deal with the typical million plus price tag, then you move over to the Danforth Village just west of it. The homes are much more humble here, for the most part, but the prices are better. The thing is, this neighbourhood is now becoming the terrain of bidding wars for many first-time buyers. So, then skip to the next one if you cannot afford it. I would suggest going over the Victoria Park border and into Scarborough. Yes, I said it. Scarborough. It's undervalued and you can get a lot more home there than even the Danforth Village, and with less money.  As each neighbourhood grows in value, it helps out the one next to it. 

To be clear, I'm not suggesting you move to a horrible neighbourhood and wait for it to turn around. That's a bad strategy. I'm also not saying that all neighbourhoods next door to great ones will be good investments.  You do need a real estate salesperson who understands the city to help out here. 

For those first time buyers or those looking for more house for less money, you have to cross the metaphoric tracks. You need to look at the neighbourhood beside the crazy bidding wars. Because once those bidders in those crazy bidding wars become exhausted or tired of competing, they are going to look nearby. And over enough time, that will be the new place for bidding wars and rapidly rising prices. Hopefully, after you have purchased there.

Of course, if you have to live in a walkable neighbourhood near good transit, your gym, your favourite eatery and cafe, then you have plenty of condo options.  In many great neighbourhoods, some condos are more affordable. With condos, you really need to do your homework on a given building too. If it's a house you really want, just make sure your guts are not the only thing calling the shots. 

Toronto Real Estate Predictions of 2014

As a kid I had an obsession about how the future was going to look in the year 2000, at which point I would be 30 years old. Young me saw myself as an old fart by that date, but life was going to be worry-free and dazzlingly different. There was a book at my primary school library that had a 3 month waiting list about what the future would look like in 10 years, then 20, then 30 years. It was intoxicating! According to my chosen literature, we should all be flying around in our Jetson-style cars. Work, as we know it, would all be done by robots while we sat around drinking Tab Cola, and we would be able to control the weather under our domed cities. As you can see, this book had less to do with realistic scientific advancements, and more to do with marketing books to the fantasy lives of 9 year old boys. I guess the big takeaway lesson here is to keep your predictions of the future a little more grounded in reality, and keep it to less than 30 years.

 Still,  I can't resist making a few of my own predictions for Toronto real estate in 2014. I don't believe we'll be flying around in our cars this year, but I do see some changes on the horizon.

So here is my thoughts on how 2014 will roll out in Toronto real estate:

1. PRICES WILL GO UP  Not everywhere. And not as much as in 2013.  Price appreciation will be neighbourhood specific, and the kind of property you buy will be key. Houses will rule supreme with continued bidding wars, especially in desirable and emerging neighbourhoods. Certain condos will also rise in price, but not by leaps and bounds. Some condos will sag in price or even level out. It's simple supply and demand. Very little supply of houses means more demand. Many more condos means less demand. The key with condos is to be in right neighbourhood and the right building.

2. IT'S THE YEAR OF RECKONING FOR NEW TORONTO CONDOS. The year the most Toronto condos were ever sold in pre-construction was 2011. Many of these are coming to market this year. There are closer to 20,000 units slated to be completed in 2014. So this will be the year to watch to see what happens with all of these condos. Can they be absorbed? I think so. And really, I find that new builds were too expensive compared to resale condos for many years now. So, it's about time that we are a bit more realistic about the price of new construction. Developers will continue to offer appealing incentives like free parking or lockers or a year of free maintenance fees to sweeten the deal without officially lowering the price of the condo while still lowering your purchasing costs. By 2016, the ample supply of units will begin to dwindle. So, those incentives won't stick around forever...

3. INVESTORS WILL LOOK TO GREENER PASTURES. When the financial crisis happened in 2008, it seemed that Canada was one of the very few countries that didn't have their real estate market crash. So, many folks from abroad who grew weary of the stock market and their own country's real estate market, came here to invest in real estate. Canada makes it relatively easy for foreign purchasers to invest in our country. So, foreign investment became a big deal in Canada. Nowadays, the deals are better in the U.S. cities where prices are starting to rebound after their huge slump. So, there will be far fewer investors and more buyers who actually live in the properties they purchase in 2014. This is a good thing. Though every condo has its fair share of owners who rent out their condo, it's good to have a healthy number of owners who live on the premises. They can participate on the condo board and be involved with the running of their building. It makes for a stronger board and well-maintained maintenance fees.

4. HOT HOODS OF 2014. In the east, the dismal portions of Leslieville's Gerrard will start to really take flight as businesses find the trendy Queen East sections too pricey and set up shop a few blocks away where the rents are much cheaper. Corktown will rise like a Phoenix with is excellent location, great urban planning and all the work for the Pan Am Games to be completed in the next year and a half. It's still a great place to invest and live. The Distillery will also benefit from all the PanAm Games preparations. In the West, the Junction and the Junction Triangle will continue to push up its cool factor even more as it moves from hippie outpost to hipster centre. In terms of downtown, the south core, in general, will become much more interesting than the north core of the city, as businesses and commercial demand shifts back from the suburbs with a stronger emphasis on the south city core. Cabbagetown's main street on Parliament will continue to improve particularly with the success of the Daniels condos that were once in the Regent Park area. With the continuation of this project, Cabbagetown will grow more solid as an established neighbourhood and Regent Park will shake its stigma after 50 years.

5. WHERE THE DEALS WILL BE. Emerging neighbourhoods will continue to be the best place for investment. In the west, I feel south Etobicoke is largely still undervalued, especially parts of Long Branch. Caledonia/Fairbanks and Weston are poised to be the next hot spots, but 2014 will only be the early stages of this. North of St, Clair in Oakwood-Vaughan, the success of Wychwood is starting to push into this neighbourhood with its massive houses. The east will have some deals in the Danforth Village, Woodbine-Lumsden and Crescentown, but, for the brave, the deals will be pushing into Scarborough. Pick your 'hood wisely here. Best Scarborough neighbourhoods border the old city of Toronto/East York or the lake, but you can find some great homes along the ravines or in areas like L'Amoreaux. Hamilton will continue to be your best investment out of the city with continuing price appreciations that made Toronto blush last year.

Okay, there you have it. My humble thoughts for the next year. Hopefully they will pan out a little better than the Future Predicting book of my youth.

Are Suburbs Always Cheaper?

Let me be clear. This is not a rant about the superiority of the city or that living in the suburbs is bad and doomed existence, but it is an attempt to clear up some misconceptions about the cheapness of living in the suburbs.

Now, before I dig into the cost of living in the suburbs vs. the city, let me put my cards on the table. I'm a real estate salesperson, and it would be very tough to do my job without a car. Though I am a city dweller, I do spend a lot of time on four wheels, and I have grown to adore, and even love, my auto. I do have that much in common with my suburban breathren. But that's about it. Don't get me wrong. The suburbs have their perks, and for those of you who appreciate those suburban perks, good on you. You made the right decision to live there. The traffic is easier, the home is bigger and maybe your friends and family live near by. Can't argue with that.

Aside from those who love and want to live in the suburbs, there are those who want to live in the city, but feel they can't afford to live here, and head to the suburbs. And that may be a mistake. Moving to the suburbs is not always less expensive. If you simply compare property prices, it's true. No one can deny that! On average, homes in Toronto are $250,000 more than the suburbs. That's a good chunk of change that you don't always have or would rather spend somewhere else.

But comparing houses to  houses is not always the best way to look at it. Because when you live in the burbs, your costs of other things required to live comfortably are higher. The big factor is the car. In the suburbs, because of the low level of transit and because of the culture of the burbs, there is usually two cars per family. In the city, it's a lot less. Sometimes no car is required at all because it's easier, and sometimes faster, to use public transit in the city. On top of that, most suburban folk work in the city. So, they spend a lot more on insurance, gas and car wear and tear. Though I do love cars, they are the worst investment in the world. They don 't make you any money and the start depreciating very quickly right away.

Another factor to take into account in the appreciation factor. I'm not talking about your car this time. I'm talking about your home.

There's no denying that prices have increased at a far quicker rate in the city than outside of it. So, a purchase in the city has, for several decades, allowed the owner to grow their equity over the long haul. The value of a  home in the suburbs has just not appreciated as much as in the city, on average.

Then there's property taxes. Since your house is worth more in the city, people assume you pay more property taxes. The truth is, Toronto has some of the lowest tax rates in the region. Plus, in the future, when infrastructure problems really need repairs, cities, with their dense population, will have a larger tax base to pull from. They can spread the cost out between more people. Suburbs, with their low density will have to fix streets and waterlines with a smaller pool of people. So, the cost will be spread out among fewer people and in turn, become more pricy.

Of course, the city is no longer as straight forward as it used to be. Scarborough can function more like a city than a suburb in some parts. Etobicoke is rapidly becoming more city than suburb. And then there's places like Hamilton that function as a city but also a suburb to Toronto. Those places are not so clear cut, and will likely function more like a city in the years to come. So, with that said, make sure you factor in all costs when you feel you have to leave the city to head to cheaper and far away locations. In the long run, you may not be saving yourself a whole lot of money.