Does a National Real Estate Market Truly Exist?

People love real estate statistics. And I'm included in this group of people. It's almost a leisure activity for me like playing tennis or watching Game of Thrones. Still, as with any statistics, you always should be a little skeptical of how the statistics come about. I often find there are many reasons to be doubtful with the real estate statistics from a national perspective. It's just too simple. Not every city and neighbourhood function in the same way all over Canada.  Often, I'll hear things like "The average price for a Canadian home went up such and such a percentage point last year." The truth is, markets across the country function in very different ways. A sweet bungalow in a declining small town in New Brunswick does not function the same way as a micro condo in downtown Vancouver.

When it came to the financial crisis that triggered the American housing collapse in 2007, you may think that real estate across one country can change all at once. And you would be partially right. It would appear that almost every real estate market in the U.S. slipped in price. Though a closer look will show you that the drops in Texas were minimal and the collapses in California, Nevada and Florida were colossal, like Godzilla strutting through town.

Still, there are practices and policies that can affect all real estate markets across one country. In Canada, federal policies about tightening lending practice will influence how buyers buy properties across the country, no matter where you are. A change in interest rates can certainly have a bearing on anyone who wants to buy a property or renew a mortgage.

For the most part, though, the things that affect the real estate market tend to be local, even hyper-local. This year alone we can see Vancouver, Toronto, Edmonton and Calgary all enjoy healthy gains in home prices. Montreal, Victoria and Halifax, have gained very little.

Toronto, for example has very specific housing policies that only affects this city. We have a provincial and Toronto land transfer tax. The double land transfer tax deters many people from selling since it becomes too expensive to sell and pay the two taxes. This, in turn, causes few listings to come to market, and more competition and higher prices.

Even within Toronto, the condo market functions differently than the market for houses. Even condos in the same neighbourhood that are relatively the same size and age will function differently from one another. All you need is one very well managed building compared to one that is poorly run to show you the difference. Well run condos will have much more appeal that is reflected in the price. The board will use their reserve fund wisely and take care of the building. A poorly run condo will have a low reserve fund, possibly some issues with the builders, or insanely high maintenance fees that don't reflect the work that has been done or the amenities included.

So, the next time you see the word "national" and "real estate" together, take this statistic with a grain of salt. Though there are some factors that truly affect all properties across the country, the local and hyper-local factors have a much stronger influence.

The Luxury Condo/Hotel: Will Fancy Work in Toronto?

Toronto never used to be a fancy place. Sure, people loved good food, and is some neighbourhoods you would spot a few snappy dressers, but generally we never really had the interest to push our city toward the ultra high-end heights that you find in places like New York, Hong Kong or L.A. In many ways, luxury just didn't seem to be very Canadian.

But many condo developers took a look at Toronto's size and it's dense, culturally-rich downtown, and realized: It's time to bring some fancy to town! So, the luxury condo developers, designers and dreamers came here to create a whole new type of building for us: The luxury condo/hotel.

And strangely, instead of testing the market with just one of these hybrids, four luxury condo/hotels, with brand-familiar names, announced their intentions to build in Toronto at the same time including the Trump International Hotel and Tower, The Shangri-La, the Four Seasons and the Ritz Carlton. And to a smaller degree, the King Edward had also joined in by planning to add a condo component on an already existing hotel.

Of course, many will wonder what makes them so luxurious? Crown moulding? Room service that would make you feel like a royal? That feeling like you are living in a 5 star hotel?

Well, yes, I would imagine so. But one thing that these places have going on more than any thing else is their brand. They all have an undeniable name recognition. If you live at the Ritz Carlton or the Fours Seasons, you could almost be any where in the world, and people would know you live somewhere posh. They don't even have to know which city you live in.

But maybe you're not a sucker for such things. I'm sure you're not alone, but the truth is, a lot of people are.  The brand makes a difference. If you don't buy into it, fine, but some people will pay good money for the right product.

Still, these brands can only go so far. These luxury condo/hotels have to deliver. At first, it would seem they were all lumped together. "The luxury condo/hotels are coming!" read all the newspapers.

But now we are starting to see who is pulling ahead, and who is clearly falling behind.

In my mind, Shangri-La seems the most promising so far. They mounted a striking and enormous sculpture outside called "Rising" that certainly adds some cachet to the entrance. Plus, they have managed to launch one of the most well-reviewed luxury restaurant in the city, Momofuku, with chef David Chang. For me, they have delivered the real goods of "luxury". Top notch food and bold style.

Then there's the Trump Tower. Right from the start, I felt they were a little doomed with their corny, 80s "champagne and cavier" theme.  Already you feel like you're going to be riding the elevator with Thursten Howell the Third and Alexis Carrington. But my personal biases aside, the publicity on this place has not exactly been the best. Falling green glass crashing down to Adelaide street. The hotel portion of the Trump Tower has reportedly been performing far worst than originally expected. And then there's the lawsuits. Angry buyers who apparently feel the company has misrepresented what they were selling, and even the developers themselves, suing buyers for not closing on their original purchase.

Despite the successful or not-so-successful branding of these luxury condo/hotels, the value of the their units has a lot to do with the market. And I don't think it was wise to launch four of them at the same time. It seems many of the original purchasers may be disappointed if they want to sell sooner rather than later. Like any large condo, when the owners of the units are allowed to start selling, a lot of the units hit the market at the same time, often driving down prices. The luxury condo/hotel will likely follow this pattern as well, especially since there are four of them relatively close together in a market that really didn't exist before in Toronto.

Some may hold their value more than others. Smaller luxury condo/hotels, like the King Edward, are conversion projects. This hotel has existed here in Toronto since 1903. So, it's an established and local brand in the city. Many of the new condo units are too small, and there are no parking spots - only valet parking, of course! But sales have been strong in pre-construction. So, resale may do a little better here than the other developments.

All in all, buyers would likely benefit the most from this upcoming resale market, ready to snap up units when they start hitting the mls in large numbers. They may want to stand clear of the troubled Trump Tower for the time being, but there may be some deals to be had if you are in the market to buy a luxury condo/hotel unit. The glut won't last forever.

Do House and Condo Prices Rise and Fall in Tandem?

I love the Olympics, and when they're on, I'll pretty much watch any thing when I have the time. I even found myself watching the women's synchronized diving this weekend where Canada snapped up their first medal.

What was so impressive about these synchronized divers are their ability to move exactly in step on the diving board, twist and turn at the same height in the air, and land at the same time with an almost equal splash. Really, I don't know how they do it. Amazing.

The whole thing has led me to think about the concept of synchronicity and timing in real estate. Often buyers and sellers of Toronto look to the media for guidance on how to enter and exit the market. Right now, the media is awash with talk of the Toronto real estate market cooling off or even crashing. Of course, for ever article or TV segment announcing a crash, there is an equalizing article the next day saying every thing is just fine and dandy. 

But I'm not here today to call out TV,  newspapers and some blogs on how they use real estate for more ratings and readers. I would, however, like to point out one assumption that gets made over and over again. And this assumption is all about synchronicity. Like the bronze medal divers, many articles and stories assume that condos and houses rise and fall in tandem, like two divers springing up and tumbling down together to the pool. But do they? Or, the bigger question, will they?

From a macro perspective, the short answer is yes. If there was a sudden rise in unemployment, for example, or a huge spike in interest rates, houses and condos would both be hit hard and would likely slow down or even fall in value.  The change in value would be different, though, depending on where you live in the city and just want kind of condo or house you live in.  To see the effects from the macro perspective, all we have to do is look south the the U.S. where the entire country lost value in their homes, albeit the effect varied widely from state to state. 

From a more local perspective, I think condos and houses do not move in tandem at all. We would certainly not receive a bronze medal for synchronicity, that's for sure. As I've mentioned in many previous blogs, there are very few homes that are currently under construction in the GTA, but our population is increasing. So, there are more homebuyers, but very few houses being built. A pretty good recipe for an increase in the value of houses over the long term based on simple supply and demand data. As for condos, there many condos being built.  And the really, there needs to be. There is a huge rental demand and a huge buyer demand. Supply is keeping up with demand, though some say exceeding it. So, on local level, houses and condos are not moving in sync at all. Houses are set up to increase more in value than condos. 

Now, this is a  HUGE generalization. There are better condos than house and better condo locations then house locations. There are certain condos that I would say are better investments than houses. But, all in all, condos do not increase in value as much as houses do across the GTA. 

Does that mean every one should rush out and buy a house? Absolutely not! Some houses require a lot of renovations off the top that could really put a dent in your budget, and houses require a lot more labour - namely shoveling snow, cutting grass and cleaning out your eavestroughs.  You really have to dig deep and figure out if you're a house person or a condo person. I mean, in the end, you have to live there or be the landlord. I would never buy a house if you're a condo person. I would be the right condo!

How Low Can You Go?

I received an email the other day from a renter who was tired of renting. And who could blame her? I'm told her landlord, who lives in a different unit upstairs from her, is her ex. And they don't currently have the best relationship. So, she's looked around a little for a new place to rent, but she doesn't like what she's seeing. 

It seems that some thing is happening for renters in Toronto these days.  Years ago, the fair share of city rentals were located in houses or apartment buildings, but now there are far more condos for rent and slated to be built. I even spoke to a friend today who own several large houses in High Park with separate apartments in each house. As I write this, he is turning a large two bedroom unit in one of his houses into two separate units. His logic: His one massive 2 bedroom will soon be the size of two condos. Condos are becoming his competition, and he can make more money off of his two smaller units than the one big one. 

From the perspective of a renter with the ex upstairs, she wonders: Why should I rent a condo sized unit when there are condos for sale?  Rents in this city have gone up quite a bit these past few years. So,  why keep renting if the rents will just keeps going up?

Well, simply put. She's just not ready yet. 

This renter plans to buy in a year or two, but she's also wondering if she can skip the wait, and just go for it  now. So, she asked: What's the cheapest condo I can get downtown right now?

I know... It's a pretty loaded question! So, let's break it down. First, the one word you should zone in on is DOWNTOWN. Outside of downtown, you can certainly find much more for much less. Also you should consider that  you have to live there. So the cheapest condo in downtown is not going to be cheeriest place to come to at night. Plus, you have to pay maintenance fees on the dump. 

I posed her question to a number of real estate agents in my office.  It became a bit of a debate, but one with a consensus. And that is: You could buy a downtown condo for 200K. I think it's a bit more, but who am I to mess with a consensus? This unit would likely be in its original 70s or 80s condition with no parking or locker - so a dated kitchen, probably carpet or parquet flooring a la an apartment building complex. It would be a bachelor. So under 500 sq ft. for sure. Possibly in a building like 40 Homewood or 80 Charles - not terrible condos at all, but a place that has the basics downtown.

If you want some thing a little prettier, you can get up to 250K to 275K.  Still mostly a bachelor (maybe a one bedroom) with no parking. I've actually have seen some pleasant units in this price range, but it's a rare find.

If you don't need to be downtown,  you can definitely find space, a nice view, even 2 bedrooms north of the city. You may have a much longer time on transit if you work downtown or you may have to flat out get a car. 

It comes down to the old trade-off.

Downtown: Buzz, social, easy transit or walkablility, BUT tiny, expensive units

Outside the city:  a little dull, long transit rides, traffic BUT large units at a less expensive price. 

Selling a Condo? Timing is every thing

Earlier this year, I helped a buyer purchase in a pretty amazing loft conversion at a reasonable price on the subway line. We were not the only ones who thought it was amazing though. There were two offers on the property. The funny thing:  a year earlier, during a time when the housing and condo market was pretty strong, few were buying the condos in this particular building. Why, you ask? Timing.

Once new condos are registered, there are usually a flood of condos that come to market for a particular project. Most developers will not let buyers sell their condos until the building is registered, though assignments can happen before this date. Often, a number of investors, particularly in large condo developments, want to get rid of their condo as soon as they can so they don't have to pay a mortgage and condo fees, especially when they have no intention of living in their unit. Unfortunately, when all the condos come up for sale at the same time, there is too much competition for a given product and condo remain unsold or sells for less. 

Flash forward a year or two and glut of condo sales on a new, healthy development usually passes. 

I would say the best time to sell a condo is about 5 years after you buy it, especially in an established or emerging Toronto neighbourhood. At this time, your condo hopefully has become more in demand, and there are fewer number of units coming to market. The design of the condo has not become too out of date and condo fees have not started to increase to cover aging heating systems and infrastructure of a given building. 

You may not be able to time the market, but you could have a better shot of timing the sale of your condo.