Can You Time the Real Estate Market?

First of all, I'm not going to pretend that I have aced timing as far as real estate goes. Yes, I'm a real estate salesperson, and I have learned what not-so-good timing is and what better timing can be, but any one who tells you that he or she can perfectly time the real estate market to maximize your real estate investments is making an educated guess at best or is the kind of person who could make you believe they could levitate a table.

Of course, it's not such complete guesswork that no one can predict anything.  We, as human beings, like to look for patterns to make sense of our world. Here is one of the most common patterns referenced that attempts to show real estate investors how to time the market.

This graph follows the basic principals given to real estate investors:  Sell high and buy low. And generally speaking, this is not a bad place to start. There is some truth to this. The problem is, if the whole world worked this simply, many of us would be a lot richer by following a graph.

Let me take my current house as an example as to why this sell high and buy low thing can be tough to predict. I bought this house in 2010. It has probably increased in value by around 35% since then with some updates here and there, but no gut jobs or major overhauls. When I met the sellers back in 2010, I asked them why they were selling. They told me they were leaving their home because they believed the Toronto market was at its peak (please see "boom market" above). In their minds, it was time to to cash out. The rest of the world had falling house prices. We must be next. Plus, in their minds, we were due for a correction after such a sustained period of increasing home prices in Toronto. They planned to rent until property prices dropped (see "recession" above). Then they would buy cheap again and ride the increases to the top of the boom cycle. Seems easy enough.

This was a pretty straight forward approach by the sellers of my current house to time the market. They had strong convictions that they were at the top of the boom cycle when they sold to me in 2010. According to their calculation, 2010 should have had the highest prices in Toronto's history.

In the end, this couple did make some good money on the sale. They received twice as much for the house than they paid for it. Still, if they were renting and waiting for the market to crash, they made a big mistake. To get back into the market now in 2015 with the money they made off the house would net them a much smaller property.

The moral of my story? You have it! It's tough to time the market. No matter what you hear, it is difficult to know where the tops and the bottoms of these cycles will actually occur, and to what extent of time these peaks and valleys will occur. If you choose the right spot, you come off looking pretty smart, though I suspect part of that has to do with some luck.

At the end of the day, I'm not sure the real estate market consistently follows such a cycle as the graph above. What happened in 2008 in Toronto? Did we have a real recession that caused real estate prices to dip slightly for a very short period or was that merely a temporary blip in the upswing caused by external factors from other parts of the world?

Aside from a small blip in 2008, our last trough was in 1989. That is a very long time for sustained growth. It's easy to see why the doom and gloomers are calling for a crash any day now if they buy into the bust and boom cycle. We appear overdue for a crash. But we're not crashing. And it is possible that it may be a very long time until there is a price adjustment on real estate in Toronto. The truth is, there are so many factors influencing a boom and bust cycle, it's difficult to make a realistic prediction. Interest rates, housing supply, local economies, international economies, public policy, mortgage restriction, migration and immigration patterns, age demographics, and public transit are just some of the factors that could influence real estate prices in a given city.

I think there is only one group of people who should be open to cashing out their homes. And that is retirees. If there is a dip in prices, they may not have the time to wait it out until their investment improves, especially if they want to take advantage of the equity they accumulated in their homes to enjoy their retirement. They can put their money into easier assets that won't potentially slip in value and be safer.

For the rest to us, holding a property long enough, even in a downturn, has historically led to a property values in Toronto bouncing back and continuing their climb, even from 1989. You just have to wait it out. This is not me trying to predict the future, but it is an educated guess based on my human desire to look for patterns based on historical data.

Toronto or New York - Who is the condo king this year?

Some people like to compare Toronto and New York. Some people get testy when you try to compare them. Like apple and oranges or more like scrappy kitty and a cougar. New York is an international city with well preserved historical architecture reflective of it's powerful history as the centre of an empire. Toronto is an international city too, but with a short time in the international spotlight with less of an empire feel.

Still, there's no denying that Toronto and New York have one thing in common. They are both centres of condo development and architecture in North America. So, let's do a little New York/Toronto comparison in a realm where they both share a great deal.

For many years, Toronto has been the #1 when it comes to our city's reign over urban construction. It has had the most residential condo units built in North America for several years. More than any other city, larger or smaller. Some see this as a prideful thing for our city - a quickly changing, impressive skyline, a sign that we have a growing city, a growing economy and a great indication that people want to live here. On the flip side, some see it as a sign that we are overbuilt and our condos are in oversupply. So, for those on the flip side, I say "relax". We are no longer #1 here in 2015. New York has edged us out this year by 701 units. Toronto has 38,114 multi-family units under construction. New York has 38,815.

Now this may not be very impressive when you consider the size of both cities. Afterall, New York is much larger than Toronto. Per capita, Toronto would lead New York by three times as many condo units under construction.

Still, the underlying factors for the change in the #1 spot has to do with city planning and the economy of the U.S. Toronto's reign as the condo king for years had more to do with the real estate crash in the U.S. following 2008. New York, LA, Chicago, Miami - everywhere in the U.S. there was a slowdown, if not a sudden halt in condo construction, for the last 8 years. It really wasn't very hard to take the condo construction crown. Now that cities like New York are in full recovery mode, they are building again.

It was not all about the U.S. though. Toronto has made some very big changes to allow for more condos to be built. The most impactful policy change had to do with the greenbelt policy now in place for over 10 years. Basically, a policy was put in place where you cannot build into the greenbelt around the GTA. The result: Developers were forced to focus on brownfields and parking lots inside the greater Toronto area. And Toronto has a lot of those, unlike New York, that has very little space for new development. It was more profitable to build up than low density housing. So, developers focused more on bigger condos, particularly in the downtown core where developers were allowed to build bigger than outside the core.

The funny thing when you compare Toronto and New York, has to do with the unit sizes. You would expect that Toronto would have larger units than New York since prices are higher in New York and space is more of a premium in the Big Apple. But you would be wrong. Almost 40% of new condo units under construction in NYC have three bedrooms or more. In Toronto, it is only 6% of condo units that have three bedrooms. I think this has to do with two things:

1. New Yorkers are used to raising families in high density buildings for over a hundred years. In Toronto, condos are seen largely as a place for the single, the young family or the retired. They have only really been a dominant property option in the last 20 years.
2. Houses in Toronto are more affordable than New York. So, more families can afford to live in them. Sure, it may be cheaper in Hamilton or Oshawa, but compared to an urban centre like New York, Toronto is still affordable to more of its inhabitants to buy a house.

All in all, it may be a good idea for Toronto to take a break from the top spot of condo unit producer. It's an interesting title to have but maybe one that you don't want to hold on to for too long. And so, we pass the crown to you, New York. Wear it with pride while you have it.

When Condos Are Better Than Houses

"Drive til you qualify." I've heard this phrase used more and more over the past year. It is currently been thrown around in North American cities where downtown prices have increased more than the suburbs and commuting is painful. Cities like Toronto. Basically, the logic of "drive til you qualify" goes something like this: If you cannot afford a house downtown, then you keep on driving until you are able to find a house in your price range. For those with more money to put down on their home or for those who qualify for mighty mortgages, they won't have to drive very far. They could land in Cabbagetown in the east, still walkable to downtown or Little Italy in the west, just a touch west of downtown with a thriving established neighbourhood. Still can't afford here? Then you keep on driving. Try the advanced emerging neigbhourhood of Leslieville in the east or The Junction in the west. Still too much? Then try an early emerging neigbhourhood like The Danforth Village in the east or Oakwood or Caledonia in the west. Thinking that will tap out more than you can afford, then you keep on driving out of town for some of the lowest prices in the GTA in Durham region or in Hamilton to the west.

I'm sure you understand my logic here. Though there are exceptions to this rule, it would largely appear that houses cost less the further you drive, for the most part.

But the thing to remember is that there are exceptions. And if you cannot afford to buy a house in High Park, then there are still choices for you. I often talk about the benefits of owning a house, but I think if you want to buck the "drive 'til you qualify" trend, your best bet is to look at a condo. Why? you ask. Well, condos have not increased in price as much as houses. So, they are much more affordable. There is a better supply chain when it comes to condos. More keep coming out to accommodate the demand. With houses, the demand is greater than the supply.

To be clear, it's not that "drive to qualify" does not effect condos at all. It is true that condos in downtown Toronto will be more expensive than ones in Hamilton, but you can still live in a central, established neighbourhood in a Toronto condo for a reasonable price. I currently have a boutique-style condo with parking and a locker in Little Italy that is 764 square feet with unobstructed south-facing views and a modern kitchen and washrooms. It is available at $489K. You would have to drive pretty far to find a house at that price, and it would not have the pizzazz of Little Italy. If 489K is too rich for your blood, there are still options for less that will keep you in a central location.

 My point here is that if you are one of those downtown Toronto folks who needs to be in the city, you can find a property downtown to live in. You have to choose your condo carefully. Not all condos are created equal, but you can afford to be in the centre of it all and you don't have to drive til you qualify.

Where the First Time Buyer Are Migrating Now

 I had a listing this past week that has just sold in the Caledonia-Fairbanks area. It's between St. Clair and Eglinton, west of Dufferin. For those who are familiar with Toronto real estate, it feels like a throw-back to three to five years ago when first time buyer could still afford a house in the city of Toronto for under $600K, and even $500K, in some cases. My client bought the property in 2012. At the time, first time buyers were heating up neighbourhoods like Mimico and the Junction Triangle that were still affordable for those with a house budget under $600K. 

My client did not have that kind of money at the time, and I needed to convince her that she may need to try out a neighbourhood that is a little off the radar, but whose population largely take care of their homes, and still has easy access to public transit and highways like Caledonia-Fairbanks. Now, the winds have changed some, and those emerging neighbourhoods that were once off the radar are heating up. 

When the property was purchased in 2012, I told my client it was the early years of this West End neighbourhood. It was mostly working class Portuguese families. You may feel like a bit of an outsider, if you were not one of them. At the time, this home had been somewhat renovated with new stainless steel appliances and granite counters. New wood floor and an amazing garage. The house was on the market for months with several reductions. In my opinion, the house was poorly marketed and may have suffered from attracting serious buyers because it did not show well and did not reach the intended buyer. Not a lot of effort was put in to the sale of the house back then. That's why we were able to buy for under $400K in 2012 dollars. 

Of course, when my buyer moved in, there were some further improvements made, and the house was generally cared for. So, it looked lived in and like someone took pride in their home. I think it makes a difference to buyers to come in and see that real human beings live in this place, though I do stress the importance of staging. Real human beings and staging is a good combo. This week, in 2015, we sold it for over asking the asking price of $489,000 in a week. 

I could brag here about my excellent marketing strategy and staging prowess, but I do have to give some credit to the neighbourhood itself. It is slowly being discovered, and the first-time buyers have given up on many of the previous emerging neighbourhoods of the past, that are rising too high in price, and are coming here. It has all the qualities of a successful emerging neighbourhood. The adjacent neighbourhoods, the Junction Triangle to the south and Oakwood to the east are becoming too expensive for many first time buyers. It's also becoming a more desirable neighbourhood because of the Eglinton Crossway currently under construction. The Eglinton Crossway will make this neighbourhood much more accessible to downtown and the Yonge Line. 

Some of the buyers can see the future potential and are making their move now. The other factor that is attracting buyers has to do with the neighbourhood diversifying. There is still a strong Portuguese presence here, which comes with the benefits of some delicious Portuguese desserts along St. Clair and Rogers Road, but the people coming through the open house were from all walks of life. They are, however, comprised mostly of couples and individuals who have been renting closer to Bloor and downtown but are buying up here where it is somewhat affordable to buy a house. Yes, it's not Little Italy or even Little Portugal, but Caledonia-Fairbanks is a more affordable area to buy a house than most Toronto neighbourhoods. First-time buyers, take note. The timing here is good.

Why Bidding Wars Are Back Big Time for 2015

Bidding Wars. It's the FIFA World Cup of the real estate world. Several teams play in the competition, but there can only be one winner. It can be a crazy game with plot twists and surprises, or it can play out as every one expects. Of course, most transactions do not involve a bidding war. So don't expect one every time you set out to buy or sell a property. Still, 2015 so far is proving to hold many more bidding wars than last year, and in areas that did not have them before.

Up until recently most bidding wars were predominantly found in downtown neighbourhoods in the old city of Toronto (pre-amalgamation), and it pricier parts of North York. Many advanced emerging neighbourhoods draw in quite a few bidding wars when they are well located, well staged, well marketed and well priced properties. Since houses, as opposed to condos, are in low supply in Toronto, that is where most of the bidding wars have been, and will likely remain.

Some neighbourhoods are more prone to them than others. And some price ranges are more prone to bidding wars than others. A property in Leslieville, Roncesvalles, Trinity Bellwood or the Junction Triangle will likely bring in a higher number of bidding wars.

I should be clear that a neighbourhood that has more bidding wars does not necessarily mean the properties are more valuable. It means that some neighbourhoods have a more prevalent culture of bidding wars over others. Some neighbourhoods seem to expect bidding wars. Other neighbourhoods, such a Cabbagetown, you'll find the list price higher, but the difference between list price and sale price to be much smaller than in neighbouring Riverdale. Why is that? Are houses less valuable in Cabbagetown? Well, not at all. Buyers expect a more realistic list price in Cabbagetown than in Riverdale. It's just a different way of doing things.

The bidding war culture is spreading though. I'm seeing it in areas of north of the 401 that did not have them last year. I am hearing about them as far off as Durham Region. I am also seeing a few bidding wars with condos, though this is still much less common than with houses. Bidding wars were much more common ten years ago with condos, but have slowed down with the growing supply. This past year, however, does show that condos are increasing their level of bidding wars. I think it speaks to an increase in the demand for condos, particularly ones that are distinct and well-located.

Bidding wars are also a result of price point. A home for sale for $3,000,000 will draw in fewer buyers than a home for $600,000 (that will net a lot more buyers simply because there are very few people who can afford a $3,000,000 home).

The rise of bidding wars can also be blamed on real estate sales people. Yes, people like me. Some believe that bidding wars are a good way to reveal the best price for a given property. It's almost like a blind auction where the home goes to the highest bidder. It is a strategy that can yield great results for sellers. Of course, some agents price their properties so low  that they receive 20 plus offer, which I believe is a waste of time for buyers and their agents. Some agent like to pad their stats. So,  if they sell $350K over asking they can be talked about in the Toronto Star or use these stats in their next listing presentation. They can brag that are the reason that their sellers have received hundreds of thousands over the asking price when the reality is that the listing agent has priced the property far too low.

Not all properties that sell well over asking are a result of an agent listing low. Sometimes you can have a change in the market where one house makes a leap ahead of the other. It is the best home put on the market that week, and buyers flock to that particular property. But lets temper our expectations, sellers.  To have a competitive house there is a lot at play. Yes, it has to do with location, but also your marketing plan, and how your house is laid out and staged.  Not all houses are sold in bidding wars, and that's not a bad thing! Other strategies work too.

Buyers, don't let your ears hang low like a dog because of your fear or disappointment with the bidding war culture. There are strategies to buying as well. If you want to live in a certain neighbourhood, you'll have to be competitive, but if you don't have time, the stomach or the money, there are other ways too.