Chris and I have known each other since elementary school. He lived on the street next to mine. We’d take the same public bus home from high school, and so the bus stop at Finch and Kennedy was a routine that involved conversations about food, Mid-East politics, and women.
So what do you think, Chris? Is this a good time to buy a house? Should one wait?
It’s always a good time to buy. And it’s always a good time not to buy. Depends. And I hate hate hate, loathe some real estate agents for being so one-dimensional. And obviously they’re looking out for their best interests. But the stuff they put out is propaganda. Don’t get me wrong, there are some honest realtors with objective opinions out there but they are rare to come by.
And the ones you dislike, are they pushing out negative or positive opinions about the market?
Always positive about the market. And it serves them in that respect.
So are things not as rosy as we read? There are some people who talk about a possible housing bubble in Canada. How true is that?
I think a lot of the criticism out there is not founded. All this bubble talk, I think it’s over exaggerated. I think you need to separate the condominium market from the single-family residential market. Because really, the condo market is supported by investors. It’s led to a lot of speculation. And with the condo market it takes time, from planning a condo to getting approvals to actually building a condo, so it’s a lot more vulnerable to the whims of the market. So I can see the condo market being susceptible to a bubble. I don’t know the magnitude of the correction because Toronto is supported by consistent immigration, even within Toronto with people migrating downtown.
The reason why single-family homes aren’t susceptible to a big correction or a bubble is because there is way more demand than there is supply. And that’s what is driving the prices of houses in Toronto. And when I say houses I’m excluding condominiums.
What about those who are in the market to flip a house?
If you’re flipping you have to consider tax issues. A lot of people, what they do is they actually live in the house and have it classified as a primary residence and then sell it, so they avoid capital gains that way. When it comes to flipping houses it’s all about timing. You have to find a hot pocket and you have to be quick about it. And the most important thing, well, there are two things: the time you buy in, and the time until you sell because you carry the mortgage and you have carrying costs. And who’s to say that the swings in that pocket are going to continue over x amount of years. So you want to get in and out as quickly as possible.
However, with income producing properties, if you have positive cash flow, meaning what you put into the house as far as mortgage expenses, utilities, insurance costs, property taxes, is less than what you’re actually getting from your renters, then you have positive cash flow. Now, regardless of where the property value goes over the long term, if you’re in an area that has good fundamentals over time you can ignore the fluctuations in the property value because you’re getting positive cash flow from that property. So you can wait it out because it takes times with those types of areas. A huge factor for a lot of people that buy into income producing properties to rent out is transportation infrastructure.
I was reading a recent article, in The Globe and Mail, about home prices in the Sheppard and Bayview area. The area between Finch and Sheppard, and between Yonge and Don Mills… that area is just booming!
In that area, because it’s going through a transition, there are quite a few new developments. It’s close to Bayview Village, close to the 401, close to Yorkdale Mall, close to the DVP and the subway. A lot of speculators are buying property to flip in that area and that has brought land prices up.
So is it too late for an investor to move into that area?
You wouldn’t have a problem selling in that area, but rising land prices are eating into potential profits. If you want to live there, it’s a great area to live. But for an investor, I wouldn’t recommend it unless they have experience working at that price point.
Would you buy right now?
Would I buy a property right now? It depends. There are a few things to consider. The condo market is at more risk than buying a house or a town home. Like I said, the momentum pushing the condo market is speculative investing. A lot of the buildings going up today are based on the drive towards getting that return and knowing that interest rates are very low. I don’t know how long this will last and a correction will happen. We’re already seeing some condos begin to have vacancies. My theory is that people who want to buy condos to live will buy them up once the pricing comes down. They’re not going to wait long. People will see a drop in prices and feel the homes are affordable.
Is there a way to manufacture a bubble-pop and bring house prices down sooner?
(laughs) You can manufacture one. They did it in the States. But I don’t think that would happen in Canada. I’m sure someone with experience in financial engineering could. I don’t think it would be based on fundamentals, so it would have to be psychological. I don’t know…push out propaganda. (laughs)
(laughs) Like a real estate agent! But one pushing negative propaganda.