What The “Recession” Really Is … And What It Means For Your Real Estate Market Part 7

February 26, 2010

Home #1 – Asking: $769,900, Sold: $765,000 – $4900 below asking
Home #2 – Asking: $599,900, Sold: $637,098 – $37,198 above asking
Home #3 – Asking: $299,900, Sold: $327,000 – $27,100 above asking
Home #4 – Asking: $519,900, Sold: $569,500 – $49,600 above asking

These numbers totally speak against any sort of falling market in these areas.  Roncesvalles is like the wealthy neighborhoods in Toronto Lamb mentions later in the discussion (Rosedale, Forest Hill and Moore Park) in that there wasn’t a lot of development in Roncesvalles and the surrounding area in recent years.  

So once again it all really boils down to supply and demand.  Real estate prices in any areas that were overbuilt will suffer somewhat.  Prices will have gone down and may continue to go down for a while.  But for areas that had modest or no development in recent years, there really hasn’t been much change.  When people can get $30,000-$40,000 over asking price right now as they are in Toronto west, you know these areas are very healthy, growing real estate markets.

But for the sake of argument let’s play devil’s advocate for a minute and look at what waiting might do for the skittish.  Let’s say you wait to buy a condo in a majorly overbuilt part of the Toronto area and the condo is currently worth $200,000.  Let’s say it takes 3 years from now for the price to come down 20%, and then you buy.  So you get the condo for $160,000.

But you had to live somewhere during those 3 years, so you rent a modest apartment with your spouse for $1000 a month.  So over 3 years you would have spent $36,000 in rent with no equity build up.  That’s only a $4000 difference between what you spent on rent and what you saved on the condo.  Considering you would have been gaining equity in the condo during those 3 years you certainly would have built up at least $4000 in equity.  So even in a worse case scenario it makes no sense to wait to buy in the Toronto area.  Anyone hoping for anything close to a 20% reduction in any Toronto real estate prices over the next three years is fooling themselves.  It reminds me of what Mark Twain said about real estate: “Buy land.  They’re not making it anymore.”  It also reminds me of what Warren Buffett says about investing: “be greedy when the masses are fearful and fearful when the masses are greedy”.

Lamb echoes this reality later in the discussion:

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Tags: Big City Broker, Brad J Lamb, Brad Lamb, carriage trade, depression, doom and gloom, economy, Elise Kalles, Garth Turner, Harry Stinson, Harvey Kalles, Mike Eppel, real estate market, recession, Richard Wengle, Sherry Cooper