Category Archives: luxury real estate

The real estate math mistake we all make

real estate math

Most financial choices boil down to simple math. Add up the gains, subtract the costs, and you should get a number that helps you draw a conclusion. Those numbers are particularly useful when trying to make a major life decision, such as whether or not to sell the family home.

Given how hot big city markets like Toronto are these days, the math would certainly make a compelling case to sell. Yet according to the April sales data from the Toronto Real Estate Board, listings are down 27% year-over-year in the GTA. Despite brisk sales and skyrocketing prices, most homeowners living in semi-detached and detached homes are choosing to stay put. (A similar lack of inventory is plaguing Vancouver, Halifax, Ottawa and nearly every large city in Canada.)

TREB’s rationale for the dearth of listings? A widespread aversion to the high cost of land transfer. Other people have surmised that the scarcity is a symptom of our fear of paying a premium on the next property. After all, while you may sell high, you’re also forced to buy high—a proposition that leaves some feeling like prisoners to the status quo. But I think there’s another reason people aren’t selling as many homes these days, and it’s buried deep inside our brains. More precisely it has to do with how we process gains and losses.

According to Nobel-prize winning professor Daniel Kahneman, we’re hardwired to overvalue a loss and undervalue a gain. “The aggravation that one experiences in losing a sum of money appears to be greater than the pleasure associated with gaining the same amount,” is how he puts it.

To appreciate what Kahneman means, consider the case of Larry and Laura. Retired for three years, the Toronto couple have a comfortable debt-free life, funded by modest pensions, savings and government income programs. Thing is, they could have more money in the bank if they sold their home—let’s say they bought it 15 years ago for $250,000. But Larry and Laura can’t wrap their heads around selling and downsizing in such a crazy market, even though they could probably sell it for $750,000 or more.

The math says they’d be ahead by as much as half a million. But that calculation isn’t entirely accurate, at least not from an economist’s point of view. To understand how they’re undervaluing their gains, you have to consider the difference between sunk costs and opportunity costs. Sunk costs are anything spent that cannot be recovered. For Larry and Laura, that would mean the money they paid into the mortgage, the time and money it took to maintain their home and the emotional and mental energy they invested in raising a family in the house.

The opportunity cost, on the other hand, is what’s incurred from not taking the next best alternative. This is a fancy way of referring to all the ways Larry and Laura could be spending their time and money if it weren’t tied up in their family home.

Pretty straightforward, right? Only Larry and Laura aren’t as rational as they think. The idea of dismissing all the money, time and energy they poured into their family home feels like the emotional equivalent of losing their investment, a perceived loss that prompts them to overvalue their sunk costs. Economists would say this is irrational. They would explain our refusal to dismiss these irretrievable expenses as a “behavioural error” or an action that doesn’t conform to rational choice theory (a principle that assumes we always make the prudent and logical decision that provides us with the greatest benefit).

If Larry and Laura were truly rational, their real gain for selling their debt-free family home would be closer to $750,000 (the sale price minus transactional costs). Even if they chose to repurchase in the same market, it would likely be something smaller and less expensive; they’d still have money left in the bank to spend on travel, explore new hobbies or give to their kids and grandkids. So does that mean Larry and Laura should sell? Yeah, maybe. Since each person values a future gain slightly differently, it’s important to ask yourself the following questions:

1. What are the intangible and tangible sunk costs so far?

2. Am I willing to accept that these sunk costs will never be returned to me?

3. If so, can I see what I may be missing if I overweight costs that are irretrievable?

4. Finally, what would I actually gain if I were to sell and move now?

It’s totally understandable if you answer these questions and still choose to pass up the opportunity for a large financial gain. Sometimes the math used to determine a home’s value ignores the intangibles—factors that can outweigh even the most compelling balance sheet surplus. But going through an exercise like this will help anyone make a more informed, more rational decision. It’s better than feeling trapped in the status quo, a prisoner in a surprisingly expensive home.

 

Source: MoneySense.ca – by  

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The 5 priciest homes in one of the country’s hottest markets

Take a look at some of the country’s most luxurious homes currently for sale.

These are the most expensive homes currently for sale in and around the country’s hottest housing market.

As someone who covers housing for a living, there’s nothing quite like perusing some good old fashioned real estate porn. I’m sure you faithful readers can agree.

While modern builds with their sky-high windows or hard lofts with their sprawling floorplans are always fun to explore, there’s nothing quite like gandering at some of the country’s priciest homes.

And there seems to be a few more than usual currently on the market.

Pont2Homes, an online agency, rounded up the 10 most expensive homes currently for sale in and around Toronto. Check them out below.

1. A Yorkville Penthouse

Yorkville is one of the most sought-after neighbourhoods in Toronto (there are even rumours that Mike Babcock, current coach of the Toronto Maple Leafs, chose to coach in Toronto over Buffalo due to his wife’s desire to live in the posh ‘hood).

It’s home to some extravagant shopping spots and swanky restaurants; and also to the province’s current most expensive home.

Listed at a cool $36,000,00, this beauty is located at the top of the Four Seasons Hotel.

2. A Bridle Path mansion

“Millionaire’s row” is home to this 10 bedroom behemoth befit for Batman himself.

For a cool $35,000,000, this home includes a 5,000 square foot pavilion, a tennis court, a 50 foot indoor pool, and a hand-carved Louis XV fireplace.

3. A multi-million dollar country home

If city living isn’t your thing, this $24,950,000 equestrian estate in King City may be just what you’re looking for.

The rugged and rich outdoorsman (or outdoorswoman) will surely be drawn to the 80 acre property that is home to a pond and waterfall, skating hut, walnut grove, and groomed hiking trails.

4. A lakefront compound

If one home isn’t enough, this estate in Oro-Medonte is situated on a 17 acre lot with a 525 foot private beach on Lake Simcoe.

The lot is also home to two 12,500 square foot homes.

5. 10 bedrooms in Bridle Path

This estate has its own ballroom, a spa, a salon, and in in-home theatre.

All for the reasonable price of $19,380,000.

Source: Canadian Real Estate Magazine – by Justin da Rosa29 May 2017

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SOLD: Uptown Home Sold For $1 Million Over Asking!!!

With so many house selling way over asking in Toronto these days, the tendency is to declare the expression meaningless. The value of a home, so the argument goes, is better judged by what nearby properties have sold for.

375 Glencairn Avenue TorontoThat’s mostly sound reasoning, but once in a while we get a bit of inside baseball from realtors about Toronto home sales, and this sheds some more insight on the wild prices that are being fetched of late.

375 Glencairn Avenue TorontoThis elegant and well equipped home at 375 Glencairn Avenue, for instance, just sold for $1,165,000 over asking after being on the market for seven days. During that period realtor André Kutyan of Harvey Kalles tells us that 165 people came through the home.

375 Glencairn Avenue TorontoOf the army of potential buyers who toured the property, nine made offers, which drove the price way up from its listing at $3,595,000. Worthy of note is that the listing price mostly reflects the sale prices of other nearby homes sold over the last 30 days.

375 Glencairn Avenue TorontoThe sample size might be too small for this to prove a trustworthy metric (only five other homes sold within 1,500 metres during this period), but one thing’s for sure: there was a ton of interest in this property.

375 Glencairn Avenue TorontoThe Essentials
  • Address: 375 Glencairn Ave.
  • Type: Detached house
  • Bedrooms: 4 + 1
  • Bathrooms: 7
  • Lot size: 50 x 219.66 feet
  • Realtor: André Kutyan
  • Hit the market at: $3,595,000
  • Time on market: 7 days
  • Sold for: $4,760,000
375 Glencairn Avenue TorontoWhy it sold for what it did

This house has a lot going for it. It’s been recently renovated, the enormous basement features a wine cellar, games room, mini movie theatre, and sauna, multiple bedrooms feature en suite washrooms, and the finishes around the house are top of the line.

375 Glencairn Avenue TorontoWas it worth it?

There are plenty of very nice homes in Lytton Park, but this one stands out when compared to recent listings. That alone was likely enough to start the bidding war that drove the price up into the ultra luxury range.

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Lead photo by Realtor


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Ontario to place 15 per cent tax on foreign buyers to cool GTA housing market: Sources

Ontario to place 15 per cent tax on foreign buyers to cool GTA housing market: Sources

The Canadian Press has learned that the Ontario government will place a 15-per-cent tax on non-resident foreign buyers as part of a much-anticipated package of housing measures to be unveiled today.

The measures are aimed at cooling down a red-hot real estate market in the Greater Toronto Area, where the average price of detached houses rose to $1.21 million last month, up 33.4 per cent from a year ago.

Premier Kathleen Wynne and Finance Minister Charles Sousa have said the measures will target speculators, expedite more housing supply, tackle rental affordability and look at realtor practices.

Sousa says investing in real estate is not a bad thing, but he wants speculators to pay their fair share.

He says the measures will also look at how to expedite housing supply, and he has appeared receptive to Toronto Mayor John Tory’s call for a tax on vacant homes.

Sousa has also raised the issue of bidding wars, and has suggested realtor practices will be dealt with in the housing package.

The Liberals have also said that the government is developing a “substantive” rent control reform that could see rent increase caps applied to all residential buildings or units. Currently, they only apply to buildings constructed before November 1991.

Source: The Canadian Press – April 20, 2017

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Solving the enigma of Canada’s housing bubble

A real estate sold sign hangs in front of a west-end Toronto property Friday, Nov. 4, 2016. THE CANADIAN PRESS/Graeme Roy (Graeme Roy/THE CANADIAN PRESS)

If Yogi Berra were alive today, he’d probably describe the Toronto housing market like this: Things are so good, they’re bad. And if they get any better, that’ll be worse.

In February, the Teranet-National Bank house price index showed prices in Greater Toronto rising 23 per cent over the previous year – or about 21 per cent faster than the rate of inflation. Homes in neighbouring Hamilton were up 19.7 per cent. Even in Metro Vancouver, long the hottest market but which recent policy changes have somewhat cooled, prices are up 14.3 per cent. Most of the rest of the country, however, looks relatively calm.

But not Toronto. It’s become such a sellers’ market that – another Berraism – nobody wants to sell.

In response to surging demand, the number of properties offered for sale has dropped. Potential sellers are holding off putting houses and condos on the market, because they assume the longer they wait, the higher prices will go.

“In the first two months of 2017,” writes Simon Fraser University public-policy professor Josh Gordon in a recent report on Toronto housing, “new listings dropped despite rapidly rising prices, likely because even more sellers now expect prices to climb higher. That has sent the sales-to-new-listing ratio soaring, which is a good proximate indicator for future house price increases.”

In other words, prices in Toronto appear to be feeding on themselves. Why? It’s the psychology of FOMO – the fear of missing out. Purchasers fear that, unless they buy now, they’ll miss out on ever owning a home. Potential sellers fear that, if they sell now, they’ll miss out on windfall profits from inevitable price jumps. Based on the past few years, these have become rationally held beliefs. Speculation is now wisdom.

If you’re already a homeowner, it’s wonderful. If you’re a young person, an immigrant or middle-class, it’s depressing. If you’re an economist or a banking regulator, it’s terrifying.

Toronto has long shown signs of a classic bubble, and so has Vancouver. And when housing bubbles burst, they send tsunamis rushing through the financial system, and the entire economy. Just look at what happened in the United States in 2008.

That’s the danger. And the best way to address it is to try to carefully let some air out, before the balloon pops.

A real estate sold sign hangs in front of a west-end Toronto property Friday, Nov. 4, 2016. THE CANADIAN PRESS/Graeme Roy (Graeme Roy/THE CANADIAN PRESS)

So what’s been driving prices in Toronto and Vancouver? A lot of things – some of which can’t be changed, or shouldn’t be.

There are the Bank of Canada’s record low short-term interest rates, a response to weak domestic and global economic conditions. Should Ottawa be agitating for higher borrowing costs, across the entire economy? Obviously not.

The Bank itself is also reflecting a worldwide savings glut, which has pushed global bond yields and mortgage rates to the floor, while pushing up the value of a lot of investment assets. Can Ottawa or the provinces address that? Not really.

Some of the price increases are a reflection of population growth, with the Greater Toronto Area adding nearly 400,000 people between 2011 and 2016, and Greater Vancouver growing by 150,000. Should government policy aim to stop people from moving to these successful cities? Absolutely not.

However, housing in Toronto and Vancouver has also been driven skyward by other factors. Greater Montreal, Canada’s second-largest market, has the same low interest rates, and over the last five years, it’s added twice as many people as Vancouver. But Montreal prices have not been bubbling.

The price boom in Toronto and Vancouver has been far beyond what population and income growth would suggest. For example, there tends to be a long-run relationship between average incomes and average housing prices. That’s because, as Yogi Berra might have put it, people can’t afford what they can’t afford – except when they can. In Toronto and Vancouver, the unaffordable is now the norm.

Average home prices are normally expected to be about three times median family incomes. As of last summer, that’s roughly where things were in Montreal, Ottawa and Calgary. But in Toronto, prices were more than eight times family income. Vancouver? Nearly 12.

Last year, the situation finally pushed British Columbia to act. The government introduced a 15 per cent tax on foreign buyers, which appears to have had an impact. Vancouver prices actually dipped late last year, reversing steep gains earlier in 2016.

The levy, which doesn’t apply to immigrants, had a dual effect. It discouraged non-resident speculators, while also signalling to the entire market that prices might not go up forever.

(Unfortunately, B.C. recently undermined the measure, by watering down its application, and creating a price-inflating program of interest-free loans for first-time homebuyers.)

Ontario Finance Minister Charles Sousa is now also musing about a foreign-buyers tax for Toronto. As in Vancouver, it might calm the market, and it’s hard to see how it could hurt. Non-resident investors are likely only a small part of the picture – the data is still poor – but they may be having a significant impact on prices and psychology.

Economists keep sounding alarms about a Canadian housing bubble; the latest comes from the Bank of International Settlements. A popped bubble will harm the entire country, but the entire country is not in a bubble. There’s no need for a national plan to throw cold water on buyers from Halifax to Ottawa to Edmonton. Policy has to go after the problem where it makes its home, in Southern Ontario and B.C.’s Lower Mainland.

Source: The Globe and Mail – Published Friday, Mar. 17, 2017

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Canada’s top-5 most expensive homes currently for sale

 

Canada’s top-5 most expensive homes currently for sale
Affordability is a major issue for many Canadians, especially those trying to buy a home in major cities. However, these properties – currently for sale and curated by online real estate company Point2Homes — are in an a class of unaffordability entirely their own.

#1: $42,000,000 — 4351 Erwin Drive, West Vancouver, BC

This 7 bedroom mansion in Vancouver offers oceanfront views of Stanley Park. It also boasts 10,000 square feet and its own private beach.

#2: $38,000,000 — 2106 SW Marine Drive, Vancouver, BC

This property offers views of the Gulf Islands, as well as its own private park and two golf greens on its 4.25 acres.

#3: $30,000,000 — 242004 Range Road 32, Calgary, AB

Making our way east, we find our first property outside beautiful British Columbia. Nestled in the mountains, this 160 acre property offers everything an outdoorsman – and woman – would want.

For those who prefer the indoors, the sprawling home contains a music conservatory (for the young, budding Beethoven, naturally), a two-storey library, and an indoor pool.

#4: $26,000,000 — 12133 No 3 Road, Richmond, BC

Unsurprisingly we’re back in BC, which is home to this five bedroom Tuscan-like villa. While it may not have its own winery, it does offer ponds, gardens, a swimming pool, and a tennis court.

#5: $25,000,000 — 76,84,91 Trail’s End, Lake Joseph, ON

This a dream-worthy cottage on Lake Joseph has its own bar.

But who needs a beer when you can crack a cold beer on that dock?

This is just small sample of the country’s priciest homes. To see the rest, check out the original report by Point2Homes, which includes the country’s most expensive listing: A three home package deal that will run you nearly $50 million.

Source: MortgageBrokerNews.ca – by MBN 16 Mar 2017
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Big banks are freaking out about Toronto real estate

 

Add Canada’s largest bank to the growing chorus of lenders worrying about unsustainable price growth in Toronto.

“You’re seeing 20% house price growth in a market where you shouldn’t see that much,” Dave McKay, the chief executive of Royal Bank of Canada, recently told the Financial Post. “That’s concerning. That’s not sustainable. Therefore, I do believe we are now at a point where we need to consider similar types of measures that we saw in Vancouver.”

Vancouver, of course, made headlines last year when it announced a 15% tax on foreign homebuyers – a policy that was met with equal parts derision and support from industry players.

The move is thought to have played a role in dampening Vancouver’s hot housing market; a similar one could have a similar effect in Toronto, depending on how much influence foreign buyers actually have on propping up prices (no rock solid data yet exists).

RBC joins the Bank of Montreal in stoking the fire of fear that Toronto’s market is blazing out of control.

“Let’s drop the pretence. The Toronto housing market—and the many cities surrounding it—are in a housing bubble,” Doug Porter, chief economist for BMO Bank said in a recent report. “Everyone may have a slightly different definition of what a bubble is, but most can agree it’s when prices become dangerously detached from economic fundamentals and start rising strongly simply because people believe they will keep rising strongly, encouraging more buying.”

According to Porter, Toronto’s real estate market could experience a similar downturn to the one that occurred in the 1980s.

“Prices in Greater Toronto are now up a fiery 22.6% from a year ago, the fastest increase since the late 1980s—a period pretty much everyone can agree was a true bubble—and a cool 21 percentage points faster than inflation and/or wage growth,” he said. “And, the ratio of sales to new listings was a towering 93.5 in the region last month adjusted for seasonality (and was above 100 in Hamilton, Kitchener and the Niagara Region).”

According to the Toronto Real Estate Board, the average Toronto house cost $770,745 in January – up from $630,193 in January 2016.

And with the average single-family low rise home now selling for $1,028,395, it’s no surprise economists are getting anxious.

Source: MortgageBrokerNews.ca – by Justin da Rosa 28 Feb 2017
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