Toronto Condo and Real Estate Blog

Talbot Boggs - Canadian Press

It’s summer, and all across the country Canadians are loading up their cars and vans with the kids and supplies and heading off to the cottage or the cabin for a weekend, a vacation or even for the entire season - short as it is. Canadians have a love affair with the cottage. And why shouldn’t they?

Cottages are a great way for families to escape the city, unwind, bond together and create some great life-time memories. They’ve also been a darn good investment in recent years.

The average price of a cottage in Canada has more than doubled in since 2000 and has gone up more than 12% in the last year, currently hovering at more than $427,000, the latest report on vacation properties by Royal LePage reveals.

Of course, the price depends a lot on where you buy. The average price for a piece of vacation real estate ranges from $86,500 in Newfoundland to $225,000 in Prince Edward Island, $525,000 in Quebec, and a whopping $1 million in British Columbia.

In Ontario’s trendy and popular Muskoka region, lakefront properties have been known to fetch as much as $6 million.

“The demand for recreational property continues to far exceed supply across Canada, causing cottage prices to rise at a much quicker rate than the overall housing market,” says Phil Soper, president and CEO of Royal LePage Real Estate Services.

Just how far are Canadians willing to go to get a piece of their own rural paradise? Pretty far it seems.

Twelve per cent of Canadians say they are planning to, or are considering, buying a recreational property in the next three years. And of those who are considering making such a purchase, 49% are willing to move into a smaller principal home to afford a cottage and 32% are willing to take on a second job in return for a piece of lakeside living.

“Families are managing the affordability challenge with creativity and personal flexibility,” says Soper. “Prospective purchasers on a budget can still find a cottage or cabin, but they may have to accept a longer weekend commute, seek alternate ownership options or subsidize ownership through rental income.”

Purchasers today are taking out mortgages to buy their vacation properties instead of personal loans as they did in the past. And they are looking for more substantial homes in the country to provide them with access to entertaining activities such as snowmobiling and hunting and fishing as well connections to the internet.

“With the booming trend of satellite offices and instant messaging capabilities, being ‘wired’ at the cottage is of utmost importance to some cottage owners and purchasers,” the report says. “Interestingly, however, 69% of parents who own cottages cite that part of the reason they go to the cottage is to ‘unplug’ their kids and have them spend time outdoors.”

Cottagers do say, however, that rising gas prices is one factor that could change their minds about owning or keeping the cottage.

Almost one quarter of Canadian cottage owners said they will reduce the number of trips they make to the cottage this summer because of high gas prices while 12% say they will consider selling their property if prices continue to rise.

Still, Canadians by the thousands continue to hit the road during the summer and head to the cottage to enjoy the outdoors, escape from the hustle of city life and spend quality time with their friends and family.

Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors.

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By John Caspar - Sympatico/MSN Finance

Real estate is like the equity investment of the people. Everyone has heard about the enduring bull market in Canadian real estate, and most everyone has an opinion about it. It’s easy to find folks who will humbly admit that they don’t really understand the finer points of stock market investing. But, at least in Canada’s hottest real estate markets, it’s tough to find anyone who isn’t an expert.

Consider Toronto, for example. It’s a crazy hot real estate market here, and it has been for several years. Anyone who has owned property here for any length of time has seen the value of that property rise, perhaps dramatically. And it’s been going on for long enough that Toronto real estate as an investment has fallen into the “Everybody Knows…” category. You know: “Everybody knows that Toronto real estate is a safe investment”, or “Everybody knows that Toronto real estate outperforms stocks”, or “Everybody knows that you can’t get hurt in Toronto real estate.” Like that.

Now, I guess I tend to be a contrarian, so when Everybody is quoted as an information source (”How do I know that? Well, Everybody knows that.”), I get interested in knowing more about the whole story. And as it turns out, the whole story about real estate as an investment isn’t quite the same story that Everybody knows.

Take the idea that Toronto real estate is a “safe” investment. Real estate certainly can be a brilliantly rewarding investment, for all the same reasons that being an equity investor of great businesses is so smart. You can get long-term capital appreciation as well as income in the form of dividends or rent (or imputed rent). Hey, it’s good to be an owner! But if your idea of safety is consistent appreciation or stability of capital in the short run, well, real estate actually doesn’t provide that any better than stocks.

According to data from the Toronto Real Estate Board, in the last thirty years the average price for a detached home had three bear market periods where it took at least two years for prices to recover to their previous high. After prices topped out and corrected in 1981, it took seven years to get back to those 1981 prices.

Real estate investors were just getting back to “knowing” how great Toronto real estate was when prices peaked and corrected again in early 1990. It was 1992 before prices climbed back to where they were. And then, in early 1995, prices once again started downward. This time, it wasn’t until 2003 until the market saw those 1995 prices again. That’s right… in very recent history, it took the investment that Everybody believes in eight years to recover from a downturn.

Now, that’s not to say that stocks don’t turn down too. They do. Everybody knows that. So, to be fair, I pulled out chart data on the S&P/TSX Composite Index (and its predecessor, the TSE 300) for the same period, and had a look-see. Like the price chart for the average price of homes in Toronto, it’s a plenty squiggly line, and reflects a lot of volatility. But as with the Toronto real estate data, we’ll concern ourselves with just those periods since 1977 that involve at least two years to recover.

For Canadian stocks represented by the S&P/TSX (TSE 300), there were four such periods. In 1981, the Toronto real estate market fell and took two years to get back to its high. Then there was the famous correction in 1987, which also took two years to right itself. Less dramatically, the market head south in the early moments of 1990 and took a couple of years to come back. And lastly - and certainly freshest in our minds – the Canadian stock market turned bearish in 2000 and took five years to recover.

So there it is. Three bears for real estate, with durations of 7, 2 and 8 years. Four bears for Canadian stocks, with durations of 2, 2, 2 and 5 years.

Hmmm. Interesting. So what were the comparative returns for those two asset classes over those 30 years? Well, based on the data mentioned above, the average detached home in Greater Vancouver went from $80,000 in 1977 to $785,234 in (April) 2007. Wow. Can you believe the average Greater Vancouver home once cost 80 grand? And can you believe it’s now nearly 10 times that?! That’s a total return of about 882 percent, or an average annual return of nearly 8 percent. Nice!

As for the S&P/TSX Composite Total Return, well, if you had invested $80,000 in the index in 1977, it would be worth over $2.5 million in April 2007. That’s more than 3,000 percent return, or an average of over 12 percent per year. Very handsome. And by the way, if you’d invested the same amount in the U.S. S&P 500 index, you’d have over $3.1 million in Canadian dollars today – a 3,825 percent return, or an average of 13 percent a year.

So, as it turns out, over the long run stocks do rather well compared to real estate. Of course, on an intuitive basis, you’d figure this out anyway, right? Because if Everybody knew they could make more money in the long run by simply owning real estate rather than owning resources companies and financial institutions and industrial firms and telecom companies, they’d never start, run or buy a company. And Everybody knows that’s just silly.

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By Philippe Bérubé - Freebuck.com

“When the American economy sneezes, the Canadian economy catches a cold.”
– Anonymous

The old saying does not apply well to the current state of the US and Canadian real estate markets. The US real estate market has been in a downward spiral for several months, but the red hot Canuck real estate market is barely showing signs of slowdown.

From April 2006 to April 2007, the cost of new housing increase was of 8.9% in Canada. From March to April 2007, the same cost grew by 0.8%. Canadian housing starts grew at a seasonally adjusted annual rate of 9.2% from April to May 2007, up 4.9% year to year after a few months of decrease. CDN GDP is still growing at a 0.9% clip.

US housing starts fell 2.1% in May 2007, after rising by 1.0% in April 2007. The fall was the first since starts dropped 14% in January. Starts, year-to-year, were 24% lower than the May 2006 level. US sales of new one-family houses in April 2007 were up 16.2%, above the revised March 2007 rate, but 10.6% below April 2006 estimates. US GDP growth in Q1 2007 was revised down to an annual rate of 0.6%.

There is no doubt that we are currently doing better than our southern neighbours, but numerous factors could negatively impact on Canadian real estate in the coming months.

1) The Canadian dollar could reach parity with the US dollar before the end of 2007. Aside from giving another argument to those cheering for a single North American currency (I am not one of them), this rise is already hurting exports with our largest trading partner to the south in the form of a reduced trade surplus. We can seriously reduce our expectations for future balanced federal budgets if this trend continues and produces a recession in the US next fall. Canada may have already lost 250,000 good-paying manufacturing jobs in the past two years, due to this rise.

2) The Bank of Canada has announced that current economic growth and inflationary pressures could incite them to raise rates within the near future. Following this announcement, fixed-term mortgages grew by more than 0.5% and have now crossed the 7% mark (they were still under 5% about 15 months ago). This should hurt the national real estate market in the long term, as I suspect housing and rental affordability indexes will continue to deteriorate, while housing prices and interest rates will continue to go up for a while.

3) 40 year mortgages have been introduced to Canada in 2007. This encourages overly indebted Canadians to lower the monthly amount they pay for a house, but will make them poorer over their lifetime as the average total interest cost for a 40 year amortization is roughly 50% higher than a 25 year amortization, depending on future interest rates. This measure is sure to make private banks billions in additional profits.

My suggestion for younger homeowners is to get out of personal/student debt and then directly apply future savings to reducing the capital of your mortgage. There are usually limits to the percentage of capital you can repay on the loan per year, but a $1,000 lump sum payment applied early to the remaining principal of your mortgage can save you more than $25,000 in interest in the long run and will generally outweigh the penalty incurred for paying back this capital. I do not personally recommend borrowing a lump sum payment from a credit margin, but am aware that some have found this profitable.

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