GTA's Housing Market Nov. 2008 to 2014 - boomers versus doomers who was right?

By Penny Elizabeth Dutkowski, Broker

In approximately seven days, we can expect that TREB's final report for the year will show that average and median prices for properties listed and sold through its system reached new heights and that the year's sales is the second best ever if not the best. The latter in the face of a sluggish first four months which suggested a year hard pressed to beat the sales number of 2012 while all results will most certainly be in defiance of all the warnings of a consequential real estate market correction or crash since 2008 and before.

If you were undecided, caught in the middle of the war of words between the boomers and the doomers, the market trajectory and the market influences the below may be of interest to you. 

The analysis that follows uses actual median prices, mortgage rates, the S&P500 performance and to avoid bias, a fair dose of investment advantages (referenced at end) to demonstrate the different equity positions one could have at November 30, 2014 between purchasing a semi-detached property at the GTA's median price point in November of 2008, 2009 and 2010 or investing in the S&P500. Semi-detached is used because it is a compromise between condo apartments, towns and detached homes.

Ch.1 focuses on the purchaser's options to buy in November of any of those years and illustrates the purchase price, applicable mortgage payments and timing cost differentials.   

Ch.2's Homeowner's equity Position summarizes the equity position the purchaser would or could have had depending on timing. In turn, the Investor's Position summarizes the actual value they could have had by investing the downpayment alone into the S&P500. The rent factor is accounted for in Ch.3.

Ch.3 shows the monthly mortgage and property tax payments for 2008, 2009 and 2010 then allocates 2/3rd (see notes at end) of same to rent for the investor to determine how much the investor would have had left over for income earning purposes. The results show that the investor would suffer a monthly shortfall in years 2008 and 2009 but an excess in 2010. However, in order to represent the equity values as they increased from 2008 to 2009 to 2010 relative to a pure cash position (not purchased yet) the investor at November 2014 would have to have, the final two lines of the chart restate by year the average monthly equivalent needed to be on par with the purchaser.

The end result is that opting to wait to buy did not favour the investor in the least. It would be even less favourable if they were waiting for a housing market correction prior to 2008 and worse, they lost even more if they owned property and sold in anticipation of a correction.

Will the market start to decline in 2015? No one knows but there is one certainty: there is a lot of creative math and misinformation floating around, much of it coming from individuals who ought to know better and some unfortunately eschew scrutiny and look only for an endorsement of their own point of view. 

That can cost you money in the long run. 

  

By Penny Elizabeth Dutkowski, Broker with HomeLife/Bayview Realty Inc., Brokerage-Independently Owned and Operated. Thornhill, On. (905) -889-2200

All posts are the express opinion of Penny Elizabeth Dutkowski and should not be construed as that of the Brokerage.