Thursday, 24 September 2015

The Brooklyn Effect

The Brooklyn effect. It's a term I hear thrown around more and more. It seems that in this day and age the brand of "Brooklyn" really does stir up some excitement in people. In fact, there is a store now open in one of the exclusive shopping centres of Paris called, you got it, "Brooklyn". It has t-shirts, artisanal jams and wool hats - things you would apparently find in Brooklyn with ease. The funny thing is, the Brooklyn effect, whether you live in Brooklyn or not,  has become synonomous with living in a hipster neighbourhood with funky artist spaces, experimental restaurants and stylized general stores. I'm sure there are hundreds of neighbourhoods in the Western world who have taken this track. I've heard this term used to describe a number of neighbourhoods in Toronto from The Junction, the Junction Triangle, Leslieville, Kensington Market, and Trinity Bellwoods. The Brooklyn Effect encapsulates a neighbourhood that has risen from humble or scrappy beginnings to become a centre of cool with distinctive independent businesses all around. Loosely defined, you could say the Brooklyn Effect takes place anywhere there is a migration of younger to middle aged professionals priced out of other pockets of the city. It brings creative bohemians, sometimes with money, to an urban area.

But to really understand this phenomenon, let's look at Brooklyn's recent history. Back in the 80s, to say you were from Brooklyn would make you cool in a kind of don't-mess-with-me Lether Tuscadero way. You might come off with a little more street cred. Then Manhattan became full. Too expensive for most New Yorkers. So, many set their eyes on Brooklyn, right across the bridge. And wow, the change was swift. So swift that Brooklyn itself may have eclipsed Manhattan as the centre of cool in New York.

Some may see this as a simple form of gentrification. And in some ways, that's all it is. Still, I think there is a certain hipster factor when people talk about the Brooklyn effect. It attracts a certain creativity, an independent spirit to form some kind of community based on experimental small businesses, galleries, and artists mixed with Yuppies. There is an open attitude here.

New York is a good reference point when talking about real estate trends.  People use New York neighbourhoods as reference points because everyone knows them, and in many cases, the trend setting starts in places like New York.

I still see the term Manhattanization thrown around a little too. This suggests something much less charming and much more wealthy. It is a high density, high demand neighbourhood. Not just some cool restaurants but a dense, human filled place. It's a much more extreme gentrification. Most of downtown Toronto could be seen as undergoing a certain Manhattanization with the density that has been building over the past twenty years.

So, what if you don't want to live in the Manhattan or Brooklyn of Toronto? What if the idea of living around too much hipness makes you roll your eyes to the back of your head. Well, there are plenty of options here in Toronto. The old suburbs of Etobicoke and Scarborough could offer more space and privacy but with more of a car culture vibe and often (but not always) not many main streets around for walkable shopping. Perhaps the established neighbourhoods of the Beach, the Annex and Leaside are your speed.

In the end, you have to pick a Toronto neighhourood based on what kind of life you want to lead. In my opinion, those Toronto neighbourhoods that do have the Brooklyn Effect will be fantastic investments.  If space is your thing, then the old inner suburbs of Toronto could be your destination.

If you think you can't afford the currently Brooklynizing hoods, then you could gamble on the next Brooklyns: The Toronto neighbourhoods of Weston, Danforth Village, Little India or parts of Hamilton like Gage Park. It's very early days for some of these Brooklyns though.

Wednesday, 16 September 2015

The Trail of Failed Real Estate Predictions

I'm feeling a little nostalgic lately. Maybe it's the Star Wars trailers I've been watching. Maybe its the Back to School blitz I have been seeing everywhere. But it also has to do with the Fall market in real estate. Yes my nostalgia does, not surprisingly, extend into real estate.

So, I did a little journey back in time to see what a few naysayers were claiming to know about Toronto and Canadian real estate from the past ten years. In many cases, the naysayers were claiming to be very certain that the real estate market was going to crash in Toronto and even in Canada. All their indicators are going off like alarm bells. And yes, their arguments seem very convincing.

And I'm not here as a cheery real estate salesperson to tell you that a market will never correct itself. It might. As I aways say, I'm not a fortune teller. I did not anticipate the rise in prices we have seen in the past year.  I don't know when or if the housing market of Toronto will undergo a correction. Real estate prices are cyclical. Prices rise and then fall or level out temporarily before rising even higher the next time. Not at regular intervals, because that would make things too predictable.

 So, I'm always amazed at how many people are so certain. Usually it's to sell a book.  Almost every publication has had predictions from Toronto Life to the Toronto Star.  From German banks to those guys who comment on the end of any real estate article.  My favourite is Garth Turner. I don't think he's such bad guy, really. He does make some good points, but he has been calling for the fall of Toronto for a long time. Check out this clip back from 2008:  Garth 2008. I think there was a climate of fear here because in 2008, the Great Recession was underway. It would be easy to be fearful in this time. And let's face it. I have the advantage of hindsight. Hindsight is always 20/20, right?

Still, if you did follow Garth's advice here, you may have sold your home and seen the market run ahead of you. It may have seemed wise to sell your place. It may have looked like you were going to be the smart one who avoided losing their shirt buying real estate. What you really would have done, by 2015 standards, is sold your 2008 home and lost a lot of appreciation that would have happened between 2008 and 2015, particularly if you bought a house. You may have also priced yourself out of the market.

My point here is that it's hard to predict a downturn in a market. If it was easy, a lot more of us would be very rich. In the U.S., those who said the U.S. market was going to tank in 2008 took full credit when it did happen. Guys like Nouriel Roubini. Smart guy. He had some very valuable things to say. I wonder though, if his guru-like status was just a bit too much. Personally, I think many of the gurus who predicted the crash in the U.S.  were lucky with their timing or they just said it long enough that finally, they had to be right. The truth is, there are signs of an overheated market now in Canada. There were signs of an overheated market in 2008 for Canada.  But there is no way to know when a market will change. It appeared in 2008 that Toronto was destined for a correction. It didn't look good. Price were slipping. The world was panicking, and people were losing their jobs. But the market didn't crash. It did the opposite. Logic did not apply, though Canada was much better set up with safeguards in the real estate market to protect itself in ways other countries had not. 

With all this said, my advice would be: Don't let fear be your guide. If you are planning of flipping a house in a short period of time, that is always risky. If you want to play it safe, buy a house you can carry financially now and for awhile keeping in mind that interest rates can change.  If the worst thing happens and your house falls in value, you'll still be able to carry it. And if you hold on long enough, prices will recover and start heading back up again. This may sound like a prediction, but really, it is my thoughts based on what has happened over the last one hundred years.

Thursday, 3 September 2015

What To Expect in the Real Estate Market in the Fall of 2015

The Fall market is different than the Spring market. The Spring market has a roaming starting point. Some years it can start as early as early February. Other years, it will hold off until well into March. The Fall Market is different. It goes off like a shotgun. Once we clear Labour Day, the number of new listings coming to market explode out of the starting gates. It`s not like there are no sales any other time of year. I have completed transactions in the laziest days of August and over the Christmas Holidays. During the busier times of Spring and Fall, however,  there just seems to be more choice, more buyers, more sellers and more activity.

So, let`s look at what we should expect this Fall once Labour Day clears, nights become cooler and teachers return from their cottages to go back to school. To understand the Fall, I think we need to look back at the summer.

As I mentioned, the summer is usually slow, especially August. There are times when the Spring market can trail off well into July. This August was a little bit more active than usual despite the PanAm Games and the fears of traffic chaos.This may have to do with the Bank of Canada lowering it's overnight lending rate from 0.75 to 0.5 per cent. Because the major banks followed suit, the buyers were stimulated out of their lazy August haze to come out and keep the sales activity fairly strong for an August across the GTA.

In August, there were still some buyers out there. More listings than the usual August, but the buyers did outnumber the sellers by my estimations. In competitive neighbourghoods and condo buildings, August proved pretty good from a seller`s perspective and pretty competitive from a buyer`s one.

For the Fall, we should expect that pent up demand of the buyers in August to carry over to the Fall.  Rates are still very low, and the demand is still there. Bidding wars will be common in high demand neighbourhoods. I think we`ll see a similar performance this Fall to the Spring despite some instability with the Chinese markets and a few recession news stories.

I`m going to sound a like a broken record here because I keep saying the same thing, but here I go again: Houses will perform better than condos. Emerging neighbourhoods will be the best place from an investment perspective. For houses, analysts like to say that the housing, as opposed to the condo market, is `runaway`. So, if you buy into that kind of wording. Then the prices will continue to run away as far as house are concerned, especailly of the detached variety.

For condos, it will be more like a leisurely stroll. The average condo downtown was $460,000 last month. It was $440,000 this time last year. It's not an outrageous burst of an appreciation, but its respectable and moving in the right direction as far as condo owners are concerned.

So, this is basically a brief report to say that we will be having the Spring Part II, at least for the first part of the Fall.  I may be right. I may be crazy.