Cambridge New Home overview. Should I buy a new home in Camrbidge for $350,000 put $40,000 in renovations and flip it later?

Real Estate Market Overview

Average price of resale properties listing on the mls has been doing great with a solid and steady appreciation rate.

Sales have declined 11% from last year, but when looking at a historical perspective, they are the second highest level on record. The resale market is doing well for a number of reasons:

1. Hugh price advantage buying old vs. new is about $109,000 (or about 40% higher)
2. Lots of selection
3. Great fundamentals (averages wages up 3%, continued population growth, diversification of economy as mentioned above).

New home market



Housing starts are trending down because of a huge decrease in multi-family sales. When considering your property, Cambridge single detached homes starts are driving the market right now in KCW.

Quick Highlights for Cambridge single detach home sales according to CMHC:

Year	Housing Starts	Completions	Q4 Price
2007	53	266	$446,230
2008	323	90	$380,774 (Decrease of 14.7 %!!!!)

What the above chart tells me is that there is a significant uptake on new homes that are in the construction phase in Cambridge, so we can expect a lot of new homes coming into the market next year. This has a significant impact in uncertain times, as evident in the above chart, in your area, according to CMHC, last year prices of new homes fell 14.7% comparing Q4 of 2008 to Q4 2007. Why this happened? People simply stopped buying in autumn, and builders slowed construction considerably (resulting in fewer completions in 2008) and were offering significant incentives (i.e. decreasing prices 14.7%) to offload the properties that they already started. Builders absolutely cannot have unsold inventory or they will go bankrupt.

It is hard to predict where the prices of new homes are going to be by the time you are ready to sell. Builders won’t react like the general real estate market, they are more open to the economic swings of the day, and that’s why you see such drastic changes. You would be purely speculating rather than buying.

Could prices decrease again? Builders are going to start building even more so people can get a new home before the new HST is going to be introduced (housing starts are at 323 now, up from 53 last year).

What could the impact be when you are buying a home during a time when builders are building the most? What impact will this competition have?

Will the increased supply be offset by more buyers coming in?

Do we really expect more buyers that are able to afford a home $350,000+ when for now KCW residents are their losing jobs, getting a mortgage is harder and most of the people moving in will rent first anyway?


Secondly, despite getting the house at a discount you are already paying for house at a price that is already in the top 10 highest price in the subdivision (of prices already sold last year). When you put the upgrades it will be in the top 5 of actually sold properties in the subdivision.

Now let’s get down to the nitty gritty numbers. Let’s say the following:

You buy the house for $352,000 put the $40,000 in upgrades. You get a mortgage for 281,600 at 4.5% with a 35 amortization on May 1st 2009. On May 1, 2012 your mortgage will be 270,557.49. So here are my calculations.

Sale Proceeds

Selling Price $410,000.00
Less Commissions $16,400.00 4%
Less Additional Costs of Sale $2,500.00
Less First Mortgage Payout $270,557.00
Less Down Payment and Upgrades $110,400.00
Before Tax - Net Sale Proceeds $10,143.00

It seems like a lot for work and lot of risk (Do we know if the house will be worth $410,000 in 2012, will it be worth $400,000? If so you make nothing).