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Toronto Real Estate Market “Leveling”
After years of record-setting prices, the GTA’s real estate market increasingly appears to be leveling off, analysts and statistics suggest, although experts remain relatively optimistic about the health of the region’s market. Since April, the number of properties to exchange hands has dropped each month, compared to the records set in the same months last year. In June, for example, there were 18% fewer sales than in 2007. Numbers released this week for the first half of July show the trend continues, with a drop of 11% over the same period in 2007.
Meanwhile, the price of an average house in the GTA continues to rise, albeit at a slower rate than last year.
“This is very common in the real estate cycle, that prices are going up but not so much, and volume goes down,” said William Strange, a professor of real estate and urban economics at the University of Toronto’s Rotman School of Management. He called the GTA a “leveling” market. The Canadian Real Estate Association announced this week the first drop in housing prices nationally in almost a decade, but characterized it as a one month blip that is not likely a sign of things to come.
That news was followed by the Toronto Real Estate Board’s (TREB) latest figures, which showed that the average price of a home in the GTA during the first half of July was $379,072, which is a 1% increase from the $374,254 recorded in the first two weeks of July 2007 and a 9% increase from $346,267 recorded during the same period in July 2006. The board has emphasized comparisons to 2006 in order to “present a more accurate perspective” of this year’s resale housing market, since 2007 was an overheated year.
Up until July, monthly sales in the region had increased by about 4% from 2007 to 2008.
Jason Mercer, a senior analyst of the GTA market for the Canada Mortgage and Housing Corporation, said that slowdown may be attributable to a rise in homes up for sale, which has tempered the bidding wars. Also, “as you move into July you move out of the strong spring sales months and into the summertime when people are away,” he said. “Before I made a call on price or moving forward I’d wait until we were back in the fall when you see a bit more of activity pick up again.” TREB reports that in the 416 area, the average price was $419,199, up 1% from the $414,321 recorded during first half of July, 2007, while the average price in the 905 was up 2% from $345,741 recorded in the first half of July, 2007.
“Today, we’re kind of on the cusp of a sellers and a balanced market,” said Mr. Mercer, who expects to see some price growth through the year. There was an 11% drop in properties sold across the GTA, however some neighbourhoods recorded impressive gains. The Annex, for example, sold 70% more properties in the first half of July than the same time last year, due largely to purchases of detached homes. Bowmanville saw a 12% increase in sales, while Brampton went up by 18%. “I don’t think anybody looking at Canadian markets right now is seeing an absolutely imminent crisis from stuff that is happening here,” said Mr. Strange, the U of T professor.
And while Torontonians have profited from the housing boom of recent years, it was a far cry from the frenzy that swept through Alberta, where prices have dropped.
July 18, 2008 in Toronto Real Estate Update | Permalink
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I find Toronto a facinating example of delusional thinking. First, all real estate markets are 'local', and generalizations don't work in predicting which area, or market segment, will be crushed the worst in 2009 (and many will be crushed to some degree). So let me comment on one 'segment' - the seven figure in-fill/new construction market in central Toronto.
1. Beware agents that tell you they 'know Toronto' - but have been living in the city (or country) for less than 10 years. They know squat, much less whether an area formerly known for trailerfolk, road hockey or murder rates is a 'prestige area'.
2. These agents are 'speaking' largely to special buyers (Russian Minigarchs, South Korean Army lieutenants, Persian emigres who'd rather be in the US, but for the 'Anti-Iran climate' there, etc.), not to the local buyer. Those folks will be able to overpay by 25-30%, because it would cost them more to get their money out of their countries by laundering it the old-fashioned way. Go thank the federal government and its insane policies, including dual citizenship, for that one. Good news: when they sell a year or three later, they can afford to sell for less than they paid. Locals can't (and shouldn't) play in that game. The real estate industry is an 'enabler' for these 'clients' -and they aren't you. These buyers have a different 'business case' for paying $1.5M for a crap can worth under $1M, and in some areas, they are helping the broker and lender 'enablers' make an artificial market. And we know what happens after that, sooner or later.
2. Watch how these agents and builders work a street in a 'newly developing prestige area'. They collude to 'turn a street/area over'. It's rumoured that agents 'make the market' by trading early starts amongst themselves, on paper (then cash-in later, with the builders, as the street/area comparbles rise). Look at C4, and now C7, and ask yourself: "Who are the self-congratulating brokers 'working' these areas who are 'proud' to be so closely associated with builders?" Then run in the other direction. In securities law, people are supposed to go to jail for market-making. But these 'real estate boiler rooms' in Toronto have, so far, been left alone to shear the sheep. Don't be one of them.
3. Finally, not too long ago, builders worked on 10-15% profit. Yes,servicing, municipal fees and material costs have risen significantly since those days, but margins now are simply a reflection of unchecked greed that can only persist if an entire framework - the banks, the middlemen agents, a deluded and naive group of coddled 'buyers' - remains supportive. But would you be surprised to hear that builders are pricing at 50% profit on these infill houses - or more? Look at the windows - do they seem relatively 'small'? Are the finishes relatively unimpressive, even though you've worked out the price to $300/sq ft? Stucco is also 'King', for these listings. And here's a scoop: No Tarion? It costs a few thousand dollars, relatively, to warrant a million-dollar+ property - so ask the vendor why he didn't do that, but don't bump into the non-union moonlighters finishing his project, or trip over that 'borrowed' worksite material waiting to be put into YOUR new home. If his project took longer than 6 months from foundation to finishing, good luck. Fun and games drives margin, but none of this is hard to spot.
4. NEVER participate in an auction. Ever. When an agent says "we won't be taking offers for X days", walk away fast.
This is all coming to an end, as everyone knows. The "Canada is Different" macro-view expounded by staff economists (they're the ones in the big hat, fur coats and bling) is becoming a more difficult sell, even to the real estate sales industry (the ones in the 9-inch white pumps and fishnets).
Look at the lack of new listings in that segment, as the vendors back off inventory.
Now if only those yuppies can figure out that a 25-foot frontage stucco-job near beautiful, prestige Bathurst, Finch, Steeles or Laird is really not going to impress the Partners at work. when they hear what these self-involved dorks paid, then we'd all be set. Most local buyers in this segment were raised as 'special children' with no boundaries or humility - so their basic Real Estate 101 stupidity is about to create a perfect storm as the cycle turns down. Wanna bet they also have significant debt, at any price level?.
Posted by: Marcus Aurelius | Aug 1, 2008 7:13:24 PM
"Levelling" isn't a word that works with "cycle". Even those of us who use English as a second language (and buy real estate in Toronto) understand that 'cycle' means around and around. When you go over that last big fun drop on a roller coaster, you 'level', but only for a moment. Still - you 'level'.
Remember the real estate broker who fell off the TD Centre tower in 1995? You could hear him coaching, right to the end: "20th floor....still OK....13th floor....still OK....4th floor...still good". He was 'levelling' too.
Fun times ahead folks.
Posted by: rondoallturca | Jul 23, 2008 8:52:45 PM
"The board has emphasized comparisons to 2006 in order to “present a more accurate perspective” of this year’s resale housing market, since 2007 was an overheated year."
Funny... last time I made an offer on a house the real estate agent told me to ignore any comparables more than 6 months old, saying that anything older than that was completely irrelevant to today's market value.
These guys are really amazing...
Posted by: | Jul 19, 2008 1:31:26 PM
OK, "And while Torontonians have profited from the housing boom of recent years, it was a far cry from the frenzy that swept through Alberta, where prices have dropped".
If I buy property in Toronto from $ 450,000,
( I will put down 150k and mortgage $ 300k).
I have to pay about 23,000 interest only, plus 4,300 property tax. Plus land transfer, plus Toronto transfer tax,plus Lawer fees,moving costs etc..
If my property will not increased for the next 5 years at least 6% year over year than I'll ended with negative balance....
So welcome to buy property in GTA and after 5 years if you have to sell than you'll have to pay 5-6% agents commision,again lowers,moving costs.. You'll be looser... at least 50K you can put in the garbage.
Posted by: | Jul 19, 2008 2:10:01 AM
NEW YORK (CNNMoney.com) -- A good credit score doesn't mean you can't end up in foreclosure.
Many now troubled borrowers had excellent credit when they got their mortgages. But they took out loans that they couldn't afford to buy homes that WERE TOO EXPENSIVE. Credit scores alone are no guarantee that borrowers will be able to keep up with their payments.
In September 2007, the most recent month for which data is available, more than 20% of mortgage borrowers with nearly perfect scores of between 840 and 850 were 60 days or more delinquent, according to First American LoanPerformance. That default rate was roughly equal to that of borrowers with much lower scores, in the 540 to 599 range.
There always has to be a certain balance between wages and house prices.But Income levels do not support the current house prices in Toronto Area.
Posted by: | Jul 19, 2008 1:52:04 AM
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