Lessons from Toronto's Real Estate Crash
John Pasalis in Toronto Real Estate News
April 23, 2009
The overall mood about the current state of Toronto's real estate market typically depends on the two most commonly reported statistics in the press, average price and sales volume. Average price is a popular measure but can be easily skewed by changes in the housing stock being sold.
I often have clients ask me for a list of the best and worst performing neighbourhoods in the city, based solely on changes in average price. The problem with this approach is that average prices can be very easily skewed. For example, if a new condo with average priced units is completed in a neighbourhood well known for expensive detached homes, the average price for that neighbourhood will fall not because house values have dropped but because the condominium units are having a negative effect on average prices.
The other commonly reported figure in the press is the change in sales volume calculated by comparing the current month's sales to sales in the same month in the previous year. This is an important measure because it gives us a clear picture of how strong the demand is for housing in any given month. From October 2008 to February 2009 Toronto experienced a significant decline in sales when cautious home buyers jumped to the sidelines at the height of the crisis in financial markets. We can see consumer confidence improving over the past couple of months as more buyers are jumping back in to Toronto's real estate market.
But while changes in sales volume is an important variable to track, it really only gives us one side of the equation, the demand side. It tell us nothing about the supply of homes on the market which can have just a big an impact as changes in demand.
A measure I turn to often is the sales-to-inventory ratio. This measure is a ratio of the total number of homes that sold in a particular month divided by the total number of homes that were available for sale in that month.
The sales-to-inventory ratio is a key measure of our real estate market because it takes both supply and demand into account telling us how balanced our market is.
A sales-to-inventory ratio of 50% means that one in every two houses sold in a given month, a sign of a hot market. A sales-to-inventory ratio of 10% means that only one in every ten houses sold in a given month, a sign of a much cooler real estate market.
I've published the above chart several times in previous posts. It shows Toronto's monthly sales-to-inventory ratio since 1989.
A sales-to-inventory ratio in the range of 15%-25% suggests a balanced market with little change in house values. A ratio below 15% moves us into Buyer's market territory and often results in a drop in prices. Values above 25% are a sign of a seller's market where rising prices are the norm.
The best way to really see the relationship between the sales-to-inventory ratio and changes in home prices is to layer both measures on the same chart. The following chart shows the sales-to-inventory ratio along with the percentage change in home prices for each month.
The first thing that stands out is the high correlation between changes in the sales-to-inventory ratio and changes in house prices. This chart is showing us a basic economic principle at work, how changes in the balance between the supply and demand impacts prices.
We know from Economics 101 that in a balanced market where supply equals demand we reach an economic equilibrium and expect to see virtually no change in prices. Once demand exceeds the supply of goods available, prices begin to rise to adjust for this imbalance. Conversely when the supply of goods exceeds the current demand prices begin to fall.
In the case of the real estate market, we appear to reach an equilibrium level of supply and demand when roughly 2 houses sell for every 10 houses available for sale on the market, or in other words a sales-to-inventory ratio of 20%. Calculating an equilibrium level of supply and demand is not an exact science which is why we tend to use the 15% to 25% range of the sales-to-inventory ratio to show a balanced market.
In rational markets, we expect changes in the balance between supply and demand to have an immediate impact on prices. Note that the sudden decline in the sales-to-inventory ratio over the past six months in Toronto resulted in a corresponding decline in prices.
Compare this to the irrational real estate bubble in 1989. During the last boom the sales-to-inventory ratio dropped to 11% in April 1989 and remained below the 15% level for the next two years. This imbalance between supply and demand should have resulted in an immediate decline in house values but prices continued to rise for the next 11 months. This irrational rise in house values is a traditional characteristic of real estate bubbles, when prices rise not because of any economic fundamentals but because people simply expect them to. Year over year prices didn't start to decline until March 1990.
Understanding Toronto's real estate market doesn't have to be complicated. We don't need degrees in Econometrics to understand the most salient economic principles that affect the real estate market. In this case, it's the idea that as the supply of homes exceeds the demand from buyers, prices will fall. Had home buyers in 1989 been mindful of this principle and had they invested some time to look at a few numbers, they would have seen the crash coming up to a year before prices started to fall.
MOVE-IN DATES
For those who bought, the wait may be long
You've signed the contract and paid your deposit, now get ready to cool your heels a little longer
TERRENCE BELFORD
From Friday's Globe and Mail
March 5, 2009 at 5:32 PM EDT
The coming months will bring disarming news to hundreds if not thousands of men and women who have bought a new condominium.
At worst, their project may be pulled from the market. At best, the occupancy date may be delayed by months or years as the developer scrambles to meet the minimum sales needed to convince a bank to lend the money to build.
The reasons are simple. Lenders demand a certain percentage of suites be sold before they will even consider making construction loans, and that percentage has risen because of the global credit crunch. While two years ago it might have been 60 per cent, today it is certain to be at least 65 per cent or, in some cases, higher.
With sales currently running at a fraction of last year's pace, you do not have to be Nostradamus to predict the future. A good many of the 300-plus projects now on the market are going to be pulled for lack of buyer interest.
Some very clever industry observers suggest the figure may be as high as 30 per cent of those jostling for sales today.
So this raises a couple of questions: First, what can you do if your project gets pulled? Second, what can you do if occupancy gets delayed?
The first is a no-brainer. If a developer cancels your project, all you can do is accept the return of your deposit, swallow down any rising anger and move on.
"Virtually every condo purchase and sale contract is written in a way that gives the developer the right to cancel projects if sales targets are not met within a certain period of time," says Ray Leclair, vice-president of TitlePLUS, the title insurance arm of the Lawyers Professional Indemnity Co. TitlePLUS is used by an increasing number of home buyers to guaranty that they receive a valid, free and clear title to their property on closing.
"There is nothing you can do, and it is almost certain to happen to many people in the coming months," says Leor Margulies, head of the real estate group at Robins Appleby & Taub LLP.
It is all about contract law, and developers recruit some of the best legal talent in the business to make sure they have ironclad protection if sales do not go as hoped.
But if instead of pulling the plug your developer figures all it may take is a little more time, then the situation gets trickier, with the complexity depending on what stage the project has reached.
Tarion, the provincial agency that provides consumer protection for new home buyers, revised the rules governing condo delays last summer. As of July 1, any project that started sales on or after that date is covered.
Frankly, the challenge for a lay person is just understanding those new rules. While the Tarion protections are now appended to all sales and purchase contracts, usually to the front page, the darn thing is so long and complicated it might as well be written in Sanskrit for the average buyer.
"You really do need a lawyer to go through it and explain it," Mr. Leclair says. "It is vital to know what your rights are and the best time to do that is within the 10-day rescission period right after signing the deal."
In essence, occupancy becomes a moving target from the time you sign until the roof of the project is completed. Developers can change move-in dates as many times as they want with 90 days notice until the roof slab or trusses and sheathing are in place.
After that, the developer has 30 days to set firm occupancy and can change that date only once again with 90 days notice. That final occupancy date cannot be more than 120 days from the one given when the roof was completed.
What happens if the project is not ready for occupancy once that final, final date is set? The developer has to start paying you $150 a day to a maximum of $7,500 for every day of delay.
"In effect, buying a new condo means being prepared for what may prove to be a very long and drawn-out process," Mr. Margulies says. "If you get in at the early stages when prices are best, then you are looking at anywhere from 30 months to five years before move-in."
And if your project gets pulled, the cycle starts all over again if you choose to try another development.
The length of waiting time and uncertainty involved in buying a condo today may suggest buyers focus on projects that already have financing and a construction permit.
"If you opt for a project closer to construction or in construction, you may pay more but you will be much more certain of being able to take occupancy within a more reasonable period of time," Mr. Margulies says.
More Canadians plan to buy a home: study
Financial Post, NP Published:
Wednesday, March 04, 2009
OTTAWA - Most Canadians believe it is a homebuyer's market, with more first-timers planning on purchasing their own homes, according to a study released today by Royal Bank of Canada.
"The current economic environment does not appear to have dampened Canadians' overall confidence in the housing market," says Royal Bank spokeswoman Karen Leggett. "Canadians continue to have an overwhelming belief in the long-term value of a home and we're seeing this in the buying intentions of many first time homebuyers this year."
In its 16th annual RBC home ownership survey, 65% of Canadians said they believe it's a buyer's market, with 27% saying they intend to buy a new home over the next two years.
RBC says that's up from 23% in 2008.
The survey, conducted by Ipsos Reid, shows that almost half of respondents, 48%, said it makes sense to buy a home now instead of waiting until next year.
Younger Canadians, those under 35 years old, are most likely to spark an upsurge in homes sales, with 48% saying they plan to buy a home. That's up sharply from 36% last year.
And even renters want to get in on the action: 38% of them want to buy in the next two years.
"Low mortgage rates and favourable housing prices are influencing home purchase intentions this year and may be the reason why more Canadians are poised to purchase over the next two years," RBC says.
A large majority of Canadians, 83%, remain positive that home ownership is a good investment. That is down slightly from 85% in 2008 and from the all-time high of 90% in 2006.
Fifty-four percent of respondents said they believe house prices will be lower in 2009, a substantial change from 31% in 2008.
Nationally, respondents in Alberta expressed most interest (35%) in buying. Quebec was lowest at 22%. Those in British Columbia believed most that now is a buyer's market (78%), compared with Saskatchewan/Manitoba, where only 34% believe so.
In Ontario, home-buying intentions have increased over past year, with 30% saying they are likely to purchase a home within the next two years. That's up from 21% in 2008.
The online survey of 2,026 adults was conducted between Jan. 6 and 9, 2009. Ipsos Reid said the results are accurate to within plus or minus 2.2 percentage points, 19 times out of 20.
Drop in house prices driving first-time buyers to take the plunge
Brenda Bouw, THE CANADIAN PRESS March 11, 2009
First-time homebuyers are being lured into the real-estate market by falling prices, lower interest rates, more selection and new government incentives, a new report shows. The ReMax real estate company said preliminary figures show sales were up in February, after a terrible January, driven by more first-time buyers entering the market. The report comes alongside new Statistics Canada figures showing the first year-over-year decrease in new-home prices in more than a decade. ReMax said lower prices and record low lending rates are prompting many first time buyers to "get off the fence, out of the rental, and into the market." "While a sense of caution still prevails, more and more first-timers are finding it hard to pass up the chance to become homeowners in today's buyer-centric real-estate climate," ReMax said in its report released Wednesday. "Buyers are clearly in control in most Canadian markets." Wendell Collier said he and his girlfriend have finally waded into the market in Toronto after waiting it out for years. "There is less pressure now," said Collier. "There are no bidding wars, you see houses sitting on the market a lot longer. It's a buyer's market again." Collier also said low interest rates have been an incentive. "You start saying 'Okay, now it's looking very possible.' Before we would have handled it, but we would have been stretched thin for a couple of years. Now we can have our cake and eat it too." After years of renting, Tyler Backus recently bought his first house in the Haldimand-Norfolk region of Ontario, inspired by falling prices and the new federal renovation tax credit. "It seemed that everything was going down in price and it was the right time to buy," said Backus. Ottawa recently announced new tax credits of up to $1,350 for homebuyers to renovate their house or cottage. It also increased the amount first-time homebuyers can withdraw from their RRSPs from $20,000 to $25,000, and implemented a tax credit for first-timers of up to $750 to help cover closing costs. ReMax said 22 of the 32 markets in the survey, or 69 per cent, "remain firmly in buyer's market territory." Some of these spots include Vancouver and Victoria, Edmonton and Calgary, Saskatoon and Regina, Ottawa and Toronto, and Halifax. Cities such as Winnipeg, Kitchener-Waterloo, Ont., Sudbury, Ont. St. John's, N.L., and Charlottetown had what ReMax called "more balanced conditions" between buyers and sellers. It said 40 per cent of the 32 markets had single-detached homes priced under $200,000. The most affordable markets for detached homes, based on starting prices were Moncton, N.B. in Eastern Canada at $115,000, Windsor at $75,000 in Ontario and Winnipeg at $185,000 in Western Canada. In its report released Wednesday, StatsCan said new home prices fell 0.8 per cent in January compared with the same month a year earlier. It was the first year-over-year decrease across the country since January 1997, led by a steep drop in Western Canada. New home prices in Edmonton fell the most by 10.4 per cent, followed by a 6.5 per cent drop in Calgary, 4.2 per cent drop in Victoria and 3.2 per cent dip in Vancouver. Regina was the rare Western Canadian city that saw a large increase in new home prices, a lift of 21.7 per cent. Only St. John's, N.L. saw new home prices rise more, by 24.1 per cent in January compared to the same month in 2008. Earlier this week, Canada Mortgage and Housing Corp. said housing starts fell for the sixth straight month in February, down 12.3 per cent to a seasonally adjusted annual rate of 134,600 units. That's after falling 10.9 per cent in January. February's figures are a 30 per cent drop from the same period last year, and were lower than most economists expected Scotiabank economist Adrienne Warren said new home sales respond to what happens in the larger resale market, which has seen a reversal in recent months after nearly a decade of constant growth. Resale home activity fell 37.3 per cent across Canada in January compared to the same time last year, while average prices fell 11.3 per cent. National figures for February are due in the coming days. Warren said early indications are that February sales activity has picked up compared to a dismal January, but she predicts a turnaround will not be quick. Housing sales will continue to be weak this year and there will be "a sluggish recovery" starting in 2010, she said. That's because a lot of buyers are still concerned about losing their jobs in the current recession. As for first-time home buyers, Warren said they can be an indicator of a market recovery. "In any recovery you need to have first-time buyers because other buyers are just shuffling around housing. For a buyer than wants to move up, you need that first-time buyer to come in and buy from them," Warren said. Vancouver real-estate agent Shelly Smee said she has a handful of clients who are preparing to move up in the market now that house prices have fallen in Canada's most expensive city. She said some couples are looking at moving out of their condominiums and into a house. "Some people are thinking now is a good time to move up and they can finally afford it," Smee said. Smee also said some clients have also built up equity in their homes in recent years and are now considering upgrading thanks to record-low borrowing rates. Interest rates have fallen dramatically in recent months as the central banks and federal government seek to ease the credit conditions in order to jump-start the flagging economy. Last week, the Bank of Canada did its part by dropping the overnight rate down to an unheard of half per cent. Canada's chartered banks then lowered their prime rate to 2.5 per cent and having been lowering other lending rates including mortgages.
Modest stability begins to show in Toronto resale housing market Justin Robertson, National Post
Published: Friday, February 20, 2009
Toronto's real estate market is showing faint signs of stabilizing. There were 2,044 homes sold in the first half of February, compared to 2,775 sales during the same period in 2008, the Toronto Real Estate Board said yesterday. The average selling price was $364,748, compared to $385,735 in the same period last year (and $343,632 in January, 2009). At the peak, in April, 2008, the average GTA house price was $398,687. "If this trend continues into the spring, it could point towards average home prices levelling off between $360,000 and $370,000," said Jason Mercer, the board's senior manager of market analysis. "There is not too many people out there making big-ticket purchases at the moment -- and that includes homes."
Balance for buyers, sellers
Though sellers see less gain, they'll pay less for next home
Helen Morris, National Post Published: Saturday, January 17, 2009
Homes resales in Toronto took a 45% dive in December, 2008, compared with the same month a year earlier and figures from the Toronto Real Estate Board also show that the average price of a property selling in December was $361,415, down from $394,931 a year earlier.
"The figures have all essentially been telling us the same thing for a while," says Adrienne Warren, economist and real estate market specialist at Scotiabank. "The market is cooling off but I think in most areas it's a fairly orderly cooling off. The cyclical end of a housing boom and just a gradual cooling off in the Canadian economy."
This drop in sales needs to be viewed against the exceptional numbers for 2007.
"The city has seen significantly lower pace of sales; mind you, that's on the back of a 2007, which was a phenomenal year for sales," says Pascal Gauthier, economist at TD Economics. "A lot of sales got brought forward into 2007 because of the land transfer tax. That created a bit of a distortion ... when we look at the figures, for example, for the fourth quarter ending in December 08."
The end of the boom times should provide some relief for buyers, as property in the GTA becomes more affordable. On the other hand, Mr. Gauthier says it is not all bad news for sellers.
"Sellers are usually on both sides of the transaction ... people selling their home are often buying [another] home," says Mr. Gauthier. "They might see less of an appreciation to an existing asset but they're facing a lower price in purchasing the next one, so usually on net they're not that much worse off."
Prices for resales and new-build are expected to fall further as more new home construction completions come on to the market.
"New listings actually climbed from year-ago levels in December in Toronto," notes Douglas Porter at BMO Capital Markets, Economic Research. "A rather large warning siren for the price outlook."
As well as existing homes coming on to the market, data
from the Canada Mortgage and Housing Corp.(CMHC) shows new home starts in December, 2008, in Toronto rose by 27% compared with a year earlier. All the focus was on the condo sector, with 2008 being a record year. According to CMHC, a 137% annual increase in this segment boosted total new home construction figures (of course, much of this construction was the end result of sales that took place a year or two prior to the construction phase). Low-rise housing, such as singles, semis and townhomes all recorded a fall in home starts.
But analysts are eager to point out that while inventories of unsold homes will increase, the rise in levels is manageable.
"Inventories are not at levels that we're particularly concerned about. They are not at the oversupply of empty new housing units that we saw in Toronto in the early 1990s," says Ms. Warren. "We're certainly not at the level we're seeing in some of the most overbuilt U. S. markets, but they're definitely trending a little bit higher."
Slower sales, increased inventories and moderating prices are sure signs the market is cooling.
"The equilibrium or balance in the market certainly has shifted and it's occurred rather swiftly," says Mr. Gauthier. "Some of that is confidence; people tend to list their homes and test the market, while potential buyers tend to sit on the sidelines waiting to see how much further prices will drop -- as consumer sentiment has shifted to being rather pessimistic because of the global recession."
Ms. Warren and Mr. Gauthier both agree this housing downturn is cyclical with reduced affordability driving down sales at the same time as the recession is starting to bite.
"Economic recovery will be relatively slow the next couple of years because there are structural challenges in the Canadian economy," says Ms. Warren. "This will be a down year [for housing] and going into 2010 and 2011, you're looking at a number of flat years, bringing affordability back to the market."
So You Want to Be a Landlord
John Pasalis in Real Estate Trends
CEP News interviewed me several weeks ago for a story about a home buyer who decided to purchase a house with a rental unit as a way to spend a little more for his home than he qualified for without the rental income.
Income is one of the most important factors banks look at when qualifying you for a mortgage. If you decide to purchase a home with a legal rental unit, lenders will typically take that rental income into account when qualifying you for a mortgage. The additional income usually means that you can spend more on your home.
Even if you're not looking to spend more on your home, buying a house with a rental unit is a great way to pay down your mortgage faster. The additional income can cut the life of your mortgage in half.
If you are thinking of buying a house with a rental unit, here are a few things you should consider:
Fire Retrofit
You may come across a lot of listings that have the following in their description:
Agent and seller do not warrant the retrofit status of the rental unit
This means that the rental unit probably doesn't comply with the current fire code, a common problem among homes with rental units. The most common problem with units that don't comply is that they do not have two exits. If the rental unit you are looking at does not have two exits keep an eye out for places where you might be able to add a second exit. A large window may make for a good second exit for the unit.
Legality
Most houses with rental units in the city of Toronto are not legal. By legal I mean to say that the house is registered as a single family dwelling not a multi-family dwelling. This would happen if the renovations to convert the single family house into a two or three unit house were never approved by the city. As far as the city is concerned the home should not be used as a multi unit dwelling. If the rental unit is not legal your lender may not take the rental income into account when qualifying you for a mortgage.
Research your competition
Invest some time to research comparable rentals in the area. First see what other homeowners in the area are charging for their rental units. You can do this by looking up rentals on Craigslist, myhood.ca or viewit.ca. You also want to see what larger apartment buildings are charging in your area. Do their apartments include heat and hydro? Do they include parking? In what condition are the units in? Are there a lot of vacant units in the area? All of these questions will help you come up with a good estimate for the rental income you might receive should you decide to buy the house.
Be Prepared For a Little Noise
No matter how much soundproofing you put between the units, you'll never be able to eliminate all of the noise between them. The noise might make you feel like a renter in your own home but the additional income will leave you far better off in the long term.
Update the Unit
You'll be able to find a better tenant faster if the unit looks clean and well kept. Updates don't always have to be expensive. You may want to rip out the old carpet and replace it with laminate flooring. Instead of replacing the kitchen you can easily paint the cabinets and replace the hardware to give it a great new look.
Wait for the Right Tenant
Don't rush to rent your apartment. Once your tenant is living there it can be hard to evict them out should you have problems with them. You can weed out most nightmare tenants with a thorough application process. If you have a good feeling about the applicant and they pass your application process then you've probably found the right person.
Be Thorough When Reviewing Applications
All potential tenants should fill out an application. Make sure to follow up with their references which includes their previous landlords. Check their ID and ask them for a current pay stub, not an employment letter. Pay stubs are a little harder to forge. You are checking to see if this potential tenant can actually afford to pay the rent each month. Here are a few red flags to watch out for when reviewing their application:
- A tenant who has a history of staying at apartments for under a year is not a good sign.
- If the applicant is a student ensure their parent cosigns the lease and have the parent fill out the same application. Go through the same steps with the parent as you would with any otehr applicant. You want to make sure that the parent's income can support the rent should their child fall short several months.
- When you call their current landlord ask them if they have had any issues regarding noise or non-payment of rent. Also ask them if the tenant has caused any damage to the unit or to the building.
- Tenants who have caused problems at their current apartment may not be willing to give their current landlord as a reference. I had one such applicant fraudulently give me their friend's name and phone number under the contact information for their current landlord. The fact that the friend didn't know the first thing about real estate or property management made it pretty clear to me that the person on the phone was not their current landlord. If you have doubts as to whether or not the person you are talking to is actually the applicant's current landlord ask them several specific questions to see how they react. Do they own the building or do they work for a property management company? What's their company name? How long have they worked at or owned the building? How many units are in the building? The average friend may not be ready to answer these kinds of questions.
- Do they have a steady job? Do they switch jobs every few months?
You can use Rent Check to check your applicant's credit history.
Here's a copy of a sample residential rental application.
Sign a Lease
Make sure you sign a lease with your tenant. Your lease will clearly outline what your tenant is obligated to pay for the unit and what's included in the price. Is heat, hydro, cable, internet, parking included? You want to make sure all the details are clear. You can pick up a standard lease from Dye & Durham.
Know the law
Bookmark the Landlord and Tenant Board's website. It has a lot of useful information including answers to many common questions that are of concern to landlords. If you are having problems with your tenant document everything and take action immediately. Don't let problems drag on for months.
Be a good landlord
Take your tenants concerns seriously and address their work requests in a timely fashion. Work hard to keep your tenants happy. It will pay off in the long run.
Financial Post
Whats New and Happening in the Toronto Real Estate Market?
Briefing: Toronto's slight real estate decline
September 04, 2008
By Rob Roberts, National Post
Toronto's real estate numbers for August were released yesterday, confirming Toronto's housing market is in at least a slight decline. But the president of the GTA's real estate board insisted there is no sign of imminent disaster. Some things to take note of:
What is new? Average house prices in the city of Toronto dropped 1% last month to $377,990 compared with August, 2007, according to the Toronto Real Estate Board. In the 905 region, prices were up 2%, to $356,657.
What came before? Last year, records were set almost monthly, ahead of a new city of Toronto land-transaction tax, following 10 years of hefty gains.
How busy is the market? The number of sales in the GTA dropped 22% compared with August, 2007, with an even steeper drop of 25% in the city of Toronto itself. Just 2,437 changed hands in Toronto last month, and a total of 6,318 GTA-wide.
Any other scary numbers? There are currently 25,075 properties on the market in the GTA, up 31% over last year. The average length of a time a house stays on the market has jumped to 36 days from 33 days last year.
So should we be scared? ‘‘Believe me, if it was tanking I'd be the first to admit it. But the amount of sales we've had in a traditional summer market is still very, very good,'' Maureen O'Neill, president of the board, said yesterday. ‘‘It's certainly declining, but one of the reasons is we have 31% more active listings than we did a year ago. For 10 years, we've had a [very strong] market ... sooner or later, you have to have some sort of correction or balance.''
Is there any good news? City of Toronto prices remain 10% higher than in August, 2006, and Ms. O'Neill noted forecasts from the CMHC and the Bank of Montreal predict gains in 2009. Said Ms. O'Neill: ‘‘An informed buyer, an informed seller, they look at the facts. And the facts right now indicate the sky is not falling in.'
Courtesy of National Post
Builders face financing squeeze
'We can expect a solid demand for condominiums well into the future'
From Globe and Mail
September 5, 2008 at 12:00 AM EDT
Remember how A Tale of Two Cities starts? Charles Dickens writes, "It was the best of times, it was the worst of times." Stretch that theme a bit and you might be describing what is about to happen in the Toronto-area condominium market.
First, the best of times. According to Urbanation Inc., which tracks condos from the Burlington border to Ajax and Whitby, there were a record 295 projects for sale at the end of June. Of these, 147 were under construction and another 38 new ones were ready to break ground.
Behind those projects stood 151 different developers, and for many of them it was their first shot at building a condo. Those first-timers were mainly house builders who could no longer find building lots.
Their choice was either to move into condos or fold their tents.
So on the plus side, prospective buyers have never had greater choice.
Now on to the worst of times. That impressive number of projects may prove to be the Greater Toronto Area's version of a Potemkin Village by the end of the year.
Veteran market watchers say that up to a third of them are likely to be pulled from the market. Along with them, up to 50 developers may bite the dust.
The reason? They are unlikely to find financing, says Barry Lyon. He is a 40-year veteran of the Toronto area real estate market.
His company, N. Barry Lyon Consulting Ltd., provides research, marketing and project management to the condo and commercial sectors.
"The U.S. credit crunch means the money to build just is not there," he says. "The tap has run dry."
So, what determines who gets the money to build? In large part, GTA condo buyers. Developers need to presell about 60 per cent of the units in any project before lenders will take a look at providing the money to build. Equally important, they have to do it within reasonable time frames.
As their marketing and sales teams scurry to sell suites, construction and carrying costs for high-priced land are ticking upwards. Mr. Lyon says he would not be surprised to see some developers pulling projects out of the market because those costs have risen to such an extent that they simply can't make a buck going ahead. "In some cases, even with 60 per cent sold, some developers are still going to have a hard time finding financing," he says.
It is not that there is any lack of demand. It remains strong, says Jane Renwick, executive vice-president of Urbanation. But it is nowhere near the levels seen in 2007, which was a banner year for the industry.
Thanks to record sales in 2007, 76 per cent of the 66,310 suites on the market at the end of June had already been snapped up. "I think a lot of last year's sales went to first-time buyers," she says. "I also think that most of them have now been absorbed so we are looking at a return to a more stable market - less of a gold-rush mentality."
Again on the plus side of demand is the lure the GTA holds for immigrants. Ms. Renwick points out that of the 150,000 people who immigrate to Ontario in any given year, 100,000 of them make their way to the Toronto area.
"If that trend continues, if we continue with high employment and if the economy continues to expand, we can expect a solid demand for condominiums well into the future," she says.
That demand will continue to be strongest within the old city of Toronto. That is where 70 per cent of today's projects sit, says Mr. Lyon. It is also where prices are highest - an average $461 a square foot, versus $418 a year ago, according to Urbanation.
Compare that with $294 in Scarborough, $254 in Pickering, $287 in Ajax and $313 in Aurora.
Much of the difference is simply the cost of land to build on. But in that area Mr. Lyon suggests the coming shakeout may bring positive benefits to buyers. He says the loss of about a third of the developers today jockeying for land and bidding against each other to arrange construction crews likely means less competition for available resources.
Less competition means lower demand and lower demand usually leads to, if not lower prices, then at least a much slower rise in prices.
"It is going to be an interesting year," Mr. Lyon says. "By the end of 2008, the GTA's condo market may be a quite different place."
Terrence Belford is a veteran journalist covering the Toronto real estate market.
Courtesy of the Globe and Mail
Toronto housing market continues to cool, economist blames new tax
August 06, 2008,
By Allison Hanes, National Post
Toronto's vigorous housing market softened in July, and one economist attributes the weakening to the city's new land-transfer tax.
According to figures released today by the Toronto Real Estate Board, sales have declined slightly over July, 2007, but average prices remain stable across the Greater Toronto Area.
July sales dropped 12% regionally from the best-ever record of a year ago, but are still up 10% over 2006. In Toronto sales dipped 14% while in the 905 sales were down just 11%.
Gilles Duranton, a professor of urban economics at the University of Toronto, said these minor differences are surprising in light of the effect rising gas prices are having on other aspects of consumer behaviour.
"It boils down to the land transfer tax," said Prof. Duranton.
"It's making the act of buying and selling more expensive. It's making moving more expensive... People will prefer to buy on the Mississauga side of the border."
Some hot neighbourhoods buck the trend.
Uxbridge saw a 23% increase in volume last month over July 2007, while Whitby say 22% growth and Brampton East 12%.
In Toronto's Annex neigbourhood, sales soared 29%.
In July, the average price of a home in the GTA was $371,427, up 1% from a year ago and 9% from two years ago. In Toronto proper, house prices were up less than 1% at $395,342 while in the 905 region the average rose 3% to $355,401.
"The market seems to have plateaued," said Prof. Duranton. "But it's a high plateau."
Richard Silver, a sales representative with Bosley Real Estate, said he remains busy during the usually slower summer months. Sales are healthy, he said, but buyers are being more choosy.
No longer are there bidding wars on properties in disrepair, said Mr. Silver. He advises sellers to fix any deficiencies and dress up their homes before listing.
"They just can't assume that they can put their home on the market and expect to get multiple offers," he said. "The house has to look good."
Toronto has gone from being a seller's market to being a balanced market, according to Mr. Silver.
"Good properties still see lots of attention, they are selling for the asking price and they are selling quickly."
Courtesy of the National Post
Experts optimistic despite cooling Toronto real estate market July 18, 2008
By Natalie Alcoba, National Post
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.
Courtesy of the National Post
Roll-Back Land Transfer Tax Immediately, REALTORS® Tell Councillors
March 25, 2008 -- With the City's Executive Committee reviewing the proposed 2008 Operating Budget today, the Toronto Real Estate Board (TREB) is calling for City Councillors to immediately begin to fulfill their commitment to roll-back the Toronto Land Transfer Tax, while still keeping property tax increases in check. REALTORS'® input was presented in a detailed written submission to the Executive Committee.
"REALTORS® and the public they serve, have not forgotten about the motion approved by City Council last fall, which committed to rolling back the Land Transfer Tax once the provincial government starts addressing the funding of downloaded services," said Maureen O'Neill, President of the Toronto Real Estate Board (TREB). "We believe that recent progress means that the City can, and should begin rolling back the Land Transfer Tax immediately."
When City Council approved the implementation of the Toronto Land Transfer Tax on October 22, 2007, it also approved a motion committing to reduce the Land Transfer Tax by $50 million once the Province has uploaded 50 per cent of the City's estimate of downloaded costs of $729 million. In its written submission to the City's Executive Committee, TREB pointed out that the City is already in a position to implement the intent of this motion because of :
provincial uploading that has already begun,
further uploading expected later in the spring
provincial funding for operating costs of transit
ongoing provincial funding for infrastructure, which could help reduce debt servicing costs in the operating budget
opportunities available by implementing the recommendations of the Mayor's Fiscal Review Panel.
"Recent progress on uploading and other provincial funding, taken together with even modest implementation of the Mayor's Fiscal Review Panel's recommendations, will reduce pressure on this year's budget by literally hundreds of millions of dollars," said O'Neill.
TREB also believes that City Council can begin rolling back the Toronto Land Transfer Tax, while keeping property tax increases to the rate of inflation as promised by Mayor Miller.
"The Mayor committed to keeping property tax increases in-line with inflation, but the proposed residential increase is double the rate of inflation," said O'Neill. "We believe that there is enough flexibility in the 2008 Budget to allow City Council to meet the Mayor's property tax commitment, while also fulfilling the commitment to roll back the Toronto Land Transfer Tax."
One of the key recommendations in TREB's submission to the City's Executive Committee calls on the City to focus on core services, optimize efficiencies and implement innovative options, consistent with the recommendations of the Mayor's Fiscal Review Panel.
"On numerous occasions, TREB called for an independent review of the City's finances, and we are encouraged by the work of the Mayor's Fiscal Review Panel," said O'Neill. "It is clear that many of TREB's views regarding fair ways to address the City's financial challenges have been validated by the Panel."
Courtesy of Torontomls.net
Toronto's real estate market shows signs of cooling down February 05, 2008, 7:44 PM by Barry Hertz Real estate
, National Post
Toronto's superheated real estate market is showing signs of cooling down with the imposition of the city's land-transfer tax, recording a sharp drop in prices last month after setting multiple records last year, according to figures released yesterday.
The average price for a Toronto resale home fell nearly $20,000 in January, the Toronto Real Estate Board numbers showed, a potentially worrisome portent for 2008.
Maureen O'Neill, the president of the real estate board, said the drop in the average price of a resale home, from $394,931 in December to $373,449 in January, was the first month-to-month drop in at least seven years. "That's quite unusual," she said. "It's the first time the average price has gone down since 2001, which is as far back as we checked."
The average price is 6% higher than January, 2007, but lower than the December average price.
Ms. O'Neill said the price slump could be the beginning of a trend, as the city's new land-transfer tax took effect on Feb. 1. The tax, approved last October by city council will amount to nearly $4,000 on an average-priced home in Toronto. Ms. O'Neill said it could drive prices down by encouraging more buyers to look outside the city limits, or by tightening how much they can afford to pay.
"Will the additional tax stop people from buying homes? No, of course not," she said. "But it's going to be a burden ... and people may say: ‘You know Toronto's getting too pricey,' and they'll look elsewhere in the GTA."
Licah Funro, an agent with Busley Real Estate, said the tax appears to be having a psychological effect on many of the buyers he is showing around the east-end neighbourhoods where he concentrates. "There's been a ton of buyers trying to get in before the tax kicked in," he said. "They were all asking me about the tax .... I was even hearing it from first-time buyers, who are exempt from paying it."
"It was a mad rush last month."
Ms. O'Neill said sales were still strong across the city last month, although they did not reach the soaring numbers of January, 2007, which set a record with 5,173 sales. Last month, a total of 5,073 properties changed hands, within 2% of the record, she said.
"There's all sorts of indications that the economy in Toronto will remain strong this year," she said. "All the signs are there."
The real estate board figures showed strong sales in Toronto's downtown and east end, led by the Danforth's 30% increase in transactions over last January and by West Agincourt, with 32% more homes sold, mainly a surge in condominium apartment sales.
Condominiums also led the way in the downtown core and in Willowdale, both of which saw a 19% overall increase.
But Ms. O'Neill said realtors will be keeping a particularly sharp eye on prices now that the new tax is in effect. "I'm going to be watching those figures this month and next very, very closely."
Mr. Munro said it is still too early to tell what effect the municipal tax is having on the market. "I haven't seen any effect yet," he said. "But it hasn't even been a week yet .... It's still hard to tell."
Courtesy of National Post
