April 22, 2010
By Carolyn Ireland
From Friday's Globe and Mail
A huge increase in available homes - with more on the way - should cool things down
For sellers of one High Park house, a few square metres of hardwood and a stockpile of patience proved to be highly profitable.
The homeowners recently sold the house for more than the asking price of $1.35-million.
The outcome marked a big improvement on their previous foray into the market in the fall of 2008, says real estate agent Chander Chaddah, who handled the listing on both occasions. Back then, the house was listed for about the same price but languished on the market for weeks. The owners rejected the one half-hearted bid they received and pulled the sign out of the lawn.
Eighteen months later, they got more money than they had hoped for.
"All they did was change a linoleum floor in the kitchen to hardwood," says Mr. Chaddah.
The 18-per-cent jump in High Park in the first quarter of 2010 compared with the same period in 2009 is one example of the eye-popping gains in prices as real estate sales across the Greater Toronto Area have been turbo-charged by a huge rebound in consumer confidence.
"In September, 2008, people got the bad news that Lehman Bros. had filed for bankruptcy. They got the good news in September 2009 that the market was back," says Mr. Chaddah of Sutton Group Associates.
That good news for sellers has at long last drawn more of them to the market.
In the downtown core, he says, buyers suddenly have lots to choose from amidst burgeoning condo listings.
"The number of new units coming out there clearly has just exploded."
In Roncesvalles Village and the west end, where Mr. Chaddah's office is located, the number of single-family homes for sale has also risen - especially since Easter.
Mr. Chaddah says he advises sellers to list their houses early in the spring market, which actually begins in February. Buyers are eager to get back into the hunt after the market goes on hold in December and January. He adds that too many people wait until after Easter and then find that two or three of their neighbours have put up 'for sale' signs at the same time. The abundance of choices cools the bidding wars.
"It's easy enough to equate the spring market with grass, leaves and flowers that are in full bloom." But that strategy can backfire, he adds.
"Scarcity is the reason people bid up."
Mr. Chaddah says he has not seen very many huge bids over the asking price on properties priced above $1-million. But in the $400,000 to $800,000 range, offers often swell to 20 per cent above the asking price. Last week he saw a house in Mimico with an asking price of $450,000 go to a buyer who offered $557,000.
Nationally, existing home sales were a hefty 40.8 per cent higher in March than they were in March of last year.
National Bank economist Marc Pinsonneault says a national house price index created by Teranet and National Bank shows that the rapid price gains that have drawn attention to the Toronto and Vancouver markets lately have started to slow.
"It looks to me as if Vancouver has recently turned into a much more balanced market than before. Toronto is on the verge of doing so," says Mr. Pinsonneault.
The economist says Toronto is set to see a supply of new condo units as buildings started in 2008 and 2009 become ready for occupancy. That in turn will prompt some homeowners to list their houses as they prepare to move into a new condo. At the same time, housing starts have also increased.
"New construction should help to increase supply again," says Mr. Pinsonneault.
The economist adds that the return to more balance should ease fears that the Toronto market is inflating into a bubble.
Mr. Pinsonneault does not believe a bubble has formed in Toronto. For one thing, he doesn't see the classic psychology of market mania that occurs when people believe the real estate market is the only place to make money.
Instead, people have moved up their purchases to take advantage of pre-approved mortgages with low interest rates. Consumers in Ontario and British Columbia are also racing to beat the harmonized sales taxes, which will come into effect in both provinces this summer.
Shaun Hildebrand, senior market analyst for Canada Mortgage and Housing Corp., says about 35,000 condo units are under construction in the Greater Toronto Area and many of those will become available in 2010 and 2011.
Until recently, Mr. Hildebrand points out, first-time buyers have been driving the market in Toronto and they have been frustrated by the lack of listings. But now move-up buyers are starting to sell their starter homes, he says, which is helping to loosen the tight supply.
He expects the hectic pace of sales to slow in the second half of 2010 because the Bank of Canada is likely to raise interest rates and first-time buyers are more susceptible to the hikes. At the same time, only so many people can afford to buy a house in the GTA and many of those have already landed.
"We have some payback to do in the market."
Mr. Hildebrand expects price growth in the coming few years to be closer to the rate of inflation.
Robert Kavcic, economist with BMO Nesbitt Burns, points out that a jump in new listings is helping to move housing markets back toward balance between buyers and sellers. New listings were 25.3 per cent higher in March than in March of 2009. That shift toward a more even market should accelerate in the coming months if new supply remains strong and demand cools, Mr. Kavcic says.
Mr. Chaddah, the real estate agent, says he often has to reassure buyers these days that more houses will arrive on the market. But many house hunters want to secure a deal before interest rates rise, and many are worn out by the search.
"They say they want to quit this part-time job we have trying to find a house."
He worries that the market could become overheated if people feel they have to bid an eye-popping amount over the asking price just to secure a deal. Meanwhile he has the same advice for most buyers:
"Don't get flipped out - more stuff is coming."