A run down of what's going on in the market and the company.

Friday, April 9, 2010

Overheated resale market driving more buyers to new homes

Terrence Belford

Published on Thursday, Apr. 01, 2010 11:32AM EDT

Last updated on Thursday, Apr. 01, 2010 12:07PM EDT

February results are in and I am going to cut right to the chase: The average price of a new low-rise home in the Greater Toronto Area climbed 11 per cent from last year. The average high-rise condo tab also rose, by five per cent, and the average resale-home price was up by a staggering 19.4 per cent.

Worse news is that the worrisome, rising-prices trend appears to have continued through March. The Toronto Real Estate Board, which compiled and posted the statistics, says the average cost in February was $488,297 for a new home, $410,433 for a new condo and $431,509 for a resale home in the GTA. Then, in the first two weeks of March, TREB adds, the average resale home price jumped another $8,644, to $440,153.

It wasn’t just the prices; the number of units sold skyrocketed too. Enormous demand drove high-rise condos sales up 489 per cent over the same month a year earlier, to 1,538 units. The number of low-rise condo sales shot up 140 per cent to 1,610 for the month, and 7,291 resale houses were sold, up 77 per cent.

“We had an amazing month in February,” says Rob Montemarano, vice-president of Lakeview Homes. “At our Cathedral Park project in Markham, we have 130 homes in phase two and sold 100 of them – 85 in just one weekend. What we are seeing are people who might normally have gone to the resale market come to us for a new home because that market is so competitive now that they can’t find what they need.”

Finding a new single-family home is proving an equal challenge, says Joseph Bozzo, new homes sales manager at Spectrum Realty Service. Spectrum represents 34 new-home projects across the GTA.

“What’s really of great concern is that the entire GTA only had 7,493 unsold low-rise homes in inventory at the end of February, or only about a third of what we normally have,” he says. “I think maybe there is a fair amount of panic buying going on right now.”

Anyone looking for a single family home in which to raise the kids – a place with a backyard big enough for a jungle gym – may well be justified in panicking. Every indication is that affordable single family homes are about to go the way of 50-cent coffees and filling up your gas tank for $20.

Whether through well-thought-out policy or the exigencies of municipal finances, the GTA just does not have enough municipally approved building lots to come anywhere close to meeting buyer demand.

“In Oakville, where there have not been any new lots come on stream in a very long time, I know that there are about 2,000 of them north of Dundas Street ready to go,” says Mr. Bozzo. “The hold-up is the city will have to provide schools, recreation, community centres and all those essentials for another 2,000 families. It already imposed development levies that are so high many major builders are reluctant to start projects there, but the city has to pay for those necessary services and the money has to come from somewhere.”

The upshot is that Oakville will probably release lots in dribs and drabs. Mr. Bozzo says he expects perhaps 200 to 300 to come on stream this fall.

Mr. Montemarano says Lakeview has a similar problem. It has been waiting two years for Cambridge, Ont., to give the okay for 1,500 building lots.

“Six or seven years ago, Lakeview would do five projects a year. The industry would build maybe 28,000 to 32,000 new homes a year,” he says. “Now we are down to just three projects and the industry turns out maybe 16,000 to 17,000 new homes a year.”

“I can easily see the day coming when we are forced to do just one or two new projects a year,” he adds. “We have a land bank of 3,800 building lots right now, but we just can’t get them on stream.”

The shortage of land in the face of fierce demand, coupled by dramatically rising municipal development levies is not only driving prices up, it is also driving builders out of business, Mr. Montemarano says. “Six or seven years ago there were 260 builders active in the GTA; today there are just 160,” he says.

If the Toronto area hopes to be able to meet the demand for affordable family housing, then municipalities, builders and home-buyers are going to have to focus on innovative new forms of family housing such as stacked townhouses, says Mr. Bozzo.

That also means an end to the dream of private backyards and an acceptance of shared public spaces for recreation and relaxation, he says.

“That long-held dream of a home on a 50- by 120-foot lot is getting well beyond the reach of the average family,” he says.

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