Not There Yet
Vlad’s confused. “I enjoy reading your blog and can only hope you are right about Canadian housing market, since we are that average family that can’t buy an average house in Toronto even though our salaries are above average.”
He’s right. An average family in Toronto (household income $96,040) has a tough time affording the average detached home ($741,480). By global standards, that real estate is ‘severely unaffordable.’ If it weren’t for historically-cheap mortgage rates and bankers happy to let clients suicide on debt, Vlad wouldn’t even dream of being a home owner. But this is Canada. Everybody who can afford an HGTV cable feed feels entitled to a house.
“Last week I went to see a semi for sale in Davisville. I thought ( and my agent agreed ) that it’s a slower market, no bidding wars, less pressure. I thought I’ll just look, no commitments, gotta know where the market is at. It needed a lot of work, basement unfinished, backyard in ruins, although it did have a long driveway on the back for 3 cars (covered with a foot long grass). Listed last week, asking price was 620K, probably needed another 80 to make it nice. Our agent thought it’ll sell for 680 or so. Lots of people saw it during open house. We didn’t bid, looked like too much work.”
The property attracted multiple bids, and changed hands for $805,000.
“Has the world gone insane?” asks Vlad. “Who pays this kind of money for a rundown semi? We feel like we are priced out for a long, long time. We are not bitter, we are comfortable enough where we are now, but this is just insane and really disappointing and sad. Will this market ever cool down? I am starting to doubt it. Common sense does not apply here.”
A week ago a tired old bungalow with peeling roof tiles and two dead cars in the driveway of its 30-foot Leaside lot was listed for $809,000. It attracted instant attention and sold in a hail of bids for $843,000. So how are these deals consistent with my view of the troubled future of real estate? Is this blog more pathetic than even I imagined?
While that’s entirely true, occasional bidding wars prove nothing more than some realtors are stunningly good at what they do, combined with a strike by homeowners in places like Toronto and Vancouver. Vlad’s derelict semi, for example, sits in an area where detached homes regularly pull down seven-figure offers and where wanton-eyed young couples cruise the streets looking at real estate they cannot afford. So when something in the sixes hits the market, stand back. A crafty listing agent priced the place at least $125,000 below market value, knowing full well it would draw a crowd and end up selling for a premium.
Ditto with the Leaside bung. The last sale of an identical house (soon to be rubble) across the street took place in May, and closed at $850,000. So by pricing at forty grand less in a slow market one month before Christmas, the agent was able to use competition to recreate boom-time conditions when none should have existed. Had it been listed at eight-fifty, it would have sold in two months for eight-ten. But by listing low it went in just days, for a premium on a street where two-stories sell for $1.3 to $1.5 million.
That’s the crafty realtor part. Also at play is a scrawny selection of properties currently listed in some of the most popular hoods in Van and the 416. The dramatic rule changes we’ve seen this year – no more 30-year mortgages, no cash-backs, insurance caps and tougher lending standards – have spooked sellers watching listings sit, prices soften and housing fall out of favour. The inventory of available homes in those places where buyers focus has narrowed fast, at the same time disillusioned condo kiddies have flooded the market with units nobody wants. The result: 17% more listings in general than a year ago, but less to buy. No wonder Vlad’s perplexed.
Where is this headed?
First, the Spring market will be historic. Expect a torrent of new offerings, making this a mama of a buyer’s market compared to the previous April. If you’re shopping for a box-in-the-downtown-sky or a McMansion in Mississauga, you’ll have a wide choice and more motivated vendors. If you’re feeling vulturish, knock yourself out.
But if you’re Vlad, expecting to buy onto a million-dollar street 15 minutes from the core for half-price, fuhgeddaboudit. Despite all the wails I heard from the moldy basement renters on this blog the last time I said this, I’ll repeat: prices will not fall everywhere. The burbs may get bombed, but the niche hoods which have always cost twice as much will continue to be that way. Yes, you’ll have more choice. Yes, houses will sit longer. Yes, sellers will take less than list. And yes, bidding wars will be rare. But no fire sale in Lawrence Park, The Beach or Hogg’s Hollow. Hell, not even in High Park. Liberty Village and Leslieville? That’s an entirely other matter.
All real estate is local. You’d be amazed what people will pay to get into a school catchment area, for example. Or to save six minutes on their morning commute. Or because the porch trim matches their Audi. Or because they have a dog.
The best advice is the same as with timing the financial markets. Sell when people are greedy. Buy when they’re fearful.
We’re not there yet.