Toronto Condo and Real Estate Blog

Highest increase in two years

Garry Marr, National Post

Real estate prices across the country are now rising faster than they have in more than two years with no end in sight to the buying frenzy, as consumers scramble to buy out of concern they will be priced out of the market.

The Canadian Real Estate Association said yesterday the average sale price of a home in the country’s 25 largest real estate markets reached $332,442 last month, a 13.1% increase from a year earlier. It’s the largest year-over-year increase since April, 2004.

Canada Mortgage and Housing Corp. weighed in yesterday with a new forecast for the resale market, predicting 2007 would be a record year for sales. It’s the third time this year CMHC has been forced to revise its forecast, after initially predicting in February that the real estate market would see a decline in sales activity.

The Ottawa-based Canadian Real Estate Association, which represents real estate boards across the country, said unit sales this year are 10.3% ahead of last year’s pace. Gregory Klump, chief economist with the group, said rising interest rates have helped spur the market.

“You had some people who were sitting on the fence before,” said Mr. Klump. “I wouldn’t say they’re panicked [about rising rates] but they have been motivated to buy.”

The strong demand for housing has helped push up prices right across the country, the most extreme examples taking place out west where double digit increases have become the norm. And no market is sizzling more than Saskatoon.

Sale prices in Saskatchewan’s largest city averaged $245,152 last month, a 53.7% jump from a year.

Saskatoon has now passed Montreal for average home price, a fact the prairie city’s mayor say has led to some affordability problems.

“We’ve got people moving from all over the country,” said Donald Atchison, mayor of the city of 220,000. “People in the past used to move here for affordability. We are getting a condo boom here now and that’s because of affordability. Condos tend to be a [cheaper] entry into the market.”

To encourage construction, the city is now offering a five-year property tax break on all new condos. Saskatoon is now seeing applications for condos as high as 15 stories, said the Mr. Atchison.

Rising prices are expected to have some impact on construction. CMHC said yesterday it expects new home construction to drop 3.2% from 2006 to 220,000 units. There are about 170,0000 to 180,000 households created per year, so construction is still outpacing the country demographic needs — indicating pent up demand still exists in the market.

A major factor that continues to drive the Canadian real estate market has been changes in the way mortgages are calculated. Many Canadians are now amortizing their mortgages over 40 years instead of the traditional 25 years, which has had the affect of lowering monthly payments at the cost of increased interest over the life of a loan.

“The new financing has brought some people into the market who were not there before,” said Bob Dugan, chief economist with CMHC. “All told the housing market is just doing very well. All the migration out west has created a lot of demand for homes. When people move, they need a place to move. It’s created turnover in the market.”

The Canadian real estate market is so strong that Elton Ash said his brokers had to keep a low profile at a company convention in the United States Tuesday.

“There was a lot of doom and gloom down there,” said Mr. Ash. “After coming from down there, I felt like hanging myself. They’ve got 35% price decreases in California, Fla. Western Canada with the resource sector just keeps going. But I would be a little bit cautious about how much longer this trend will continue [in western Canada].”

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Sherri Zickefoose and Kathryn Young, Calgary Herald and CanWest News Service

Calgary homebuyers hunting for reduced prices on remodelled former marijuana-growing operations may be getting more trouble than they bargained for.

Homes renovated to clean up mould and indoor air problems caused by defunct grow ops may still be unfit to live in, says a federal researcher who will study the problem this fall.

Fungicides, insecticides, solvents and other chemicals used in drug-making operations are absorbed by drywall, carpeting, wood, subfloors and concrete basement floors, says Virginia Salares, a senior researcher with Canada Mortgage and Housing Corp.

The chemicals may also be found in backyards, where they are frequently dumped.

“People cannot take for granted it’s safe,” says Salares. Vapours from chemicals can permeate the entire house, not just the rooms where the plants were grown.

The health risks vary, depending on the concentrations of chemicals used, how long the grow op was in operation, and the age, immune systems and health conditions of the people who move in.

“You wouldn’t want to put an infant or a child under those conditions, being exposed to gases,” Salares said.

Calgary police say they raid 120 to 140 residential grow ops each year. A typical bust seizes 50,000 pot plants worth upwards of $60 million annually.

The homes, which are predominately located in the city’s suburbs, are usually unoccupied, according to Staff Sgt. Monty Sparrow.

“It’s pretty steady. We’ve gone from mom-and-pop operations to an organized crime situation,” said Sparrow.

The Calgary Health Region posts homes condemned as grow ops on its website.

Former city grow ops are identified on Internet real estate listings disclosing the toxic past.

One home in Harvest Hills has a reduced price reflecting its drug-house history.

Police estimate there are about 50,000 grow ops in Canada, although the exact number varies.

Grow op homes typically sell for 25 to 30% off market value. Despite the risks, lower prices attract buyers, says Ottawa real estate agent Richard Rutkowski, who recently represented the seller and buyer of a former grow op that had been on the market for two years.

“There’s a buyer for everything,” he says. “Ironically, the (nearby) hydro lines posed more of a deterrent than the actual grow house.”

Real estate agents have to ensure everyone involved in a sale is fully aware of the home’s state, says Rutkowski. He estimates that for every 10 people interested in a property, eight will back out when they learn it’s a former grow op.

Other agents refuse to list grow ops, and counsel their clients to avoid them.

“There are too many unknowns, especially with the chemicals,” says Winnipeg realtor Cindi French. “I personally would never consider them a good deal at any price.”

Salares completed a study this year into mould and indoor air quality in rehabilitated grow ops. It noted that while police succeed in identifying and seizing many grow ops, marijuana growers often avoid detection by buying and selling houses quickly.

“The homes are superficially repaired and sold to unsuspecting buyers, who may be unable to locate the previous owners,” the report states.

Growers typically pack hundreds of plants into small spaces with high moisture and no natural light or air circulation. As a result, the plants get fungal diseases and insect infestations that are treated with high doses of chemical pesticides. Growers are unlikely to use organic solutions or dispose of chemicals in an approved fashion, Salares says.

“High productivity is their goal: the most plants in the shortest time possible.”

Salares is now studying which chemicals are being used in grow ops, how they’re stored, how various surfaces absorb and give off toxic vapours, and how a house can be rehabilitated.

Bob Linney, communications director for the Canadian Real Estate Association, says guidelines for rehabilitating a former grow op and standards for air quality will be invaluable to real estate agents.

Rehabilitating a former grow op can cost anywhere from $3,000 to more than $100,000, depending on how long it was used, how long it stood empty and what changes the marijuana growers made, says Marie Dyck, who worked with Salares on the first study.

People who knowingly buy former grow ops because they’re good deals should think twice, adds Salares.

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By Krystle Chow, Ottawa Business Journal Staff

Home builders can expect profits to jump to $4.5 billion in 2007, although earnings are likely to moderate slightly after this year, according to a new report by the Conference Board.

The Conference Board’s report on the residential construction industry noted that profits are expected to climb higher following the record profits seen in 2006 as a result of gains in real estate prices.

However, low population growth and uneven demand are likely to signal slower housing construction activity and smaller profit numbers.

“Strong growth in new home prices allowed profits to reach record levels last year and continues to boost profits in 2007,” said Conference Board economist Valerie Poulin in a statement. “With price growth and demand for new construction both moderating, profits are expected to fall from their 2007 peak, but will still remain high by historical standards.”

The report noted that demand has not been uniform across the country, with the strength of the Western Canadian housing market offset by the declines in central Canada and parts of Atlantic Canada in 2006. Low population growth is also anticipated to limit demand for new home construction.

However, the renovations and repairs sector is likely to sustain growth in the residential construction industry, even through the expected downturn in housing starts in 2007 and 2008, the report added.

In a separate report, the Canada Mortgage and Housing Corp. (CMHC) added fuel to the Conference Board’s prediction that the housing construction market is likely to moderate this year, with housing starts expected to fall 3.2% from a year earlier to 220,000 units.

The CMHC’s third-quarter real estate market outlook said residential construction will then continue its downward trend in 2008 to 207,200 units. However, next year will mark the seventh straight year that housing starts have topped 200,000 units.

The single-detached market is expected to see declines in both 2007 and 2008, with housing starts for the segment declining to 113,600 this year and to 104,100 units in 2008, compared to the 121,313 starts recorded in 2006.

Meanwhile, although the multiple-family market is expected to see a modest gain in construction activity in 2007, housing start levels are expected to cool down somewhat in 2008.

The report said total multiple housing units will rise by 0.3% from a year earlier in 2007 to 106,400 units, and then fall to 103,100 units in 2008.

“Despite high employment levels, income gains and low mortgage rates, housing starts will trend downwards in 2007,” said CMHC chief economist Bob Dugan in a statement. “The slight pullback in housing starts this year and next will be mainly due to the continued growth in house prices coupled with modest increases in mortgage rates.”

Mr. Dugan added that the level of new home construction is expected to decrease in all provinces except Manitoba, Quebec and Saskatchewan.

In Ontario, new home construction activity is anticipated to slow down over the next two years but remain close to historical averages, the report noted. Housing starts for the province will decline by 8.8% in 2007 from a year earlier to 66,950 units, and to 64,500 units in 2008.

The report said renovation spending will rise by 9.8% in 2007 to $49.9 billion as a result of strong growth in the Canadian economy, low mortgage and interest rates and a solid housing sector, a trend that will continue through to 2008. However, growth in renovation spending will ease slightly next year to 6.8% to reach $53.3 billion as activity in the resale market begins to slow down.

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