Toronto Real Estate Blog

By Ann Perry, Toronto Star

To buy or not to buy?

That is the question facing potential first-time homebuyers who are weighing the benefits and risks of jumping into the housing market in the midst of the recession.

Until recently, many first-time buyers were priced out of real estate markets in major Canadian cities by frenzied bidding wars that sent prices into the stratosphere.

But the global recession has brought many housing markets back closer to earth and, in the process, presented opportunities for first-time home buyers. House prices have fallen in many cities. So have mortgage rates. That means that buying a house has become more affordable. But buying and borrowing costs aren’t the only factors potential homebuyers have to consider.

The recession has sent spasms of fear rippling through the job market. Canadian employers have shed 357,000 net jobs since October, pushing the unemployment rate to 8%, a seven-year high. Economists are warning the jobless rate will likely continue to rise, with some forecasting 10 per cent unemployment by next year.

Comment: Except that we saw 36,000 new jobs created in Ontario in April. But of course, that is just a blip, a mistake, the world is still going to end. Why is that commentators, pundits, talking heads and the press will give acres of coverage to bad news, but when there is a bit of bright light, it is buried under the obituaries on the back page? Isn’t good news good?

That has left potential homebuyers in a dilemma. Can they afford to pass up a chance to get into the housing market? At the same time, can they afford to make the biggest purchase of their lives when few jobs seem secure?

Comment: When have jobs ever been secure?

The best way for first-time buyers to assess whether they can comfortably afford to buy in the price range they are considering is to apply for a pre-approved mortgage, said Karen Leggett, head of home equity financing at the Royal Bank of Canada. That process involves taking a close look at your down payment, household income, debts and liabilities, estimated monthly housing costs and spending patterns.

In this uncertain employment environment, potential homebuyers also should make sure they have built up an emergency fund to cover their mortgage costs if they lose their jobs, Leggett added.

“I think if you’ve covered off those bases, then you should be able to relatively comfortably and confidently be able to proceed with your purchase.” Leggett said.

Leggett said that she has been hearing anecdotally that “a lot of first-time buyers are using this as an opportunity to get into the market.” But she acknowledged that growing job insecurity is keeping some potential buyers on the sidelines.

“At the end of the day, if you don’t really have employment certainty, whether it’s the best buyers’ market there ever has been, that probably doesn’t change your decision.”

“But if you do have some employment certainty, you have a reasonably good credit profile and you have your emergency fund, and you’re sort of secured for a normal course of events and even somewhat a downturn in events, then reasonably you have to continue to live your life and move forward,” said Leggett said. “It is a good time to buy if you can create some certainty around those parameters.”

Leslie Fallaise, an outside mortgage agent with Northwood Mortgage Ltd., said first-time homebuyers are feeling “stressed and pressured” by conflicting messages.

On one hand, “they’re hearing great low interest rates – this is the time to do it, you’re never going to see this again,” she said. But some are also wondering if the housing market has really bottomed out yet.

Comment: The Toronto market bottomed in December. Sales volume was down 45% in November, 55% in Decemeber, 45% in January, 20% in February, 10% in March and around 7% in April. Follow the numbers, we went down and then headed back up. I cannot for the life of me see sales volume dropping 50% from where we are now, which is what would have to happen for the bottom to still be ahead of us.

Stock markets are up in North America, our dollar is up, job loss has slowed (or even ended with new jobs being created in Ontario last month for the first time since last year), real estate sales and prices are rising. The weather is good, people are feeling better. Unless this is all some big illusion, mistake, blip… then how is bottom still ahead of us?

By the same token, many mortgage lenders are apprehensive and are tending to err on the side of caution., Fallaise said.

“I do know that there are no slam-dunk deals right now for first-time homebuyers,” she said.

Comment: Except that is you have a decent job, a down payment and go after a house that is properly priced – then you will have no problem. I have not had a financing issue yet this year, in quite a few deals. Anyone who is on the line, who is questionable, then they may have an issue as has been the case before. Nothing new here.

Janet Freedman, a financial planner with Toronto-based Finance Matters, cautioned that first-time buyers shouldn’t be overly worried about missing a buying opportunity.

“I think they should be far more concerned in making sure they’ve got all their ducks in a row before they start looking for real estate,” she said.

The most important consideration is how secure your job is.

Comment: And how does anyone know that? Before I got into real estate, I worked for years in the internet industry. Through the dot com boom, when we were all paper millionaires, did any of us think our jobs were secure? A handful of stock options one day and a company out of business the next. This is not the 1960s, there are no more jobs for life. Not having job security is nothing new, no matter how much people try to portray it that way.

“That is something that people really need to look at very carefully,” Freedman said.

Like Leggett, Freedman counsels people to have money in the bank to cover mortgage payments in the event of job loss.

Freedman also advises people to have a minimum 20% down payment, and to take advantage of the federal government’s Home Buyers’ Plan. The plan allows first-time home buyers to withdraw up to $25,000 tax-free from their registered retirement savings plan to purchase a home. Any withdrawal must be repaid within a 15-year period, starting the second year following the year in which a withdrawal was made.

Comment: With the average house price in Toronto around $365,000 these days, I am sure there are a lot of first time buyers who have $73,000 laying around to use as a down payment. Even with $25,000 from an RRSP, that means almost $50,000 in cash. Plus closing costs. A nice thought, but nothing close to reality.

First-time buyers also need to be very careful not to get carried away.

“Even if the bank tells them that they’ll lend them a certain amount, they need to look at what their actual costs are going to be – the mortgage costs, the property taxes, which we all know are going up by leaps and bounds, utilities, and repairs and insurance, and all those things, and really work out whether they can afford it in their budget,” Freedman said.

Comment: Property taxes went up 4%, hardly leaps and bounds. Gas and hydro have even dropped. Easy on the scare tactics please. But budgeting should take into account costs other than just the mortgage.

She also warned that recessions can be followed by long recoveries.

Comment: Can be followed… can be. The last recession in the early 1990s took 7 quarters to recover – which was the longest in some time. That is not even two years. Right now, depending on who you talk to, we are 6 quarters into recovery. Or even if the bottom was December, 7 quarters takes us to September of next year. Hardly a long time. Things just are not as bad as many people think, or want you to believe.

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By Carolyn Ireland – Globe and Mail

A frustrated seller who has had her Toronto house on the market for more than a month has a message for buyers: “Be realistic,” she pleads.

This homeowner is irked because she hasn’t received a single offer despite the fact that her house is in move-in condition in downtown Bickford Park. She avoids being home when prospective buyers come through but she has asked visiting agents for feedback and they assure her it “shows” very well.

“Buyers seem hesitant to move and are waiting to see what else may come on the market.”

So, even amidst the rejuvenation of the spring market, it seems stand-offs are still occurring. Buyers and sellers both want those on the other side of the transaction to be more realistic.

Buyers want to feel that they are getting a deal when their agents show them what comparable houses have sold for in the past couple of years. Some are holding out for Miami-style sell-offs.

Sellers seem more resigned to the fact that they’re not going to get the kinds of prices their neighbours sold for in 2007 and 2008, but they’re often only willing to drop by a notch.

Comment: This is the problem. Buyers want next year’s prices while sellers want last year’s prices. Both sides need to get realistic.

As for the numbers, the most recent show that the usual spring pick-up in sales compared with the winter months is taking place – the average resale price of a house in the 416 area code dropped only 3% in April compared with the same period last year.

This seller says that buyers seem to be expecting to buy a detached, 4-bedroom house for the same price that semis are selling for in this area of the city, near Bloor & Christie.

She acknowledges that buyers are in control in the current environment. She suggests that buyers can negotiate, save some money and take some time to consider before making an offer. They can take advantage of low interest rates and maybe beat the planned implementation of a harmonized sales tax.

“It doesn’t mean that the inventory available to you in your budget is going to change dramatically,” she says. “It doesn’t mean that you can entirely skip the stage of a starter home and move right into your dream home that you’ll be in for the next 20 years.”

Her frustration is palpable and I feel for her but I haven’t even tried to gauge whether her asking price is in tune with the market – that’s not my call.

But I recently talked with Sal Guatieri, a senior economist with Bank of Montreal, to ask his opinion on where the market stands.

He thinks the housing downturn in Canada is approximately half over and says the market could stabilize later this year. Meanwhile, about 200,000 more people will likely lose their jobs.

Comment: Except that April saw the creation of jobs for the first time in months. And we have the TSX at 8 straight weeks of positive gains – over 10,000 for the first time since last fall. Oh yeah, bad times are still ahead… Why is it that even when the numbers are good, there are those who say that it is just a mistake?

“That will certainly weigh on the market.”

And while lower interest rates and softening house prices have made real estate across Canada more affordable, Mr. Guatieri says he still expects a further decline of about 7% or 8% to bring the cost of housing down to a more reasonable slice of after-tax incomes.

Comment: Prices across Canada are moot, especially for those of us in Toronto. What happens in Alberta really does not affect us here. Western Canada is in free fall, while the East Coast is going up. Here in the middle, we are seeing prices stabilize. Local numbers matter, not national.

The economist cautions that real estate markets are local and, of course, conditions vary tremendously from region to region.

But overall, he’d like to see more buoyant consumer confidence and a better outlook for employment.

“We need to see at least the job picture brighten a little bit.”

The seller in Bickford Park, meanwhile, beseeches buyers to get moving. Some surely are but many will likely wait on the sidelines a while longer, as Mr. Guatieri sees it.

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Greater Toronto real estate agents report 8,107 sales in April

In April 2009, Greater Toronto Realtors reported 8,107 sales – down only seven per cent from April 2008. While April sales remained lower than last year, the resale housing market gained momentum on a month-over-month basis. The seasonally adjusted annual rate of sales in April, at 80,900, was up a whopping 26% cent from March and up an amazing two-thirds when compared to January’s ten-year low. *

“Conditions in the resale housing market have improved markedly this spring,” according to Toronto Real Estate Board President Maureen O’Neill. “Home purchases have increased as households have taken advantage of low interest rates and slightly lower home prices.”

The average price for April transactions was $385,641 – down but three per cent from last year.

Comment: If memory serves, we saw prices in January being less than 10% lower than 2008. In February, it was more like 5%. March was only about 4% lower than 2008 and now we are at 3%. If that does not mean we have passed the bottom and are on the way up, I don’t know what does. Sales volume is increasing month over month, prices are increasing, mortgage rates are going down. Economic data is good, the TSX has had almost 8 straight weeks of growth and is now above 10,000 for the first time since last year.

“The rate of average price decline continued to diminish last month. This is due in large part to a tightening in the resale market,” stated Jason Mercer, TREB’s Senior Manager of Market Analysis. “The level of sales relative to new listings increased in April.”

Comment: Not only are sales and prices rising, but new listings are decreasing. With fewer homes available, demand is beginning to exceed supply. And fewer listings also means fewer people want to sell their homes now, they want to wait a bit more for prices to rise further. I know how it sounds, but there really isn’t a better time to buy than right now.

For a complete copy of the Market Watch Report visit www.TorontoRealEstateBoard.com.

Greater Toronto Realtors are passionate about their work. They adhere to a strict Code of Ethics and share a state-of-the-art Multiple Listing Service. Serving over 28,000 Members in the Greater Toronto Area, the Toronto Real Estate Board is Canada’s largest real estate board.

* Seasonally adjusting MLS data removes recurring seasonal trends observed each year. For example, MLS sales are highest in late spring each year and lowest in the winter months. Removing the recurring seasonality, allows for the analysis of a meaningful trend reflecting actual changes in market conditions. By multiplying the monthly seasonally-adjusted figure by 12, creating an annual rate, we can compare how the current month relates to historical annual figures.

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Contact the Jeffrey Team for more information  -  416-388-1960

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CENTURY 21 Canada/U.S. House Price Survey Spring 2009

• Toronto, Winnipeg and Halifax outperforming their U.S. “twins” Chicago, Minneapolis-St. Paul, and Boston

• Housing market most relevant to homeowners everywhere is the one that is closest to home

Major Canadian and American cities with similar economies and geographies are experiencing variable price trends this Spring — with three Canadian cities outperforming their United States “twins” and three other Canadian cities having similar price trends to their U.S. “twins”, according to a survey released today by CENTURY 21 Canada.

Don Lawby, President of CENTURY 21 Canada, said the survey also shows that the suburbs of major cities have prices and other market characteristics that are specific to local conditions and are often very different from the major cities they orbit.

“When you compare Canadian and American cities with similar economies and geographies — so-called “twin cities” — you see some dramatic differences,” said Lawby.

“National capitals Ottawa and Washington, D.C., oil centres Calgary and Houston and West Coast ports Vancouver and Seattle have price trends reflective of their economic and geographic similarities,” said Lawby. “However, when you compare business centres Toronto and Chicago, midwest hubs Winnipeg and Minneapolis and East Coast centres Halifax and Boston, the Canadian cities are doing much better than their American twins.”

Neighbourhood markets most relevant

The CENTURY 21 survey of Canadian and American cities also showed that suburbs have their own housing market dynamics that can be different from major cities they orbit and different from other nearby suburbs and communities.

“While average prices are useful for establishing trends over time and for comparing overall markets of provinces, regions or cities, buyers need to monitor prices of typical homes in the neighbourhoods where they want to live,” said Lawby. “Similarly, sellers can best determine the market value of their homes by monitoring the selling prices of similar homes in their neighbourhoods.”

Ottawa vs Washington, D.C. March 2009 (vs 2008)

• Prices are strong in both Ottawa and Washington, D.C., but Ottawa’s prices are trending up, while Washington’s prices are trending down. Price levels are significantly lower in Ottawa than Washington; however, it takes more than twice as long to sell a home in Washington than in Ottawa. Average prices in March 2009 were $302,131 in Ottawa, compared with $519,030 in Washington. Median prices in March 2009 were $277,250 in Ottawa, compared with $380,000 in Washington. Ottawa’s average and median prices increased 1% and 3% respectively, while Washington’s average and median prices declined 3% and 5% respectively.

• Average prices in the suburbs and nearby communities varied significantly, however selling time is much longer in Washington suburbs than Ottawa suburbs. In the Ottawa suburb of Kanata, the average price increased 1% to $277,995 while the median price declined 3% to $249,900. In Orleans, the average price increased 1% to $277,860 and the median price increased 14% to $273,000. In the Washington suburb of Boonsboro, the average price increased 10% to $321,480 and the median price increased 26% to $315,000, while in the suburb of Hagerstown the average price declined 24% to $169,959 and the median price declined 12% to $167,495.

Calgary vs Houston March 2009 (vs 2008)

• Price levels are significantly higher and selling times are shorter in Calgary than in Houston, but Calgary also has greater price declines than Houston. Average prices in March 2009 were $380,737 in Calgary compared with $200,233 in Houston. Median prices in March 2009 were $340,500 in Calgary, compared with $130,000 in Houston. Calgary’s average and median prices declined 11% and 12% respectively, while Houston’s average and median prices declined 4% and 6% respectively.

• Price levels in the suburbs and nearby communities varied significantly. Price levels were lowest but market strength year-over-year was strongest in the Houston suburb of Pasadena, where the average price dipped 1% to $112,480, median price increased 14% to $109,000, and selling time was reduced to 74 days from 114 days. The Calgary suburb of Okotoks had the highest prices of all the Houston-Calgary suburbs surveyed, with an average price down 3% to $360,496 and a median price down 5% to $349,450.

Vancouver vs Seattle March 2009 (vs 2008)

• Prices are significantly higher in Vancouver than Seattle. The average price was $636,785 in Vancouver compared with $426,825 in Seattle. The median price was $482,228 in Vancouver, compared with $367,000 in Seattle. However, Vancouver and Seattle had similar declines in average prices (-15% and -12% respectively) and median prices (-12% and -11%).

• All Vancouver and Seattle suburbs surveyed had declining prices, but price levels varied significantly. The Fraser Valley city of Langley, 30 minutes from Vancouver, had the strongest market with an average price decline of 14% to $383,631 and a median price decline of 13% to $338,500. Weakest of the four suburb markets surveyed was Tacoma, where the average price dropped 24% to $206,681 and median price declined 19% to $183,500.

Toronto vs Chicago March 2009 (vs 2008)

• Prices are significantly higher and the market much stronger in Toronto than in Chicago. In Toronto, the average price declined 4% to $394,099 and the median price dipped 2% to $325,000. In Chicago, the average price fell 34% to $249,901 and the median price dropped 39% to $180,000. It took an average of 37 days to sell a house in Toronto, compared to 168 days in Chicago.

• In the suburbs, Toronto suburbs performed similarly to Toronto, while Chicago suburbs were much stronger than Chicago itself.

Winnipeg vs Minneapolis/St. Paul March 2009 (vs 2008)

• Prices are higher and the market much stronger in Winnipeg than Minneapolis or St. Paul. In Winnipeg, the average price increased 3% to $209,628 and the median price increased 4% to $189,000, whereas in Minneapolis and St. Paul, the average price fell 24% to $148,317 and 36% to $105,858 respectively and the median price dropped 47% to $95,000 and 45% to $75,000 respectively.

• Prices in the suburbs and nearby communities varied but were more similar than prices in the cities they orbit. In Brandon and Steinbach, the average price increased 10% to $194,334 and declined 6% to $189,050 respectively, and the median price increased 11% to $186,500 and dipped 1% to $196,500 respectively. In the Twin Cities suburb of Maple Grove, the average price declined 9% to $282,193 and the median price slipped 7% to $225,000.

Halifax vs Boston March 2009 (vs 2008)

• Price levels are lower but the market is currently much stronger in Halifax than Boston. In Halifax, the average price increased 7% to $282,499 and the median price increased 1% to $241,000, while in Boston the average price fell 28% to $394,550 and the median price dropped 20% to $301,500. Length of time to sell a house was similar in the two cities, with Halifax trending to fewer days on the market and Boston holding at year-earlier levels.

• Markets in the suburbs and nearby communities varied significantly. The strongest Halifax suburb surveyed was Dartmouth, where the average price increased 5% to $203,341 and the median price increased 4% to $190,000. The strongest Boston suburb surveyed was Newton, where the average price declined 7% to $621,426 and the median price increased 3% to $580,000.

Average prices are useful for establishing trends over time and for comparing overall markets of Provinces, regions or cities, but often do not reflect market dynamics in specific neighbourhoods that are most relevant to buyers and sellers of homes. The “typical home” concept focuses on prices of real homes in real neighbourhoods and is intended to alert home buyers and sellers to the necessity of monitoring prices in specific neighbourhoods most relevant to them. A typical home is the type of home that occurs most frequently in any given neighbourhood.

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Contact the Jeffrey Team for more information  -  416-388-1960

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By Terrence Belford – Globe and Mail

If you are a believer in the old adage “It is always darkest before the dawn,” then you may also be able to see some bright rays peeping above the horizon in the Toronto area’s new condo market.

Some experts say indicators suggest the worst may be behind us. Incentives offered by developers have begun to draw traffic to presentation centres. Positive economic indicators here and in the United States appear to be lifting consumers’ spirits. Plenty of low interest mortgage money for buyers combined with deals on new suites have created a positive atmosphere.

Look for a slow but steady pick-up in sales through the spring and early summer months, they suggest.

Judging from sales reports, the low point in new condo sales appears to have been December when just 198 new condo suites were sold, according to RealNet Canada Inc. In January, sales climbed slightly to 233 and in February 289 traded hands.

If you see some disparity between figures in this column for past monthly sales, they are the result of the way RealNet tracks these things. The company does not report sales until the rescission period is over – the time when buyers can back out with no penalty – then it goes back and adjusts monthly totals.

“Sales are way down from last year – just 522 suites in January and February, compared with 1,825 in the same period last year,” says George Carras, RealNet president. “But this month many of the incentive promotions such as cash back on closing kick in and I think you are going to see those starting to jump-start spring sales.”

But snail’s pace sales are only one of the challenges facing Toronto’s new condo market. Another issue is the inability of developers to find construction financing – even if they have met traditional sales targets set by lenders. The simple fact is that there are too many projects chasing too little money right now.

With no syndicates or mortgage-backed securities to provide funding (in past years they provided more than 25 per cent of commercial mortgage financing), banks have fallen back to what is known as balance sheet lending. While last year they may have lent $100-million without blinking an eye, today their limits are closer to $30-million for an individual project.

Lenders can and are picking and choosing to limit their risk. Some very high-profile, very popular projects are having the devil’s own time finding a lender to finance a construction start.

Back to sales. Brad Lamb, who both sells condos through Brad J. Lamb Realty Inc. and develops them though Lamb Development Corp., says pay little attention to those monthly new condo sales figures. More important are multiple listing system statistics on resale homes. They are more accurate and the resale home market is a bellwether for all types of housing – new and resale.

He points out that MLS sales fell 45 per cent in November from the previous year and dropped 55 per cent in December. The sales decline then rebounded to 45 per cent in January and improved relatively quickly to 31 per cent in February. Last month, sales were just 18 per cent off last year’s mark.

“We very likely hit the bottom as far as consumer confidence goes in December,” he says. “In past weeks we have seen positive indicators coming out of the U.S., the stock markets have begun to trade higher and fewer major layoffs have been reported.”

Combine that with developer incentives and there is a bright ray of hope at the end of what has been a dark tunnel.

“It will take a while to set in but I think the worst has passed and we just didn’t notice.”

As for projects unable to find financing, Mr. Carras says he can see one of five things happening with those not yet under construction. The first option will be to delay a construction start and hope lending restrictions will lift as the year progresses. The second is the formation of new partnerships to provide the increased developer equity lenders now demand – up to 40 per cent in cash instead of just 15 per cent.

The third and one that is already taking place is the reconfiguring of projects, downsizing them to meet the new financing limits or reducing the size of suites to make them more affordable. Nos. 4 and 5 are measures of last resort, he says. Facing little hope of finding financing within reasonable time frames, some projects will be cancelled while others will be sold to other developers with deeper pockets and better credit.

While Mr. Lamb generally agrees with Mr. Carras, he takes a sunnier view. He says lenders are under pressure to lend or else they do not make money. As economic uncertainty gives way to more predictable outcomes he can see some of the more severe restrictions starting to ease.

“I think that if they can afford to wait it out, even the largest projects will be able to pull together construction financing later this year,” he says. “I really think the worst may now be behind us.”

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Contact the Jeffrey Team for more information  -  416-388-1960

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