Toronto Condo and Real Estate Blog

But Bank of Canada warns of complacency on newer products like 40-year mortgages

Lori Mcleod - Globe and Mail

The real estate market appears poised for a soft landing rather than a crash, in a cooling trend the Bank of Canada says is both “expected and welcome.”

Sheryl Kennedy, the central bank’s deputy governor, said Canada’s financial prudence has helped it sidestep the sharp home price declines being experienced in countries including the U.S., Britain and Spain.

“The Canadian real estate market does not appear to be characterized by excess supply at this time,” she said in the text of a speech delivered yesterday in Banff, Alta. “The proportion of unoccupied, newly built dwellings in most cities remains below historical averages, suggesting that a major widespread reversal in house prices is unlikely in the near term.”

In the past decade, prices of existing homes in Canada have risen by about 55%, while new-home prices have risen by about 27%. As one of the country’s largest real estate booms loses steam, most economists are forecasting a small increase in prices this year that will keep pace with the central bank’s 2% target for inflation.

It’s a much different story in the U.S. market, where home prices dropped by 14.1% year over year in the first quarter of 2008, according Standard & Poor’s/Case Shiller national home price index.

That record price decline occurred at a pace five times faster than that of the last U.S. housing recession, according to the index’s quarterly report, released last month.

Much of Canada’s real estate boom was the result of supply catching up with pent-up demand that followed the downturn of the late 1980s and early 1990s, according to Ms. Kennedy.

Canada’s conservative mortgage culture has helped protect it from the excesses seen during the U.S. boom, which had a much larger amount of subprime mortgages, she added.

As the real estate market cools, the Bank of Canada can worry less about the sector as a driver of inflation, said Michael Gregory, senior economist at BMO Nesbitt Burns Inc.

“This speech would have been a lot different if we still had double-digit price gains on new and existing homes,” he said in an interview.

The central bank now has a more pressing concern on its hands in soaring commodity prices, he said. In the real estate market, the issue has shifted to how much cooling prices could put a damper on consumer confidence, he added.

Despite her fairly positive outlook, Ms. Kennedy cautioned that Canada can’t afford to become complacent about the real estate market, noting it took a decade for prices and sales to rebound after the bust of the late 1980s.

To that end, the central bank is keeping an eye on “challenges,” including ensuring that mortgage innovations, including 40-year amortization products and “near-prime” mortgages, don’t detract from prudent lending practices.

Ms. Kennedy’s comments suggest the “the jury is still out” at the Bank of Canada regarding the value of these innovations compared with their potential risks, Mr. Gregory said.

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High gas prices may have impact on suburban house prices

Garry Marr, Financial Post

The dream of a two-car garage in the suburbs may soon fade thanks to gasoline prices that have most people rethinking their driving habits.

That dream was never really mine. I’m living the urban nightmare of a one-car garage stuffed with junk and my car parked on a pad in front of my house.

But millions of others make that daily commute to the city from their 5,000-square-foot mini-mansions in the “slurbs,” deterred, at the moment, only by traffic and the time it takes to get home.

“I think prices are going to become a major issue,” says Benjamin Tal, senior economist with CIBC World Markets. “Gasoline prices are up and they continue to rise. This means transportation costs will start to rise.”

His bank is already researching how rising gas prices are impacting housing decisions in the United States, but Mr. Tal says the issue is just as relevant for Canada.

Almost overnight, North Americans have been spurning their gas-guzzling cars for compact vehicles. While nobody is suggesting people will start fleeing their surburban houses because of high fuel prices, Mr. Tal believes that when consumers are making their next home-buying decision, location - in relation to transit - will become even more important than it was before.

“In areas that are close to public transit, you will see house prices there outperforming areas that are not close to transportation,” says Mr. Tal. “People talk about the affordability of owning a house, but getting to work is also an issue of affordability.”

If you live in a rural area, where the only mode of transportation is the car, don’t plan on getting much capital growth on your home.

Mr. Tal says this is a Canada-wide issue.

He expects families will look to driving less. That might mean looking for a daycare near a subway stop or bus stop. “We call these transit-zone households,” says Mr. Tal.

Builders are already thirsting for development opportunities near public transit, says Brian Johnston, president of Monarch Corp.’s Canadian division.

“We are always on the lookout for infill housing projects,” Mr. Johnston says, adding developers will line up for infill opportunities in the city, which are usually near public transit.

“This is all self-evident. If there was a site for stacked townhouses near a Go station, I would be all over it,” says Mr. Johnston, referring to Ontario’s regional commuter train system.

He doesn’t see families shifting to condominiums because they are generally too small and the condo maintenance bills on larger units are too expensive. Condo fees are assessed on a per-square-foot basis. “I see for us, as a company, the future being stacked townhouses,” he says, talking about family housing in the city. “You get a concrete garage underneath and a four-storey wood frame construction. It’s efficient housing. You don’t get your own backyard, but a common area with other townhouse owners. Homeowners can expect to make some sacrifices.”

With transit to Canada’s suburbs spotty at best (especially when compared to Europe), the impact on prices has already been felt.

A study released this month found the average price of a standard two-storey home in urban areas across Canada had increased 129.2% over the past decade to $522,999. By comparison, a suburban home rose 110.1% during the same period, to $334,380.

“I think the gap will grow,” says Mr. Soper, president of Royal LePage. “As the price of gas rises, it will put a premium on an urban home.”

The shift back to the city has not yet happened in housing, according to Royal LePage. But their latest study was done prior to the latest spike in gas prices.

Still, he says, there is such a discrepancy between what a consumer can get for his money in the suburbs versus the city, that many would still prefer to hop into their gas-guzzling cars than give up their big backyards and garages.

“Some people will make the lifestyle choice to adjust other expenses in order to live in the style their family desires if they are the type of family that wants their space,” says Mr. Soper. “They are willing to pay the price.”

He should probably add that prices will continue to go up - not in the value of their home, but certainly in their gas bill.

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By Derek Raymaker - Globe and Mail

There is very little room left for large-scale tract development of detached or large semi-detached housing.

There’s not much that everybody can agree on when it comes to the market for new housing in Metro Toronto, which includes the former City of Toronto along with North York, Etobicoke and Scarborough.

About the only thing that is beyond argument is that there is very little room left for large-scale tract development of detached or large semi-detached housing. Low-rise communities now under way are small-scale and, if not taking the place of recently demolished residential areas, are filling land previously zoned for other purposes.

Of the 5,141 housing starts under way in Toronto in the first three months of 2008, 4,669 were condos, followed by 268 townhouses, 76 semis and 128 detached houses, according to data collected by Canada Mortgage and Housing Corp.

Even in these uncertain economic times, there is still an enormous demand for condos in Toronto and a huge volume of high-rise units constantly coming on the market in response. Condos appeal to a broad swath of the market - first-time buyers, new Canadians, empty-nesters and down-sizers, investor buyers and people who simply can’t afford a traditional house.

Yes, affordability is a growing concern. The average price of a new single detached house in Toronto proper topped $1-million in the first three months of 2008 - $1,002,534 to be exact, according to CMHC. (It should be noted that this includes lavish custom houses built for high-end buyers, which skews the average-price data.)

The exception is Scarborough, on the eastern end of the city, where the average new detached price from January-through-March was $408,070, which is significantly less than the Greater Toronto (including the 905 suburbs) average detached price of $518,103.

Launching this month is Monarch Homes’ Evergreen at the corner of Midland Avenue and St. Clair Avenue East, the site of 200 houses including a large number of single detached houses, with prices starting at the mid-$300,000s and rising to the mid-$500,000s.

Monarch is also aiming to make Evergreen a showpiece of green construction and energy efficiency that it would like to duplicate elsewhere.

Monarch has taken a shine to Scarborough, where it is building Upper Danforth Village at Danforth Road, east of Warden Avenue. Seven detached houses on 30-foot-wide lots are still available for between $497,000 and $510,000, all in the 2,300-square-foot range.

Upper Danforth Village’s large detached houses are embedded in a larger community of townhouses and semis ranging from $325,000 to $421,000. All are designed to fit in with the surrounding residential community, with brick-and-stone exteriors and a variety of façades featuring peaked roofs and Victorian-style motifs.

A similar community, with an array of dwellings ranging from detached houses to townhouses, is the Conservatory Group’s Port Union Village at the eastern end of Lawrence Avenue near Lake Ontario.

About 50 detached models are still available, all of which have a maritime feel. Ranging from $435,000 to $553,000 for between 1,680 and 2,793 sq. ft., Port Union Village resembles a standard suburban development, but features easy access to the lakeshore and a variety of conservation land nearby.

In the same area, but on a more exclusive scale, is North Star Homes’ Eastlake Village II development. Only eight lots on 40- and 45-foot-wide properties were for sale, with five still available, ranging in price from $570,000 to $663,000 and in size from 2,400 to 3,309 sq. ft.

Eastlake Village’s designs take on a more stately dimension with imposing classical facades with brick construction, blending into existing houses as an infill development near the lake shore.

Also in the Port Union neighbourhood is Laura Ellis Gardens, a detached community by Fairglen Homes featuring 21 lots with 50-foot frontages. Similar to Eastlake Village in the size and stature of its models, eight detached houses remain for sale here, ranging from $590,000 to $660,000 and up to 3,402 sq. ft.

Similar detached houses can be bought at a bit of a discount in the 905 suburbs, but the proximity to the city and the lake shore make the Port Union infill communities a fairly popular niche product.

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