Car­olyn Ire­land – Globe and Mail

I wrote recently about the plight of U.S. home­own­ers who are suf­fer­ing from the slide in house prices even if they dili­gently paid off their mort­gages and didn’t over-extend them­selves in the first place.

A reader shared another anec­dote: He’s just back from Lit­tle Rock, Ark., and says the real estate mar­ket there would be a rev­e­la­tion to many peo­ple on this side of the border.

He points to an 1887 man­sion for sale in Lit­tle Rock with 10 bed­rooms, three bath­rooms and a tur­ret. It has 7,800 square feet of liv­ing space and is listed on the National Reg­is­ter of her­itage prop­er­ties. In 1900, it belonged to the attor­ney gen­eral of Arkansas. Now it’s been sit­ting on the mar­ket long enough that the price has been cut to $419,000 (U.S.) from $525,000.

“Cana­di­ans have no idea what’s hap­pened in Amer­ica,” says the reader.

Opin­ions vary widely about how likely it is that the same prob­lems will migrate to Cana­dian cities.

Com­ment: Sure, peo­ple throw crazy ideas around – but there are some who believe the world will end in Decem­ber… it does not make any of them more cred­i­ble. We are so dif­fer­ent from the US in so many ways that it is not even like com­par­ing apples and oranges, it is more like apples and elephants.

In Toronto and Van­cou­ver espe­cially, home buy­ers have loaded up on debt as real estate prices climb and inter­est rates remain low. And while the lat­est num­bers from the Cana­dian real estate asso­ci­a­tion show a pull­back in Van­cou­ver, Toronto con­tin­ues to climb unchecked.

Ear­lier this week, Bank of Canada Gov­er­nor Mark Car­ney sug­gested that higher inter­est rates “may become appro­pri­ate.” The cen­tral bank left its key rate unchanged at Tuesday’s meet­ing, but even the fact that Mr. Car­ney broached the sub­ject is taken as an omen by mar­ket watch­ers. Mr. Car­ney has sig­naled many times that he’s uneasy with the debt bur­den of Canadians.

Com­ment: And peo­ple heard the warn­ing, they are pay­ing down debt and avoid­ing big pur­chases. We are doing what we need to do to be safe. We are a smart bunch, us Cana­di­ans

And sure our banks are more pru­dent and finan­cial reg­u­la­tions more strin­gent than those in the United States before the crash there, but Cana­di­ans are now about as indebted as Amer­i­cans were at the peak of their bubble.

Com­ment: But we have higher employ­ment, no sub prime mort­gages and a will­ing­ness to cut down on debt. One mea­sure is the same, only one. Do not read too much into it.

At Toronto-Dominion Bank, chief Canada macro strate­gist David Tulk notes that the sub-prime mar­ket was small in Canada before rules were tight­ened, that mort­gage insur­ance is a pil­lar of the hous­ing mar­ket in this coun­try and that Cana­di­ans in gen­eral have pre­ferred very con­ser­v­a­tive mortgages.

Still, he believes the dura­bil­ity of the hous­ing mar­ket and the effi­cacy of its reg­u­la­tory insti­tu­tions will be tested as inter­est rates nor­mal­ize over the next cou­ple of years.

Com­ment: Nor­mal­ize? What does that even mean? Go up 2%? That is not going to do much of any­thing… we were 2% higher a few years back and 3% higher in 2007 when the last sales record was set.

At CIBC World Mar­kets, ana­lysts Alex Avery and Brad Sturges point out that Toronto’s condo mar­ket is often held out as the very pin­na­cle of excess in Cana­dian real estate.

But the ana­lysts believe the peo­ple behind those high-profile con­cerns (bank exec­u­tives, inter­na­tional mag­a­zines) are focus­ing on the pace of growth instead of the dri­vers of growth.

They note that Canada’s pop­u­la­tion is already con­cen­trated in cities and the pace of urban­iza­tion is accel­er­at­ing. Higher energy prices are push­ing up trans­porta­tion costs, eco­nomic devel­op­ment is con­tin­u­ing and a Green­belt around the area is push­ing devel­op­ment inwards.

Com­ment: Might that be a major dri­ver of demand for con­dos, for down­town liv­ing? Methinks so…

The vast major­ity of Toronto’s 132 or so high-rise tow­ers under con­struc­tion are con­do­minium build­ings within a 1.6-kilometre radius of Union Station.

At the same time, they note that single-family home devel­op­ment has been declin­ing con­sis­tently since 2002, falling steadily to just 51% of 2002 lev­els by 2011. Bid­ding wars for houses in pop­u­lar neigh­bour­hoods are the norm in the entry and mid­dle seg­ments of the mar­ket. “We expect Toronto’s urban­iza­tion trend to con­tinue, and expect prop­erty price per­for­mance to out­per­form less urban cen­tres in Canada, with even greater price per­for­mance in the city’s core,” say the ana­lysts in a report.

Tell us what you think: Is Toronto’s real estate mar­ket at risk from the amount of con­struc­tion going on down­town? Or do demo­graphic trends sup­port the need for all of those buildings?

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Con­tact the Jef­frey Team for more infor­ma­tion – 416−388−1960

Lau­rin & Natalie Jef­frey are Toronto Real­tors with Cen­tury 21 Regal Realty.
They did not write these arti­cles, they just repro­duce them here for peo­ple
who are inter­ested in Toronto real estate. They do not work for any builders.
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uncon­ven­tional liv­ing spaces toronto

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