Real estate deep freeze now hot thaw
Toronto’s existing home market surprised economists with a better-than-expected resurgence in June
Tracy Hanes – Toronto Star
Remember last winter when the Toronto real estate market pulse could barely be detected?
The patient is not only recovering, but appears to be returning to robust health, according to five of top Toronto real estate brokers and marketing consultants.
There was plenty of optimism at a recent round table discussion the Star held with these experts, who shared their views during a candid and wide-ranging discussion on the current state of the Toronto real estate market.
The participants included moderator Barry Lyon, senior partner and president, N. Barry Lyon Consultants Ltd., and panellists Barbara Lawlor, president of Baker Real Estate Inc.; Debbie Cosic, partner in In2ition Realty; Michael Wilson, principal of International Home Marketing Group Ltd.; and Andy Brethour, president of PMA Brethour.
All agreed that December, January and February were “a deep freeze” for sales as Lawlor described it, but since then, sales have picked up. In fact, she pointed out, sales in May and early June have outdone May and June of 2008, according to Toronto Real Estate Board figures. And the average price for an MLS resale home was $407,716 according to TREB, up by 2% compared to last year.
“Let’s put in it perspective,” said Lyon. “New homes sales down about 60% for the same period – why are resales so hot and why are new sales lingering somewhat?”
“The biggest difference is the vendors in resale are flexible,” said Cosic. “They listen to their clients, they listen to the marketplace . . . the new (home) clientele is sometimes not as flexible.”
Cosic said recently, there has actually been a short supply of listings, and many people listing are getting 95% of their asking price.
Comment: Actually, in many areas the average price is over 100% because there are so many bidding wars. Some neighbourhoods see multiple offers on almost every new property. I would be surprised to see selling prices under 98% of list.
“If it’s sharply priced, people are coming in and bidding up,” added Wilson.
Developers don’t have the ability to respond as quickly as resellers in dropping, said Wilson, because if they have sold a large number of units that under construction, “they have to make sure they don’t devalue investment past purchasers have made, so they are not about to tamper with price list.”
Brethour said in every recession, the consumer moves to certainty and that’s what the resale market offers: “It’s the seeing and believing, the touch and feel, being able to close in 60 days or 90 days.”
And while the resale market may have been quicker to respond, that doesn’t mean new home and condo builders aren’t willing to compromise.
“I have never seen developers so eager to make deals and negotiate as they are now,” said Lawlor.
“We hit a reset button and have had to reset our packaging, our product, our pricing. You can reset much faster in resale,” said Brethour.
First-time buyers are leading the market, they said, spurred on by record low interest rates and the greatest affordability of the last decade.
“I think right now is first-time buyer paradise. We have droves of first-time buyers coming into our sales offices, along the Sheppard corridor, anywhere there is a subway and what we find is if we send 20 people a week to get qualified, maybe 10 of them are going to come back qualified,” said Lawlor.
“There’s a great desire for home ownership, not necessarily the pocketbook to make the deal happen. The first-time buyers are driving the market at the moment.”
What’s not going over as well, she said, are luxury condos, and her firm has had to turn to overseas buyers.
She also said mid-range builders are the ones most eager to offer incentives currently.
Wilson described the downturn as a “millionaire’s recession” saying “they were the ones who lost all their money in the stock market and that’s why higher end is affected.”
Affordability is key to be successful in the current market, the panellists said. Some lowrise builders have introduced new smaller, streamlined homes that have been popular while condo projects will also likely get smaller, with fewer amenities.
Toronto condos will continue to be an integral part of the market, the brokers agreed.
“What I’m seeing happening is consumer acceptance of the lifestyle, whether it’s 416, 905, Toronto condos have arrived like you can’t believe,” said Lyon.
What the panellists have found is that a lot of owners are not Canadian-born and come from countries where highrise living is a normal way of life. The continuing large influx of new immigrants, many of whom are committed to home ownership, will help to fuel the Toronto condo market.
Incentives offered by developers, despite being rather modest in some cases, have also helped produce a flurry of sales.
The panelists also talked openly about “something we often tiptoe around,” Lyon said – that’s investor buyers. He said no one is exactly sure how many there are, but there is general agreement they make up 25% to 30% of the Toronto condo market.
“We had a launch two weeks ago in the pouring rain and we had people sleeping outside overnight,” said Cosic. “They were predominantly investors, who were South Asian, Korean, Eastern European. They are not that sophisticated, they are not people who deal in the stock market, they have had 10 years in a good economy and have some money saved away. They are good, long-term investors.”
Wilson agreed. “They are not high rollers, they are not playing with disposable income, this is real money they’ve saved and they are not going to walk away. This is an investor who is going to close.”
Despite the high number of new condo units, the five were confident that Toronto can continue to absorb the numbers of suites that will be ready for occupancy now through 2011.
Brethour pointed out that no rental housing stock of any consequence has been built since rent control came in during the 1970s – and with 100,000 new immigrants arriving in the GTA each year, rental condos are needed. The rental market can easily absorb these units and Lyon pointed out that while the vacancy rate among traditional units is 3%, it’s less than half a per cent for rental condos, which command higher rents.
The panellists had their doubts about the feasibility of three-bedroom family units in condos, promoted by city councillors like Adam Vaughan.
“We introduced 30 units in Mississauga with Daniels (Corp.) and didn’t get the feeling that there’s a tremendous appetite for it,” said Lawlor.
“Even though we get families coming in to sales offices in droves, it’s not because they are going to live there with little kids, they are usually there to support a family member.”
Cosic said nonetheless, more condo projects are including family-friendly amenities.
Wilson said a three-or-four bedroom apartment-style condo in the city costs $400,000 to $500,000 “and that opens up a lot of opportunities in the suburbs.”
Highrise living is not particularly conducive to family living, they said, but what they did feel would be a popular trend was stacked houses and condo townhouses, catering to families who want ground-oriented housing.
Not only market demand will drive this trend, said Brethour – because highrise developers will have more challenges getting financing, they will look to less costly projects that can provide almost the same densities.
Because of the scarcity of serviceable, lowrise land in the GTA, there will be more intensification in the 905 to keep product affordable.
The topic of municipal development charges brought groans.
“The same governments that are encouraging us to build more efficiently are taxing the bejesus out of multiple family housing,” said Lyon. “We’re paying for all that sprawl, parks, schools, aging pipes in the ground. Developers are being made to pay through the nose to support the lower density housing habit.”
Indirect taxes have a huge impact on buyers, all agreed. Wilson said that drives people either to resale or to areas outside of the GTA.
The panellists said Toronto’s market cannot be compared to others such as Calgary or Vancouver, as this city did not see the wild price jumps.
What also bodes well for consumers, they said, is the choice for the consumer, with 320 new sites in the city and GTA, ranging from urban to suburban, small and large.
“We’ve been bombarded by CNN and other publications about how the bad recession is and it’s not that bad,” said Wilson.
“It seems to be in a V-shaped recovery and we need to stabilize people’s thinking, need to get good news out there.”
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