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

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Related posts:

1. Toronto Real Estate Fore­cast 2010
2. A change in the wind
3. Dis­sect­ing the Condo Bubble
4. A Closer Look at Canada’s Decline in Real Estate Prices
5. Toronto Real Estate 2009 Year In Review