Red-hot Toronto real estate shatters price record
Existing home sales in the Toronto area were up 28 per cent in September compared to last year, according to figures released Monday by the Toronto Real Estate Board.
By Tony Wong – Toronto Star
When Bill Thom listed his client’s Toronto bungalow for sale last month he expected a favourable response from potential buyers.
After all, the real estate agent had underpriced the property deliberately. But he also underestimated the strength of the market.
Comment: While this tactic has its time and place, it is used way too often by too many agents. The main thing it achieves is upsetting a lot of buyers.
The tiny 1,000 square foot bungalow in the Yonge and Sheppard neighbourhood of Willowdale was priced at $380,000. In one week, the home went through 170 showings. By the end of the week Thom and his client had 35 offers.
In a sale that still has the Toronto real estate community talking, the home eventually sold for $550,000 or an astounding $170,000 above the asking price.
“I didn’t expect that so many people would be interested,” said Thom. “It really shows how much stronger the market is despite the recession.”
According to the Toronto Real Estate Board in figures released Monday, existing home sales in the Toronto area were up 28% in September compared to last year. The board said 8,196 homes traded hands during the month.
Comment: That sort of volume is amazing. I cannot imagine what the numbers would be like if we did not have 42% fewer listings. I do not think there would be 42% more sales, but even if there were 20% more, we would be looking at close to 10,000 properties changing hands. Now that would shatter some records!
The average price of an existing home was also up 10% to $406,877. That’s a new all-time high for an average house price in the Toronto area. Compare that with 2008, when average house prices were $379,347.
Comment: Those numbers are for the GTA, not just the city of Toronto. If we take just the 416 numbers, then volume is up more than 31% and prices over 11%. Average sale price is over $430k. The 905 is doing well, but the downtown area is white hot these days.
“It certainly is surprising to see prices at that level,” said housing analyst Will Dunning.
Comment: Maybe to the experts, but those of us in the trenches are not surprised. I have been predicting this sort of activity for months now. Read back, it is all on the record.
Experts say higher priced homes in the Toronto market have helped to skew prices upward. The relative strength in the financial services sector has also helped, said Dunning.
Comment: Aren’t we talking about the Toronto market? How can the Toronto numbers skew the Toronto numbers? That does not make any sense at all. If they mean the Toronto numbers are skewing the GTA numbers, then fine. But the 905 saw a 25% sales increase and a 10% price increase. How are those numbers being skewed?
“There is a lot more confidence in financial services and this would affect higher-end neighbourhoods in terms of sales,” said the analyst.
Another reason has been a dearth of listings. Active listings were down significantly in September by 42% to 15,894. That has meant buyers are competing for less product on the market, which has led to bidding wars in some neighbourhoods such as Willowdale.
Comment: As I said, can you imagine how many houses would sell if listings were up? I know I would have a lot more sales this year… But it is putting huge upward pressure on prices. People jump on properties as soon as they see them, offering list price or close to it. And somewhere around 15% of places are selling in bidding wars – which is sure to drive prices upwards.
The average home is now on the market for 27 days, down from 36 days last year.
Creating an auction mentality for homes is not popular with buyers who feel that they have wasted their time looking at a property they can’t afford.
The controversial practice – of putting a lower than market value list price on the property – has been a common sales tactic in the Toronto area for the past several years.
But Thom said the auction strategy only works in a market where listings are down and buyers are starved for product. “If you had tried this last November, you would have been killed. Nobody would have showed up,” he says.
Comment: Yet people did it anyway. There are some agents who do nothing but. There are some properties that need time to ensure all interested parties get a chance to see it. But to make an offer date on any old place, on every listing. Come one, that is just stupid.
Only one offer came in at list price. All the other offers were for higher than list, he says.
The home, which has a 28-foot frontage, had been a rental for at least 10 years and needed “tender loving care” said Thom. The new owners plan to renovate the home.
Much of the unexpectedly high activity in the Toronto market has to do with the magic of low interest rates, where five-year fixed mortgages can be had for less than 4 per cent.
Comment: That is simply untrue. Rates were as much as 2% higher in 2007 than the best rates today. And that year saw many records set. Ten years ago rates were almost double what they are now, and that was 3 years into this upward march. When I bought my first place in 1999, I got a 8.25% and yet I still bought. As did all of my neighbours. The interest rate argument is total bunk.
“Clearly the way the market has come back has been a surprise,” says Benjamin Tal, senior economist at CIBC World Markets. “The question still remains though as to how sustainable are these sales figures?”
Comment: Since the “experts” have been asking that question for 5-6 years now, the answer is that they are obviously very sustainable.
Most analysts now expect this year to surpass last year in terms of sales. Year-to-date sales are up 4.5% in the first nine months of 2009 compared with the same period last year.
Comment: And that is with the dismal (-50%) January we had, plus the crappy later winter. We should be at least 5% better than 2008 by the end of the year.
However, economists such as Tal expect the market to cool in 2010.
Comment: Yeah, and they expected 2009 to be crappy too.
“The numbers are unsustainable and inconsistent with where we’re at in the economy,” said Tal. “Because of the low interest rates, buyers are purchasing their homes now instead of next year, so we are taking away sales from the future.”
Comment: Horses**t. These are the people who were scared to buy at the beginning of the year. All the sales that did not happen during the crisis are happening now. These are not being pulled forward, they are catching up from before. And with listings so low, there is more and more pent up demand. That is what you will say next year when the numbers are good, that the sales are not sustainable because it is just pent up demand.
Tal says this isn’t necessarily a bad thing. Low interest rates were designed to stimulate the market now so as to give a lift to the moribund economy.
But the economist cautioned that borrowers have a responsibility to make sure they are buying within their means.
“In five years from now when interest rates are three percentage points higher, you have to ask whether you can still afford that property,” cautions Tal. “For some people, that might be a big no.”
Comment: Except rates will not be 3% higher. The last time rates were 3% higher was July of 2000. Two percent is possible, sure. But that is in 5 years. If you pay down your mortgage for 5 years, then that increase will mean that your payments are the same as they are now. If your mortgage is $400,000 at 3.99% right now, and it goes up to 6.04% in 5 years and you still owe $350,000 then your payments increase $140. I do not think that will cause most people to default or have to fire-sale their home. And that is only if rates go up 2.05%. Do the math for yourself, do not trust the doomsdayers!
- Toronto real estate sales exceed 2008 Well, it's now official: this year's cumulative existing home sales...
- Toronto Real Estate Forecast 2010 MLS® sales in the GTA will hit a record high...
- Some pockets still warm as real estate market cools Prices jump in Trinity Bellwoods, Leslieville and Old Mill, fall...
- Analysts forecast near-record home sales in 2009 Favourable year-over-year real estate numbers came out Monday, showing home...
- Toronto real estate strong in tough times The Toronto Real Estate Board (TREB) notched a record 10,955...