Toronto Real Estate Blog

The real problem in the GTA is not enough new houses

Terrence Belford – Globe and Mail

There may be a perfect price storm brewing in the Toronto real estate market. Especially affected will be both new and resale homes – all those detached and semi-detached houses and townhouses families look for. Federal Finance Minister Jim Flaherty suggested the possibility when he announced changes to residential mortgages in mid-February. But he took only small steps toward reducing demand.

Mr. Flaherty’s most significant move was to say that from mid-April on anyone seeking a mortgage at a rock-bottom variable rate had to prove they could afford payments on a five-year fixed-rate mortgage. Truth be told, for the past three or four months many lenders had already demanded that people looking for variable-rate mortgages qualify for the higher three-year fixed-rate ones, mortgage brokers say.

Brokers have also been advising clients that even if they get a variable-rate mortgage, they should make payments at the three-year fixed-rate level. That advice serves two goals: It pays down the mortgage faster and cushions borrowers against anticipated increases in interest rates.

Mr. Flaherty ignored the real problem, which in the GTA is the supply of houses.

There’s no point in marginally reducing demand if the supply is not there. Continued high demand coupled with extraordinarily low supply mean prices will shoot up faster than dandelions after a spring rain.

Let me explain. Normally we would go into a new year with anywhere between 20,000 and 22,000 new homes in the GTA waiting for buyers. This year, there are just 7,400, according to RealNet Canada Inc., which tracks the market. This means anyone looking for a new family home has an extraordinarily small supply to choose from. But if you need a home, with mortgage rates still at historic lows, it continues to seem a great time to buy.

So, you look at resales, which is exactly what a record number of buyers did in the first six weeks of this year. Jason Mercer, the Toronto Real Estate Board’s senior manager of market analysis, says the period between Jan. 1 and Feb. 15 set a new record – 8,464 resale home change hand, up a whopping 81 per cent from last year.

Listings were up 15 per cent as well; that number was 6,212. As people saw the prices their neighbours were getting, they decided to join the rush, sell and move up, down or sideways.

The result? Resale house prices in the GTA rose 18 per cent from the same period last year. The average resale price is now $417,915, which incidentally puts them solidly above the $400,000 ceiling for exemption from the Harmonized Sales Tax (HST), due to come into effect July 1.

So the result of the small supply of new houses is huge pressure on resales and therefore a likely continuation of big price jumps.

“I think for the next six months at least the resale market will be the strongest game in town,” says Cam Forbes, director of operations and a broker at Royal LePage Real Estate Services Inc. “Mid-year will be the telling point; I don’t know if demand will continue at this level. “But if it does then the situation will indeed be worrisome.”

Mr. Forbes and Mr. Mercer suggest that if interest rates rise as predicted – perhaps to the 5 per cent level – that will take some people out of the market, and yet the ones most affected are likely to be the young just starting careers whose chief interest is small, affordable downtown condos, not houses anyway.

The HST may also have an effect since, it will effectively drive up the price of all housing over that $400,000 mark.

But what the GTA really needs is a healthy supply of new low-rise homes and that rests largely in the hands of municipal politicians not builders.

The whole lengthy process of getting approval for new developments came almost full stop last spring in the wake of the global recession. Builders shelved plans for new developments until they could see signs that the GTA was starting to recover. By summer when demand came back strong they had lost half a year.

At the same time, local municipalities had started rethinking whether they indeed wanted new subdivisions, and for those already in the works, they boosted development charges, which have become a handy back-door way of raising municipal revenues without much public outcry.

As Stephen Dupuis, president of BILD, the home builders’ association, points out, between 2001 and 2009, municipal charges on new development rose by 134 per cent, which is about four times greater than house prices rose during the same period.

It is indeed a gloomy picture. But unless we start focusing on the issues of supply and affordability, the GTA could be headed for trouble.

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Supply shortages still expected in big centres, but wave of new listings elsewhere will be boon to buyers

Steve Ladurantaye – Globe and Mail

After a historic runup in prices, the Canadian resale housing market is set to cool down as a wave of new listings hits the market, providing badly needed inventory for hungry buyers.

The number of homes on the market nationally increased for the third consecutive month in February on a seasonally adjusted basis, according to the Canadian Real Estate Association. The industry group said yesterday there were 4.7 months of inventory available in Canada in February, up from 4.5 months in January.

That trend has put buyers and sellers in an equilibrium not seen since before the market downturn began about two years ago. The ratio of new listings to sales, an indicator used by analysts to gauge the health of the resale housing market, left the “favourable to sellers” range to the “balanced market” range in February, according to National Bank Financial.

It’s a sign of stability for a sector that has seen wild price appreciations as buyers competed ferociously for the few homes on the market.

“Further expected supply increases will continue to take the steam out of housing markets as the year progresses,” said Gregory Klump, chief economist at the Canadian Real Estate Association. “There are still a number of major markets where sales negotiations favour the seller due to a shortage of inventory, but supply has begun rising.”

More listings help prevent bidding wars and could slow house-price gains this year. The association expects prices nationally to decline slightly next year.

Still, some major markets such as Toronto and Vancouver will be slower to add listings this year, industry officials said.

“You still see a supply shortage in the big centres because the people who need to sell and move up just don’t see anything they want to buy,” said Phil Soper, president of Royal LePage. “But we’re ahead of the curve on new listings in February, and March will be absolutely critical if that trend is to continue.”

The Monday following Ontario’s March Break is traditionally the busiest listing day in Canada, as the weather turns favourable and parents who will need to relocate their children realize the school year is coming to an end.

“That’s the day everyone puts on their game face and gets chopping,” Mr. Soper said. “It happens every year – it’s like the summer blockbuster season.”

The busy spring will have consequences, however. Many of the homes will be put on the market earlier than in other years as owners look to cash in on the hot market. The flurry of activity is expected to dampen sales in the last half of 2010.

“I think we’ll see a sharp up-tick in sales, followed by a massive pullback,” said TD Bank economist Millan Mulraine. “We’re taking sales from the end of the year and moving them up. Then you should see a market that is more in line with fundamentals.”

In the meantime, the number of home sales continued on a tear in February with a 44 per cent year-over-year gain from recessionary lows a year ago, CREA figures showed.

The average price of all homes sold on the Multiple Listings Service in February was $335,655, up 18.2 per cent from a year ago. The relentlessly strong price gains since last year’s lows have fuelled worry about the formation of an asset bubble.

Finance Minister Jim Flaherty is watching the country’s mortgage market carefully but does not believe there is a housing bubble, he said in an interview with Bloomberg.

Anything that helps prices stabilize would be a welcome development for policy makers, who are taking steps to make it more difficult to qualify for a mortgage in a bid to cool off the market.

While more listings are expected this year, buyers are expected to be out in full force for the foreseeable future.

Buyers are expected to rush into the market in the coming months to avoid changes to mortgage application rules in April, anticipated higher interest rates by midsummer and the introduction of harmonized sales taxes in Ontario and British Columbia in July.

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Financial Post

Canadian home prices rose 0.4% between December and January, the same growth rate for the third consecutive month, according to a Statistics Canada report Thursday.

The index saw the biggest increases in St. John’s at 1.7%, Winnipeg at 0.7%, and Toronto and Oshawa at 0.6%. Ottawa–Gatineau, Saskatoon and Calgary all registered 0.5% increases, according to the federal agency.

The largest monthly decrease in new housing prices was recorded in St. Catharines–Niagara, which fell by 0.4%. Home prices in Charlottetown fell 0.2% and in New Brunswick, Saint John, Fredericton and Moncton each registered a decline of 0.2%.

Nationwide, home prices were up 0.1% on an annual basis in January, compared with a 0.9% decline in December 2009.

“This was the first year-over-year increase since December 2008, mostly as a result of price decreases in Western Canada that were less pronounced this January than in previous months,” Statistics Canada said in the report.

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By Harry Stinson – postcity.com

When a major realtor releases a “market report” you can be sure the conclusion will be that prices are stable and/or improving (otherwise the report is staying under wraps).

Nevertheless, I would agree that Canadian real estate will continue to be seen by most people as a good place to invest their money, but not necessarily because of any sophisticated economic insights.

1. In an increasingly erratic world (in terms of politics, economics and even climate) Canada is regarded as a safe and stable place to live and own property

2. There is no longer any such thing as a ‘blue chip’ stock or bond (Nortel? GM? AIG? Bernie and the boys?)

3. Banks charge you more in fees than they pay you in interest.

4. Whatever happens to the price, properties have a day-to-day practical value — you can use them or generate revenue.

5. Interest rates are likely to stay single-digit for some time, making ownership more sensible than renting (for those that want to own) and carrying costs sustainable (for those who want to be landlords).

6. Nobody has yet been able to explain derivatives or why they are sensible investments (except for the middlemen)

I don’t foresee the Toronto real estate market collapsing, even in condos, but all these statistical trends and averages provide highly superficial insights.

One still needs to understand the submarkets very carefully. For the next six months, I expect overall real estate stability, but there are indeed some “bubbles” out there that will inevitably burst. There are also still some serious pockets of opportunity.

Harry Stinson was one of the first Toronto developers to recognize the potential for urban condominiums, to develop residential lofts, and to convert old office and warehouse buildings into residential spaces. His current project is the Stinson School Lofts, an 1894 heritage building in Hamilton, Ont., that he is converting into stylish and affordable lofts.

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By Sharon Aschaiek Special to the Toronto Sun

When it comes to compact spaces like Toronto condos, striking the right balance between fashionable and functional decor can be a tricky feat. Toronto-based interior designer Andrea Kantelberg says it’s entirely possible to achieve a trendy yet timeless look that’s comfortable, stylish and reflects your personality — and will hold its value.

“Your home decor should feel cohesive and welcoming and act as an effective backdrop to your personal possessions,” says the principal of Kantelberg Design, which specializes in high-rise residential, hotels and luxury homes.

Reduce and recycle

Living in a small space like a condo requires scaling back on possessions to minimize clutter, Kantelberg says.

“You need to have space around pieces for them to breathe. Without that space, a home will never have a feeling of luxury or style,” Kantelberg says.

Hold onto the furniture and accessories you still love and that continue to “feed your spirit,” she says, and ditch or donate what you don’t need.

Furniture that fits

Kantelberg says that while lean, modular furniture works well in condos in Toronto, owners on a budget can find ways to work with what they already have.

“You can augment oversized furniture like a king-size bed or giant sofa with smaller pieces to create more space,” she says. If you are purchasing new furniture, she says, go for clean, classic lines, and buy the best quality you can afford, knowing it’s a long-term investment.

Storage is supreme

“As a general rule, keep things off the floor to achieve an uncluttered look,” Kantelberg says.

Use an organizer or built-in shelving to maximize storage space in your closets, she says.

You can also make great use of wall shelving and furniture pieces with storage capacity, such as ottomans, to create a clean, unfettered look, she says.

“But perhaps don’t store stuff under your bed — I’m a big believer in clutter affecting the way we feel, and sleeping on top of all our stuff doesn’t feel right,” she says.

Cohesive colour

Create a cohesive, seamless look and feel by carrying similar tones of your colour scheme throughout your place, Kantelberg says.

Choose a paint colour that reflects your personality and will complement your furniture, she says, and take risks in small ways — use patterned wall paper in your powder room or coloured wallpaper behind your bookshelf.

“Truly stylish people have to take risks, but it’s better to do it in small bites,” she says.

Flooring that lasts

Gray or neutral no-gloss wooden flooring continues to be de rigeur, Kantelberg says, because it’s durable, easy to maintain and great looking.

“Unlike high-gloss hardwood, where you can see every little scratch, you don’t have to worry about maintaining it and keeping it perfect,” she says. “And its worn quality adds a little bit of depth and personality to a space.”

More cost-effective but also stylish is laminate flooring, she says, which also requires little upkeep.

Layer your lights

Use a mix of lighting formats, Kantelberg says, and customize lights according to the way you use them, and the mood you want to create, in each space.

“You don’t need a light fixture hanging in the middle of each room. Somebody came up with this idea 70 years ago, and it’s still there,” she says.

While kitchens and bathrooms may require good-quality overhead lighting, she says, go for a floor lamp in your living room, task lighting on your desk and a table lamp beside your bed.

Earth-minded design

“When you’re buying a product, think about how it got there — was it on a truck, plane or boat? It’s better to purchase from a local manufacturer,” she says.

Other eco-smart decor options include buying vintage, to reuses objects and add originality to your space; low-flow faucets and toilets; energy-efficient lights and appliances; a smaller fridge, to minimize harmful hydrofluorocarbon emissions; and chemical-free paint.

“These are all things that are really easy to do that don’t actually cost extra money,” says Kantelberg, “so it’s possible for your home decor to positively affect the planet.”

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