Carolyn Ireland – Globe and Mail

How do buyers get a toehold in the most aggressive real estate market in the country?

By seeking out the little-known slivers where house price gains haven’t kept pace with the breakneck pace set in the rest of the city.

That appears to have been the strategy employed by many people bent on buying in Toronto in the first quarter of 2012.

But April’s numbers so far suggest a slight cool down from the blistering pace set in the first months of the year.

In the first half of this month, sales climbed 7% compared with the first two weeks of April, 2011. The average price in the Greater Toronto Area rose 5% in the same period compared with the same time last year, according to data from the Toronto Real Estate Board.

The average price in the GTA jumped about 10% in March compared with the same month last year, while sales increased 8% in the same period.

Comment: And the numbers for the full month showed sales volume up 22% – almost triple the rate in March. And prices were up 9%, beating March again. It ain’t slowing down…

Prices were pushed higher by the combination of tight listings and low interest rates in the first three months of the year, says John Pasalis, broker at Realosophy Realty Inc.

Mr. Pasalis adds that the bidding wars that astounded observers in February are a little more tame these days. “Now you might have three to eight offers instead of 15 to 20.”

As usual, more listings have come onto the market with the arrival of spring blossoms, while the competition has also eased up because nearly 10,000 parties dropped out of the race after buying a house or condo in March.

Mr. Pasalis says some of the successful buyers set their sights on neighbourhoods that have been overlooked in the past. He picks out hot spots by looking at the number of houses that sold over the asking price, which is a good indication that the seller received multiple offers.

In Wallace-Emerson, for example, near Dovercourt and Bloor, 65% of houses sold for more than the asking price, which is more than double the city average. The average list price, meanwhile, is about $485,000 compared with just under $507,00 overall for the city.

That suggests to Mr. Pasalis that first-time buyers and those looking to move to a house from a condo but who still want to live downtown were looking to the up-and-coming hood for deals.

“It’s one of the only pockets on the subway line that is still affordable.”

Similarly, Woodbine-Lumsden in Toronto’s east end saw prices appreciate of 21% in the quarter compared with the first quarter of 2011. The niche, close to the eastern boundary of East York, has an average house price of $462,000 and seven out of 10 properties sold over asking, says Mr. Pasalis.

“Both of these neighbourhoods are on the outer edges of the core.”

Farther north, low-profile Park Woods is gaining in popularity. Standing between Lawrence and York Mills and just east of the Don Valley Parkway, the community offers buyers the possibility of a detached house, large lot and private drive for between $600,000 and $700,000.

As a real estate agent, Mr. Pasalis says he often points buyers towards neighbourhoods they might not have thought of in the past.

Prices that seem to rise unchecked draw new waves of house hunters who in turn are forced to become increasingly creative in their search.

But a Queen’s University professor cautions that the fortunes of the Toronto real estate market could be in for a swift reversal in a few years.

John Andrew, director of the Queen’s Real Estate Roundtable, says he’s worried about the number of towers going up in the city.

“The amount of condo building going on right now is staggering. They’re going to overshoot the market,” he says of the building industry.

Prof. Andrew adds that because builders have been building declining numbers of single-family houses in recent years, buyers who would have bought a house in the suburbs in years past are opting for condos instead.

Comment: No, that cannot be true. People with kids who want a house are moving to the 905 or getting in bidding wars, they are not buying condos. Different groups of people. First time buyers, singles or couples, renters, empty nesters and downsizers, investors and pied-a-terres – they are buying condos. The condo market and the house market are not really linked.

Appreciating real estate also draws investors, he points out. While statistics on the number of overseas investors are hard to come by, Prof. Andrew believes that anecdotal reports that many such buyers are based in China are exaggerated.

“I think that’s a bit of a myth.”

He does believe, however, that many condo units are being sold to people who don’t intend to live in them. These buyers may have a principal residence and purchase the condo unit with plans to rent it out. But if interest rates rise and make mortgages tough to carry, says the professor, those owners could flood the market with units for sale.

The professor does not think a downturn is imminent, but he points out that many mortgages taken out today will be up for renewal in 2017 or 2018. By that time, interest rates could be substantially higher.

An increase to 5% or 6% is probably not a problem for most people, he says, but it wasn’t all that many years ago that rates were at 7% or 8%. In the more distant past, they’ve been much higher than that.

Comment: Actually, it was in 2000 when interest rates were last at 8%, and that was only briefly, for a few months. Before that, it as 1996 when 8% was the norm for a longer period of time. And that is quite a few years back. And 7% has not been seen since 2002, 10 years ago. Expect 6% but I do not think we will see much higher.

“What are people thinking?” questions Prof. Andrew, who is confounded that people don’t seem to believe that rates that high are within the realm of possibility.

While homeowners will do everything they can to ride out a rough patch in order to keep their principal residence, he says, they typically are very quick to unload an investment property if it becomes a burden.

“On an investment property, people are more willing to take a loss – even if it’s a substantial loss.”

Prof. Andrew says data on building permits shows that builders are responding to the shortage of single-family houses by making plans to build more in the coming months. If house hunters can be patient until September, he says, more low-rise properties should be heading to the market.

Comment: Yeah, but that means we have 500 houses instead of 140. Still nowhere near enough to satisfy the current needs.

Long commuting times and poor public transit options are driving people from the suburbs back to the core, he says. In years past, the breadwinners in families were willing to commute in order to have a larger house and a backyard.

“Before everybody complained about it but still bought the suburban dream.”

But a trend towards moving back from the burbs may intensify if the city doesn’t fix its inadequate network of public transportation, the professor states.

“The transit issue is going to be a real problem in Toronto in the coming decade.”

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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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