Tony Wong – Yourhome.ca

Jimmy Millis and his fiancée Nicoletta Bisoukis spent more than a year looking for their first home. During that time, the couple visited dozens of properties in a journey that many potential buyers in the Greater Toronto Area can relate to.

The first property they bid on last summer in Woodbridge was a four bedroom for $480,000. It ended up selling for $504,000.

The pattern would repeat itself six more times — with the couple on the losing end of the bid. But while the journey was ultimately worth it — they did finally land their dream home in King City — Millis says first-time buyers should beware of the pitfalls.

For one thing, the couple found themselves house-hunting during the most volatile market in decades. From one of the slowest markets in history at the beginning of last year, the pendulum has swung resoundingly back to a seller’s market.

“We thought we would be buying in one of the best buyer’s markets and we ended up being thrown into these crazy bidding wars,” says Bisoukis.

Analysts say record low mortgage rates and listings down by as much as 40% from a year ago have created upward pressure on prices, resulting in multiple offers for properties throughout the Greater Toronto Area.

“The sudden rally in Canada’s residential real estate market is surprising and troubling,” says Desjardins Bank in a recent economic study. “However, this is not a bubble yet.”

The upward swing in the market has caused worry for some economists, especially as affordability erodes.

“The keen buyer interest in Toronto has largely failed to attract more sellers, resulting in frequent bidding wars for available homes,” says Royal Bank of Canada senior economist Robert Hogue. “The resulting price increases have caused affordability to slip … suggesting that stress is starting to build in the Toronto market.”

Millis, an account manager for a large consumer food company, and Bisoukis, a brand manager for an alcoholic beverage distributor, had been scouring the market closely before deciding to start shopping for a home. They were both living at home, but fears of a bubble were one issue they had to deal with, which caused them to hesitate before plunging into the market.

“We kept thinking prices would come down, but it kept going up and, finally, we had to jump in with both feet. We were getting married this year and we had to get along with our lives,” says Millis.

After prices and sales dipped during the first six months of 2009, the young couple, both 30, thought it was a good time to buy. But the market made a surprising comeback in the second half, with prices ending up higher than they were the year before. The couple no longer found themselves in the driver’s seat.

As first-time buyers, they were competing with others looking for detached homes in the sought-after $400,000 to $500,000 range.

With the first property, they made the first-time buyer move of bidding lower than the asking price.

“We didn’t realize that it was deliberately underpriced to incite a bidding war. We didn’t think anybody actually paid the asking price for a house, much less more than list,” says Millis. “It put us completely out of the competition.”

Veteran agent Mike Donia says he has seen many first-time buyers — and even experienced buyers — bid for properties that are beyond their financial comfort zone as a result of multiple offer scenarios.

“Make sure after you buy the home that you can still have a life and you can still afford the family vacation when interest rates go back up,” he says. “It’s important that you buy on value, not emotion, and not get caught up in the froth.”

Some of Canada’s largest banks started to raise rates on fixed-rate mortgages last month, on expectations that the central bank will have to raise rates sooner, rather than later. Most analysts expect a total increase of up to 1% by the end of the year on the key overnight rate.

Comment: Except that our dollar is at par with the US dollar. Major rate hikes will push it to $1.10 US or more – which would be catastrophic for the export industry. Expect .25% and no more.

Although the spring market has been buoyant, analysts say it should get quieter in the second half of the year as a new Harmonized Sales Tax and higher interest rates kick in.

New mortgage regulations, which take effect April 19, will also help cool what some analysts believe is an overheated market.

And there is evidence of some pushback. Some buyers are now refusing to participate in bidding wars.

Nationally, the Canadian Real Estate Association’s most recent forecast calls for a 5.4% increase in housing prices this year, but then a 1.5% decrease next year.

So what does this mean for buyers?

If you can afford to wait, the market will likely be less hectic in the second half of this year. More listings and supply are also expected to come on the market, when move-up buyers return to the market as the economy improves.

“The temporary factors that have over-stimulated the housing market, including low interest rates and fears of rate increases, are starting to lose force,” says housing analyst Will Dunning. “I still expect a progressive slowdown of housing activity this year.”

For some segments of the market, such as condominiums, buyers can expect to have greater choice, as an estimated 35,000 units are in varying stages of completion.

“Highrise sales are higher than I think they should be,” warns Dunning. “A huge onslaught of completions will soon test the demand.”

Perhaps more importantly, don’t bite off more house than you can chew.

As cautious buyers and savers, Millis and Bisoukis decided to pay a healthy down payment of 30% of the price of their home.

They were also faced with the classic choice of choosing a smaller home on a larger property, or a bigger home on a smaller lot.

Millis says with the provincial greenbelt legislation and restrictions on building on the Oak Ridges Moraine, he opted for a home on a spacious quarter-acre lot.

On their seventh try, Millis says he got lucky. They bid more than half a million dollars on the property, beating out two other bidders.

Bisoukis was actually in New York when Millis made the bid. “He said we would lose it if we didn’t bid right away,” she recalls.

Returning from New York later in the week she had “about 20 minutes” after seeing the home for the first time to up their offer.

Their new home is a 1,900-square-foot, 40-year-old renovated bungalow that they moved into last month.

“It’s not a palace. But it’s our palace,” says Millis.

A house, after all, is more than shelter. Despite the stress of buying a home in turbulent times, Millis says the end result was worth it.

“The fun part in the search was doing this with Nicoletta. I am seriously a very lucky guy being able to share this dream home with the love of my life.”

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

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