Okay, to start off this blog – and for your listening enjoyment – here’s some Eddie Money rocking it out in 1982. I give props to Edward Joseph Mahoney for changing his name to Eddie Money. I don’t know why, but names that are a type of currency crack me up. Like James Bond’s assistant being called Miss Moneypenny.
I also can’t help but find myself reminiscing about the 1980s because of the album cover photo. I actually wore the exact same outfit in 1982 – thin tie (mine was grey leather) loosely knotted with a blue jean vest and rocker hair parted in the middle and feathered, no less. In the bloom of youth, this was very cool. And it’s what I wore when I started pursuing my multi-disciplinary education on housing at the University of Victoria.
Fast forward 38 years. I no longer have feathered hair, but I know a heck of a lot about real estate. And today I’m going to share with you my observations about our market dynamics 10 weeks into the COVID-19 lockdown and how – at the moment – it’s having zero impact on Toronto real estate’s ‘Forever Home’s Market’.
You Can’t Keep a Good [Homebuyer] Down
In mid-March, when COVID-19 entered Toronto’s communal consciousness when the lockdown was implemented and the way we live our day-to-day lives changed, one of two things happened in the world of real estate. As a homeowner or as a prospective buyer, you (and your partner) continued to work in the same capacity as you were doing, albeit now at home and using Zoom for the foreseeable future OR; your work life (and possibly that of your partner) was upended and changed in some capacity.
Of those in the latter group, many became unemployed or saw their hours of work and/or their incomes reduced. Their jobs either evaporated through no fault of their own or were ‘frozen until further notice’ if their occupation was deemed non-essential. The job losses so far have hammered specific sectors such as hospitality and accommodation, food services, retail and transportation. They have also disproportionately affected women and lower-wage workers. This is the group who have tapped into emergency benefits, deferred their mortgage, utility or rent payments, and are stressing to varying degrees over job, food and shelter insecurity.
Of this group, if you were a dwell hunter looking to purchase Toronto real estate, those plans may have been shelved until future notice. And if you’re an owner of Toronto real estate, you’re sorting out whether you can weather whatever real estate storm is coming by crunching the numbers on your calculator and taking a hard look at where you are landing financially. This post from April 7th: ‘Assess Your Risk: Buying & Selling Toronto Real Estate During The COVID-19 Pandemic‘ forecasts how I anticipate the market will turn and prices may fall. We’re still in the early days, so the market hasn’t changed yet. Here’s why.
The first group, the households who continue to work in the same capacity as they were doing, pretty much comprise the professional class. They’re educated, financially stable, earn high incomes and have solid asset portfolios (even with the recent stock market crash) so they’re not feeling as pinched. Yes, some of these folk are being impacted… surgeons are working less, and some lawyers are seeing their hours reduced. But it’s more likely this group, plus all the top tier rich privileged ‘haves’, that others are experiencing a similar quality of life as pre-COVID-19. Yes, they now work at home while guiding their kids through the online education system. Yes, they wear a mask when they go out. Overall, their lives aren’t dramatically different outside of social distancing and self-isolation. They continue to shop online on Amazon, Net a Porter, Wayfair, and Grocery Gateway, and others, as they always have. Their day-to-day work is effectively the same outside of using zoom more, and the only potential decline in their annual income may be a smaller performance bonus.
And it is this market segment who are currently buying Toronto real estate. Last month’s stats showed that the real estate market is firing at 33% sales and volume compared to April 2019. Basically, it means that only one-third of the properties which would typically be listed at this time are coming to market for sale. But they’re also selling. Even though the number of buyers dwell-hunting right now has also diminished significantly, the demand is still outstripping the supply. As a result, a well-priced property can still incite a bidding war, and market values are, for the most part, stable.
I’d wager that this professional class is still completely comfortable purchasing a property because their day-to-day lives are not dramatically different from how they were pre-COVID-19. They still get up and go to bed at the same time every day, they’re still parenting, they’re still ordering meals on delivery apps, they’re still going to work (WFH, as all the cool kids say), and are still completing the same tasks (but Zooming instead of flying to New York for a business meeting). The pandemic may have inconvenienced them, but it has not impacted their job security or financial well-being. Unlike the first group, the lens from which they view the world has not changed substantially; their trajectory is still upwardly mobile.
And it’s this market segment who are in pursuit of their ‘Forever Home’ in any one of Toronto’s Family-Friendly Neighbourhoods.
Toronto – The City Of Neighbourhoods – Has Many Which Are Considered Family Friendly
Lately, I’ve been sharing my insights culled from being a realtor for 28 years in the central core and my education on the History of Toronto, both which focus on the original City of Toronto. Throughout my career, the majority of my listings and sales have been located in several dozen city neighbourhoods spanning from The Beach west to The Kingsway and from Lake Ontario north to Lawrence Park. When I first started selling, they each had their distinct personalities which reflected the socio-economic, demographic and cultural profiles of the residents, and the stage in the lifecycle of the neighbourhood and its buildings in which these people lived and worked.
However, over these decades I’ve witnessed the uniqueness of each neighbourhood slowly erode, mostly because the long-time residents got old and sold, but also because the forces of gentrification fueled the commodification of housing into places of consumption for Toronto’s professional class. For a crash course in how this has transpired, my recent post called ‘Trending In Toronto: Single Family Houses Replaced By Boutique Condo Townhomes‘ will take you on a more detailed journey of this phenomenon.
While this has been going on, there are specific neighbourhoods which have become prized by families for their desirability. These neighbourhoods each check all the seven factors I list in ‘Dear Urbaneer – On Choosing A Winning Location’ including having village amenities (including doctors and dentists), proximity to efficient public transit, architectural cohesiveness, excellent public schools (french immersion is particularly popular), proximity to recreational activities and green space (keep your kids engaged), mature landscaping and trees, and pride of ownership.
Although these neighbourhoods may include condos and stacked towns today, by and large, they were originally built as early suburbs for the middle classes or more affluent. Depending on the age of the neighbourhood, which dates from the late 1800s through the 1940s, the housing stock may consist of 2 and 3 storey row and semi-detached dwellings, as well as some grander detached residences. Think Riverdale, Playter Estates, Lawrence Park, Leaside, Seaton Village, Dufferin Grove, Roncesvalles Village, Bloor West Village, and The Kingsway. There are more than just these neighbourhoods, of course, but I specifically mention these because they’re highly coveted at this moment in time.
Climbing The Property Ladder
There was a time when Buyers were very transparent about buying a ‘starter home’, with the objective of building some equity and eventually selling to purchase a bigger space. This was because incomes tended to increase in line with the value of real estate, so climbing the property ladder was feasible, for most. Of course, the stratospheric rise in prices and the prohibitive costs associated with buying and selling (the double land transfer taxes payable to the City of Toronto and the Province of Ontario are particularly crushing) have hindered the filtering of housing stock up and down the property ladder. This, in turn, has fueled prices even further.
Compounding this is that property values tend to rise faster and higher in established family-friendly neighbourhoods. I believe it’s because of the demand and competition for the larger dwellings by residents already living in the area. Specifically, there are also a lot more row and semi-detached dwellings than there are detached houses, and there are a lot more 3 bed houses than there are those having 4 beds or larger. So if a young couple buys a typical 2+1 or 3 bed semi-detached house and has, or eventually have, children who attend daycare and/or the local public school, after seven-plus years it’s likely both the parents and their children will have established bonds in their immediate neighbourhood, including intimate friendships, social networks, and community support. Meanwhile, during their tenure many of these couples will be secure in their career-paths, see their incomes increase, their existing mortgage debt decline and the market value of their property improve. In fact, according to Statistics Canada, since 2000 the average family has doubled its wealth, with the majority of that gain attributed to property values. (-Globe & Mail.)
An article in Forbes summed it up nicely to four key factors. The first two are concrete: you require more physical room to operate your household, and you’re in a financial position to afford a larger mortgage and a significant down payment. The third is a bit more abstract. You need to feel capable and comfortable with homeownership including everything from housekeeping, lawn maintenance, and component upkeep to bill payment and the ability to deal with surprise emergencies (“The hot water heater did WHAT?!”). In fact, executing these duties should feel so old hat that you’re ready for more house and more responsibility. Fourth and finally, you should be able to envision your life trajectory for the next 10 to 15 years. Not literally, of course, but you should have a good sense of your career if you plan to have (more) kids and anything that might cause you to relocate, because when it comes to ‘Forever Homes’ you want to subscribe to the buy and hold strategy, as the period for return on investment is longer.
As the family grows in numbers, ages, and sizes, inevitably the household will feel a spatial squeeze and express dismay at the limitations of their property. If the couple is financially solid, they will consider renovating and expanding their existing home so it has the spatial equivalence of a 4+ bedroom residence or selling and climbing the property ladder into superior larger 4+ bed and better-situated accommodations that they can nest uninterrupted for the next fifteen to twenty-plus years while the children complete their education and transition into adulthood.
As they assess these options, the couple will debate the opportunities and constraints of moving their family out of their existing residence for multiple months while it gets substantially transformed, compared to the benefits and challenges of having to prepare their existing residence for resale while they search for multiple months until they eventually secure the ‘Forever Home’. The discussions will also focus heavily on how emotionally connected the children are to their immediate communities, how important it is to preserve their family’s routine and social fabric and be confident the family can survive any potential traumas that might accompany moving to another area. (Nobody wants to have this argument: “I have to change schools?! None of my friends has to change schools!! I don’t want to have to make new friends! This is SO UNFAIR!”).
Rare To Market
Typically, what often happens is while the ‘what to do’ is still in process, one of the signature executive detached 5bed renovated residences in the family’s existing neighbourhood which is collectively admired for its curb appeal, sizable dimensions, and impeccable quality comes to market for sale. With no time wasted, a viewing is completed, and an offer is registered. However, being downtown Toronto, the chances remain high – even during a global pandemic – that this couple will still find themselves competing for the property in a blind bidding war. Why? Because coveted signature residences in family-friendly neighbourhoods are almost always ‘Forever Homes’ meaning they only come to market for sale every fifteen to twenty-plus years. The low-turnover of these kinds of dwellings, which are also fewer in number, ensures they remain in demand.
I think it’s noteworthy to mention that the Bank of Mom And Dad – whereby extended family members help their kin purchase property – is also fueling the ‘Forever Home’ marketplace because families favour helping other members live nearby for collective support. For example, parents will help their kids buy a residence closer to them – and ideally in the same neighbourhood – so they can help pick up their grandkids after school, as required. It is not unusual for a segment of Gen X and Millennials to be getting cash gifts from their parents and grandparents during a time where the greatest transference in wealth is occurring between generations. With this extra financial assistance, these purchasers are sometimes not only becoming first-time homebuyers at a younger age than previous generations but, depending on the size of the stack of bills with a bow around it, they are also skipping the starter home and putting in a bid on the large homes in these established family-friendly neighbourhoods. According to Census Bureau data analyzed by Veritas Urbis Economics, “from 2012 to 2016, nearly a third of buyers aged 33 to 37 bought four-bedroom homes (aka forever homes) compared with about 24% in that age group who bought similar homes in 1980, 1990, and 2000” (Realtor.com). While this is US data, I have witnessed the parallels here in Toronto.
And while the property may attract a lot of attention by prospective purchasers who live farther afield, the greatest interest ultimately will be from homeowners who already live in the neighbourhood and are desperate for more space, but don’t want to change neighbourhoods for the sake of their children. These are the people most likely to pay the highest sum to secure the dwelling. The outcome? The couple will likely pony up a precedent-setting sum in an effort to secure the dwelling.
Three Reasons Why The Buyers Living Closest To The Forever Home Will Pay Top Dollar
The prospective purchasers living closest to the coveted ‘Forever Home’ will pony up every cent they’ve got for 3 reasons:
First, because they’ve strolled through their neighbourhood for years, they know that of all the housing stock there are only a handful of select homes that elicit their domestic desires and that they don’t come up for sale very frequently. In fact, the ‘Forever Home’ they covet may have never been on the market the entire time they’ve lived in the area. And because they know how rare a treasure chest of bricks and mortar like this comes available, to lose a bidding war may render them a mental blow and emotional loss far greater than whatever financial premium they have to pay above the competing offers to secure the property.
Second, as long-time residents well-informed on the market values in their neighbourhood, they understand how the bank appraiser may deem the sum they’re paying an anomaly given the recent comparable sales data, and submit a value assessment which is also less than their premium purchase price. If they have a substantial down payment and financial credibility, most Buyers will proceed with an offer knowing this possibility will not impact their ability to secure the mortgage they require from their lending institution. And although some people will say they overpaid based on the difference between their purchase price and either the appraiser’s valuation or the amount of the offer which ranked second in the blind bidding war (which is never shared, incidentally), given they intend to reside in this ‘Forever home’ for 15 to 20+ years, even a conservative estimate of its future resale value renders the differences in these sums as inconsequential. Besides, they love the property and it’s in their neighbourhood so, as far as they’re concerned, they didn’t overpay. Their bid reflected the value they thought the property was worth, and it turned out to be the sum that ultimately secured the residence. Whatever the difference in dollars this represents, the Buyers will consider this premium their opportunity cost.
Third, these Buyers will soon become the Sellers of one of the next properties for sale in the neighbourhood, when they list their current home for sale. Although it is smaller, less polished and semi-detached, bringing their less expensive property to market on the heels of their precedent-setting detached purchase will still invite comparison. Realtors always analyze the most recent sales in a neighbourhood against previous sales to gauge how the percentage in values have changed over time. And if the dwelling is located in a stable desirable family-friendly neighbourhood that has low turnover, this would mean there are fewer sales by which to draw the comparison, which increases the margin for error. As a result, it stands to reason that the premium the Buyers paid on their recent purchase in a bidding war could be interpreted to mean that the demand to live in the neighbourhood is so great, the location is now garnering a premium, As a result, it’s possible the Sellers could achieve a sale price which is also precedent-setting or at least higher than if they had listed their residence for sale prior to making their purchase.
Just the Right Amount
In other words, in a real estate climate where bidding wars are common, the person climbing the property ladder in their existing family-friendly neighbourhood, who buys before they sell, should have less concern they’re over-paying. Why? Because whatever perceived premium they pay in their acquisition will likely serve as a barometer of value for the next listing. And if that next listing is their own property, the premium they paid on their purchase will influence the price Buyers will be willing to pay for their listing.
Furthermore, when purchasing a ‘Forever Home’, Buyer’s are effectively paying a premium not based on what they believe the house to be worth ‘today’ but with a value that includes a portion of the property’s future escalation. In other words, Buyers who are securing a property today with the intention of owning the dwelling for the next ten to 15 years – as is the case with these 4+ bed residences – are less concerned with where values will be in a year or five (as one might with a ‘starter home’). In fact, many will admit they feel they’re paying too much while reconciling it’s the price of admission to climb the property ladder. These Buyers have effectively reconciled there’s a possibility their home may be worth less than what they’ve paid in the imminent future, but they’re prepared to weather that storm with the commitment to ‘buy and hold’. (Read more about this perception of value, and how it plays a role in house flipping in Dear Urbaneer: Is Flipping In My Future? )
Here’s a great example of a recent sale in one of Toronto’s most noted family-friendly neighbourhoods: Riverdale. While there several family-friendly neighbourhoods across the city, this sale – just days ago – is an excellent representation of the 4bed+ ‘Forever Homes’ in downtown Toronto.
Located on a generous 36 x 100 foot lot with laneway parking, this 4+den 4bath Riverdale Family Home with a family room addition, master bedroom suite, and in-ground swimming pool offered a blend of period features with classic contemporary renovations. Coming to market with a holdback date to review offers a week later, while disclosing the Sellers would consider a pre-emptive offer in advance, within 48 hours seven bids had been registered. The outcome? Listed for $1,799,900, the property sold for $2,500,236.
**Addendum July 24th**
The Forever Homes Market remains strong despite Toronto still not in Stage 3 of Opening. Here are some recent sales in Riverdale and Playter Estates that show how strong the market is right now for Forever Homes in downtown Toronto.
These all sold with preemptive offers (offers in advance of the posted date as outlined in my posts – ‘About Holdbacks On Offers, Bully Offers & Bidding Wars For Buyers – and – For Sellers’
Listed at $1,799,000 / Sold $2,350,000 – 31% Over List: A detached 3 storey, 4 bed renovated residence with inlaw suite and 2car garage on a 25×105 foot lot, steps to Withrow Park and the Pape Subway station.
Listed at $1,829,000 / Sold $2,710,000 – 48% Over List: A detached 3 storey, 4 bed, 4 bath residence with 2 car parking transformed in 2009 into a contemporary family home
Listed at $2,799,000 / Sold $3,400,000 – 21% Over List: A detached 3 storey, 5 bed 5 bath executive residence with 2 car garage in Jackman School District, situated on a generous 30×110 foot lot.
**Addendum August 24th**
Here are two more recent sales that demonstrate how strong the market is right now for Forever Homes in downtown Toronto.
Listed at $2,599,000 / Sold $3,031,800: A detached 2.5-storey storey, 5-bed 4-bath stunning home with full ‘to the studs’ renovation and expansive extension. Also boasts private drive and a large lot!
Listed at $2,399,000 / Sold $2,950,000 – 48% Over List: A detached 2.5-storey, 3bed, 3bath fully renovated masterpiece with extremely rare private driveway & inviting private front porch!
Is securing your family-friendly ‘Forever Home’ one of your real estate objectives for 2020?
It would be my pleasure to help guide you through the opportunities and constraints of the current Toronto real estate market!
Here Are Some Of My Other Posts Exploring The Values Of Toronto Real Estate
On COVID-19 And Toronto Real Estate
Here are our posts sharing how COVID-19 is impacting Torontonians with real estate,
May my team and I be your realtors of choice?
With a multi-disciplinary education in housing – including urban history, urban planning, and urban residential design – plus over 25 years experience helping Buyers and Sellers navigate the Toronto real estate market, we offer excellence, insight, and a commitment to gently guide you, and those you love, without pressure or hassle.
Thanks for reading!
-The Urbaneer Team
Steven Fudge, Sales Representative
& The Innovative Urbaneer Team
Bosley Real Estate Ltd., Brokerage – (416) 322-8000
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And there’s a reason for our continued faith in housing; it is realiable economic tool and financial stepping stone. According to Statistics Canada, since 2000 the average family has doubled its wealth, with the majority of that gain attricuted to property values. (-Globe & Mail)