A number of my Buyers are asking me “Where are the decent listings?” And then, when they find one, they suddenly find themselves participants in a frenzied bidding war to secure it. The other night my adorable ‘soon-to-have-baby’ couple fought hard with their chequebook to win a downtown 480k east-side house in competition. They offered $527k without any conditions and a provision for the Sellers to choose any Completion Date in May or June 2012 with thirty days notice. Even bidding ten percent over asking they lost it. It sold in the 540s. Sigh.

So why is there a distinct lack of good product coming to market?

Here are my three primary reasons:

1) House Flipping has dramatically diminished.

Ok, not literally flipping- but the costs associated with buying, renovating and selling a house for profit, combined with the fear that the market might change at any moment, has prompted a lot of renovators and ‘do-it-yourselfers’ to withdraw from the market. With slimmer profit margins and a perceived greater risk, we’re just not seeing as many house flips in the past. While I don’t favour crappy renovation resales for my clients, if there’s less of those properties for people other than my Purchasers to buy, it means greater competition for the product my clients want.

2) Children are expensive.

Huh? Over the past two weeks, three sets of clients have been lamenting how horrifically expensive their child care costs are in the City of Toronto. Clients with children under five years of age who would otherwise be ready to move up the property ladder into a larger dwelling are having to delay moving. They’re telling me that once their kids are in school, they’ll have another $1200+ per month to allocate to a bigger mortgage. However, until that time arrives they’re cash strapped and unable to upgrade into larger digs. My intuition says, with the urban centre experiencing a Baby explosion, this is trending.

3) Moving house is costly.

Ok, I don’t actually mean ‘physically’ moving your house, but many of my clients who have owned their properties for two to seven years are discovering that even though they may have bigger incomes and a decent amount of equity in their property, the cost to sell and buy is becoming increasingly cost-prohibitive. In particular, the double land-transfer taxes for property in the City of Toronto are prompting homeowners to reconsider a move. Instead of incurring $50,000 to $75,000 in expenses to sell and buy, homeowners are increasingly shifting their attention to enlarging their current homes. Instead of upgrading to the coveted four or five bedroom downtown property (with a sticker price often $200,000 more than a three bedroom dwelling), they’re electing to add more space on to their existing residence (the main floor family room with master bedroom + ensuite above is going to be increasingly common in city housing).

So what does this mean to the market?

A robust housing market requires a sufficient supply of available property in all segments of the market to be traded. This necessary filtering of housing stock allows existing property owners to move up and down the property ladder with ease. If even one segment of the market tightens (at the moment it is centrally-located freehold housing stock priced between $500,000 and $900,000), then the other market segments are restricted from upgrading or scaling down. More disconcerting is that if less product comes to market while demand increases, then prices dramatically increase and the gap between market segments becomes even more imbalanced. With the middle markets tightening, anticipate seeing buyers who’d like to leap from their condominium into a downtown starter house face a cost-disparity so large they’ll have to choose to either remain in the condominium market or relocate to the more affordable suburbs.

Will the supply continue to shrink while demand grows? For houses…Yes! For condos…No!

If you need assistance, insight, or guidance as our market realities pertain to you, please know we’re here to help!

~ Steven

Real Estate
Tales From The Real Estate Trenches