Spring Summer 2011 Real Estate Forecast

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Just like Spring flowers bursting into bloom, count on our Toronto real estate market to burst with fresh vigor as early as January with a consistent volume of sales and solid prices. Depending on the price point, location and type of dwelling, we may also see prices blossom in segments of the market that suffer a lack of supply. Amazing interest rates combined with a lack of good inventory are keeping the engines of the housing economy firing! Plus, the Bank of Canada is executing a High Wire Act like we’ve never experienced before. Amazing interest rates combined with a lack of good inventory are keeping the engines of the housing economy firing! And all this is happening despite my own concern that this is ‘too good to be true’ and a market correction could occur.

Recently our government took the initiative to derail the future risk of homeowners defaulting on their mortgage debts by implementing shorter – now 30 year – amortization periods, tightening mortgage qualifying criteria and capping the limit for property refinancing. This will defer some potential debts lenders may incur if values drop and homeowners default. But these initiatives are only stop gap measures that protect lenders. Should a market collapse occur we remaining participants in the housing economy have little protection. As a result, I remain wary, though this may be due to my scars navigating the 1989 real estate market crash. In 1989, just as I started my real estate career, real estate values in Toronto plummeted upwards of 30% before the market regained its momentum in 1995. It has subsequently near-tripled in value since. So I wonder, despite our government’s pro-active attempt to exercise caution, could there be a downside? My first thought is these changes will begin mid-March, which invites a very frenetic window of opportunity for buyers to take advantage of the current lending allowances. This rush to purchase could potentially spike prices up. Yikes!

Let me segue to a tale from the trenches. At the end of December one of my listings, after forty viewings over a thirty day period received two offers at the same time, both from local first time buyers. Despite being in competition, neither buyer was willing to bid remotely close to the asking price. And both buyers refused to budge. Was the market shifting as first time buyers cooled their jets on what they considered ‘real value’? After a week of negotiations (in competition no less!) a deal was struck and the buyer went into her conditional period to execute due diligence. For many reasons the purchase ended up collapsing but, just as the Mutual Release paperwork arrived, the subject property received two new offers. This time two investors competed for the property causing it to spike over the list price. Not substantially, but the difference between the original bids and final accepted offer was several thousands of dollars. Although my Seller was thrilled, does it signal investors are willing to pay more than local first time buyers? Is there a gap emerging between competing markets? I’m wondering.

While this experience is singular I’m hearing more of the same from associates. It potentially ushers a paradigm shift in our real estate market. Although I fear a market adjustment down I’m beginning to suspect  Toronto, and Canada overall, may experience a surge in demand by affluent international investors. Recent research by Scotiabank found Canada was among six of twelve countries which saw an increase in value in 2010. Other countries which saw price increases included the United Kingdom, France, Sweden, Switzerland and Australia, whereas prices in the U.S. and Germany were flat, and those in Ireland, Italy, Japan and Spain fell. As news of Canada’s real estate stability travels is it possible that real estate will be the new hot ticket? Are investors thinking that instead of investing their capital on real estate securities, maybe it’s instead better to own the bricks and mortar in a stable affluent country like Canada?

As technology shrinks our physical world and our connectivity expands Toronto / Canada is going to experience an ever-increasing real-time influx of capital from around the globe with large sums directed at real estate acquisitions. And I can see why. Toronto is relatively stable emotionally and mentally (limited crackpots with a comprehensive health and social safety net), politically polite (Canadians are complacent activists by nature), free from environmental calamities (thus far), boasts superb affordable education (so grateful), and currently untainted by terrorism (fingers crossed!). I’m guessing if you had the funds and were living in a place accorded occasional mayhem, fear or flooding, Toronto would probably strike you as a safe stable haven to park your money and, if required, your family. I think we citizens forget that to have membership to this country is a lot like holding a winning lottery ticket. But be forewarned, over the long term the price of admission is going to go up. And despite my caution, it might be starting this Spring.

Given my experience with the recent bidding war, one of multiple  bidding wars we’ve seen recently for both downtown condos and houses, is it possible first time buyers might get shut out by the international investing market or, gulp, force buyers to pay substantially beyond their comfort level? Could the increasingly stringent lending criteria recently implemented by the Bank of Canada prohibit the local market from competing against the wealthy all-cash investors as they acquire properties for their portfolios? This possibility is something to monitor. And, while I weep for my first time buyers who are already planning a modified diet of rice and beans, could foreign investment save the potential oversupply of newly built box-in-the-sky condominiums from a significant price adjustment?

The one market I have few concerns about is the Freehold Housing Market. If you have the opportunity to buy a house / income property in downtown Toronto my recommendation is to get one as soon as possible. They’re simply not building many freehold houses anymore which translates into a diminishing supply and sky-rocketing values. Just make sure you purchase one near efficient transportation services, green space, and shopping amenities. If I can assist, please know I am well-versed in Toronto’s 42 village neighbourhoods.

With a multi-disciplinary education in housing, over twenty years of real estate sales, marketing and development including a sterling reputation as one of Bosley Real Estate’s Top Producers, I welcome guiding you through all your real estate needs. Do you have questions? Please know I am here to help!


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