First, for your listening and viewing pleasure, here’s the Victoria’s Secret Fashion Show Spring 2011 show – can you tear yourself away from those models to read this?
For those of you who are wondering why I occasionally toss in some fashion here at the urbaneer.com blog, let it be known that despite the challenges I may occasionally have dressing myself, fashion is a great indicator of what’s to come in our housing future. A lot of the colours reflected in fashion will soon translate into the marketing, merchandising and promotion of real estate, right down to the fabrics and fixtures in model suites and ultimately your home. Clever real estate marketers will be dressing, draping and accessorizing their listings this Spring using the following Pantone Spring 2011 Colour Forecast. I like!
In fact, if you’re thinking of selling please know we’re prepared to enhance your property’s appeal with fresh cushions, custom art and contemporary furnishings with our comprehensive Staging Service!
Here are a few pieces from our extensive collection ready to stage your property, if required, as part of our sterling services.
Pretty eye-popping eh? This is the style guide and trend-watch this season!
Now, if you’re curious to read last Fall’s 2010 Forecast click here and my October update click this, otherwise here’s my Spring real estate market predictions.
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. This is, in part, because the Bank of Canada and all their global money-managing friends are 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 that a market correction of around ten percent for portions of the housing market could be imminent.
Recently our government took the initiative to derail the future risk of homeowners defaulting on their mortgage debts by implementing shorter – now thirty year – amortization periods, tightening mortgage qualifying criteria and capping the limit for homeowner refinancing. This will defer some of the potential debts lenders may find themselves incurring if values drop and homeowners default due to negative equity. 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 remains wary though this may have more to do with 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 thirty percent before the market regained its momentum in 1995. It has subsequently near-tripled in value since. So as much as I appreciate our government’s pro-active attempt to exercise caution, could there be a downside? My first thought is that these changes will be implemented 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! Here’s a Globe and Mail article summarizing the Bank Of Canada changes beginning mid March of 2011.
While it doesn’t appear it will occur this Spring, there is a collective agreement globally that interest rates are going to increase tho no one seems ready to pull the trigger. Still, I have to believe as interest rates go up real estate values will come down, if the assumption is that Canadian incomes keep pace but don’t surpass inflation. My rationale lay with the financial fundamentals of the buying public today. Buyers no longer purchase according to the price tag of any given item, but base their purchase on the more immediate “How much does this flat screen television, automobile, condominium cost me each month?” For example, if the majority of first time buyers in Toronto qualify, based on their income and modest down payment, to spend an average of $1700 each month towards their housing costs it means that as interest rates increase the amount of funds any buyer can borrow will decrease. As a result, even while the $1700 per month barometer of affordability may remain stable, an increase in interest rates will translate into a decrease in market value in order to remain the same monthly cost. This is, of course, providing it is the local market influencing real estate values (more on that momentarily). The fundamental lesson is to be prepared if interest rates climb a further 2 to 4 percent above today’s 2 to 4 percent mortgage rates. Be prepared to weather any financial storms by purchasing a property which is suitable both physically (space plan / location / condition) and financially (below budget / roomate potential / income supplement) that also grabs your ‘heartstrings’ (Ya gotta love where ya live!). All in all, it’s critical to purchase intelligently so you have the resources to remain happily entrenched in a property that may be worth less tomorrow than it is today. I don’t want to be alarmist, but I do want to invite caution. Consider this the sage advice that comes with experience. Also, consider downloading this past newsletter called ‘Buy Smart Purchasing The Smart Buy’ or look for it on my HomeWatch News webpage.
Let me segue to a tale from the trenches. During the last week 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 on the property. Both buyers drew the proverbial line in the sand and refused to budge. This situation indicated the market was potentially undergoing a shift as first time buyers cooled their jets on what they considered ‘market value’. After a week of negotiations (in competition no less!) a deal was struck and the buyer went into her conditional period to execute her due diligence. For many reasons the purchase ended up collapsing but, just as the Mutual Release paperwork arrived by fax, 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 mind you, but the gap between the original bids and final accepted offer was several thousands of dollars. Although this made my Seller very happy, does it potentially 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 a singular event I’m hearing more of the same from associates. It potentially ushers a whole new paradigm shift in our real estate market. As much as 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. The Ottawa Business Journal (click here) recently reported a Scotiabank study found Canada was among six of twelve countries that 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 acquisition will be the new hot ticket? Are investors thinking that instead of directing their capital to 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 on my listing, and may I now share the news that we’ve seen scores of bidding wars these past few weeks on both downtown condos and houses, is it possible first time buyers might get shut out by the international investing market or, gulp, potentially force buyers to pay substantially beyond their comfort level? Could the increasingly stringent lending criteria implemented by the Bank of Canada prohibit the local market from competing against the wealthy all-cash investors picking up properties for their diversifying portfolios. This possibility is something to monitor. And may I say that while it makes me weep for my first time buyers who are already planning a modified diet of rice and beans, it could potentially save the imminent oversupply of newly built box-in-the-sky condominiums from a significant price adjustment. There sure are a lot of towers nearing completion this year! Will international investors help absorb the supply? I really questioned this in my Fall 2010 Forecast. I’m still betwixt and between on the condominium market, tho there are always intelligent purchases in any market condition.
The one market I have zero 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 not building many freehold houses downtown anymore which translates into a diminishing supply and sky-rocketing values. Just make sure the one you purchase is near efficient transportation services (subway/streetcar/bus), green space (playground / organic market / leash-free zone), and some village amenities (organic bakery / cafe / Starbucks or, better still, near a coffee entrepreneur).
There’s one aspect of the market I want to comment on before wrapping up. It’s the bidding war and bully offer situation which is the topic of my newest newsletter called ‘Bully Offers and Bidding Wars’ which you can download on my HomeWatch Newsletter webpage (consider signing up in the box below to automatically receive future issues). Many Toronto realtors have made it their business practice to bring their listings to market at a price below other recent comparative sales and then holding back on receiving offers to a specific date in order to create competition. Whether they do this for altruistic or selfish reasons likely varies, but Toronto realtors are very comfortable allowing the free market to establish the real value of property using this formula now. In fact, I suspect that even when/if values begin to drop; realtors will continue to simply list dwellings below market value to continue inciting competition. As risky as this may be, listing below market value in stabile or declining conditions will continue to create confusion for buyers. Never in my twenty+ year career have I had buyers so aggravated to have to compete against other buyers when the media, their friends, or their family tells them the bubble, the boom and the bling are all bust. Will there be a backlash? Let’s see.
In the interim, be prepared for the wave. I rather suspect it’s about to crest this Spring!
~ Steven
Top Photo: courtesy of www.Pradafashion.com
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