Friday, 22 February 2013

Is it bloom or bust for real estate this spring?

Is it bloom or bust for real estate this spring?


Spring market being watched as best barometer of where Toronto housing market is headed.

Economist David Madani sent shock waves through the real estate industry when he

predicted that Toronto’s overheated housing market was due for a 25 per cent correction.

That was two years ago.

He’s still waiting — and watching closely — as the GTA heads into one of the most pivotal

spring markets of the last two decades.

Madani remains convinced that the most prolonged housing boom in history, fuelled largely

by low interest rates, is headed for a hard landing, particularly in Toronto’s “overbuilt” condo

sector.

“What’s critical is what happens in the spring,” says Madani. “If we continue to see increases

in active listings as sales continue to decline, then we’ll start to see more obvious signs of

prices dropping.”

That March-to-May period — traditionally peak buying and selling season and a barometer of

consumer confidence — remains the great “if” in a market that has so deftly defied logic,

many veteran watchers can’t agree where it’s headed.

Complicating matters is that a seismic crack has inched its way across the GTA landscape and

left in its wake two very different and diverging markets — high-rise condos and low-rise

houses.

In January, the market took a turn that, while hopeful, is unlikely to see housing bears like

Madani head into hibernation:

sales picked up steam in Canada’s two most watched markets,

Toronto and Vancouver, after six months of declines, according to the Canadian Real Estate

Association.

Don’t be shocked to see GTA sales pick up and prices climb about three per cent this year —

for houses, not so much for condos — with the jobless rate at its lowest point in four years,

interest rates unlikely to rise until April, 2014 and the added bonus of surging equity

markets, says BMO senior economist Robert Kavcic.

The average sales price of a GTA home was up 4.1 per cent in January over a year earlier to

$482,648, though the benchmark price — considered a better indicator of real value — has

dropped almost 1.5 per cent just in the last six months, according CREA figures.

After months of double-digit sales decline,

bidding wars have re-emerged as a blood sport in

some Toronto neighbourhoods just since early January.

“Byers and sellers remain in a standoff,” notes Queen’s University business professor and

real estate expert John Andrew. “Sellers are holding out for their prices and buyers are

waiting for deals. I think it’s too early yet, but there will be a correction.”

Andrew Norman, 32, and his wife Lisa sold their downtown condo more than a year ago and

started renting, anticipating a downturn. The couple have been looking for a home for

themselves and their 2-½year-old son since January, but lost one to a bidding war and

another to a bully bid.

“We’re feeling a little locked out right now,” says Norman, a financial advisor. “I think

eventually there will be a few more houses out there and a little more anxiety (among sellers).

We’re really trying to stay unemotional about all this, which is hard to do.”

Norman, like many buyers, is trying to understand the new reality of the GTA market, where

condos now seem to sit at one end of the supply-and-demand chain and houses at the other.

“People who are looking for condos now have more reservations, they are taking longer and

they are usually looking for deals,” says realtor John Pasalis of Leslieville’s Realosophy.

“Places are definitely selling for less than they did a year ago.

“But there’s been no slowdown in the house market this year. We’re seeing the same problem

we’ve had for a lot of the last 10 years — not enough houses for all the people who want to

buy.”

Houses as Holy Grails

The demand for low-rise housing, especially in the 416 region, has been exacerbated over the

last few years by the lowest interest rates in history, crippling commute times and provincial

policies that have succeeded in curbing sprawl.

But that’s also contributed to a

52 per cent drop in new low-rise homes being built across the

GTA and a 44 per cent increase in prices, according to market research firm RealNet.

That’s made detached homes, in particular, the coveted Holy Grail of housing.

Demand for a place with grass rather than glass is bound to increase over the next decade as

the huge cohort of echo kids now living in downtown condos start looking for houses in the

suburbs or along subway lines where they can raise their kids, says economist and

demographer David Foote, author of

Boom, Bust & Echo.

Many have predicted a housing crash, claiming that the decade-long boom has left house

prices wildly out of whack with incomes. But Kavcic notes that people overlook the fact prices

collapsed to bargain-basement levels in the 1990s.

While GTA house prices are now 6.5 times average incomes (far less than the 10 times

average in Vancouver), the lowest interest rates in history had make housing more affordable

than a decade or so ago, says Kavcic.

But all bets are off for strong sales and price growth, even in the coveted house sector,

economists agree, as interest rates eventually start to climb.

The condo conundrum

Not surprisingly, debate is most divided around the exploding number of ever-shrinking

boxes in the skies, with some 57,000 under construction at the same time sales are down and

resale prices are softening.

The condo boom has been driven largely by two things unlikely to last — low interest rates

and investors — says housing analyst Ben Rabidoux. Demographer David Foot notes that, in

a decade, the stream of echo kids will be largely in houses and boomers are unlikely to live in

700-square-foot condos.

Rabidoux expects to see condo prices drop three to five per cent this year, especially if

investors start dumping units because prices are slumping or they can’t cover their costs in

what’s been, so far at least, a very tight rental market downtown.

“Many investors chose to hold and rent their units in 2012 rather than sell them into

uncertain market conditions,” notes market research firm Urbanation, which believe prices

and sales will hold. “The unwillingness of condominium sellers to accept low-ball offers will

keep prices from falling to any significant extent in 2013.”

But Rabidoux warns there are other worrisome warning signs: Canadian housing starts

plummeted to 160,577 in January from a seasonally adjusted 197,118 in December, largely

because of a pullback in condo construction.

Even a “painless soft landing” for the housing sector — years of sluggish sales and flatlining

prices — would hit the Canadian economy hard, given that the housing boom has propelled

construction and housing-related industries to more than 27 per cent of GDP, he notes.


http://www.thestar.com/business/real_estate/2013/02/16/is_it_bloom_or_bust_for_re

al_estate_this_spring.html


Kevin & Faye Kitzman

Sales Representatives

Remax Real Estate Centre

Direct : 519-577-0603



 


 

Faye Kitzman

Mortgage Agent

Mortgage Intelligence

519-588-0141


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