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
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