Unreal estate Friday March 6, 2009, 0 comments

Sarah and I are in the early stages of house hunting. The experience has been an absolute eye-opener.

First of all, for at least the last eight years, the Toronto real estate market has been insanity, possibly the longest single sellers market in history. This means that real estate agents – and therefore sellers – have gotten used to the idea that they control the market and set the conditions.

Houses would go on the market, but not accept offers for five days in order to set up a situation in which buyers would have to come in with their absolute best offer to purchase, meaning properties would often sell far over asking price. This created a vicious circle of escalating house prices (and escalating realtor commissions), all caused by a demand for housing in the city.

As it stands, a lot of Toronto is now priced out of the range of a lot of workers. Certainly the farther one gets from convenient public transportation, the less expensive houses get, but a 50 minute bus ride connecting to a 45 minute subway ride is unacceptable to many. This is one of the reasons road traffic is so bad in Toronto at rush hour. People would rather be inconvenienced in their own cars than packed like sardines on an underground subway car.

Why not move to the suburbs, I am asked constantly. Move to Whitby, or Milton or Burlington, and take the GO train in. My usual answer is to point out that if Sarah and I had to each take the GO train from Milton to Union every day to get to work, we’d each be spending $250 a month to get to work. And we’d still have to drive to and from the GO station. And we’d be living in Milton.

The point is, that $500 a month spent on getting to and from work could account for an awful lot of mortgage, which is why we’re still looking to buy in Toronto, and why I am now in a place to really pay attention to the current workings of the market.

House prices in Toronto are finally reacting to economic realities. Prices are off about 10% year over year, and the time spent on market is steadily ramping up. Gone are the days when agents could force buyers into highly competitive situations. Gone are the days of houses being sold before the sign got posted in the front garden. Gone is the certainty that realtors had in how the market worked.

From our experience, agents are unsure of house prices. One even mentioned the ‘crazy’ market that was ‘all over the place’ when asking our realtor what we thought of the price of one house we saw. They just don’t seem to know what to make of the current market.

Some of these agents have been in the market for eight to ten years, which is a considerable amount of experience in any industry. But they’ve only experienced an edge-case market – a bubble of epic proportions – and now that its popped, they’re no longer sure what’s going on.

We see all of this fairly dispassionately. Sarah and I know how much money we want to spend, and we’ve spent considerable time building up methods of estimating the selling prices of houses in the areas we’re looking in. We do our research. We don’t claim to understand the market, but we think that our methods are good guidelines, and recent sale prices of properties in our ranges are validating those methods.

We think that the market in Toronto is going to stabilize soon. Interest rates are at historic lows, and not likely to go much lower. How much lower than 0.5% can the Bank of Canada go? This makes it a good time to buy, and the stalling of the market, and subsequent 10% drop in prices, has made it a time of opportunity for people like Sarah and I. We probably couldn’t have afforded to enter the market at this time last year, simply because our best offer probably wouldn’t have been enough. And even if it was, we’d have ended up house-poor and stretched past the level of comfort. That’s just not the way we roll.

On the other hand, the market isn’t likely to return to the roaring bull it’s been for the last decade. It’s not going to bottom out like some US markets have – we simply don’t have the same problems with bad lending here in Canada. That stability in mortgages and our banks has damped a lot of the damage here.

I think an extended period of reasonable growth would be good for the Toronto real estate market. God knows it’s certainly (as Stephen Harper said a few months ago) a ‘time of opportunity’, but only if one’s in a position to take advantage. As long as its reasonable growth, it’s good.

When things start getting ‘crazy’ the good times just simply can’t last. We all know that, history (and our twenties) has show us that. Party too hard, and you have a hangover the next day. The harder you party, the worse the hangover is.

The great Toronto real estate party’s long over, and it was a whole lot of fun. The best party ever, in fact, and we’re feeling it today. Soon it’ll be Sunday afternoon, and time to get up off the sofa.


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