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Wednesday, June 5, 2013

In Toronto, Real Estate Prices Pose a Puzzle! Why So High?

A relevant piece from the Globe and Mail

Anybody watching the Toronto real estate market this spring has noticed how fickle house hunters can be, but what really has some economists baffled is the fact that buyers have nudged resale house prices up for three consecutive months.
Sal Guatieri, senior economist with Bank of Montreal, was expecting house prices to continue the gentle decline that started last summer.
“We are surprised that they’ve actually picked up,” says Mr. Guatieri. “They’ve now popped back to record highs.”
The average selling price in the Greater Toronto Area in the first two weeks of May hit $543,838, according to the Toronto Real Estate Board. That compares with $516,089 in May of 2012. Sales in the first two weeks of May dropped 9.7 per cent compared with the same period last year.
Mr. Guatieri points out that people who are keen to buy in the spring have to compete for relatively scarce detached houses available. “As we get into the spring market, we tend to see stronger demand and perhaps that is lifting prices.”
Meanwhile, some sellers are hesitant to list or have pulled their properties off the market if they don’t get the price they are looking for. Toronto hasn’t seen the pressured selling that caused the U.S. house price meltdown, he adds.
The market in much of Canada began losing steam last July after the federal government tightened rules surrounding mortgage insurance and amortization.
In the GTA, a relatively cool spring market has been enlivened by sporadic heated bidding wars.
Ken McLachlan, broker at ReMax Hallmark Realty Ltd., says houses in the segment above $1.5-million in Toronto are sitting around a lot longer these days. But below that mark sales are still quite good – if a bit spotty.
Mr. McLachlan says some agents have not experienced a slower market and he has to remind them that in the past it was not unusual for a property to sit on the market for 30 days or more.
He also advises agents to manage the expectations of sellers and not to make promises they can’t keep.
“They expect it to sell overnight,” he says of many homeowners. “The market is called the market because it’s ever-changing.”
Sales have slumped because there aren’t enough listings – especially in popular areas, he says.
Mr. Guatieri points out that detached houses are no longer affordable for many buyers in high-priced Toronto and condo units are the only option for many purchasers.
“Affordability is strained in the detached market.”
He still expects real estate prices in Toronto to resume their moderate decline over the next couple of years.
“It certainly seems a stretch to believe house price growth will continue to outpace income growth.”
A sharper drop is unlikely in his opinion, but he cautions that lofty prices could be vulnerable to a shock in the form of a spike in interest rates or swelling unemployment.
As for the condo market, Mr. Guatieri still sees strong underlying demand despite the recent downturn in the market for new projects. New home sales plummeted 44 per cent in April in the GTA compared with April, 2012. Both high-rise and low-rise sales tumbled. Builders have pulled back on new projects in the low-rise market, according to RealNet Canada.
Still, immigration remains healthy and the baby boom echo generation is likely to keep buying property, the economist says, and rental vacancies remain tight.
Mr. Guatieri points out that more than 250,000 condo units are currently on the drawing board in some phase of the planning process. There are 55,000 condo units currently under construction. But banks are not lending as easily and builders are deferring some projects.
“Unless you see a huge bounce-back in demand, it’s unlikely all those condos in the planning phase will come to fruition. Builders have slammed the breaks on.”

Toronto Home Sales Fall in May But Prices Still Rising

Sales of existing houses in the Greater Toronto Area were 3.4-per-cent lower in May than they were a year earlier, while prices continued to rise.
The number of homes that changed hands over the Multiple Listing Service came in at 10,182 last month, compared to 10,544 in May of 2012, the Toronto Real Estate Board said Wednesday.
While home sales are still depressed compared to last year, Toronto Real Estate Board president Ann Hannah said that the sales picture in the Greater Toronto Area has improved markedly over the past two months.
“While the number of transactions in April and May remained below last year’s levels, the rate of decline has been much smaller,” she said in a press release.
Economists have been expecting the steep year-over-year declines to moderate because home sales in Toronto, and most of the country, were very strong in late 2011 and early 2012 and then became progressively weaker – so home sales late last year and early this year were being compared to very strong year-ago numbers to arrive at the year-over-year decreases. In contrast, sales figures for this summer and fall will be compared to lower levels.
But Ms. Hannah said that “a growing number of households who put their decision to purchase on hold as a result of stricter lending guidelines are starting to become active again in the ownership market.”
There were 9,811 sales in the Greater Toronto Area over the MLS in April, down 2 per cent from April 2012.
Sales of detached homes held up last month, rising 3 per cent in the downtown region covered by the 416 area code, and by 0.1 per cent in the suburban areas covered by the 905 area code. Sales of condos and townhouses were down.
The average selling price of all types of homes in both area codes in May was $542,174, which was 5.4 per cent higher than a year earlier. The average selling price of condos that sold over the MLS rose 1.6 per cent, to $350,598. The average selling price of detached homes rose 5 per cent to $676,797.
The Toronto Real Estate Board, which represents the city’s roughly 36,000 realtors, is predicting that the average selling price will rise 3.5 per cent for all of 2013, compared to last year.
The MLS Home Price Index, which seeks to take into account any change in the types of homes that are selling, rose 2.8 per cent.