Toronto Real Estate in 2013: Year in Review

In a few weeks time, the predictions will start rolling out for 2014 with regard to Toronto real estate. I know I will be making a few of my own! Of course, it may be a little premature to be pulling out the crystal ball just yet. So for now, I think it would be interesting to look back over the year to see the difference between what was predicted at the beginning of 2013 and what actually happened.

 I will acknowledge the art/science of real estate predicting is a tough one. It's very difficult to pinpoint when and if a housing market will tank or rise to new heights. Otherwise, we'd all be very rich on real estate. I am going to pat myself on the back because I made predictions that largely came true, but they were safe and less dire predictions not meant to create good headlines.

Many others went for the headlines. Maclean's magazine ran the story "Great Canadian Real Estate Crash of 2013" that claimed that the crash was already under way in Vancouver and Toronto in January of this year.  It's funny. I'm fine with the doomsday scenarios when they are acknowledged as educated guesses, but Maclean's said the 2013 crash was a foregone conclusion. I bet they must be feeling pretty dumb right about now. At the very least, I am thinking they are dumb right now.

They were not the only ones who were calling for a slip in prices. The TD Bank head economist also predicted a 10% drop across Canada in 2013- a less dramatic headline, but, off the mark.

In 2013, I think it would be save to say that the naysayers were wrong again. Maybe they can't be wrong forever, but the market didn't crash at all. In fact, the second half of the year was very strong, despite government intervention to slow it down. Even the real estate brokerages, that tend to have rosier statistics than the banks, the think tanks, or the media, underestimated the 2013 performance. Houses, for example, had the best price appreciation this year than any other year in the last five years.

Some other trends that we saw in Toronto real estate in 2013:

1. Condos and Houses Performed Differently. I have mentioned at the beginning of the year that condos will appreciate much less than houses. Condos are built in large numbers in Toronto. Houses are not. Condos have even slipped in price in a few areas, and have climbed in a few others. They have not crashed, like many have predicted. Picking your condo wisely was the key to finding the good ones in 2013. Giant, boring, bland condos in lousy locations performed the worst. Boutique style, well-locoated with great design or in an emerging or established neighbourhood performed the best.

3. Condo Rental Market Was Hot, Hot Hot. Since many condo sellers were not ready to sell their condo at market value, many people decided to take advantage of the tight rental market to make some money on their condo investment. So, condos took on a much more prominent role in the Toronto rental market. And quite honestly, the rental market could use a little help since very few rental properties have been built in recent years to accommodate the growing population.  I'm not sure we'll see such a strong rental market next year, but if first-time buyers continue to have a hard time finding properties, I suspect the rental market will benefit from that.

4. Year of Incentives. I predicted the incentives would be coming in 2013, and I was not disappointed! Since new condos have stubbornly priced themselves higher than resale condos, they needed ways to reduce their prices to more reasonable level. Instead of lowering their prices, they offer free maintenance fees for a year or free upgrades or a free locker. There were many ways of reducing your costs without the developer having to reduce their price. Regardless, you end up paying less in the end.

5. Mid Rise Revolution. Since the city implemented a plan to have height specification and certain building requirements on Toronto's Official Plan, more mid rises have been planned in streets outside of the core. In the core of Toronto, you can build pretty high, but along other city streets like Dundas West, the Danforth, Queen East, or Roncesvalles, you need cannot build just any old height you like. The sweet spot is between 4 to 11 stories with the possibility of asking the city for more or setting back your condos. You need to blend in with your neighbourhood. So, many midsize condos have come to market. My favourite of 2013 has to be the Duke Condo in the Junction on Dundas West. Cheaper than Ossington with the same style and proximity to a cool, local strip of independent and fresh businesses.

2014 will be different a different beast. Already, predictions for real estate in 2014 are wildly different. According to the Germans, Canada is the country most likely to have a real estate correction in the world. On the other hand, Central 1 Credit Union predicts that Toronto will have an excellent housing market where the cost of  a house will double over the next 25 years, and today prices will seem cheap by comparison. Any way you slice it, some predictors will be right. Others will be so wrong.

House Shopping at Christmas: A Good Idea?

Every couple of weeks or so someone usually asks me what is the best time of year to buy or sell their home. And to that, I usually offer the very vague and unsatisfying answer of: it depends...

Most of the time, the two months that are the slowest in Toronto real estate, with regard to the number of real estate transactions, tend to be August and December. Makes sense, doesn't it? August is hot and many people are on holidays. December is busy with Holiday festivities, visiting, family, friends, shopping, or escaping Christmas for sunnier options.

Does that mean it's a bad time to buy or sell? Well, that's where "it depends" comes in. In August, though there may be fewer buyers looking, there are also fewer sellers selling. So, you have less people looking at your home, but you are competing with fewer listings as well. Some August properties that have not sold in the rush of Spring sit on the market until August and can be ripe for the pickings, ideally at a lower price. Of course, even though they may be a lower price, there could be a very good reason why no one wants to buy that house. Still, this isn't always the case. I bought my first house in August, a house that was not very popular at the time because you had to go through the washroom to get to the back yard. When I told friends who were also looking at the same time about my purchase of the house, they remembered going through the house themselves. At one point, they coined it the "wait-in-the-backyard-until-I'm-finished" house. Luckily, I fixed that unusual quirk, and by the time I sold it five years later, I didn't have that layout any longer.

December is a different month than August though. It's true that some properties in December are ones that did not sell in the Fall and are still sitting on the market. Like with August, those properties may be have some serious hang ups, be overpriced, or just do not show well. It can be an opportunity.

This year has been a little unusual. As we approach Christmas, the bidding wars have still been going strong. There is still a lot of demand for houses, and little inventory hitting the market. This is why houses have had the greatest appreciation this year compared to the previous 4 years, up around 8% over the last year in the 416 area.

Regardless, I'm pretty sure we'll see a nose-dive in the number of new homes hitting the market, and buyer interest due to the Holidays, next week. I'm still shocked, though, that some sellers and their agents still put out new listings over the Holidays. Some argue that a number of cultures do not celebrate any of the religious/commercial holidays at this time of year. Why not list a property? People often have time off work to go and see properties, after all.

The thing is, there are a lot of people who are celebrating or visiting this time of year, and they won't come and see your new listing. Even the unreligious and the commercially displeased, sometimes leave town for a vacation. So, for the next two weeks I'm pretty sure a seller won't be maximizing his or her potential on the market with so many distracted buyers unwilling to come and look, despite the buyer interest right now.

If you are a seller ready to list, and you want to maximize your time over the Holidays, then use this time to prep for a 2014 launch of your home. It will be worth the wait!

Are Suburbs Always Cheaper?

Let me be clear. This is not a rant about the superiority of the city or that living in the suburbs is bad and doomed existence, but it is an attempt to clear up some misconceptions about the cheapness of living in the suburbs.

Now, before I dig into the cost of living in the suburbs vs. the city, let me put my cards on the table. I'm a real estate salesperson, and it would be very tough to do my job without a car. Though I am a city dweller, I do spend a lot of time on four wheels, and I have grown to adore, and even love, my auto. I do have that much in common with my suburban breathren. But that's about it. Don't get me wrong. The suburbs have their perks, and for those of you who appreciate those suburban perks, good on you. You made the right decision to live there. The traffic is easier, the home is bigger and maybe your friends and family live near by. Can't argue with that.

Aside from those who love and want to live in the suburbs, there are those who want to live in the city, but feel they can't afford to live here, and head to the suburbs. And that may be a mistake. Moving to the suburbs is not always less expensive. If you simply compare property prices, it's true. No one can deny that! On average, homes in Toronto are $250,000 more than the suburbs. That's a good chunk of change that you don't always have or would rather spend somewhere else.

But comparing houses to  houses is not always the best way to look at it. Because when you live in the burbs, your costs of other things required to live comfortably are higher. The big factor is the car. In the suburbs, because of the low level of transit and because of the culture of the burbs, there is usually two cars per family. In the city, it's a lot less. Sometimes no car is required at all because it's easier, and sometimes faster, to use public transit in the city. On top of that, most suburban folk work in the city. So, they spend a lot more on insurance, gas and car wear and tear. Though I do love cars, they are the worst investment in the world. They don 't make you any money and the start depreciating very quickly right away.

Another factor to take into account in the appreciation factor. I'm not talking about your car this time. I'm talking about your home.

There's no denying that prices have increased at a far quicker rate in the city than outside of it. So, a purchase in the city has, for several decades, allowed the owner to grow their equity over the long haul. The value of a  home in the suburbs has just not appreciated as much as in the city, on average.

Then there's property taxes. Since your house is worth more in the city, people assume you pay more property taxes. The truth is, Toronto has some of the lowest tax rates in the region. Plus, in the future, when infrastructure problems really need repairs, cities, with their dense population, will have a larger tax base to pull from. They can spread the cost out between more people. Suburbs, with their low density will have to fix streets and waterlines with a smaller pool of people. So, the cost will be spread out among fewer people and in turn, become more pricy.

Of course, the city is no longer as straight forward as it used to be. Scarborough can function more like a city than a suburb in some parts. Etobicoke is rapidly becoming more city than suburb. And then there's places like Hamilton that function as a city but also a suburb to Toronto. Those places are not so clear cut, and will likely function more like a city in the years to come. So, with that said, make sure you factor in all costs when you feel you have to leave the city to head to cheaper and far away locations. In the long run, you may not be saving yourself a whole lot of money.

Maintenance Fees: The Cold, Hard Truth!

Nothing gets a bee in the bonnet of a condo owner more than the topic of condo fees.  In fact, a good portion of the buyers and owners alike can be a little obsessed about how maintenance fees work (or don't work) in a given building.

Condos fees are also a big concern for the buyer as well, and who can blame them? Maintenance fees make a difference to the purchase price. Simply put, condos with high maintenance fees generally cost less than ones with lower fees in a comparable condo building with a unit of a similar size. That's a huge generalization, I know. So, let me add one caveat: Some condos do warrant the higher fees they charge and some of condos with smaller fees are not necessarily great investments.

Regardless, I can see why there is such a disdain for condo fees, though they are often misunderstood. Condos, like houses need repairs, need to be fixed and updated, and these things cost money. If you want your condo to run well, you need fees coming in. Also, you want to make sure you bring up these fees to have a healthy reserve fund. If money is required for a repair or an update, like replacing the smelly and stained carpet in the hallway, you'll need the funds to pay for it.

Still, I understand people's frustration. So, here are some tips when it comes to spotting the condos where fees may be unreasonably high or on the verge of going higher:

1. Brand New Condos. Don't be fooled by a developer telling you the estimated maintenance fees of a condo that is not even running yet. It's not the fee you will be paying a few years from now, once a condo is built and registered. When you are living in your unit or renting out to someone, the condo needs to build up a strong reserve fund. So, it raises the fees to do so. And fast. In many Toronto condos, fees can rise 20 -30%, even up to 50% in the first year of running and functioning like a condo.

2. Older Condos Have Higher Fees. I can be a big fan of larger condos, but they do have higher fees. In the olden days of condos, condos were built as a kind of Club Med where you can play tennis, eat caviar by the pool and have your concierge do your dry cleaning. It was like being in an all inclusive vacation deal at a five star hotel all the time. Well, pools are pricey to maintain and a top notch concierge needs to be paid. Plus, things break down in older condos. So, windows need to be replaced. Garages need to be repaired. Elevators break down. And in turn, maintenance fees go up. Newer condos, though tinier, have managed to bring down fees by offering less amenities. Keep in mind, though, that the older condos often include more in their maintenance fees like electricity and heating, and even cable. Newer condos, you pay for your own. And don't forget that that newer condo will become an older condo some day and require repairs.

3. Poor Management. Sometimes a condo is just run badly. Subsequently, money is not spent wisely or the management company doesn't do a good job. I have been seeing a few condo boards lately that fire one management company for on that does a better job.

4. Lousy Builders. There are some places that were just not built well. So, things start to break down a little sooner. The quality of workmanship has been rushed. Check the builder. Some have better reps than others.

5. Lawsuits. Generally if a condo is getting sued, that can mean pricey trouble. Because if the condo is getting sued, the condo owner are getting sued and will need to pay the legal bills. Any buyers should make sure they have their lawyer review the status certificate to see if anything serious is going on before they buy. Any lawsuits should be mentioned in the status certificate.

With all that said, I want to be very clear that a condo with high maintenance fees is not a bad idea all of the time. There are some condos that justify a higher condo fees. As I often mention, older condos are bigger in size and need more maintenance, but you do acquire more space. Some smaller sized condo buildings have higher fees since they are not spreading the cost of maintenance fees through as many condo owners as larger condos. Fees may be less per unit for larger condos, but I still feel the investment in a boutique, smaller condo is a better route to take, even though the fees are a little higher. Unique spaces often have more cachet than your typical condo space. So, beware of the pitfalls of condo fees, but understand that it's not the only parameter to determine the worth of a building.

The Value of Your House: An Art or Science?

A few weeks back, two clients of mine, a couple from Toronto, purchased a house in an emerging neighbourhood. The listing agent decided to hold back offers. That's no surprise to anyone familiar with the housing market in Toronto these days. He received four offers. Our offer was the one with which the sellers decided to work. In choosing the offer price, my clients and I focused on a property down the street about a block that sold in the summer at a very similar price. It was the best comparable. It was detached, the same size, and required a similar amount of work to fix it up. It had the same style of architecture and both had parking.

It was not the only property we reviewed. We also looked at other sold properties in the neighbourhood. We felt that the price we were offering was a fair and reasonable price with respect to how the market was working. Now, it's not as straight forward as it sounds. This is a more of an art than a science. Sometimes it is very difficult to find comparable properties to determine the price.  Not all properties in a given neighbourhood are similar. You have to have a kind of sense of the neighbourhood and its value to get an idea of the value of a given home.

The bank is another evaluator of your home. They don't evaluate all homes, just the ones that have been recently purchased and require their mortgage. If a home is bought for over $750,000, banks are even more likely to request an appraisal.  And this can really make life more difficult. With my clients that bought the house in an emerging neighbourhood, their bank required that an appraiser go through their purchased home to determine how much the appraiser thinks it's worth. The bank will only cover a mortgage on the appraised amount. So, let's say someone pays $1,000,000 for a house, but the bank appraiser believes its worth $900,000. In that case, you would have a shortfall of $100,000. The buyers would need to come up with the $100,000 before you even start paying a portion of your mortgage. If you don't have that $100,000, you don't get the financing.  Does it mean your house is only worth 900K? No! It means the bank uses a certain model for determining the value of a home that is not necessarily the same as market value, or what a house did sell for on the market.

When I have the chance, I always try to chat with the bank appraisers to get an idea of where they are coming from and how they do their jobs. What drives me crazy is how the appraisals vary widely. There are many appraisers who don't even live in Toronto and have no familiarity with a given neighbourhood. And that makes me nervous. The appraiser for my clients, came in at a lower amount of the value of the house because, in my opinion, he used properties much further north in a neighbourhood that does not have the same kinds of value as where my clients purchased. Plus, the homes did not have the historical detail of the one that was purchased by my clients. He tried to do more a square footage analysis, which may work for some condos, but in a neighbourhood where the houses vary widely, I didn't find this to be very effective or useful.  A 1960s bunker-like block of a building with no curb appeal does not compare to a brand new home or a 100 year old home with loads of character.

It wasn't that I felt the appraiser didn't know what he was doing. He was following all he had learned in appraisal school, which treated the appraising of a house more like a mathematical/scientific calculation. He seemed very competent, but his approach lacked all the nuances that I believe are required in an artful evaluation.

In the end, the shortfall was not an outrageous amount, but I had to admit I was a little surprised at the appraised value. The thing is, a different appraiser could have come in and evaluated the property at the price my clients paid for their house because he used different comparable. Maybe higher, maybe lower.

Now, I am biased here because I certainly felt that I was more knowledgeable about the area and felt I had a better grasp of the area's values. Still, my approach is an art and it's not exact. There's room for error there as well.

At the end of the day, no matter who is telling you what the value of your house is worth, be it a real estate salesperson or a bank appraiser, the real worth is how much a home actually sells for on the market. It is worth the amount someone is going to pay you to buy it. End of story.