Can the Feds Really Tame Housing Market?

I really do have to scratch my head when I see the Canadian government in action trying to control the housing market. And right now, the Feds are pretty keen to cool it down, particular, according to them, when it comes to Toronto condos. The assumption, and it's mostly a false one, is that the government controls the housing market and can change it's course as they wish by making sweeping, one-size-fits-all changes to a large number of complex housing markets that exist across the country.

Their intentions are good: They would like us fellow Canadians to bypass a housing crash,  and keep our debt levels in check, especially since we had front row seats to the action-packed American crash for the past several years.

One of the reasons the Feds believe the housing prices are higher in Canada has to do with the low interest rates, rates that Mark Carney will not change soon.  Even though record low interest rates in the U.S. has not pulled their housing market up, it has allowed many more Canadian to afford bigger mortgages at lower rates. But since the rates aren't going up to cool off the housing market, the government feels it's just gotta do something.

 So on July 9th of this year,  there will be more restrictions to qualifying for a mortgage, and this in turn, should cool off the market -according to government thinking.  One of the changes is pretty significant, especially if you're a first-time buyer. That is, the Feds will be bringing down the amortization from 30 years to 25 years.  The other changes, however,  won't have much of an impact. Like a comet the size of a coconut hitting the earth. Nonetheless, these changes include: No high ratio mortgages over a million dollars. I imagine most people who are spending over a million are probably on their second home and will likely have the home equity to bypass the high ratio mortgage category here in Toronto. So, no big worry there. Next, you can borrow equity against your home  at less than 80% instead of 85%. Again, I shrug.

Most importantly is what's not changing: the minimum down payment is still staying at 5%. If they changed that, then the impact would have been bigger than a coconut.

But enough of the coconut talk. The truth is, we won't really know if these changes will make much of an impact until after they come into effect. And if the market happens to cool, would it really be because of these changes?

History can give us an idea of what to expect. You see, this is the 4th time in 4 years that the government has stepped in and tried to tinker with the housing market to cool it down. Clearly, it hasn't worked yet, and I'm not convinced it's going to work this time.

I do think it's interesting that the Feds have purposely targeting the Toronto condo market as a thing that needs cooling. In my experience, some great condos have led to bidding wars, but I find the condo market to be quite balanced at the moment, and the increases, year over year, have been good, but much less compared to houses in Toronto. Houses have been on a tear. Though not as many bidding wars as we've seen in the early Spring, the housing market is really where the market may need some taming.  But I'm not sure the Feds can do much about it. As far as I'm concerned it's simple economics: Lots of condos are being built. So the demand is being met (even exceeded in some locations). Very few new houses are being built in the GTA, but demand is increasing. So condos appear more balanced and houses continue to rise in price.

Alderwood: A Suburb in the City?

Alderwood’s not like the other emerging Toronto neighbourhoods. There’s big trees, big parks and generous lot sizes, but there’s no main street with clever new businesses to help it take off. The closest thing they have is Brown’s Line which is mostly functional. There is, however,  a great collection of shops at the bottom of the street where Brown’s Line ends and meets Lake Shore Avenue including an indie coffee shop, a  truly yummy empanada take-out, an authentic Mexican restaurant, and a fancy burger joint.

But Alderwood really isn’t about the commercial strip. It is more of a suburban part of Toronto that has much better access to the city than the newer suburbs further away. As an inner suburb, it has all the pluses of the burbs – nice, big yards, more space, detatched homes. Unlike other suburbs, you can easily get around to just about any where. The Gardiner and the 427, are easily accessible. And if you’re heading downtown, on transit, the GO station is not too far away.

Because it was once farmland, the steets are still named after farmer’s of the past where Farmer Brown became Brown’s Line and Farmer Horner became Horner Ave. With homes built in the 1950s, there is a large collection of bungalows. Now don’t let the word “bungalow” scare you off. Some of these bungalows are a decent size and have great layouts. The smaller, scrappier bungalows tend to be bought up by developers and replaced with a much larger, newer home.

Best of all, because it is an older suburb in South Etobicoke, it has a lot of mature trees in the neighbourood giving it a calm, leafy feel. If you’re a gardener, the soil is rich and less clay-ish than other parts of the city. Plants love it here. And if you’re lucky, you’ll live close to the Etobicoke Creek which is a great place to walk your dog in the ravine. You will be surprised by how much wildlife actually exists so close to the city.  Just be careful with your small dogs. There’s coyotes in the ravine!

The Truth Behind Bidding Wars

Like bees to honey, when we see the word"bidding war" in a newspaper or magazine headline, we cannot resist the sweet temptation to read on, even if the article that hooks you has little with the topic of a bidding war.

Bidding wars are simply a way of life in many parts of Toronto. Or that's what we're lead to believe. There's usually at least one article per week about a property that sold for WAY over asking. So, after you read enough of these, you begin to think that all houses sell for over 100K.

The truth is that bidding wars are not as prevalent as every one believes. And there are times when a home receives more than one offer and still ends up selling for under asking.  In some neighbourhoods, they are the norm, in others, much less so. Many bidding wars are a result of a hold back. That is, the seller will not take any offers for a good week or so to allow potential buyers to see the property. Then offers are accepted on a certain date.  The belief is that if you get enough people to the table to bid your house, they will lose their minds and go crazy with their wallets in a bidding war. And some times minds are lost. Other times, no one steps up to make an offer. 

In terms of this particular moment in time, here's what I am observing:

1. HOUSES RULE: Houses are more likely to go into bidding wars more than condos. 

2. STARTER HOMES: Homes and condos in the starter home range are more competitive with new buyers. 

3. STAGING WORKS: Homes that are staged and look amazing will more likely bring in more buyers.

4. THE RIGHT HOOD: Surprisingly high end Rosedale will see less bidding wars than Leslieville or Riverdale or even the Danforth Village. Neighbourhoods on the upswing or some emerging neighbhourhoods in the later stages will bring more offers in.

5. PRICED BELOW MARKET: Homes can be listed below what the seller will accept and usually below market value. This one drives me nuts. I have personally experiences sellers who have priced their home for $50,000 under what they really want for their home. They price for X and want Y.  The problem is that the buying public believes when a home is listed at a certain price, the seller would accept that price or better. The truth is, you can offer the exact price of the listing,  but the seller doesn't have to take it. HOWEVER, the seller cannot continue to offer the house at that price. That's false advertising. So, they must relist at a price they are willing to accept. I'm not the only one who feels frustrated by this practice. My collegues Mel and Brendan have expressed there frustration in this blog: click here.

So, that's Coles Notes on bidding wars in Toronto right now. And I emphasize right now.  The presence of bidding wars in this city are in a constant state of flux. The market, the psychology of the buyer, the culture of real estate is always morfing into some thing new. The trick is to have an idea of what your home is worth and then construct a marketing approach to your home on how you are going to sell it. And if you're a buyer, have an understanding of what price homes are SELLING and not what price homes are being LISTED. 

Residents' Groups: Friend or Foe of Toronto?

Toronto is a city of neighbourhoods. We've all hard this countless time. It's all a part of the Toronto brand. And though this point may have been driven home a little too much at times, it's true! In fact, we are becoming increasingly more splintered into a greater buffet of neighbourhoods. And I think that's a pretty amazing thing.

Even neighbourhoods that have never existed before have sprung up in the last 10 to 15 years with a new identity and a group of residents that are proud to be a part of their little village in the big city. There's the Junction Triangle, Liberty Village, and even the Distillery District that just didn't exist as identifiable neighbourhoods not too long ago. 

And what makes these areas successful are the people who live there. They form residents groups, condo boards and business improvement associations. They encourage fresh businesses to come to a given area. They bring in farmers' markets. They go to derelict land and plant pretty gardens. They make you walk through your neighbourhood with a feeling that things are getting better, that life is getting better, and that you should have pride in living in your neighbourhood. And for all of that, I give kudos to the residents' groups of Toronto. 

But it's not all flowers and farmers' markets. These groups can be quite powerful as well.  They can shut down some of the biggest developers in the city.  When a developer was planning on putting in a massive Smart Centre south of Eastern along the southern boundaries of Leslieville with a Walmart as it's potential anchor, the neighbourhood rose up in revolt and stopped the development in its tracks. In this case, the villain, Walmart, is an easy target as the bland, box store that could decimate any distinctiveness a little neighbourhood may have. So, it's easy to cheer on the residents' group here. 

For the most part, I am thrilled that neighbourhood assoiciations exist to keep developers in check. Still, I've seen neigbourhood associations get crazy. And strangely, it often happens in more established neighbourhoods where the residents don't want any thing to change. A classic case of NIMBYish (Not in My Backyard). So, at at time when the Beach could use a bit of an overhaul on it's tired commercial strip, the residents association rises up and shuns the idea of a condo being built, a condo that is mid-sized, and will bring in more residents to the area, and in turn, more people to support better businesses. 

I don't want to weigh in too much here on this particular debate, but I do want to make a point: The problem with some residents groups is that they want to block every thing. Keep their neighbourhood from changing in any way. There's no doubt we are living in a city where there is going to be more densification in every corner of Toronto. So, get used to denser living. Dense living does mean we may have less privacy, and more traffic, but it also means better businesses and more vibrant commercial hubs because there is a larger base to support the businesses. I've witnessed some interesting condos get turfed for the wrong reasons by the power of a residents group. I've also witnessed the same group block a really bad condo idea. Developers do need to be kept in check, and even shut down at times, but I think it's wiser to come to the table with some creative ideas on how to make change work, not screaming: No way! Not in my neighbourhood! And hopefully this will lead to the right kind of change in your corner of the city.  

The Effect of Toronto Land Transfer Tax on the Price of Homes

I get it. Toronto doesn't have any money, and they need to collect money to fund the things that cities do. I'm not here to weigh in on how Toronto should do this. Yes, there are some inefficiencies in local government, but Toronto has had a lot of services downloaded on it, federally and provincially, over the past 15 years. So, as a solution, the Toronto of 5 years ago decided to create a new revenue stream. And that revenue stream came in the form of the Municipal Land Transfer Tax. So, for those of you who are not familiar with this, we already have an Ontario Land Transfer Tax, but as of 2008, we also have a land transfer tax for Toronto. So, if you buy a property for for $500,000 you would have to pay $6475 in Ontario tax and $5725 in Toronto tax. Of course, if you were a first time buyer you would be forgiven around half of this, but if you're not, that totals $12,200. That's a lot money. Again, I'm not here to weigh in as to whether the city needs money - it certainly does, but by almost doubling land transfer tax, you do alter the local real estate market.

Toronto is the only city in Canada that charges a land transfer tax on the purchase of a new home. Last year the City was expecting $240 million, and they received $330 million. So, it's working to generate money. That's for sure. 

The funny thing is, many believed that an additional tax would cool prices off a little in Toronto. If buyers have to pay more in land transfer tax, the actual sales price of homes would drop a little so buyers could cover their extra tax cost. 

The crazy thing is: The exact opposite is happening. But why? Because current homeowners just don't want to move. If someone is planning to sell their starter home and move up to some thing bigger, and now land transfer tax is almost twice as much, it cost a lot more to move. So, they don't sell. However, if you are a first time home buyer, the government may rebate a good portion of your land transfer taxes. In the example of the $500,000 house, you would pay about half the land transfer tax if you qualified for the rebate for the first time buyers plan. If you buy a condo for $300,000, then you pay a mere $975. Pretty good for first time buyers, if they qualify. The land transter tax has a much smaller impact on their finances. So, first time buyers are not discouraged. The result: New buyers still want in. Those who already own a home and are consider selling, don't move because they don't want to pay all the land transfer tax.  So, a situation has arisen where there are more buyers than sellers. And we all know what that mean: more bidding wars and higher prices from fewer listings hitting the market. So, as a result the land transfer tax has played a key role in making the price of property more expensive in the city. 

I have a feeling that the city is not going to give up on such a revenue stream very easily, despite some grumblings. It's kinda like income tax. It was only suppose to be for a temporary tax back in 1917 to generate money for the war, but once the money came in, the goverment could not live without it.  

The Early Signs of an Emerging Neighbourhood

Once a neighbourhood starts emerging - and I mean fully emerging - there is no stopping that kind of momentum.  In some part of Toronto, some locations have transformed from grim and even creepy to celebrated travel destinations raved about in the New York Times. We all know Ossington went from criminal gangs to fashionable night spot, and Leslieville went for Riverdale's ugly sister to the belle of east Toronto. But the ones who are really patting themselves on the back are the ones who got in early. The ones who had the foresight, the bravery and maybe just the dumb luck.

My first home in Leslieville I bought for 242K. It was sitting on the market for weeks. The sellers really didn't do much to improve it's curb appeal, and Leslieville was kinda cool, but still a little unknown eight years ago. After 5 years, some renos and a stager, plus the rise of Leslieville as a neighbourhood, I was able to sell for almost 540K after 15 offers. I know. Aren't I the greatest thing? Well, not really. I thought those who bought it paid way more than they should have, but they turned around and sold it for 680K two and a half years later. So looks like the the emerging continued once I sold. It goes to show you that an emerging neighbourhood can still outpace the rest of Toronto, even at its later stages, but that's not what I"m talking about today.  

I'm talking about getting in early and holding on long enough. So some things to look for in a potential emerging neighbourhood that is still in its budding phase:

1. a good commercial strip: Even one indie coffee shop is a good sign. If you don't have that, is there a commercial strip that has a community feel? Is the city planning on fixing up the area? Is there a growing community involvement? Some areas are not near a great commercial strip. Neighbourhoods like Alderwood, though, are near great parks and ravines. So, that helps too. 

2.Proximity. If you're close to an emerging neighbhourhood, people will start to become priced out of that neighbourhood. So, they will look to live nearby. 

3. Transit: Can you get to it? Weston Village will have the Go transit stop soon. That will work well for them. Junction Triangle near Lansdowne and Bloor is right on the subway. 

And of course, you have to be okay with living there. You have to be that person who can see the potential. And if you are, then you'll be happy, and hopefully richer in 5 to 10 years. 

What Vancouver's Cooling Housing Market Could Mean for Toronto

It's official. Vancouver's real estate market is cooling. Some may say tanking. Others may say a mild and temporary leveling off. According to the Canadian Real Estate Association, the average price fell by nearly 10 percent in April from a year ago. That's the biggest drop since the recession of 2008.  As many know, Vancouver's real estate market has been smoking hot for a long time, aside from a few blips, making it one of the most expensive cities in North America. So now that the sizzle has dampened on Vancouver, Toronto has picked up the title of "the city with the hottest real estate market in Canada". And because of this, I've noticed that people here in Toronto are worried about what is happening in Vancouver. Should they be? Does a market so far away have any bearing on our city? And most importantly, if Vancouver is tanking what does that mean for Toronto?

I think there are three scenarios that could result from Vancouver's cooling market:

1. Nothing. They're two separate markets with different forces at work. When Toronto had a housing correction in 1989, Vancouver didn't crumble. Also, Vancouver's average home price is $735, 315 where Toronto's is $517,556. That's almost 30% lower than Vancouver. Prices would need to drop in Vancouver by almost a third to compare to Toronto prices.

2. Toronto will cool too. New buyers may be very happy to hear this, though I think the cooling would occur in the condo market, and less when it comes to houses.  The upside will be that developers will have to work harder for new clients by throwing in some perks, and being a little more accommodating when it comes to finishes. Developers tend to get a little lazy in an up market. Sellers should move quickly if they are planning on selling.

3. The Toronto real estate market will surge. Foreign investment has been key to the success of Vancouver. Many of them are now looking at Vancouver as a lousy place to invest. So, since it is easy for overseas buyers to buy homes in Canada, they will start buying more property in Toronto where the market is currently showing an increase of 2.5% from last April.  On paper will still look good.


Personally, if I was a betting man, I would think option #1 would be the most likely. Yes interest rates and government policies can effect both cities, but we have different economies, different pricing and historically we don't always cool and heat up in tandem.