By now, many real
estate professionals and enthusiasts have given us their two cents about the
Perth Street property that received 32 offers and went for $208,725 over asking
last week. It seems that we just can’t resist that "real estate gone
wild" headline. Works every time. But why the huge offer over the asking
price? Well, some real estate salespersons and watchers claim this Perth Street
house was listed well under the market value. If the price was selected based
on the sales of comparable homes in the neighbourhood, the difference between
list price and the sale price may not have been so headline worthy. Still,
there is no ignoring that 32 buyers have tried to buy this one house, and this
lead to one solid fact: there are not enough houses for sale.
Part of this is
seasonal. January does not usually bring a lot of new listings, but this low
inventory of houses has been a chronic Toronto problem for quite awhile. So,
the question becomes: Why are there so few houses available for sale in
Toronto?
This is where I like to
blame the government. Don't get me wrong. They're not all bad. They can take
some credit for regulating the banks in a way the United States never did,
avoiding a mortgage meltdown and a real estate crisis, and they have put in
some policies that prevent people, who are not ready to buy property, from a
costly mistake. Still, let's not get too smug in our Canadian ways because
government policies often leads to the situation that Toronto is currently in
with no houses to buy, but more buyers in a price range under one million. So,
let's look how the buyers grew and the sellers shank in numbers due to
government policies.
MORE BUYERS. Not too
long ago, the Canadian government said the mortgage insurer, CHMC, would no
longer insure properties over a million. It made sense. CHMC was taking on a
lot of mortgage debt on behalf of Canadians and the government wanted to
lighten their debt load. In Toronto, houses can easily exceed a million in many
upper middle class neighbourhoods like Little Italy, Riverdale or High Park.
Even if you think those neighbourhoods are too fancy for you, let me remind you
that emerging neighbourhoods like Leslieville and the Junction can easily have
homes reach the million dollar mark. And even then, you may be saying "I
have no intention of buying a million dollar house. So, this doesn`t effect me."
The truth is, this policy affects you too.
Out of the buyers who
want to buy a home worth a million dollars or more, some of them will not have
the required 20% down to buy it. So, for those who cannot cover the 20%, they
will be competing with everyone else who wants to buy a house under a million.
At the end of the day, this makes the houses under a million more a lot more
competitive.
LESS SELLERS. It's been
a number of years now that the city of Toronto has begun asking for a land
transfer tax when someone who lives in Toronto buys a property. Buyers used to
only pay the Ontario land transfer tax until the city of Toronto needed more
money. I understand that the city of Toronto needs a revenue source, but by
creating a land transfer tax, the local government almost doubles what a buyer
would pay in taxes if he or she bought a property. The municipal government has
put a huge burden on those who want to sell their properties. Many first time
buyers get a bit of a break on the land transfer tax. So, the burden is not as
big for those buying for the first time around.
If you sell, there's a good chance you'll
purchase another property, whether it's a bigger place for your expanding needs
or a smaller more manageable place. You'll still need the pay big dollars when
you buy again. For example, a reasonable move-up house at $850,000 would mean
$13,475 in Ontario Land Transfer Tax and $12,725 for Toronto Land Transfer Tax
for a combined total of $26,200. That's a lot of money to hand over in addition
to the cost of selling and moving and future renos. The result has been that
people would rather stay put and not sell their home. Thus, we see the
situations where there are less homes for sale.
I don't want to blame
the government for everything, and I don't always disagree with some regulation
of the real estate market. There are a lot of reasons why houses are becoming
more and more expensive. They don't build many houses any more in Toronto.
People want to live in the city again. The commute to the suburbs is too
painful. I can go on. Still, whatever the reason you see, I'd say two things
are clear to me. The government has created policies to cause house prices to
rise, and this year, in most Toronto neighbourhoods, house prices will continue
to rise because of limited listings hitting the market.
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