Why Toronto Prices Go Up While Most of Canada Loses Steam

I often get a little annoyed when organizations from other countries put out headlines like: The Canadian Real Estate Market is Due for A Correction. It doesn't bother me that someone is suggesting that a real estate correction could take place, but that the entire country would function in the same way. And right now, we are experiencing a time when the real estate market of Canada is not performing in the same way at all. Why? you ask. Because there may be many macro factors, like interest rates, that do have affect the real estate market on a national level, but most often, the local factors are much more powerful. Things like the local enconomy, the location of the property and the state of renovation of a given home have significant influence.

With resource-based economies like Alberta and Saskatchewan, it is not surprising when oil becomes less productive, so does the real estate sector in these provinces. 

There is a reason why Toronto and Vancouver are thriving despite that fact that the rest of the country seems to be cooling off. One has to do with the diversified economies of these two cities. People come to Toronto because there are different kinds of employment. If one employment sector fails or temporarily dips, the whole city does not go downhill. That's the advantage of a diversified economy. 

Also, both cities do not rely on oil. In fact, oil has caused the dollar to go up quite a bit to the disadvantage of Ontario and British Columbia. Now that the dollar is back down, industries in Toronto and Vancouver are able to be more competitive in the American  and overseas markets with the cheaper dollar. 

As far as Toronto is concerned, there is a limit on the supply of houses in this city. So, unlike some cities where there is room to grow. Toronto cannot expand into its green belt. And for the same goes for Vancouver that cannot expand into the mountains. Since developers make more money off of developing denser condos, they rarely build single family houses unless the zoning allows for low density homes exclusively. There is such a shortage of houses in Toronto that in many neighbourhoods the bungalow is going the way of the dodo bird. With huge lots, they are being torn down where bigger houses are built in the bungalow's place. 

I'm not saying the sky is the limit for Toronto and Vancouver, but for the foreseeable future, these cities will continue to draw people in and real estate prices, especially for houses, should increase. It will be a luxury to live in a central, established neighbourhood at some point.  I believe the rate of increase in the value of a house will continue to outpace income. Even this year, with Toronto incomes increasing only 2.4% where detached houses increased in value by 10% year over year. Some may say this is unsustainable. And to some degree, I agree. We will not see these prices go up forever nonstop. Still, I think if you bought a house in Leslieville 10 years ago, you would be considered a first time buyer gambling on an emerging neighbourhood. Nowadays, you would be considered someone trying to compete to get into one of Toronto's desirable neighbourhoods. In the end ,our expectations of a neighbourhood change. And what is considered too far, too unknown or too grim now may be a neighbourhood you may not able to afford yourself in 10 years. 

What Momentum Does to an Emerging Neighbourhood

Sometimes it's tough to consider a neighbourhood "emerging" when the average detached home in some classic Toronto emerging neigbhourhoods clear a million dollars in sales. Emerging neighbourhoods have traditionally been the terrain of first time buyers and investors. The thing is, the emerging neighbourhoods of years past have now become more that just emerging neighbourhoods. They have become established neighbourhoods with some serious draw to them. It is where the demand can be very strong, particularly if you are buying a house. They are no longer areas on the fringe that offer inexpensive prices at a reasonable cost. They are destinations where buyers are clamoring to get in.

Once upon a time, the middle and upper middle class largely lived in North or Midtown Toronto, north of Eglinton where there was less social housing, less rental units, and less diversity in the population. There were a few neighbourhoods that were still appealing to some. Back in the 70s and early 80s, High Park was considered quite middle class, though likely more artsie and hippie. Roncesvalles used to have its own Birkenstock store after all. Same goes with the Annex and the Danforth. A little more artsie and distinctive.

Nowadays, you have to be making a lot of dough or inheriting a lot of money to buy in central High Park and the Annex. Don't get me wrong. There are always deals to be had, but they are few and far between, and usually require a reno in these neighbhourhoods.

And it's not just in these neighbourhoods. A lot of interest has shifted to the south core of Toronto (south of Eglinton) in the last twenty years. King West, Queen West, Trinity Bellwoods, the Junction, the Junction Triangle, Riverside, Leslieville Corktown, and Parkdale all draw in their share of interest. The good restaurants, the exciting condos are often below Eglinton between the Junction and Leslieville. Neighbourhoods like Leslieville may still seem a little rough around the edges in a few spots, but don't be fooled that this is an inexpensive place to buy. It's no Leaside in terms of the prices, but it has become a desired neighbourhood in which to live. Those young families have attracted more families creating better schools and engaged parents. Well-invested and aging parents move closer to their adult kids in Leslieville because of the walkability of the whole place. There are amazing places to go here. Not just Subway and Tim Horton's but a Circus School for your kids, an indie coffee shop an every corner, and some of the best bakeries in the city.

To be clear, this post is not here to make the buyers of Toronto feel sad or hopeless. You shouldn't be. This should be an inspiration to you. If you don't have a good mortgage and a healthy down payment, you may find it hard to live in Leslieville, but you can live in a future Leslieville. It doesn't look like Leslieville now, but it may some day. Danforth Village is still filling up. The west end between St. Clair and Dufferin is ready for its next shift. And if you're really looking for a bargain, head out to Hamilton. Yes, that city is on the rise, and the momentum is building. Look for the potential, not just the end product. The nice shops and the better schools will come. Momentum is a hard thing to stop.

IS STAGING WORTH THE COST?

It's a very common experience. One that I have experienced myself! When sellers decide they are ready to sell their homes, they may become overwhelmed by all that could be done to prepare their home for sale. And then there are the costs: the lawyer fees, moving fees, commissions for real estate salespersons. If they are buying, there are the cost of land transfer taxes as well. It's an exercise in anxiety inducement, and a crash course in time management.

So, the idea of spending time and resources on staging a house for sale can feel like something some seller would prefer not to do. Staging takes time and some finesse. This kind of fluffing cannot be just fluffed off. It needs to be done right. Still, I think it is well worth it.

I like to think of staging as a kind of an investment in a stock. There is no guarantee that this stock is going to make you money. You may spend money on this stock, and you may not see a return you like. As a gambling man, who has seen this kind of investment over and over again, I can say that I have seen a well-done staging make sellers more money than if they didn't stage. So, for example, if a seller has a house for $700,000 and spends $4000 on staging, I believe the staging will affect the price so that that staging investment will return the seller that $4000 they spent, and make the seller more.

But staging is not just about money, it's about time and effort. Staging is best when you completely edit out and declutter most of your home. Some or all new furniture is brought in to possibly mix with your own. In a way, a staged home is not a personal home. It's warm and stylish enough to draw people in, but not too personalized so they cannot imagine themselves living in your home. It's a fine line.

Even if you have an empty place, I think staging will help buyers to see what they can put in the space. Nothing says "This place is small" like an empty space.

There are a few times that staging may not work. In places that really would be a tear-down or in need a of massive renovation after a long period of neglect, there is no use putting lipstick on a pig. Staging in this case would look silly or like the sellers are delusional trying to sell the high life in a place that is a dump.

Staging is not the only part of selling your house that needs to be done right. As I have blogged about before, you need an expert marketing plan that will allow for you to compete with the other homes for sale in your neighbourhood. You need to come out as the best. So, for example if there are three similar houses on a street that are for sale on the same day, and you have nine buyers, each house will not pull in three buyers each. Life is not that fair. The top one will pull in seven, another may pull in two buyers, and the last one will not have any buyers. You want to be the top house. You want to be in a position to tap into the emotional side of buyers. Most buyers say the are going to make rational decisions, but I have seen time and time again how buyers can be drawn into a house that offers them a feeling. Staging does not offer them a delusional feeling, but I believe it's more like presenting a house at its very best.

With all that said, there are still this who poo poo the power of staging. I agree that all staging is not the same, and not always worth the time and effort. It's not just simply putting some pretty flowers on a table. You need to have a salesperson who has a track record in staging and who can stage themselves or pull in a stager who knows their stuff, and how to stage for the style of the home. An oversized Leons faux leather sofa is not going to stage well in a tiny condo.

So my advice is simple. Almost always stage. It's a good investment that usually returns more than you spend. And do it right. Declutter and bring in those who know a thing or two about staging.

Suffering from Affordability Angst? Here's What to Do

London is pretty great, right? I think so! But I wonder if it is possible to be too great. Recently, I read an interesting piece on how Londoners are suffering affordability angst (click here for article). Many middle-class, working Londoners are concerned they cannot live in London because real estate prices have climbed so high due to the demand to live there. Of course, London is likely the most coveted city in which to live on this planet. New York come close, but London just has a little more history to it.

Toronto is no London or New York, but I have seen a similar kind of angst developing in Toronto. But should the buyers of Toronto have affordability angst?

I guess the short answer is: It depends. I have many clients who buy houses and big condos in Toronto all the time. Their Toronto jobs often reflect a good salary after years of doing their time. Some have made great investments, and they built equity in their property when they purchased at a less expensive time years ago.  If you have never purchased property and grew up in a big house with a yard and basement rec room on a quiet street, and you would like to duplicate that experience here in Toronto today, you may find that hard to do without a million dollars in some neighbourhoods close to downtown. What looked like a middle class experience in your childhood could now be considered a wealthy one.  House prices, even since the beginning of 2015, have been on a tear. Once again, we are seeing great demand on the limited supply of houses we have in established and many emerging neighbourhoods.

So, what is a Torontonian to do if the are suffering from affordability angst?

1. BUY A CONDO

Sometimes the focus of discussions on Toronto condos has mostly to do with supply. Unlike houses, there are many condos that have recently been built or are being built in Toronto right now. There has been a lot of discussion that the condo market in Toronto is saturated. This has been stressed year after year, and yet the condo market does not crash. This mostly has to do with the limited rental stock and the limited houses. Those who want to rent turn more and more to condos since the city builds a lot fewer rental apartments these days, though there have been some new ones built recently. Those who don't want to compete with others for houses will find condos less competitive. The condo prices have not skyrocketed. Increases have humble in most condos. In some, there have been no increases in the past three to four years. There will be those who say that they want to live downtown, and condos downtown are too expensive. I have a condo coming out shortly at Queen's Quay and Spadina. I think it is priced well in the context of the rest of the Toronto condo market. It's central, and it has all of those things you like to have near you: nice parks, coffee shops, decent square footage and galleries.  You can still buy here in Toronto at affordable prices.

2. BUCK UP

Still want the house in the established neighbourbhood? It's competitive out there. If you want to win the bidding war, you need to be prepared to go into battle. So, have a plan, know your limit, and see if you are in a position to give a competitive offer. If you are, do it! Houses, in my opinion, are golden tickets in this city for the long term.

3. LOOK IN EARLY EMERGING NEIGHBOURHOODS

Would you prefer to buy a starter home? Well, put on your potential goggles, and let's go look for a house in Toronto. It's still doable.  Now the kind of neighbourhoood you want to live in will depend on your budget. If you are under $500K you will have a hard time close to the city finding a house, though a condo townhouse could be an option. Still, there is renewed interest under way in parts of Scarborough and Etobicoke. I love the housing stock up in Weston too. Beautiful neighbourhood. Some of thehouses look like those in the Annex, but not as central and without the walkable main street. Still, the neighbourhood has great parks and a GO station to connect to downtown. In the east, I think the Danforth Village is still a great option for first-time buyers.

4. RENT

I'm not a big fan of this option for obvious reasons, but if you do not want to spend money on Toronto real estate, then you can rent. Just make sure you invest your money elsewhere. And remember, rents will go up. They have increased along with the prices of homes and condo in Toronto.

5. LEAVE THE CITY

This sounds like a reasonable option. The city is too expensive. You are on a budget, but you want space and an big, nice house or condo. So, just leave the city and commute in if you need. But be careful. Not all communities outside of the city are built the same. Some are city planning nightmares. Some are poor investments with poor future prospects. Some are ripe for a renaissance. Hamilton is the place I go on about frequently. There is something in the air in the city, and the momentum is only going to keep building.

With all that said, you can still buy property in or near Toronto in many price ranges depending on where you are. We are not London. We are not there. For now, we seem to be heading in that direction, but we are not there yet.

Are suburbs really dead?

Many books and reports have come out in the past ten to fifteen years regarding the death of the suburb. There's "Death By Suburb", "Death of A Suburban Dream" and "The End of Suburbs" to name a few. Of course, many of these books focus on the American city and how their inner suburbs are failing as opposed to the outer suburbs which are often still growing in successful cities.

The suburbs came into prominence after World War II, though the existence of suburbs have been around well over a hundred years. Returning war vets came home and purchased a slice of the good life. Buyers back then craved spacious homes, large lots and trees where there was generally a low crime rate and decent schools. The city centres at this time became a place where minorities would go whether they were poorer folks, outcasts or new immigrants from other countries.

So, what happened? Well, in the 80s and 90s young university-educated adults started returning to the  cities in great numbers attracted by jobs, and the urban culture which was often a reflection of the immigrants and outcasts who came before them. Plus, in growing cities like Toronto, the commute became too long. You couldn't be done work at 5pm and expect to be at the dinner table by 5:30pm like when Toronto was much smaller. We have seen the number of city dwellers explode in the past twenty to thirty years. Toronto, and most growing major cities now have a thriving downtown. The suburbs no longer pull businesses and wealth away from the city. In many cases, it's the opposite.

Strangely, Toronto's downtown never quite lost its appeal. It always maintained a village atmosphere and never had the flight from downtown that many American cities had. Still, the big return to the city centre has changed this city too.  And we have the condos to prove it.

It would appear that suburbs do not serve the purposes they once had, and now they are even more expensive for municipal governments to support because of their low density. There are simply just not enough taxpayers to go around. At a quick glance it would seem that the suburbs are doomed.

But wait! What was the fastest growing city in Canada last year per capita? Toronto? Calgary? Edmonton? Nope.  That would be Milton, ON, a suburb of Toronto.

So, the suburbs are not dead yet. They just serve a much different purpose than they used to serve. In my opinion, there will be some suburbs that will deteriorate and ones that will not. Many of the outer suburbs have a better shot because they serve a purpose right now. The reasons many people are going to the suburbs have changed. Now, it is because many buyers cannot get the space they want in the city. Plus, it's hard for places like Toronto to grow when the city has limited land. Suburbs are not the promised land, but a compromise for buyers to find space while understanding they may have a long commute if they work in Toronto.

Suburbs have not really changed with the times though. The problem with suburbs is their poor design. They often lack good public transit and mains streets for people to form communities. As an investment, it has become a greater risk than the city. Cities are becoming more affluent and location is key to your investment. In the suburbs, you need to invest wisely. There are rich suburbs, like Oakville. There are new suburbs for the middle class like Milton. Increasingly, there are suburbs where the poor are being pushed toward. Not just the usual neighbourhoods like Rexdale or Jane and Finch, one of the few Toronto pockets where real estate prices have not increased in recent years, but there are increasing poverty rates in Mississauga, Brampton, Oshawa and Markham. To make things more complicated, there are suburbs like Etobicoke that were once a small town, then a suburb, then part of the city of Toronto. Even within Etobicoke, the change varies widely. Many parts of Etobicoke below the 401 that are becoming more city than suburb. There is  higher density and still decent access to Toronto. The same goes for Scarborough. Some parts of Scarborough would be a poor investment area, others would be great with access to the highway, the lake and the city. It's much closer than Milton!

In the end, location is becoming more and more important. It's not as simple as the further you go from the city, the cheaper housing will be, though there is some truth to that. You need to be in a neighbourhood with some potential or some current success, or a walkable main street, a community hub, something distinctive and appealing, or you need to be on a transit line or future transit line.

The suburbs are not what they used to be, but some are alive and thriving.  People are still going there... at least in some suburbs. In others, the suburban dream is over, like an old amusement park or an abandoned mall. Their time has passed.

Will Alberta Real Estate Bring the Rest of Canada Down?

Alberta has been riding high on its horse for awhile now. And really, who can blame the province for its exuberance? When you have the kind of oil they do, and the subequent growth, it's easy to see why Alberta has been the envy of many provinces for some time. Drawing in workers from all parts of Canada and abroad, it's been the fastest growing province per capita over the past ten years, and it still manages to keep its books relatively balanced, at least as far as Canadian provinces go. Though it does have a debt of $7.7 billion, it is nothing compared to Ontario's massive $281 billion debt. These happy times have led to real estate and population booms in both Edmonton and Calgary. Though prices are not as high as here in Toronto, the increases have been huge over the past 20 years in the Prairie provinces.

Of course, the good times have taken a bit of a pause in Alberta with the falling oil prices as of late. Jobs are slipping away, and real estate sales volume is at its lowest point in seven years. Some believe it is in an early stage of a correction.

As we have seen across Canada, a change in the demand for Alberta oil can effect things on a national level. Take, for example, the value of our dollar. Alberta oil has played a large part in bringing the dollar's value down across the country. So, would this mean that a slip in Alberta real estate prices could cause a domino effect in the rest of the Canada's provinces?

I think the short answer, in my humble opinion, is probably not. The fact that the dollar has slipped creates better opportunities for provinces like British Columbia and Ontario. Ontario manufacturing can now sell its products internationally at a lower price making us more competitive.

Of course, it could be a tipping point for the rest of the country if a certain amount of fear gets injected into the national consciousness. Real estate is run on emotion, despite the numbers behind it.

National real estate crashes are possible. Everyone remember the U.S. during the last decade. Prices fell an average of 30% across the country, much higher in states like Nevada and Florida.

Canada could have a correction is real estate, but it would require, in my opinion, a big change in the interest rates or major changes in the world economy. A sharp increase in interest rates would likely pause the real estate market across the country, and in some cases, lead to a fall in price. The thing is, rates will only go up if the economy of the country is undergoing strong growth, but with oil down, that's not the case.

The dropping oil prices in Alberta have had the opposite effect. Interest rates are lower now than they were last year making the interest costs on your mortgage lower this year than last year for the same priced home. Foreign investors are now seeing that Canada's low dollar may be an opportunity to get in on this market while the dollar is down, though some may be waiting for the dollar to bottom out.

The first few months of this year have shown me that the price increases here in Toronto are similar to last year. It's a seller's market for the most part. Our Toronto real estate market is currently affected more by specific local factors than by national ones. There is a shortage of houses in this city. So, house prices, and condo townhomes are increasing in value more than larger condos. Certain emerging neighbourhoods are attracting more buyers who are priced out of established neighbourhoods. Transit, or lack of it, is determining where people will live. A well-built, well-run condo in a well-planned neighbourhood will do better than one that is not.

All in all, the cities of Alberta run a much stronger boom/bust cycle because their economy is tied to the resource sector. Luckily in Toronto, we have a diversifed economy that is not tied too much to one thing, and our steady appeal to immigrants from all over the world will keep the city growing and the real estate market healthy without the massive explosions of growth followed by a bust, like Alberta.

Discount Brokerages: Are They Worth It?

There's a new duck in town. It's called "Fee Duck". And strangely enough, it has something to do with real estate. I'm not sure where the name came from, but I suspect the word "duck" comes from the word "deduction", at least it sounds like it may if you say "deduction" out loud. 

This is how it works: Let's say you want to sell your house and would prefer to pay the lowest commission possible. You would go to Fee Duck, sign up, and sit back as real estate agents bid on who will obtain this listing. The listing does not go to the highest bidder. It's the opposite, a reverse bidding process where real estate salespersons are lowering their commission so that the seller could select the salesperson with the lowest bid, and therefore, save money on paying out commissions. 

Though Fee Duck may be new to Toronto, the idea of a discount brokerage is not new at all. Since I am a real estate salesperson myself, it may surprise some that I fully support discount brokerages. In many ways, discount brokerages make my job much easier at finding my buyer clients better deals. Why? Because discount brokerages often tend to attract salespersons who do less for their listing, market properties poorly, and who cannot compete with the pros. In turn, I find it easier to find better priced homes for my buyers. At least that's been my experience. In my day to day life as salesperson, the seller ends up losing more money in the long run by selling at a lower price and netting less of a profit on their sale, even with significantly reduced commission. 

When a real estate salesperson cuts his or her commission enough, then the focus turns more to obtaining the listing over marketing to obtain the best price. A seller's job should be to find the salesperson who markets the house the best. To be  honest, any one can sell your house or condo unit, but you need someone who will maximize his or her marketing and skills to get you the best price that would justify a higher commission.

Still, in the past year there is boom in companies trying to appeal to a lower commission while taking a piece of the commission for themselves. 

And I have a pretty good idea why this lower commission option has become so appealing. Some agents in the past have charged 5%, and did very little marketing and preparation on a property. It leaves the seller scratching their head wondering what the agent had done to earn a fat commission cheque.

Subsequently, sellers have become so focused on the commissions they pay out that they lose sight of what a real estate agents do, or at least should be doing. 

There are a lot of real estate agents in Toronto. More than half of them do two deals or less per year. They are hungry for a deal and lack experience. So, they will cut commissions. The thing is, these deep-cutting commission agents may lack the skills and the revenue to sell your home. You never know, you may find a discount brokerage that offers you a lower commission option and sells your home at a price with which you would be happy, or you may find a lousy agent who wants 5% and does not have the marketing plan to back it up. 

That's usually not the case though. A good marketing plan costs money. And more and more, the marketing is just not about putting a property on the MLS. You are competing with other homes that are for sale at the same time in your neighbourhood. So, you have to have the most appealing property in your area to attract the most buyers away from your competition. Because buyers are going to gravitate to the house that has the most appeal, and leave the one with the less-than-stellar photos and the agents who do not return phone calls, you want to have the most appealing property that was marketed and staged better than any other in the area. If there are 9 serious buyers in your neighbourhood and 3 houses for sale, it is very unlikely that  each house will receive a fair amount of 3 offers each. One house will take in most of the buyers, the next will get one or two, and one will likely receive no buyers.

On some level, it's basic capitalism. You invest more in commission, and you take a risk that it will lead to 5 to 10% sale price above market value, a better return than if you cut commission for a reduced or non-existent marketing plan that does not lead to an outcome as lucrative.

I think real estate is going to see a lot of new models of selling and buying properties in the years to come, and undergo some big and needed changes. On the downside, many outside companies like Fee Duck or Zoocasa will try to reduce commissions for the consumer and take a piece of the cut on commission as well. Some will last longer than others. Some will have more viable business models than others. I would be very interested, though, in seeing the data on sold properties from discount companies/brokerages compared to brokerages that sell at full or close to full commission. 

On the upside of this changing real estate landscape, there are some good things that I think will benefit the consumer. First, I think there will be more transparency for the consumer on knowing what the sold prices are in a given neighbourhood. So, I believe a consumer can soon look up prices and see comparable homes without a real estate salesperson. The real estate salesperson will no longer be the gatekeeper of information. He or she will be the person who will maximize the selling price of your home by knowing how to price, stage, and market your home for the top price. I think many people don't think highly of agents because they think agents make too much money on commission and have access to all the info. I say give the info to everyone, and make the agent work hard to sell your house and earn their commission.