Rich Tejada

What goes up must come down. Was that Newton talking about gravity or about real estate in Toronto and the GTA.? The market has continued to defy logic and the warnings of our central banker who is very concerned about the over indeptedness of consumers. AS prices continue to rise according to the latest stats any home owner considering selling should get on the bandwagon soon. There is no guarantee that the level of prices will continue to rise or even remain where it is. It is due for a breather or even a good correction. Like the stock market or any collectible (like art or diamonds) prices fluctuate and go up and down according to supply and demand and the whims of our general economy. There are warning signs all over the world of potential crises (in Europe with Greece, Spain , Italy and others in financial trouble). If a serious economic or financial event occurs which causes something similar to what happened in 2007/2008 Canada and the GTA will not be immune no matter what all those talking heads in the clouds tell you about how our banks are above reproach and can whether any storm. It ain’t gonna happen.

If you are close to being ready to sell your home or condo take the plunge before prices change. No one wants a crash and no one wants to believe this is a real estate bubble. My feeling is it is the best market I have seen for sellers in my long 38 year career. It’s a boom you should take advantage of. It’s a boom until it isn’t. When they end the refrain is “I should have sold last month, last spring , last year……… Don’t be caught in a downdraft and get your home (which you’ve probably lived in for 20 years or more if I sold it to you!!!!) ready for sale and call me or your agent to evaluate it and make a good plan for marketing it. Your biggest problem will be figuring out what to do with all the money you’ve made on your principal residence which is normally not liable for capital gains tax. Good selling!!!!

Yikes. What is going on in the market now? Just when things look like they may take a breather all hell breaks loose.  Everyone seems fearless . It’s great to have confidence and until things change I guess we have to go with the flow. I still look for the bargains that can be found and pass them on to my buyers. I am careful to show them resales on the streets they are looking at so they can make an informed decision . Mortgage rates are super low still so renting doesn’t seem the way to go for many and the rental market has low vacancy rates so you pay high prices to go that route. Pay attention and study the market and trends. Ask your agent what he or she thinks  Read and keep records of everything you see.  Multiple offers are very common on the really cool, well manicured homes so be prepared. Act like a real estate agent appraising homes. That way you can convince yourself what good value is. Good Luck in your home search. Maybe we’ll cross paths soon.

    It appears that our spring market may be a hopeful one. Interest rates are still below 4% and buyers who needed the longer amortization rates at 35 years will probably be trying to get in under the deadline to qualify at the longer term. Soon the maximum amortization for mortgages will be 30 years. The Finance Minister for Canada is trying to tighten up mortgage rules as Canadians are considered highly indepted on average. I have always felt that allowing people to qualify at 35 and 40 year amortizations was bad business. Young people pay virtually nothing off their principle in these types of mortgages and should there be a 5 to 10% correction in prices and a corresponding hike in interest rates many would find themselves with no equity in their homes and a depressing scenario like some find themselves in the US. We Canadians pride ourselves in appearing smarter than our American cousins and that our banks were wiser than their southern brethren. That is only partially true. During the crazy periods for our markets many people took loans out for 5 years at 40 yr amortization at very low interest rates. Should the rates rise say 1 to 2 % at the end of those five years and amortizations are now maxxed out at 30 yrs many will find themselves in a pickle refinancing. If prices are flat or down in will be even more difficult. The Federal government is aware of this but does not want to say it publicly and risk spoiling the party we have had with our home price appreciation. Not many places in the world escaped the downward trend in prices except maybe Canada and Australia. Don’t be to smug about it but appreciate that we live in a great country (although a bit too cold at times), that loves to sell our resources to the developing world. 

                 We are in pretty good shape compared to those around us. The rest of the world is still struggling with the financial problems of these past few years. I have enjoyed my 30 plus career in real estate and feel buying a home or investment property is still the cornerstone for wealth creation. It is not a get rich quick scheme which some profess. The US is the best example of that flawed philosopy. When contemplating buying your first home or trading out of you last one always do your math. Make sure YOU can afford the costs. Factor in the other enjoyable expenses in life which are not on a banks mortgage application. Be conservative and leave yourself some cushion for the rainy day scenario. Of course you have to be bold enough when the right home stares you straight in the face. Get advice from seasoned professional like me and by all means from your banker and friends who may have buying and selling experience. Good luck and good hunting whether buying or selling this year!!!

       The latest stats from the Toronto Real Estate Bd show strong home sales for April on a year over year basis – up about 34% from 2009. What is also a big deal is that inventory is up huge at 59%. Prices increased on average from 385,000 to 437,000 or about 13%. I attended a course this past week and an “economic expert” said he saw no evidence to support the idea that homes are in overvalued territory. He looked about at least 30 years younger than me so I suspect he has not seen the boom and bust cycles I have. 1973/74 when an owner had to hold a mortgage in order for a home to sell. 1980/81/82 where prices went up 20% in 80 and than we lost all of that the next year as interest rates went to 20%. 1989/1994 the longest of the real estate recessions in my career where prices went down maybe 1/3!!!and home prices didnt again match the 1989 peaks until about 2000 or 2001.

      We have been in a multi year real estate boom fueled by low interest rates and relatively stable ecomomic conditions if you can forget the fiasco that US Banks and their financial institutions sold to the rest of the world. We have been lucky that confidence was not completely destroyed like it has been in the US and many other parts of Europe where homes prices have plunged and properties stagnate with for sale signs or are sold thru foreclosure. Confidence and optimism are a great thing and can hold an economy together. Our country is resourced base and has enjoyed the high prices for the commodities that the rest of the world seems to want. Canada has largely avoided the troubles of the rest of the world with the exception of the large loss of jobs. What the latest real estate stats tell me is with inventory sky rocketing buyers will have more to chose from and there will be less of a frenzy to bid up the price of a home. There are now many sellers who are not receiving any offers on the date they set for them. Many are shocked to experience this after 4 or 5 years of the full price or over  asking scenario. Some even take their homes off the market for a day and then relist the home at a higher price on the assumption there original listing price was somewhat low to attract multiple offers. What this is doing is fueling what will eventually be a glut of listings and buyers will begin to take their time to make a decision. This is healthy not abnormal. Taking time to make a decision to buy should be well thought out and having conditions on finance and home inspection should be the norm not the exception!

     My prediction is that the mid range properties will remain somewhat hot for several months because that  is where the majority of buyers are in the city (say between 450 and 650). The high end properties where there have been huge escalation of prices will see a glut faster because there are less buyers in that atmosphere. The condo market will also glut up faster because so many new projects are coming on the market (nearing completion where some will throw there condos on the market to make a good profit after waiting 2 years).

     No one wants to see our markets fall apart. The higher interest rates and new mortage rules will make it harder for the first home buyer to purchase. These actions by the federal government will act to slow the market down. Will there be a crash as in the states. No one knows but you should expect the competitive offer situation to disappear and the momentum shift towards buyers within 3 months. Expect a pullback in prices because what we saw over this past 2 years was not normal. If we fall back to the average prices for April of 2009 that would be healthy. Nothing goes up forever as the stock market tells us every now and then. Most of us don’t buy homes to flip or speculate. We buy them because we need a home and don’t want to pay rent to someone else. If you buy with this philosophy in mind it is a cornerstone for wealth creation and also a place to raise a family or maybe just hang your hats!!!

   5  Yr Mortgage Rates have jumped about .35% in the last 3 weeks to about 4.39%. About one month ago in late March a client of mine was able to obtain 3.75% the last day before rates really started moving. The next day they were 3.99!! I think this is the governments way of slowing what has been an overheated real estate market in many of our urban centres. These last few weeks since these major increases began has pushed many more people to list their homes for sale making the inventory levels about 50% higher than what they were last year at this time. Another curious thing has happened. Some homes and condos are now not receiving offers on the date set for them. On the flip side of the coin there are still many multiple offer situations occurring in Toronto.

      So what’s it going to be boom, bust or slowdown?? My guess it’s a few months away from a much needed slow down where buyers get a chance to breath and sellers can no longer expect many bids and over asking prices on their properties.  Prices don’t go to the sky and no matter what the supposed experts say about Toronto or Canada being different from the rest of the world – bubbles have to burst! That’s what we were in and if it goes any further there will be problems for years to come. No one seems to remember the 1989 to 1994 recession and the fact that the prices of 1989 where only reached again starting in about the year 2000!!!! History doesn’t always repeat itself but economic cycles tend to. We need a slowdown in our real estate markets and that’s what the federal government is trying to orchestrate. They don’t want to be blamed for a crash or bust but they don’t want the consequences of having done nothing to slow an overheated market. GOOD TIMES ARE AHEAD!! But soon it may the the buyers turn. Get the stash of cash ready for some better values ahead. I am!!!!

        I have made a habit of not making predictions about prices in my long career in real estate in Toronto. I am going to go out on a limb this time and say that we have reached the peak in prices for our fair city of Toronto. The statistic from Feb 09 to Feb 10 of about a 19% gain in average prices is unsustainable. That coupled with the almost 1/2 % rise in 5 year mortgage rates to approx 4.1% signals a change in the “free money policy” which has fueled much of this boom. Mortgage people I speak with predict more increases later in the fall. The first week in April after the rate increase saw a flood of new listings on the market. That was another piece of the boom fueling puzzle these last few years – no inventory of homes and too many buyers. So if rates go up and inventory increases than the reason for paying full price or over bidding lessens. The message to sellers is clear – if you want to lock in the value of your home now you sell in this market because it isnt going to be the same next spring and maybe not even this fall.
       Alot of the boom for these last few years has been fueled by the younger move up buyer not my demographic population in their 60′s. We boomers tend to stay more in one place. How else to explain how my first client is still in her house 36 years later!!! So folks if you have been sitting on the fence thinking about a move than I think you have a small window of opportunity to get the maximum dollar for your home or condo. Many of you will be looking for a smaller place or possibly a condo apartment or townhome.

       If you are a first home buyer and can wait a little longer – Sit back and relax!! Prices are going to come down. Rates make go up a bit but there will always be an opportunity to buy the right home – if you’re patient!!