TORONTO - Eileen Campbell looks around her lovely 900-sq.-ft. downtown Toronto condo and sighs.
For the past seven years, the chef has made her two-bedroom corner unit at 550 Front St. W. really feel like home by gutting the kitchen, installing a quartz counter top and opening up the space.
Campbell, 65, moved west after living in a home in the Beach area, loving that she no longer has to maintain a backyard or shovel snow off a driveway.
And being a foodie, she’s close to hip restaurants along the King West strip. She’s also able to enjoy summers out in her terrace with her little chihuahua — that is, when there isn’t a dust storm from nearby construction of other condos going up along the waterfront.
But retirement is nearing for Campbell and she’s made the decision move again — to a house in the Niagara Region.
Economists forecast Toronto’s booming condo market will experience a crisis in a few years with too much supply and sagging demand, starting in 2013.
So for Campbell, this is the ideal time to sell and is listing her property at $449,800.
“In my mind, if there is that much inventory for people to choose from, would they choose (to buy) a brand-new place or a place that’s been here for a while?” she said. “I don’t want to wait to find out. I’d rather get my equity out now and move onto something else.”
Several of Canada’s biggest banks recently warned about a possible correction in the housing market. Still, prices of homes keep rising, according to the Toronto Real Estate Board (TREB) with mortgage rates remaining low, hovering around 3%.
In fact, the Economist recently declared Canada as one of nine countries where “home prices are overvalued by about 25% or more” and among four countries where prices are in line with those in the United States “at the peak of its bubble.”
While many fear Toronto’s real estate bubble is on the verge of bursting, analyst are cautioning buyers and sellers to relax.
“I do not believe that Toronto, as a whole, is in a bubble,” explains Don Campbell, president of the Real Estate Investment Network. “I think it’s more like a balloon where the air is going to start leaking out.”
Housing will continue to stay strong throughout downtown communities and surrounding areas, such as Leslieville and the Junction, where many newcomers may choose to buy homes because downtown is too expensive, Campbell said. Where there is trouble is the new condo market.
“I believe we’re going to feel an over supply in 2013 because we’ve got a record number of condos coming onto the market in 2012,” he says. “In addition, there have been a lot of development applications put forward to the City of Toronto at the end of December. We’re already starting to see a slowdown in foreign money going into the condo market.”
When those who bought new condos are handed their keys with the intention of immediately flipping the property, they’ll be others doing the same.
“Therefore, you’re going to have an oversupply of the situation come on,” Campbell adds. “That oversupply won’t last for a long time — not like the U.S. — but it’s going to keep a real cap on value.”
Craig Alexander, chief economist for TD Canada Trust, says many first-time home buyers jumped into the real estate market in 2009 because of record-low mortgage rates. The market remained strong in 2010, but it began moderating in 2011.
“I think in the coming year we’ll see the housing market pretty flat,” he predicts.
“I don’t see the likelihood of a major correction coming this year. I do think there’s over-valuation in the market, but I don’t see a major housing bubble in the GTA. I think when we see interest rates rise, we’ll see housing prices decline but it won’t be a dramatic decline.”
The big risk to the so-called bubble occurs when there’s a sharp spike in unemployment or as interest rates shoot up. Alexander figures interest rates should increase by a modest rate — 1% in 2013 and 1% in 2014.
“Torontonians need to be careful not to over-extend themselves because eventually, interest rates will rise,” he said. “I feel like the little boy that cried wolf because every year I tell people that rates could rise and then they don’t. But I always have to remind people that the wolf does show up at the end of the story.”
Richard Silver, the president of the Toronto Real Estate Board (TREB), said the seller’s market has transitioned to a balanced market with more listings now than a year ago.
“Anything that came on the market had multiple offers and buyers had to get a lot more aggressive,” he said.
“They had to get their ducks in a row — like their financing and building inspections and had to make decisions quickly. Now, buyers have more time. They can look around.”
With the new condo sales, it really depends on what is happening in foreign investors, Silver said.
“A lot of (condo deals) happen offshore … that’s a really big part of the market,” he said. “We’re very lucky in Toronto. Right now, there’s a lot of shovels going in the ground. I look at New York and there’s hardly anything being built. Yet, in Toronto, it’s gangbusters.”
TREB had second-best year on record for sales in 2011 with 89,347 — up 4% from the previous year.
According to the real estate board, $465,000 is the average price of a single-family home in 2011. So, what does that get you in the GTA? Surprisingly, not as much as you’d think.
In Toronto, that amount will get you a 800-900-sq.-ft. condo, though it will be renovated and in move-in condition.
“There was only one house that turned up (on a search) – it was on Dufferin, there were no pictures, so it would’ve been an absolute fixer-upper for $465,000,” said Kimball Sarin, a broker with Bosley Real Estate, who has been in the real estate business for a decade. “Whereas this price range for condos, you could get a decent space in move-in conditions. You can sometimes get two bedrooms.”
If you’re looking for a house in Toronto, you’ll likely have to scour Leslieville or the Junction area — places that are roughly 20 minutes outside the downtown core.
“I find people who are looking for only condos don’t even want to discuss moving outwards, they just want to be downtown,” Sarin said. “They’re mostly younger people, 20s-30s typically, first-time buyers. We’re also getting a lot of empty-nesters. People that are going to be selling a larger house.”
Catherine McIsaac, a Sutton Group sales representative, said parts of the 905 are slowly catching up with the rising prices in Toronto. The only detached property available in Oakville was a 1,500-2,000-sq.-ft. three-bedroom family home in the West Oak Trails with an unfinished basement.
In Mississauga, the Marilyn Monroe building — a unique curvy condo tower at 50 Absolute Ave. near Square One — fits in the $465,000 budget. That price fetches a two-bedroom plus den, 997-sq.-ft. unit which costs about $428,400.
With an influx of 100,000 people to the GTA each year, many renters are moving into condos purchased by offshore investors because there aren’t many developers building rental properties anymore.
“There are several new condo developments in the area,” said Tanya Crepulja of Sutton Group Realty. “Condos accounted for about 1/4 of the sales in the GTA, which shows there’s high demand for this type of product.”
The only affordable area for single family homes was in Durham Region. Royal LePage Frank Real Estate sales representative Alexis Appleby said you could get a decent home for around $380,000. And the further you head east towards Oshawa, the cheaper it gets.
York Region, on the other hand, is experiencing a serious lack of inventory.
In Richmond Hill alone, last week there were only 13 freehold houses available for under $500,000 — representing 6.5% of the total number of houses on the market in that area.
“I think that paints a picture of how almost desperate the inventory situation is,” said Jim Common, sales representative for RE/MAX. “The average days on market at this price point is 15 days. There are 200 homes for sale in Richmond Hill — 66 of those are over $1 million. I think interest rates will eventually increase and that will bust the bubble.”
And prices are expected to keep climbing in 2012. According to TREB economist Jason Mercer, he predicts the average price of a home will rise to $480,000 this year.
That makes it tougher for first-time home buyers to save and bank away a down payment for a decent home.
Trellawny Graham, a 32-year-old who works in advertising, bought a house in November. She ended up purchasing a two-bedroom, 1000-square-feet home in Oshawa because that was the only area she could afford.
“I can get so much more for my money,” she said. “I find places closer to (the city) are just double or triple the price and not even as nice as mine. It sits on deep plot of land. I was able to get my house for $185,900. It was just scary to think if I’d ever find a house that I can actually afford to buy.”
Toronto real estate lawyer James Fraser said as worrisome Canada’s housing market is, it is incomparable to the U.S. because Canadian buyers and banks are both prudent.
“Our foreclosure rate has not budged at all during the recession – it’s less than 1%,” he said. “If someone’s thrown out of a job, then that’s going to be an extremely stressful situation and people could lose their houses. But I don’t see the same factors that have devastated the US housing market — I’m not seeing people get into the housing market when they can’t afford it.”