Toronto Income Property Newsletter: May 2008
It seems like the Toronto media knows something about the real estate market that we realtors don’t. I’ve taken quite a few calls from clients this past month who’ve been reading the headlines and think that they have to sell their property right away before the bottom falls out. If the market drops off, then the thinking goes that there will be a lot of houses not selling and maybe even an eventual oversupply of product in the GTA. So should you get your top buck now while you can, while the market is still strong? Or is it already too late? The papers are saying that we’re done for, so this must certainly be the case. Or is it?
Check out some of these captions that ran in Toronto media in the month of April:
Toronto Star: “Is the housing boom officially over?”
In this story, BMO Nesbitt Burns deputy chief economist Doug Porter declared that “Canada’s six-year housing market boom is officially over. Sales are melting faster than this year’s snow pack.” The Canadian Real Estate Association said in a report that the steep decline in activity in Toronto, which represents about one-quarter of sales, was the major reason for the dismal national figure.
Globe & Mail: “The sky is falling”
This story argues that the double-digit increases in real estate had to abate at some point, so now that we’re heading towards a recession there is no way our market can sustain itself. They refer also refer to the “Great Real Estate Correction of Early 2008”.
Financial Post: Home price climb slows in Canada
This article talked about how the crisis that began in the U.S. subprime mortgage sector has eroded the value of U.S. homes and threatens to push the whole North American economy into recession.
“We know now that the Canadian real estate market has followed a markedly different path from that of the United States,” said Phil Soper, president and chief executive of Royal LePage. “While Canada will not escape the negative impact of a troubled American economy, Canadians’ home equity should remain safe, as the market moves into a period of slow growth, but growth nonetheless.”
Canoe.com: “Real Estate Boom likely over”
This story points out that 2007 was another record year for MLS residential property sales in Canada. Any comparisons with last year mean comparing with a record breaking year. What the statistics indicate is that the residential housing market is easing back towards more historically typical levels.
Take a look at the graph below that looks at the first few months of activity on a year-to-year basis:
Note how so far our YTD numbers are not vastly below last year’s. Compare to the difference from 1997 to 1998 – or more recently from 2002 to 2003. There doesn’t seem to be near the same degree of sales drop. The first two weeks of April were only 4% lower than last year and we still don’t have our final numbers for the month either.
Now here’s my reality in the day-to-day world of buying & selling income properties in Toronto. There was a triplex on Delaware (Bloor & Ossington) asking $375K that I had some interest in. The final sale price was $485 – a full hundred grand over asking price. Another client of mine put his triplex up for sale for $499K. On the day of offers someone came to the table with $501K, but we refused it. I subsequently raised the price to $529K and worked it for a couple more weeks and we ended up getting $525K. Now this simply should not happen if the market is in a slump. Once no one came to the table at asking price, it should have been over. But in a hot market where there is always pent up demand, someone will still come out of the woodwork to pay your price. This is the market in Central Toronto.
There are still multiple offers going on out there. Until they subside it is very difficult for me to sound the death knell of our market. And what about interest rates? They continue to be at very aggressive rates and there’s talk that may be even going down again. The bottom line from my perspective is that it is simply too early to tell. A slight easing of sales from historical highpoints is not something to be up in arms over – at least not yet.
Before I sign off I like to repeat a paragraph from one of my newsletters from a couple years back. I often get asked about what the rules are for creating a rental apartment in your property. Some of the conditions of creating a second suite (which is perfectly legal) include:
• the suite must be self-contained with its own kitchen and bathroom;
• the house, including any additions, must be a least 5 years old;
• the square footage of the second suite must be less than the remaining unit;
• generally, homes with a second suite must have a least 2 parking spaces. In parts of the former City of Toronto – R2, R3 and R4 districts – these suites are exempt and only require 1 parking space;
• any new second suites must comply with the Ontario Building Code and need building permits. Existing suites must comply with the Fire Code and zoning/property standards.
I also always recommend getting legal advice prior to doing any significant changes to the status of your property.
That’s it for this month. We’re only a few weeks to the May 24 weekend and the official start of summer. As of this writing, Toronto FC has now won three in a row. I think we’ve found our new boys of summer. Go Reds Go!