Carolyn Ireland – Globe and Mail

[dropcap]T[/dropcap]he full intensity of the spring market will be upon us soon. Can bidding wars for Toronto houses get any more zany?

Lots of people watching the eruption of extreme bidding in the city’s real estate market this spring are wondering who the victors are in these contests.

Real estate agent Wilfred Veinot says the winning bidders are often educated couples or single professionals in their early 30s who have watched their peers prosper from buying real estate.

“They see their friends’ houses and say ‘I want a piece of that’,” says Mr. Veinot of Sutton City Realty Inc.

The age of the new buyers doesn’t seem much different from the past but their fearlessness does.

“Everything’s got to be instant,” says the agent.

In one recent deal in the east end, a cute bungalow within walking distance of the subway was listed for $499,000. The winning bid was $610,000.

Mr. Veinot has queried clients about their decision to offer $100,000 over the asking price, which is not an unusual figure these days for even a modest detached house.

“Are you putting yourself in jeopardy?” Mr. Veinot asks. “Oh no, we can afford it,” the clients will assure him.

With interest rates so low and house prices so high, they look at the added monthly cost of another $100,000 it seems like nothing.

Comment: Not likely. Probably their budget was $600,000 to begin with. No one pushes there price up 20% that quickly and easily. They can’t. People forget that bidding wars are caused by pricing houses way under market value. The try value of the house was likely $600k, but they priced it $100k less to spark the frenzy. In the end, they could have priced it at $629,000 and got the same.

If a couple’s friends bought three years ago, they’ve seen a healthy return on a 15% down payment, to use an example. The potential buyers out there today feel that they are three years farther behind. There is a sense of urgency.

Comment: Which is try. And they are more like 20-25% behind. A house that was $500,000 in early 2009 is now going for $600,000. And in another year or two it will be $650,000. And when mortgage rates rise, that price will be felt even more. So yes, there is certainly a sense of urgency – or should be.

Do they fret that if they don’t buy now they will never get into the market?

“I hear it on a daily basis,” agrees Mr. Veinot.

Mr. Veinot concentrates on Riverdale, which is a neighbourhood perennially popular with young parents searching for a detached house with a well-regarded school nearby.

Whether they are purchasing for the first time or moving up, the potential buyers are doing extensive research online, lining up a pre-approved mortgage, and then looking only at the houses that suit them, he says.

“No one can waste time.”

Of 10 people who pass through an open house, he estimates that eight or nine are qualified buyers.

It’s notable that he’s not seeing the same people endlessly tramping around the circuit; every weekend, he says, new faces appear at the open houses. And while the condominium units in downtown high-rises may attract investors, he adds, the singles and couples Mr. Veinot sees in his pocket – east Toronto houses – almost always intend to live in the house.

“None of these are investors. These are end-users.”

One recent buyer he dealt with was a young doctor on her own; in another case a couple wanted to be within walking distance of the subway.

At Capital Economics, economist David Madani is forecasting a deceleration in house price increases in this country, though he cautions that we will have to wait until the spring season is well under way to judge the trend in housing demand and prospects for prices.

Comment: And so far the market is on fire – if possible, price appreciation is accelerating!

But Mr. Madani notes that household borrowing continues to expand at a rapid pace. Even though the debt-to-income ratio may have edged down in the fourth quarter of last year, the debt-to-asset ratio hit a record high. The indicators he watches suggest household borrowing and spending remain high in this quarter.

Last week was March break for Ontario schools, which is typically quiet for both new listings and sales, says Mr. Veinot. But with that hiatus out of the way and spring bulbs starting to appear, the market will hit maximum velocity in the coming weeks.

Mr. Veinot thinks that the lower interest rates the big banks have offered recently don’t have a huge impact.

“The people who are looking now don’t know anything but low interest rates.”

He thinks they’re more likely to be influenced by how their family homestead has appreciated over the decades. A house that the parental units paid $75,000 for might be worth $600,000 today.

At the same time, the cost to rent a decent two-bedroom apartment in Toronto is often in the neighbourhood of $2,000.

“Two thousand carries a lot of mortgage,” says Mr. Veinot.

Comment: A little over $485,000 worth at 2.99% to be exact. So people can buy a $600,000 house with 20% down for the same monthly amount as renting a crappy old 2-bedroom apartment. That is what is fueling the market.

And a stream of television shows about home ownership and renovation makes everything seem so exciting, he adds.

“The desire to own real estate is stronger with these younger people than I’ve ever seen it.”

Besides, when the “sold” sticker goes on, ask the winners of a bidding war how they feel, and they are usually joyous.

“People say ‘I can’t believe that house went for that’. But you go up to the people who beat nine other people to get it and they’re ecstatic. They say, ‘I can’t believe we got the house’.”

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Contact Laurin Jeffrey for more information – 416-388-1960

Laurin Jeffrey is a Toronto Realtor with Century 21 Regal Realty. He did not
write these articles, he just reproduces them here for people who are
interested in Toronto real estate. He does not work for any builders.
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