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Toronto Real Estate

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Tag Archives: condominium market

Home buyers face tougher time trading up from condo to house

Michael Babad – The Globe and Mail

Home buyers are going to find it tougher trading up from a condo to a house given the economics of the real estate market, a new report warns.

In all, Toronto-Dominion Bank still expects a soft landing in Canadian housing, and predicts the shift to a buyer’s market over the next 18 months. That matches what many other observers project.

Comment: Actually no. TD is about the only one predicting that, other than Capital Economics. Everyone else disagrees. Like the creation/evolution argument – when it is 10,000 to 1, it is not a balance debate. There are those who are right, and then a couple who aren’t. We need to stop talking to those who aren’t.

“As home buyers have more choice, they will also have more bargaining power and price pressure will ease,” economist Diana Petramala said in today’s report, citing softer demand and more listings.

Comment: That is so wrong it is hard to argue. More listings will just fuel the rabid pent-up demand that currently exists in the market. After years of declining listings, June finally saw them rise. And sales shot up and prices did too. More choice did not lead to lower prices. It simply led to more people being able to buy.

“These features would be consistent with the makings of a soft landing in Canada’s housing market.”

Moving up real estate
There are many regional differences, of course, and markets east of Toronto are already at that soft-landing stage, she said.

Vancouver, Toronto and Victoria are more vulnerable, but “even in those markets, prospects for a gradual rise in interest rates and relatively stable employment point to orderly adjustments over the medium term with some over-valuation persisting,” Ms. Petramala added.

Comment: But interest rates are not rising. They are staying steady. And if they do rise, it will only be with a booming economy. Which means more jobs and higher incomes, allowing people to afford more. Now, the Canadian dollar is rising again, which hurts us (oddly enough) keeping downward pressure on interest rates. The amortization drop from 30 to 25 years was equal to about 1% increase in mortgage rates. It did nothing. Sales slowed for 10 months, but prices never dropped once.

Calgary and Edmonton will see the fastest pace of price increases over the next few years.

Her take on the condominium market is interesting as “the implications of overbuilding are already starting to be felt.”

Condo resale listings have doubled in some cities, and there’s also an “ample supply” of new but unoccupied units.

Comment: Yet in Toronto condo sales shot up 21.4% last month, with prices rising 6.3%. No problems here.

This is already a buyer’s market, with just modest price growth, said Ms. Petramala, who expects condo prices to fall by about 2% next year and who cites the 135,000 units now under construction.

Comment: Sure, maybe in Calgary or Edmonton. NOT in Toronto.

“The economics of investing will likely continue to deteriorate with the rental market well supplied, the rental vacancy rate rising and rents stagnating,” she said.

Comment: Not in Toronto, not when the vacancy rate here hovering just over 1%.

“Meanwhile, softer conditions in the condo market will eventually have knock-on effects to the single-family home market.”

Comment: Not in Toronto, not when detached houses are in such short supply. Which then pushes a lot of people to semis, pushing their price up. Which then pushes people to townhouses, causing their price to rise. And then people start to look to condos as family homes, exerting upward pressure on sales and prices. All of which we are seeing right now.

That means that “more choice and better affordability” in the condo market may well keep people from buying up to single family homes, as will the widening price difference that now stands at some $200,000.

Comment: That is nationally, not here in the 416.

“As such, move-up buyers who would like to upgrade their condos to a single family home may find it difficult,” Ms. Petramala said.

Comment: Of course. As prices rise, the absolute amount rises more for higher priced properties. If someone buys a $300,000 condo today, with thoughts to buying a $500,000 house in a few years, the price gap only widens. Let’s take June’s average 7.4% price increase. If that happens every year for 3 years, the condo is worth $371,650 and the house is worth $619,415. So a $200,000 price gap becomes a $247,765 after 3 years.

“After increasing by an estimated 8% this year, single family home prices are expected to rise 2% next year.”

Comment: Sure… and they said that after an 8% increase in 2013, 2014 would only see a 2% increase, or 0%. Which did not happen. Every year the “experts” say that no matter what happens this year, or the year before, next year will be different. Like Capital Economics, keep predicting the same thing year after year, maybe one day it will come true. And if it ever does, they can claim they were right. Even if they are wrong for the 27 years before that.

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

Laurin Jeffrey is a Toronto real estate agent 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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