January - A New Year With Old Worries

The great housing debate continues. Will it be a soft landing or a hard landing? The players with the big profits – banks and brokers – promote the soft landing scenario. The non-tied economists and analysts warn there could be a hard landing. Interestingly, the architect of a pull-back from the brink of excess, Minister of Finance Jim Flaherty, says, in response to falling sales, “I don’t mind prices coming down a bit, too.”

He’s getting what he wants. Average prices have been falling since mid-2012. That decline is disguised by year-over-year comparisons, e.g., December 2012 to December 2011, which shows a small increase. As I see it, the average price of all housing is like the average price of food at the supermarket checkout. One week your 15 items cost an average of $4.39. The next week your average is $5.45. Did food prices jump? Broad averages are not good indicators.

So while industry data shows the view from on high, I fly low to share with you what’s happening on the ground.

The condo market

The cover story in the January 14 MACLEAN’S magazine is titled, “Crash and Burn”. The subtitle: “The housing bubble has burst, and few Canadians will emerge unscathed”. Banks and brokers beg to differ.

MACLEAN’S reports that condo sales are down 30%. With 2012 unsold pre-construction inventory up 100% from the previous year and unsold under-construction inventory up 50%, PLUS resales taking longer to sell, prices are coming down. I mean, are there really enough buyers out there for the 56,336 units in 147 buildings under construction in Toronto?

Condos along Highway 7 in Markham and Richmond Hill appear to be quite vulnerable. I track the more stable 2-bedroom category instead of the investor-favoured 1 bedroom, which grows ever smaller in square footage with each new building. Next month I will check to see if my suspicion is correct, that 1 bedrooms are in steeper decline than 2 bedrooms.

In case you’re thinking this would be a terrible time to buy a condo, I’ll repeat what I said last month. You likely won’t get left behind if you wait and see, but you could do very well right now if:

  1. For resales, you find sellers who really want to get ahead of the curve and will entertain offers.
  2. For new condos, you take advantage of developer incentives of free upgrades, free maintenance, etc.
  3. Either way, you can get a big cash rebate from me. Ask me about it.

If you want to shop model suites on your own and still get the rebate from me, talk to me before you go shopping. If you “register” on your own as a potential buyer – sorry, can’t help you. If you prefer a resale because you’ll see and know exactly what you’re getting, then we’ll need to tour together.

The house market

Houses are not as vulnerable as condos to price declines because there is no over-building. The charts show Markham and Richmond Hill holding up pretty well. North York meanwhile seems to be our Vancouver – high prices and a pronounced decline.

Across the three areas homes are taking longer to sell. December sales were down 17% from a year ago. Unsold listings represent a 7-month inventory. Not bad actually, and there may be no glut to push prices down if owners choose to stay put rather than lower their prices. Tough decision, because if and when price drops start to show up in the data, an owner could already be $50,000 behind the sales curve.

Look at it this way – banks have the most to gain if prices go up. Last month David Madani of Capital Economics revealed that bank execs have censored negative reports from their own analysts. The last few months none of the banks are saying prices are going up. So waiting for a higher price over the next couple of years is not a safe bet.

In addition to rising time on the market and falling sales, house prices face other headwinds:

  • Condo prices. Falling prices will disrupt the plans of some sellers who were hoping to trade up to a house.
  • Affordability. Fewer young families can afford the high prices.
  • Baby boomer retirements. At some point more of us will say, to heck with shovelling snow and pulling weeds.
  • A soft economy. Maybe Canada will continue to be the exception, or maybe not.

The realtor market

You have 30,000 realtors to choose from, including your cousin (doesn’t everyone have a realtor in their family?). Of course, I’d like to be your choice, or at least interview for the job (yes, you can do that).

Some people I know have used another realtor. That’s totally okay. Before you do that yourself, please check that it’s not for one of these reasons:

  • You (meaning me) don’t know my area like so-and-so.
I know how to find out more about your street and your neighbourhood, or your building, than just about any other realtor. Others will just stick to what they know; I’ll know more.
  • You don’t know my house like so-and-so who has sold houses like mine.

I pay attention to the details. I’ll get to know it really well. What really counts here is how your property is presented on multiple websites and in takeaway brochures for the biggest audience of buyers and agents. On this count, I am among the very best.

  • Your suggested market value is lower than what so-and-so says.
The experts say the best price to list at is the market value or slightly higher in some cases. Here’s why: (1) An unrealistic price can put your property out of the price range of a whole segment of buyers. Lowering it later can be too late. The listing gets stale. (2) A price that might be a little less than you think you can get is no disadvantage. If you’re right you will attract more buyers and possibly multiple bids.

If you’re not ready to make a move, someone you know might be. They will thank you for referring me because their interests will be very well served, and they will save serious money on fees. I’ll show you my appreciation as well.

The outlook market

Scotiabank says, “Canada’s housing market is clearly in correction mode ….” TD Bank says, “… house prices will likely resume their trek downwards once higher interest rates come into effect in the 4th quarter of 2013”. BMO sees a “satisfying balance” but not a steady one. RBC says the cooling is “generally proceeding gradually”. CIBC warns that “the full bite of a housing slump” will be felt in 2014. Capital Economics sees the mood as very similar to the one in the US before the market started spiralling downwards, but does not rule out a spring rebound.

What I think

People ask me what I think. I say there are people way smarter than me who don’t know, and I don’t know either. The hard data says one thing, and the full-steam-ahead realtors say another. They know how to work the media and public perception.

I will say this – nothing goes up all the time, not even Apple stock.

George Athanassakos, Professor of Finance at the Richard Ivey School of Business, University of Western Ontario, believes “… a perfect storm is coming in the housing market. Canada will experience significant “secular,” or long-term, decline in house prices starting around 2015 ….”

For me, nothing caught my attention more than this: the Chinese are turning their attention to the US where beaten-down housing is on a tear. I put in three offers at list price last fall. Got outbid every time.

Recent data from the US National Association of Realtors shows Asian investors buying everything from multi-million dollar New York mansions to multi-million dollar California estates.

Finally, the pièce de résistance: Florida Home Finders in Toronto reports that while clients were booking flights to check out properties, Chinese investors bought 35 townhouse condos in Florida sight unseen. “They looked at a picture. They wrote cheques.”

I have long maintained that Chinese money has been a major factor in Vancouver and Toronto real estate. Can we continue to count on it?

Charles Young
Real Estate Sales Representative


call or text: 416 436-5851
email: charles@charlesyoung.ca

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Charles Young

Charles Young

Sales Representative
CENTURY 21 Innovative Realty Inc., Brokerage*
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