When Bill Thom listed his client's Toronto bungalow for sale last month he expected a favourable response from potential buyers.
After all, the real estate agent had underpriced the property deliberately. But he also underestimated the strength of the market.
The tiny 1,000 square foot bungalow in the Yonge St. and Sheppard Ave. neighbourhood of Willowdale was priced at $380,000. In one week, the home went through 170 showings. By the end of the week Thom and his client had 35 offers.
In a sale that still has the real estate community talking, the home eventually sold for $550,000 or an astounding $170,000 above the asking price.
"I didn't expect that so many people would be interested," said Thom. "It really shows how much stronger the market is despite the recession."
According to the Toronto Real Estate Board in figures released Monday, existing home sales in the Toronto area were up 28 per cent in September compared to last year.
The board said 8,196 homes traded hands during the month.
The average price of an existing home was also up 10 per cent to $406,877. That's a new all-time high for an average house price in Toronto. Compare that with 2008, when average house prices were $379,347.
"It certainly is surprising to see prices at that level," said housing analyst Will Dunning.
Experts say higher priced homes in the Toronto market have helped to skew prices upward. The relative strength in the financial services sector has also helped, said Dunning.
"There is a lot more confidence in financial services and this would affect higher-end neighbourhoods in terms of sales," said the analyst.
Another reason has been a dearth of listings. Active listings were down significantly in September by 42 per cent to 15,894. That has meant buyers are competing for less product on the market, which has led to bidding wars in some neighbourhoods such as Willowdale.
The average home is now on the market for 27 days, down from 36 days last year.
Creating an auction mentality for homes is not popular with buyers who feel that they have wasted their time looking at a property they can't afford.
The controversial practice – of putting a lower than market value list price on the property – has been a common sales tactic in the Toronto area for the past several years.
But Thom said the auction strategy only works in a market where listings are down and buyers are starved for product. "If you had tried this last November, you would have been killed. Nobody would have showed up," he says.
Only one offer came in at list price. All the other offers were for higher than list, he says.
The home, which has a 28-foot frontage, had been a rental for at least 10 years and needed "tender loving care" said Thom. The new owners plan to renovate the home.
Much of the unexpectedly high activity in the Toronto market has to do with the magic of low interest rates, where five-year fixed mortgages can be had for less than 4 per cent.
"Clearly the way the market has come back has been a surprise," says Benjamin Tal, senior economist at CIBC World Markets. "The question still remains though as to how sustainable are these sales figures?"
Most analysts now expect this year to surpass last year in terms of sales. Year-to-date sales are up 4.5 per cent in the first nine months of 2009 compared with the same period last year.
However, economists such as Tal expect the market to cool in 2010.
"The numbers are unsustainable and inconsistent with where we're at in the economy," said Tal. "Because of the low interest rates, buyers are purchasing their homes now instead of next year, so we are taking away sales from the future."
Tal says this isn't necessarily a bad thing. Low interest rates were designed to stimulate the market now so as to give a lift to the moribund economy.
But the economist cautioned that borrowers have a responsibility to make sure they are buying within their means.
"In five years from now when interest rates are three percentage points higher, you have to ask whether you can still afford that property," cautions Tal. "For some people, that might be a big no."