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House prices up by up to 300% in Toronto market last 10 years while huge group of workers wallows with crap wages

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House prices up by up to 300% in Toronto market last 10 years while huge group of workers wallows with crap wages
story is mostly about the outlook of the market in ontario, but it gets into pricing details towards the end

compare this with reports that 40% of canadians earn $10 per hour or less (national post)

Preparing for a 'real estate apocalypse'

Real estate agent Jim Common, in a Toronto suburb, publishes a newsletter that lists power-of-sale properties in the GTA. Email story
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Hold off on that U.S. vacation home, guru advises
John Talbott has some advice for Canadians looking for cheap vacation homes in the United States: Don't buy. At least not yet.Mar 09, 2008 04:30 AM
Tony Wong
Business Reporter

Mike Donia has survived several housing market downturns in the Toronto area, and he figures, sure as death and taxes, that all good cycles will come to an end.

"It's not a question of whether the market will go south, it's when," says the veteran ReMax realtor, one of the brokerage's top agents.

The year has not been off to a great start. In figures released last week, a blustery February knocked existing home sales down by 11 per cent for the month, while residential building permits were down by a significant 47 per cent in January.

Growing uncertainty over the U.S. economy, where housing values have plummeted in some states, has also cast a long shadow over the Toronto market.

In conversations with realtors, economists and buyers, the Star found a growing unease over whether the good times can continue and whether this year will mark a turning point.

"If the American economy continues to go down, the greatest risks to Canada are in the Greater Toronto Area since we do the most exporting to the U.S.," says housing analyst Will Dunning. "This is the great unknown."

The Ontario economy and particularly the manufacturing sector has already been bludgeoned by the high Canadian dollar and the U.S. economic freefall.

Manufacturing activity dropped more than 3 per cent in December, the lowest level since 2001, according to Statistics Canada.

And economists are closely watching the impact of a new City of Toronto land transfer tax to see if it will slow sales. The tax, which came into effect last month, adds thousands of dollars to the price of a home.

Some analysts wonder how much more turmoil the economy can handle before it affects housing.

The past decade has been one of the best in the city's real estate history. It's also been one of the longest upswings ever, with average prices increasing by 78 per cent for a 5.9 per cent annual compounded rate of appreciation. The market has defied persistent forecasts by some analysts who have predicted a drop in sales every year for the last four years, only to be proven wrong.

But will this year prove them right?

"I don't want to be an alarmist, but people have to realize there is danger in this market," says Halton MP Garth Turner who has released a book this month on Canadian real estate. "There are a lot of catalysts happening right now, whether it's more taxes, or job losses. At some point people will eventually say, why am I spending $700,000 to live in a crappy home in Leaside?"

And the numbers support Turner's claim. Price appreciation in Toronto's downtown neighborhoods has been particularly steep. A detached home in Toronto's modest Leaside neighborhood that sold for $470,000 in 1997 at the start of the housing boom, sold (after renovations) last year for $1.55 million.

A Royal Bank of Canada survey released last week found a "potential shift in the Canadian home buying landscape." It found the proportion of Canadians planning to buy a home in the next two years had dropped by a significant 5 percentage points to 23 per cent over the year before.

Some realtors say they are already feeling the difference, with a perceptible slowing since the start of the year.

Donia says he spends $250,000 annually in advertising alone, which generated up to 400 calls per week last year. In the first weeks of 2008, that number has fallen to less than 100. "That's not normal although the fear is that this will end up being the new normal," says Donia.

Markham real estate agent Jim Common is already positioning himself for the real estate apocalypse.

Common is publisher of a weekly newsletter with 10,000 subscribers that lists properties being sold under power of sale in the GTA. When he launched his "Power of Sale Insiders Report," other agents thought he was wasting his time.

"Everything was selling at list or better, there weren't any real bargains," he says. Now he says he's never been busier. "The interest has been through the moon, people are coming out of the woodwork."

When he started the newsletter, Common says he had an average of 80 new subscribers monthly. That number has jumped to an average of 700 new subscribers monthly in the last few months.

Power of sale homes are properties that have been repossessed by the lender. In the U.S., record defaults have occurred because of a credit crisis that could put the world's largest economy into recession.

But Common cautions that's hardly the case in Canada.

There are currently 315 power of sale homes in the Toronto area, about the same as last year. And the number of mortgages in arrears has remained relatively flat at the end of 2007 compared to the prior year, according to the Canadian Bankers Association.

What's changed is perception. And market sentiment, he argues, is usually a leading indicator.

"There are a lot of smart people out there who see opportunity, and they are preparing themselves. They know the tide will eventually turn."

That seems to be happening in areas hard hit by car industry layoffs, such as Oshawa and Brampton, where Common says he is seeing an uptick in power of sale listings.

Meanwhile, Marg Green, a mortgage broker with Mississauga-based Mortgage Architects, one of the largest independent Canadian brokerage houses, says lenders, stung by losses from the credit crunch in the United States, are already being more stringent with loan requirements.

"They are being prudent, especially if you have concern over an economic slowdown and job losses which could affect the ability to pay back the loan," says Green. Green says there are "fewer exceptions on borderline deals. They are sticking to their guidelines and you won't get exceptions."

Realtor Donia, a former bank manager, says he wouldn't be surprised to see arrears increasing significantly over the next few years, simply because he believes Canadians are carrying too much debt.

"In the old days before you got married you needed an engagement ring. You had some kind of commitment. With mortgages you don't need a commitment, you don't even need a down payment, which is the equivalent of a ring.

"And so when times get tougher and the value of your property goes south, you can expect a lot of people to just pack up and walk away. It's just a lot easier."