Toronto's hot real estate market got even hotter this week, setting a new one-day record for home sales activity through the Toronto Real Estate Board's Multiple Listing Service. It's a great time to be in real estate, but for buyers, is the market getting too hot to handle?
"Everyone is enjoying the brisk market right now -- probably the purchasers less so than anyone else because they're becoming frustrated with the lack of inventory and the bidding wars," Sherry Chris, vice-president of Royal LePage recently told The Canadian Press. In the Toronto market, houses in the most popular neighbourhoods are selling for more than the asking price, and in many cases there are multiple offers for the homes. Buyers are frustrated that not only do they have to choose their new homes from a limited selection, but then they have to compete with other buyers to get it.
A recent report from Re/Max says potential investors are sitting on the sidelines as buyers compete for affordable condominium apartment and townhouse units.
"Housing markets in both Toronto and Ottawa have been extremely heated in recent years," says Pamela Alexander, CEO of Re/Max Ontario-Atlantic Canada. "It's now obvious that the intense competition for condominium apartments and townhouses is prompting investors to ease back on their investment strategies." She says, "Many are reluctant to enter into multiple offer situations, particularly since the rental market has softened somewhat in recent months."
Some buyers blame real estate agents for driving up the prices of homes, by listing the houses at a low price and then refusing to take offers for several days. Many offers often come in, leaving one happy buyer and several frustrated house-hunters. The real estate agents say it's their duty to get the best possible price for their vendor, and in this market, the highest offer with the fewest conditions attached wins the house.
On March 11, the Toronto Real Estate Board (TREB) says there were 500 transactions recorded, an all-time record for a single day. "At this rate....March might set the new record for the highest monthly sales activity ever," says TREB president David Pearce. Every month from May 2001 to February 2002, with the exception of November, which came within 100 sales, broke sales records on the MLS, says the board. The current monthly record is May 2001, which saw 7,490 transactions.
Low interest rates, a tight rental market and several years of job growth in the Toronto area are the main reasons for the housing boom. This year mild winter weather helped boost sales in January and February. The spike in sales this week may have been prompted by an interest rate hike and predictions that months of very low interest rates may be coming to an end. Buyers may be thinking that it's time to jump into the market before rates go much higher.
As it's been across North America, despite an economic downtown, housing has been hot. Records for resale home sales are falling all across North America. Canada's new home and renovation markets have also been booming.
In the Toronto resale market, some analysts say it's beginning to remind them of 1989, another year when multiple offers and low inventory caused a real estate frenzy. That market came to an abrupt end and prices of some homes dropped by as much as 25 per cent. Some of them have still not climbed back to their 1989 values.
But Pearce says this boom is different: "Unlike the housing market of the late 1980s, which was artificially inflated, today's conditions are the result of genuine factors such as high employment and low interest rates."
Canada Mortgage and Housing Corp. predicts that weak job growth will lead to fewer MLS sales this year than last. It says prices will rise by an average of two to three per cent across the country.
Chris also expects the sales activity to level off as interest rates rise.