Desperation Sets in for House Hunters in Red-Hot Toronto Market
Dana Kayali is preparing for battle. Clutching a stack of home ads, the pension fund manager and her fiancee brave a swarm of about 30 people on a recent Saturday and step into the first of four open houses of the day. They’re all searching for what’s dawning on Kayali is a fantasy: a home in downtown Toronto for under C$1 million.
She’s immediately deflated. The floor in the master bedroom slopes up about half a foot, the upstairs hallway is so narrow another house hunter has to squeeze through sideways and an inspection report recommends that parts of the roof, outer walls, and back porch need to be replaced within two years because there’s a risk of water damage. It’s listed for C$699,900 ($521,690). Seven days and seven bids later, it sells for C$1.05 million.
“It’s terrible, it’s just discouraging,” Kayali, 27, said. “You go to the open houses and it’s mostly couples like us. And we’re all in the same boat, looking at one another and I’m thinking ‘O.K. You’re probably outbidding me.’” Just last week they hoped to bid on a semi-detached home similar in size and a five-minute drive away. The next day, it sold for C$1.4 million, 42 percent over asking.
Speak to prospective buyers in Toronto, where home prices surged the most in almost 30 years in January from a year earlier, and supply is tighter than Manhattan, and you hear the same lament: there’s nothing remotely affordable to buy. The desperation is sparking bidding wars and price gains in cities even a two-hour drive from downtown. The “bubble” word is regularly used to describe the market, and there’s little on the horizon to pop it with immigration booming, the economy strengthening and interest rates unlikely to rise soon.
Here are the facts: there were 5,400 properties on the market at the end of February, half of last year’s figure. That amounted to just one month of inventory—the time it would take to sell all available properties—compared with 5.6 months in Manhattan. Supply isn’t keeping up with demand. Housing starts rose only 13 percent to 52,941 units in Toronto in January from five years earlier.
While Canada’s west coast city of Vancouver has grabbed international attention for its soaring prices in recent years, Toronto is now in the eye of the country’s housing hurricane. The price of an average house in Toronto and its suburbs rose 28 percent in February to C$875,983 from the prior year, the sixth straight month of above-20 percent growth. By comparison, the median price rose 1 percent to $1.15 million in San Francisco in the 12 months through January and 8.9 percent to $604,300 in Seattle, according to Zillow Group Inc. Prices are still hot Manhattan, where a home costs about $1.25 million, but the 18 percent gain in the period is still below Toronto’s torrid pace.
All those numbers pale when compared with the price gain for a detached home in the Canadian city. That was up an average 30 percent to C$1.57 million.
“Nothing is more bubbly right now than the Toronto housing market,” David Rosenberg at Gluskin Sheff & Associates Inc. said in a note to clients last week. The chief economist, known for predicting the U.S. housing meltdown and the economic carnage it unleashed, says prices are more than 60 percent overvalued in the city when compared to incomes.
The exuberance can be seen in Toronto’s bidding wars. Erin Warner and her partner, 40-something professionals, purchased a townhouse in Toronto’s east end for C$1.05 million this year, paying about 15 percent above the list price to outbid a handful of other hopefuls. The couple used savings and the windfall from selling their smaller townhouses on the other side of town, which had doubled in value since they bought about seven years ago.
“We wanted to make sure we got it, and knew others were bidding over the asking price, too,” Warner said Saturday from the kitchen of an open house for a townhome in their complex. “That’s just a reality now.” The couple were browsing the open house to justify their purchase and they were immediately vindicated. The property, similar in size but older and less up-to-date, is also listed for C$900,000 and the agent said it’ll likely sell for at least C$1 million.
“Homeownership is going to be an issue for families who want to live in urban centers,” said Ara Mamourian, 38, who owns brokerage Spring Realty Inc., and scrapped his own plans to buy a house to accommodate an expanding family. He’s opting to rent for now and bought a two-bedroom, C$800,000 condominium that’ll be ready in 2019. “There’s already so much competition. It’ll be nuts.”
Mamourian, who’s been helping clients buy and sell real estate for at least a decade, said that condo units with more than two bedrooms are the latest facing the price squeeze. First buyers couldn’t afford detached homes, then townhouses, and now larger condos. He said he was even lucky to find his.
“2017 is the last year people may be able to afford a home in the city,” he said.
Competition is only is only heating up. Disgruntled foreign buyers are likely moving east after Vancouver last year imposed a 15 percent tax on foreign homebuyers. Transactions have since plummeted in Vancouver and prices have started to cool. Meanwhile, more than 100,000 people are forecast to move into the city and its suburbs each year.
And the province of Ontario, with Toronto as its biggest city, is only beginning to pick up steam. Growth is forecast to expand 2.3 percent in 2017, the fastest provincial rate in the country, according to estimates compiled by Bloomberg. That still likely won’t be fast enough to prompt the Bank of Canada to follow the U.S. with interest-rate hikes anytime soon. Governor Stephen Poloz has recently played up the slack in the economy, wary of derailing a recovery from the oil rout.
That means mortgage rates will likely stay lower for longer, tempting buyers.So the hunt goes on. With the average price in Toronto’s suburbs cresting C$1 million for the first time ever in February, housing refugees are spilling further afield into Hamilton, an old steel town, and Port Hope, nearly a two-hour drive from Toronto.
Teachers Sylvia Kim Cota and her husband Danny are kicking themselves for not raising their bid over a year ago on a C$540,000 home in Mimico, 30 minutes from Toronto. It sold for C$600,000 after receiving eight offers. Today, they see listings for comparable homes for C$800,000.
“We should have jumped on it—there’s no way we can get a house like that for that price now,” Kim Cota said from the couple’s 700-square foot (65-square meter) condo in downtown Toronto, which they now share with their 9-month-old child. “Everyone who wants housing in this city goes through this—we’re used to being slapped around financially now.”
The 29-year-old grew up in a high-rise just a few blocks away from their condo. A daughter of immigrants, she thought as a next-generation Canadian she might be able to move into a bigger home, maybe even with a yard. “Realistically, we probably won’t find a place,” she said.
She’s among prospective buyers like pension fund manager Kayali who will need to change life plans. Kayali recently got engaged and is planning a wedding for this year, but she and fiancee Basel live separately with roommates in downtown condos. It may have to stay that way for now.
“Hopefully more places will list this spring and that’ll push prices down a bit,” she said, sounding uncertain at the prospect. “If it keeps going this way, we won’t be buying this year.”
—With assistance from Erik Hertzberg