Published Thursday, Apr. 23 2015, 9:25 AM EDT
Bidding wars have spread beyond the boundaries of Toronto’s core to the 905, Globe Real Estate’s home value survey confirms.
Real estate agents have been passing along anecdotes about the spirited competition taking place in parts of the Greater Toronto Area that, in the past, had lots of houses to choose from.
John Pasalis, president of Realosophy Realty Inc., says the data have revealed some surprisingly hot pockets in Oakville, Thornhill and Durham region, for example.
“It’s pretty clear this isn’t a Toronto phenomenon.”
Mr. Pasalis says contests are also taking place in all segments of the market up to and even past the $2-million mark. A lot of people seem to think that only first-time buyers get drawn into multiple offers, he says, but that’s no longer the case.
“I don’t think people realize the demand is everywhere.”
The spring survey of home values, tailored exclusively for Globe Real Estate by Realosophy, shows that prices jumped about 8 per cent in the GTA in the first quarter compared with the same period in 2014.
The survey of market values expanded this year to include a larger swath of the Greater Toronto Area.
To gauge the temperature of a market, Mr. Pasalis looks at such factors as price growth, sales growth, average days on market and the selling price compared with the listing price.
Mr. Pasalis says it’s common these days to see buyers competing over real estate in areas well beyond the core. In Durham, for example, parts of Bowmanville, Pickering, Ajax, Whitby, Oshawa and Clarington are popular.
The Centennial neighbourhood, for example, saw the average price jump 26 per cent to $347,593 from $275,962. Days on market dipped to 13 from 18. In the niche known as Southwest Ajax, the average price rose 23 per cent to $370,417 from $300,082. Days on market dropped to 18 from 26. And in Dunbarton, the average price swelled 38 per cent to $838,375 from $608,167. Days on market increased in that area to 30 from 18.
Mr. Pasalis says numbers are sometimes skewed in a particular area if the housing stock shifts with the completion of a new condo building or sub-division. In luxury neighbourhoods where fewer houses change hands, large swings can occur in either direction if a very high-priced property sold in one of the quarters.
Mr. Pasalis knows that competition is likely breaking out in particular pockets when he sees houses selling for the full asking price or above.
In Toronto, he points out, competition is often the norm for a single family dwelling.
“It seems everything gets bidding wars – even the really dumpy ones,” Pasalis said.
At richer prices – between $1.5-million and $2-million for example – houses will sit a little longer in the suburbs. In the 416, houses in that range also draw multiple bidders.
A property within walking distance of a subway station tends to be the most likely to create a mania.
“The second you’re off the subway, it tends to stay on the market a little longer,” Pasalis said.
Some hot neighbourhoods include Banbury, which saw the average price gain 42 per cent; Victoria Village, with a 29-per-cent jump and Bayview Woods, which rose 23 per cent.
Buyers have been pouring into a slice of the Thornhill region called Royal Orchard. The average price jumped 23 per cent to $720,812 from $585,145 and days on market dropped to 14 from 22. Mr. Pasalis figures house hunters began pushing those prices up after they were priced out of other neighbourhoods nearby.
“It’s a somewhat affordable pocket,” he says.
Similarly, River Oaks is a less pricey area of Oakville compared with the historic downtown. The average price rose 20 per cent in River Oaks to $736,776 from $613,720.
Mr. Pasalis says a lot of the houses were built in the 1980s and 1990s so they are not as cherished as the heritage homes or as coveted by the group that prefers brand new.
“They usually don’t show as well,” he says. “The appliances are white. Fifteen years ago people weren’t as obsessed with stainless steel.”
Some areas have seen jumps because smaller houses are being torn down and replaced with larger ones.
Meanwhile, the real estate brokerage TheRedPin.com has deemed May 1 the best day to list a home for sale. Earlier this year TheRedPin pegged the third Tuesday in January as the cheapest day of the year to buy a house.
Now it has crunched five years worth of numbers and found that between 2010 and 2014, homes sold for $18,650 higher in May than the average for the calendar year.
A typical house in Toronto sells in 21 days during the spring market so TheRedPin figures that listing May 1 gives sellers the optimal amount of time to make a sale.
New York-based Stefan Hilts analyzes Canada’s housing market for Fitch Ratings.
Mr. Hilts, a director in the firm’s residential mortgage-backed securities group, believes the national real estate market is overvalued by about 20 per cent. To arrive at that number, he looks at long-term economic fundamentals such as income growth, population growth, the rate of unemployment and housing starts.
Most of the major markets in Canada began deviating from the long-time trend in about 2006, he says. The 20 per cent estimate hasn’t changed in the past few years, he adds, because demand has also risen.
The price growth since 2007 has been strong, he notes, while the economy has been pretty slow over that time.
Mr. Hilts says the gap between where prices are and where he estimates they should be is largely a measure of speculative activity.
He notes that some analysts who also look at price-to-rent ratios are arriving at eye-popping numbers like 40 or 50 per cent for the overvaluation in some cities, but he doesn’t find that ratio a reliable barometer.
“I tend not to agree with most of those analyses. They tend to look a little bit naive.”
Mr. Hilts adds that Fitch doesn’t necessarily believe the market will see a correction of 20 per cent – or any correction at all for that matter.
“A market can be overvalued and really stay overvalued for a long period of time.”
But he is wary of some risks.
At the top of his list is a trend toward lower participation in the labour force. That in turn artificially decreases the unemployment rate, he says, making it appear as if fewer people are out of work when in fact they’ve just stopped looking. Some people are also moving to part-time work, he adds.
“We just need to be cautious to know why they’re declining,” he say of the unemployment stats.
Mr. Hilts also sees an overhang of inventory in the high-rise condo market. In Ontario, large numbers of units are under construction – particularly in Toronto – as everyone can see as they make their way past all of the building sites around town.
This spring we’ve heard lots of anecdotes about all of the buzz in the condo market as buyers compete for units even as new ones arrive on the market. Mr. Hilts says he takes those anecdotal stories with a grain of salt because they may not reflect the true market dynamics.
“It’s exactly that kind of excitement that makes me think there could be a little bit of froth in that market.”
Another risk factor that Mr. Hilts is watching is the national debt-to-income ratio for Canadians.
Debt imbalances are measured chiefly by the ratio of total household credit-market debt (mortgages, other loans and credit cards) to disposable income, and that ratio hit a record 163.3 per cent in the fourth quarter of last year, according to Statistics Canada.
That debt burden puts homeowners with mortgages at risk if interest rates rise, he cautions.
“There’s a lot of exposure to interest rates.”
Mr. Hilts says it’s difficult to predict when today’s ultra-low rates may end but he figures the improving U.S. economy will cause rates to tick up at some point and Canada’s will move up as well.
Mr. Hilts adds that the number of housing starts is near the top of his list of concerns.
“[There are] a lot of jobs are in construction … if there’s a slowdown in housing, it can have reverberating effects through the rest of the economy.”