Thursday, 31 January 2013

Move over Boomers, the Echo Boomers Are Flexing Their Muscles

Demographics and real estate have a relationship you can't really ignore. The baby boomers have been given most of the spotlight (or the blame) for how the real estate market has grown. This massive bulge of a population, born after World War II up  to 1964, have been largely responsible for the rise of the suburbs in the 60s and 70s, the revitalization of city neighbourhoods in the 80s and 90s, and some believe, for driving up the cost of housing wherever  and whenever they live.  They are not know to be a thrifty lot. They love to spend and live well.  Some now wonder if this culture-transforming demographic will be responsible for a housing price slump once they retire all at once. It is as if the boomers are the only demographic influencing real estate.

Little focus has been given to another demographic: The boomer's kids, or as some call them, the Echo Boomer. This group born after 1972 to around the early 90s are often characterized as unambitious,  but they are also an influential force growing in power, especially when it comes to real estate in Toronto.

Why you ask? Well, this generation has different habits than their boomer parents. They do not like to commute. More of them prefer to live in the cities near their work, in the thick of the action, and avoid the traffic, which we all know has become a soul-crushing experience since the days when suburbs seemed a little more ideal.  And their numbers are big. They represent half of downtown Toronto (compared to a quarter of the provincial population).  They are a huge reason why so many condos are located downtown. In fact, to feed the housing hunger of these echo boomers, there have been 90,000 condo units built or approved to be built within the city as of the end of 2011, mostly in the core.

So, maybe you are already aware of this. All you have to do is walk around downtown Toronto and see that there are a lot of young people living in the core and living in condos.  Big deal.

But it is a big deal. Not only for residential real estate, but for commercial real estate and businesses looking to set up shop downtown.

In essence, these echo boomers play a big role in Toronto's flourishing business sector where there are a number of commercial businesses moving back or starting up downtown. Back in 1991 when this demographic did not have much sway, downtown Toronto's population growth slowed down to 5 per cent or less over any five-year period where the 905 region reached massive grown at 17 -18%. But since 2006, downtown Toronto's growth has shot up by 16 per cent, surpassing the 905ers who have slipped to 13.7 per cent.

And because of this, for the first time in 20 years, growth in downtown commerical real estate is outstripping growth in the rest of the GTA. Simply put, businesses want to be closer to their echo boomer workforce that prefer to live in the city. 

Sure, we can't ignore that the boomers are going to change how and where we buy real estate in the years to come, but don't count out the echo boomers, who have already showed us just how much they can effect real estate in Toronto. 

Tuesday, 22 January 2013

Are Bidding Wars Back for the Spring?

Real estate is seasonal. Whether we're in a hot market where prices are rocketing skyward, riding a parachute down as prices return to the earth or  if we're some where in between in a balanced market, the seasons do make a difference. Spring is always the busiest time. Fall is next. And summer and winter can be  slower. We are Canadians after all, and we experience all four seasons differently. 

So with that ebb and flow in mind, I find there are two distinct slow months of the year where sales pause slightly and reset. Those months are August, the lazy, hot days of summer, vacations abound. And there's December, when weather is telling us to hibernate. Some people are traveling to warmer climates and other are knee deep in Holiday duties. So, during these times, it is tough to determine what is happening in the market because there are fewer sales, the market coasts along without any gas. Come January, when the new year begins,  people start to come out of that market pause slowly, and we can get an early sense of  ho,w and if, the market will rev up. So, January becomes an important month. For many, it sets the pace of what the Spring market will look like whether you're in Toronto or any where else in Canada.

Back in December, the media didn't take a break like the real estate market did. There's been more articles and media reports than usual over the past month or two that often put a little fear in the hearts of buyers and sellers alike. The real estate climate, I think, can be compared to 2008 when the recession began, though a much lighter version of it. Prices have dipped slightly in some areas of Toronto in the condo sector. There are more sellers choosing to rent than to sell. There is a general belief out there that the Toronto market is slowing down, and possibly ready to spill over the cliff to much lower prices across the board. But I think that's wrong.

Though it's still very early to say, I'm going to make an early call on how the market is starting this year based on my own experiences in the trenches in the first month of 2013. I think we are going through a phenonemon, I like to call sidelining. This is when sellers fear that they cannot get the price that they want. So, they either rent their homes or live in them longer. They are stepping to the sidelines and not selling. They are not that desperate. No bank is taking their home away from them.  They feel if the market has dipped a little, so they ask: why sell now? Why not wait until it improves? Some may think that sellers may panic and sell their condos for fear of losing even more equity if the Toronto housing market heads south, but that panic is not there. 

Some buyers are also heading for the sidelines too. That means, fewer are buying as well. They are waiting for prices to fall. But unlike sellers who can wait, there are more buyers who are probably more keen to buy - they  are tired of the tight rental market with the limited vacancy. They still have phenomenal interest rates available to them. And there are some concern with buyers that rates will go up since the economy is doing well. So, they want to buy before that happens. 

So, the result of all this is that there is very little inventory hitting the market. Less sellers listing, with buyers still looking to buy. The result: There's not a lot to buy. So, buyers are finding themselves in bidding wars more often, even now in January, a slower month. I really thought I would see a lot less of these this year, but because there is less inventory, there's less homes to pick from, and buyers are bidding on what's left. Not every where I look is there bidding wars. Just more than I expected. 

It's very similar, though much less extreme version, to what happened to me in 2008, when I sold the first property I ever bought.  At the time, every one was telling me that the market was going to crash just like it did in the U.S. And prices did dip for awhile in 2008. Prices were indeed falling. But then no one listed their house for sale. So, when I put my house up for sale, I had little competition, and 15 offers. 

Now I don't think we're going to get crazy like that in 2013. I do think we are going to see a more balanced market. Still, I'm seeing the return of multiple offers where some houses and even some condos receiving more than one offer. 

Of course, if every one sees that prices are heading back up again, we may see a rush of sellers joining the low inventory party, holding back offers and hoping for multiple offers. But in that case, the inventory increases and prices may balance out. 

The irony is: The bad news in the media seems to have created fewer listings and more multiple offers on a property. If the news looks more promising in the media, we will likely see more listings and more of balanced home prices. I know! It's crazy. But real estate can be funny that way.

Thursday, 3 January 2013


I can't help it. I get caught up in it like everyone else. As the new year begins, I want to stare into my tea leaves to see what kind of predictions I can make for 2013. There's just some thing about the start of a new year that really brings out the predictor is all of us.

Now remember, they're predictions, not guarantees. I'm making an educated guess, based on my experience and knowledge of real estate in this city. If someone says they absolutely, for sure, without a doubt, know where the real estate market is going, they're lying. Some know better than others. Some will be wrong and some will be right. Here's what I think:

What I mean by this: No property in Toronto can be treated as equal.  In 2012, this kind of inconsistent market was already well under way where houses and condos in this city did not sell the same way. In 2013, houses will be in limited supply, unlike condos. Houses will continue to be more in demand and make some modest increases. Some condos will slip in price. Other, well-located ones in distinct buildings or great emerging neighbourhoods will not.

I think starter homes, that is, houses that are in the grasp of a couple or a single buyer looking to purchase their first house will be the most in-demand property type. Again, limited supply, and a healthy group of hungry homebuyers who just don't want to buy a condo, will fuel this. This is why emerging neighbourhoods, like the Danforth Village for example, still perform very well. They have homes available in that sweet spot under 550K in the grasp of some first time home buyers.  More established neighbourhoods where houses run from 600K or more will not see quite the same performance. Why? Buyers who already own property are more likely to play the market. They will wait for the market to improve or change before listing their homes. Of course, like in 2008, if too many sellers try to play the market and fewer houses are listed, then less supply could means houses may go up in the established neighbourhoods as well.

Sure, not all condos are created equal. Already in 2012, some condos have slipped in value in some areas. And there is a lot of concern about overbuilding and foreign investment. And these are very real and legitimate concerns. Since Canada doesn't really keep track of foreign investment, we don't know how may condo owners are end users who have some real investment in their property. And of course, we all look around us and see how many condos are going up. There's no denying it. It's very natural to ask: Who is going to live in all of these condos? Still, the condo market has really proven a necessary thing for the rental market. Condos have overwhelmingly supplied much needed rental units, and helped address the tight vacancy rate in this city. I'm sure many who bought condos to rent out in Toronto are as pleased as punch right now.

I think what can truly put a damper on prices in real estate are interest rates. I don't think they are going to change much this year. The economy is improving, but I don't think, in the next year, it will improve so much that the government feels comfortable raising rates substantially. The other big killer is oversupply on the condo market. Again, hard to be sure about this one, but Tridel has recently put new units at Ten York on sale. Many real estate enthusiasts and investors watched this project closely.  Since the were able to sell 600 of the 650 units, it's a good indication that the market has not flatlined. Instead, it appears rather healthy. But don't think condos are on easy street. The number of condo sales have dropped 22% over the last year for resale, down 30% for new condos.

In some ways, many American cities like Miami will pull away international investors from Toronto and give us a break from the buying frenzy we have seen here 2 years ago. It will certainly create a more balanced market. But there's a bigger silver lining here. That is, the improvement of the U.S. housing market will lead to more products and resources required from Canada, and in turn, a better economy. After all, they are still our biggest trading partner by a long shot.  And don't they deserve some real estate relief?  I know we can look on as pleased Canadians who didn't mess up our real estate market and banking system in the same way, but enough suffering already for our southern neighbour! Of course, it doesn't hurt that their economic upswing will help us too!