Toronto: Boom Town For You

The Toronto real estate market is still going strong in 2006. While annual growth in property value has not been as spectacular as in Vancouver, is it still a respectable average of 6%, and there are hot neighborhoods all across the city where growth is much stronger. The average price of a home in Canada is expected to rise by 5.5 per cent this year, to $262,700. In 2005, there were 84,145 real estate sales in Toronto, according to the Toronto Real Estate Board. These statistics include lofts, townhouses, condos and homes. In 2006, activity in the Toronto real estate market is up 10 per cent compared to 2005.

In the Toronto market, houses in the most popular neighborhoods are being sold for more than the asking price, and often there are multiple offers for the homes. According to Sherry Chris, vice-president of Royal LePage Realty, "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." Buyers are finding a dwindling selection of homes, and must bid competitively to win them.

Many buyers blame a current marketing strategy used by real estate agents for driving up the prices of properties. Agents list their houses at low prices to attract attention, then collect offers for several days, inspiring a bidding frenzy. Many offers often are made until one buyer, who often bid more than initially planned, wins the sale, leaving the seller happy but competing bidders frustrated. However, real estate agents say it's their duty to obtain the best possible price for their client's property, and it is mainly a case of supply and demand.

Some analysts say buyers are experiencing conditions similar to those of 1989, another year when multiple offers and low inventory led to a real estate frenzy in the Toronto resale market. That bubble burst abruptly and prices of some homes dropped by as much as 25 per cent. Many of them have still not climbed back to their 1989 values. However, this boom is predicted to be more lasting, as the housing market of the late 1980s was artificially inflated. Today's conditions are the result of deeper economic factors such as affordable interest rates and low unemployment.

Professional real estate investors are backing off the market, as it currently favors sellers. However, for the average home buyer, the Toronto market still offers affordable housing, which is disappearing in the Vancouver and Calgary markets. In the red-hot Vancouver market, where prices have been appreciating by 22 per cent a year, there may be trouble looming for investors as the real estate bubble bursts, as such exorbitant price gains will not continue indefinitely. An average Vancouver house now costs almost half a million dollars, the highest in Canada, and new home buyers are unable to get a toehold in the market. Only those with houses to sell can afford to buy new homes in this market.

The extreme price increases characteristic of a speculative bubble never developed in the Toronto market and moderate though steady gains are expected. The likelihood of a sizeable price reversal is felt by most market analysts to be relatively low. Prospects for economic growth and employment in Canada as a whole are good, foreign investment in Canada is on the rise, and the strong Canadian dollar and global competition keep inflation down. In the past, a decline in housing prices has usually been preceded by a pronounced rise in short-term interest rates or a marked deterioration in labor markets.