17 Ridgewood Road, currently listed by Harvey Kalles Real Estate agent Flora Anafcheh.

The Ontario Superintendent of Financial Institutions is considering more changes to the mortgage rules, according to the Financial Post.

What could this mean? Well, “low ratio” mortgages would only be given with 25-year amortization periods, as opposed to 35 years. Low-ratio mortgages are loans for no more than 80% of the home’s value, and do not require insurance, although mortgage providers may sell them with insurance. Because until this point they were considered more secure, granting them a long amortization period made sense. But following the 2008 mortgage crisis in the States and elsewhere, some economists think the conventional wisdom around mortgages is due for re-evaluation.

Finance minister Jim Flaherty has gone on the record stating that he wants Canada’s housing market to cool down, and for the past four years the government has narrowed the window on available mortgages by changing the mortgage rules. The primary goal in narrowing that window is to keep more Canadians out of debt they can’t manage, which has been a troubling trend for Canadian households with a high debt-to-income ratio.

So what does this mean for home buyers? First, it means they should speak with the financial planner at their mortgage-lending institution before applying for a mortgage. (This is always a good idea, but it’s an even better idea when the rules are in the process of changing.) Second, it means that more potential homebuyers may be shut out of the market, as is happening in Toronto’s condo market, and in the semi- and detached market, which is dominated by high prices and low sales.

There is an argument to be made in favour of limiting the availability of mortgages. Buying a home with dreams bigger than your wallet can turn into a nightmare of debt. Paying less than 20% of a home’s price as a down payment is a way to get onto the housing ladder, but can cause problems down the road if interest rates go up or if your financial situation changes – and it means you’re paying PMI, which is more than an extra percent on your mortgage rate. And amortizing over a long period means that the debt only lasts longer, compiling further interest and limiting the likelihood of obtaining other loans that play a major role in developing personal earning potential, such as business and education loans. It can be tough to start that new venture, or invest in another degree, when you’re still responsible for a thirty-five year mortgage. And you’ll probably end up paying hundreds of thousands of dollars more on the same loan than would someone with a shorter mortgage term.

On the other hand, shutting more and more people out of the housing market does nothing to ameliorate the factors that keep homebuyers from affording bigger down payments and bigger mortgages. Younger Canadians have a harder time obtaining mortgages than Boomers did, because tuition increases have saddled them with greater student debt. Locking them out of the housing market means diminishing the tax base necessary for municipal initiatives and infrastructure, and encourages them to take themselves and their talent to other provinces. Moreover, homeownership has a beneficial impact on academic performance and behaviour in young children. And yet, more and more Millennials are facing the prospect of starting their families in apartment complexes, if they decide to have families at all. In other words, limiting the availability of mortgages might diminish the average ratio of Canadian household debt, but it’s only a blunt tool for re-building the Canadian economy as a whole.

Image credit: urbantoronto.ca.

What are the real estate market implications of Toronto’s transit plans?

Toronto City Council has voted not to support the province’s suggested revenue tools for funding transit expansion in Scarborough. Mayor Ford and his supports on Council want subways, although the province has already agreed to pay for light rail under the Big Move plan. AndQueen’s Park has no intention of re-opening the debate on subways. Says Metrolinx of the next phase of their Big Move transit plan:

“We have a plan that is based on a legal agreement signed in November with the City of Toronto and TTC and we are acting on that plan. Our focus is on delivering the agreed upon plan and we are moving forward with LRT to replace the Scarborough RT.”

This dashes hopes for a new transit deal for Scarborough, one which would take a systemic approach rather than an expansive one. In all likelihood, Scarborough’s LRT plan will remain in place. The only question is how it will be funded. But after that is sorted out, the question that should be on the minds of developers and realtors is: what with this mean for Scarborough’s real estate market?

Economically, the LRT will likely be wonderful for Scarbrough’s street-level businesses. Retail sales along Manhattan avenues equipped with bike lanes jumped 49%, and it’s not unreasonable to think that the same could happen for businesses along LRT lines, which are above-ground. Toronto’s local businesses have thrived along streets with streetcars (yes, even on St. Clair, in the end), and streetcars have kept neighbourhoods like Little Italy alive while bolstering home values in Leslieville and the Beaches. While the LRT and the streetcar system will not be exactly the same, the LRT will make commutes easier for Scarborough locals, enabling them to look for work closer to home.

Why is that so important? According to BMO, first-time home-buyers rank proximity to transit as their second most important factor in choosing a home. And because would-be home-buyers are the ones being shut out of Toronto’s condo market by the new mortgage rules, it’s natural that commute-minded GTA residents might start looking at LRT-enhanced Scarborough. Locked out of the semi-detached market by climbing prices, but intimidated by similar rises in condo rents, they may be ready to look further afield for a home — especially if the prices are right and the services and amenities are commensurate with what they’re used to.

And those amenities might be pretty good, after all, if Scarborough’s transit plan turns out. One goal of the plan is to promote mid-rise, mixed-use development, with street-level retail. And this is happening just as mid-rise condos are gaining popularity among developers.

We’re looking at a possible perfect storm here, where all the factors line up to create a mini-boom in Scarborough real estate. Picture this: five years from now, first-time buyers well-acquainted with the current mortgage rules learn that Scarborough’s new LRT stations are surrounded by fair-trade coffee shops and organic grocery stores, with available daycare slots and LEED-certified mid-rise condos. Sure, it’s not Toronto, but they’ve already been locked out of Toronto’s market. So off they go, at 34 miles per hour, to look for the next (mid-rise) thing.

26 Pinewood Avenue, listed and sold by Harvey Kalles Real Estate agent Marni Lokash.

Every few weeks, we blog all the sales and leases from the previous period for agents at Harvey Kalles Real Estate, and we feature one, sometimes two, of the homes our agents have sold and leased. We also provide reporting and commentary around the Toronto real estate market: trends, forecasts and intelligence from our in-house experts.

Now that the April numbers from the Toronto Real Estate Board are in, it’s clear to us here at Harvey Kalles that we’re seeing a resurgence of the strong Toronto real estate market that we know and love. Contrary to the first few months of the year, sales this April are within close striking distance of last year’s numbers, and both new listings and active listings were up, signaling a loosening of the tight inventory situation we’ve been experiencing since late 2012. More homes to choose from means happy buyers, and more buyers means happy sellers.

As well, as Jason Mercer, TREB’s Senior Manager of Market Analysis points out, condo prices are strong: “The condominium apartment segment in the City of Toronto was a key driver of price growth in April, with both the average selling price and the MLS HPI apartment index up on a year-over-year basis.  The improved condo sales picture, with Toronto sales down by only one per cent compared to last year, suggests that interest in condo ownership may be improving.” Although new condo sales in Toronto were down 55% in the first quarter of 2013, these April numbers suggest a resurgence of demand and a stability of price in this sector.

Here are the listings our agents sold and/or leased between April 26 and May 3, 2013.

PH3-1717 Avenue Road: Howard Biderman

2510-35 Balmuto Street (leased): Heidi Nelson

7 Barristers Court: Marion Alberga and Simone Stern

803-7601 Bathurst Street: Bob Davidson

2706-1001 Bay Street: Despina Barnard 

103-23 Brant Street: Jamie Erlick 

72 Brucewood Cres: Adeana Axler and Nancy Jo Biderman 

2572 Bur Oak Avenue: Naval Gandhi 

53 Cambridge Avenue: Ferne Sherkin-Langer and Nina Castle  

206-55 Carscadden Drive: Nadia De Vincenzo

3 Cedarbank Cres: Barbara Krieger

221 Coldstream Avenue (leased): Despina Barnard 

23 Donwoods Drive (leased): Janine Sheeres 

170 Forest Hill Road: Marion Alberga and Simone Stern

49 Harmony Road: Rachel Sekler 

26 McNairn Avenue: Robert Greenberg and Andre Kutyan

26 Pinewood Avenue: Marni Lokash

1519-1070 Sheppard Avenue W: Aaron Gonsenhauser

2607-65 Skymark Drive: Michael Loewith and Jennifer Greenberg

11 Sonata Cres: Cheryl and Samantha Graff

1609-530 St Clair Avenue W (leased): Michael Friedman 

1706-530 St Clair Avenue W (leased): Nancy Jo Biderman and Michael Friedman 

603 St Germain Ave: Sacha Hayward

144 Tamworth Road: Anita Evans 

204 Walmer Road: Jeffrey Joseph and Irene Joseph

105B Walmer Road: Howard Biderman, Michael Loewith and Jennifer Greenberg

607-38 William Carson Cres: Robert Greenberg and Andre Kutyan

309-525 Wilson Ave: Rachel Sekler and Susan Young

101 Woodvalley Crescent: Leslie Richman and Bob Davidson

16 Buckingham Ave, listed and sold by Harvey Kalles Real Estate agents Donna and Nick Thompson.

By now, you’ve probably read this Globe and Mail piece on the 62% price gap between Canadian and American homes. As Michael Babad notes:

BMO Nesbitt Burns compared the two markets, and found that, while U.S. prices surged on an annual basis to March, average prices in Canada remain a “towering” 62 per cent above those in America.

So, what accounts for this difference? Well, it’s complicated. But here are some answers:

• The Canadian economy is recovering from the 2008 crisis at a different rate. In large part, that’s because it navigated the crisis with such success. The same practises that protected Canadian banks, investors, and businesses back, like much stricter limits on mortgage lending – restrictions that have in fact become even more strict since then – then aren’t as helpful now, because their goal isn’t rapid growth (or rapid recovery). Avoiding catastrophe has its own cost. Slow growth is one of them.
• The total gap does not speak to the further urban/rural divide in Canada. In some areas of Canada, the price gap simply does not exist. There are comparably-priced homes to be had outside Canada’s urban centres, but the prices of homes in Vancouver, Toronto, and Montreal’s downtown cores are expensive simply because of high demand, as Canada becomes increasingly urbanized.
• Living in Canada is more expensive in general. Ottawa is working on bringing down import tariffs, but for the moment, imported goods are expensive. That includes the elements used to build and fill homes, like lumber, roofing materials, and consumer electrics. On the other hand, “country pricing” may also be to blame.
• The Canadian standard of living is higher. Canada offers more benefits to its residents, including national healthcare, subsidized daycare and education, and meaningful industry regulations that keep Canadians safe from everything from shoddy workmanship to ineffective medicine. You get what you pay for, and in Canada you get quite a lot. If you’ve ever travelled overseas and watched someone’s eyes light up when you say you’re from Canada, you probably know that a little bit of that glow is green. Canadians are seen as having the best of both worlds — the wide open spaces characteristic of the US, with the progressive social policies that the rest of the developed world already takes for granted. It’s an enviable position… one that is, we think, well worth the extra cost of real estate.

Interior of 619 Avenue Road, Suite 804 in the Lonsdale, listed and sold by Harvey Kalles Real Estate agents Jeffrey Joseph and Irene Joseph.

We’re back this spring with more listings sold and leased by our fantastic agents! Every few weeks, we blog all the sales and leases from the previous period for agents at Harvey Kalles Real Estate, and we feature one, sometimes two, of the homes our agents have sold and leased. We also provide reporting and commentary around the Toronto real estate market: trends, forecasts and intelligence from our in-house experts.

After a sluggish first few months of 2013, the Toronto real estate market has bounced back with a vengeance as of April. Bidding wars have come roaring back (though in some market segments, like low-rise family homes under a million in the 416, they never left), and even the capricious condo market is seeing a renaissance as urban housing starts drop to keep pace with lower demand, at the same time as demand seems to be rising and rents are going through the roof. Watch this space: we’re looking forward to seeing what happens during the rest of the spring and into summer.

Here are the listings our agents sold and/or leased between March 30 and April 19, 2013.

23 Alhart Street: Kwang Sik Choi

96 Bideford Avenue: Jamie Erlick 

2906-300 Bloor Street East: John Fortney

505b-344 Bloor Street West (leased): Herman Wood and Kathie Wood 

569 Deloraine Avenue (leased): Adeana Axler and Nancy Jo Biderman 

15-1270 Finch Avenue West: Susan Young

3107-628 Fleet Street (leased): Diane Goodgoll

41 Gilgorm Road:  Herman Wood and Kathie Wood 

254 Haddington Ave: Robert Greenberg and Adam Weiner

340-5 Hanna Ave: Kenneth Ramsay

202-30 Holly Street: Perry Betel

1004-801 King St W: Lynn Kay 

21-85 Lillian Street: Michael Loewith and Jennifer Greenberg

67 Marmot Street: Diane Litchen

28 McNairn Ave: Robert Greenberg and Adam Weiner

33 Metcalfe Street: David Harland and Francis McNamara 

737 Pam Crescent: Adam Trifler and Hayla Trifler

254 Spadina Road (leased): Heidi Nelson

202-336 Spadina Road: Hannah Math Slan and Bob Davidson

204 Walmer Road (leased): Jeffrey Joseph and Irene Joseph

139 Waterloo Avenue: Nancy Jo Biderman and Michael Friedman 

702-525 Wilson Avenue (lwased): Heidi Nelson

203-100 Yorkville Avenue: Marni Lokash

81 Alberta Ave: Jamie Erlick 

2510-35 Balmuto Street (leased): Heidi Nelson

1411-3000 Bathurst St: Howard Biderman and Jack Samuel 

301-1466 Bathurst Street: Bob Davidson

2706-1001 Bay Street: Despina Barnard 

A-1424 Bayview Avenue (leased): Errol Paulicpulle and Jonathon Singh

2504-10 Bellair Street: Elizabeth Bernard and Janet Stewart

44 Brackenwood Avenue: Evan Budd

909-11 Brunel Court: David Oey

37 Castlewood Road: Ferne Sherkin-Langer and Nina Castle  

186 Cortleigh Blvd: Bill Greisman  

78 Crescent Road: Olga Schrage and Alex Hayward

1208-175 Cumberland Ave (leased): Cheryl Graff 

414-50 Disera Drive: Rachel Sekler 

500 Doris Avenue: Hamid Armaki and Sun Young Yoon 

86 Forest Heights Blvd: Jerry Appleby

41 Gilgorm Road: Herman Wood and Kathie Wood 

711-5 Hanna Ave: Armin Yousefi

1407-78 Harrison Garden Blvd: Mark Aliassa

10 Hawthorn Avenue: Hannah Math Slan, Elizabeth Bernard and Janet Stewart

305-900 Mount Pleasant Rd: Ira Jelinek and Aaron Gonsenhauser

3rd Flr-474 Oriole Parkway (leased): Errol Paulicpulle and Jonathon Singh

Th11-8 Rean Drive: Michelle Schipper

400 Richview Avenue: Matthew Zimmerman

39 Ridelle Avenue: Brian Schneidman and Ellen Schneidman

49 Roberta Drive: Marion Alberga and Simone Stern

86 Roselawn Avenue: Karen Rosenberg

51 Roxborough Drive: Donna Thompson, Nick Thompson, Sabrina Abdel-Salam

22 Sackville Place: David Harland and Francis McNamara 

706-60 St Clair Ave W: Daniel Bloch and Liora Tal

6-288 St Clair Avenue West: Valerie Hamilton and Eva Rames

144 Tamworth Road: Anita Evans 

176 The Bridle Path: Elizabeth Bernard and Janet Stewart

78-84 Vaughan Road: Michael Loewith and Jennifer Greenberg

1122A Avenue Road, Main Floor: Errol Paulicpulle and Jonathon Singh

65 Avonhurst Road: Richard KC Ling and Jorgina Lee 

56 Bassett Ave: Cheenee Foster and Yan Gurevich

64 Clarkson Ave (leased): Jerry Appleby

714-1200 Don Mills Road (leased): David Favero 

76 Donwoods Drive: Janine Sheeres 

3273 Dufferin Street: Elliott Shiff 

8 Fernwood Road: Jerry Appleby

106-43 Hanna Avenue: Kenneth Ramsay 

4 Janus Court: Carole Lazer 

320-637 Lake Shore Boulevard W: Loree Meneguzzi and Diane Goodgoll

106-39 Roehampton Avenue: Daniel Bloch and Liora Tal

1007-280 Simcoe Street: Jonathon Singh

513-89 Skymark Drive: Billy So and Mimi Yau

54 Verwood Ave:  Robert Greenberg and Reza Ipchilar

1014-24 Wellesley Street W: Errol Paulicpulle and Jonathon Singh

46 Apollo Drive: Corinne Kalles and Barbra Pollock 

804-619 Avenue Road: Jeffrey Joseph and Irene Joseph

16 Buckingham Avenue: Donna Thompson and Nick Thompson

239 Demaine Crescent: Rachel Sekler 

402-70 Distillery Lane (leased): Armin Yousefi

516 Fairlawn Avenue: Sacha Hayward

14 Forest Glen Crescent: Janine Sheeres 

711-5 Hanna Ave: Armin Yousefi

317 Joicey Boulevard: Kenneth Ramsay 

f 95 Leuty Avenue: Hannah Math Slan

114 Lord Seaton Road (leased): Judy Horvath 

123 McGillivray Avenue: Carolyn Feldman

69 Old Forest Hill Road (leased): Ferne Sherkin-Langer and Nina Castle  

25 Sandy Point Drive: Brenda Abramson

85 Soudan Avenue: Vivian Souroujon

442 Sumach Street (leased): David Harland and Francis McNamara 

5504 Waterwind Crescent (leased): Mick Brown

433 Wellesley Street East: David Harland and Francis McNamara 

927-50 Western Battery Road: Ugo Bulgaretti 

356-525 Wilson Avenue: Adam Feldman

994 Woodbine Ave: Barbara Banks and Ronald Baker 

291 Woodfield Rd: Kenneth Ramsay 

30 Grand Trunk Crescent, Unit 2110. Listed by Harvey Kalles Real Estate agents Adam Feldman and Carolyn Feldman.

Given the bidding wars surrounding Toronto’s low-rise, single-family housing market – and the fact that we’re not seeing the same hotbed of activity in the condo market – it would be tempting to repeat some experts’ concerns that condos are on their way out. But experts are advising caution: it’s not a trend yet. And condos are far from being over. Read on to find out why.

First, urban housing starts are down, although the total number of housing starts is slightly up. Developers and builders are responding to lower demand for condominiums in the downtown core. Lower starts mean that, a few years down the line, there will be fewer condos to choose from – and, combined with Toronto’s steady population growth, this suggests that supply and demand will be fairly well matched going forward.

This is not to say that downtown living is unattractive, or even that condos are currently a depressed market. On the contrary, life in Toronto’s entertainment district is thriving, though the lakeshore condo communities have yet to catch up in density, activity, or available services. And condo prices in the city are continuing their small but steady year-over-year increases.

Rather, the feverish rise in the low-rise residential market near Toronto’s core indicates that families want room to grow, but don’t want to live a significant percentage of their lives commuting. As Bay Street whiz kids and ad executives grow up, get married and have kids, many wish to put down roots in a nice neighbourhood close, but not too close, to downtown: hence the mad rush for properties in hip enclaves like Leslieville, Allenby, Cedarvale and the Beaches. For many of those families, 600 square feet might never be enough, no matter how many amenities are made available.

There may also be something to the Goldilocks Theory of condo development. Some buyers may just see the new condo towers as simply too high; condo developers could be investigating lower-rise buildings and re-configuring their designs as a result:

An industry survey, conducted in December 2012 by Urbanation, the go-to source for condo news, revealed 53 per cent think six- to eight-storey condominium projects on the avenue is the next big market opportunity.

So no, the condo market is not finished. But it is changing, and the same old strategies and tactics used to attract new buyers won’t work forever. Condo living is still a viable solution for certain segments of Toronto’s real estate buyers, but to maintain long-term residents, developers will have to innovate their offerings.

216 St. Clair Avenue West, currently listed by Harvey Kalles Real Estate agent Matthew Wise.

Are bidding wars budding this spring? Well, it depends. If you’re in the condo market, then no. As it turns out, condos aren’t overly popular with families with children, though they are quite popular for the young first-time-buyer set. And although the 905 is a family-friendly spot, it doesn’t yet have the cachet of the city of Toronto. No, the place where the bidding wars are raging is right in the downtown Toronto core, with families fighting tooth and nail for low-rise detached and semi-detached homes in pedestrian-friendly neighbourhoods close to TTC lines and other services like libraries and walk-in clinics.

The TREB numbers back this up, with sales down in the GTA but prices rising in the 416. While sales are down 17% compared to this time last year, downtown prices have risen:

Despite an upswing in new listings in March, heading into the peak spring market, there remains a shortage of enough houses for sale in some Toronto neighbourhoods close to the core and to transit which continues to fuel bidding wars that are pushing up prices.

Those bidding wars are usually fought by families who want to live downtown, and who are willing to pay for the privilege:

During their 1½-year search for a home for their two young children, the Fegelmans have been on the losing end of three grueling bidding wars. They have paid for a home inspection on a place someone else got by paying $80,000 over the asking price.

On the other hand, as The Star notes, bidding wars can be gruelling. They’re not for everybody, and they’re not something anybody really wants to repeat. Some people love the thrill of competition, while others wish they could just stay out of it. Agents and realtors can play a significant role here by acting as a centre of calm in what can feel like a very chaotic process. The relationship between client and realtor has to be trusting, especially during a bidding war. As Jenna Em notes at The Huffington Post, the process of fighting a bidding war in Toronto can be tense and dramatic, and even a bit desolate:

The night they were accepting offers, my husband and I sat in front of our prospective home. Ten cars lined the street belonging to the five real estate agents and the five families placing bids. It truly was a spectacle, as we all sat in the dark, freezing for hours in our cars.

So what does this all mean? First, it means that families are willing to get on the emotional rollercoaster that is a bidding war — for a while. For families selling their own homes while bidding on a property, the process might be a bit much to endure on a repeat basis. For others, it can be worth it to secure a place in a great location, far from the suburbs they remember from childhood.

Second, this trend (and the revenue it generates) means that developers in the 905 and other areas should consider what makes Toronto’s urban neighbourhoods so attractive to buyers: walkability, availability, and maturity. The ability to actually walk in to a walk-in clinic when a tea at your local coffee shop hasn’t cured your sore throat cannot be underestimated. As more and more parents forego car ownership, the 905 and areas where cars are must grow less attractive unless commercial developers provide the kinds of amenities that families expect. Planners, take note.

Getting into form for the coming golf season? Mike Harris has some great tips for you! Mike is in his 6th year as Head Golf Pro at the Donalda Club, one of the most prestigous family-oriented multi-activity golf and country clubs in Toronto. He has been a CPGA Class A Professional for 25 years and is an Olympic Silver Medalist curler. 

The golf season is finally here! While many of our members have had the benefit of our winter golf school, which helps them work on their swing without the common distractions of the season, many take the winter off and experience the rust that inherently comes with spring. Here are some tips to help make the most of the coming months.

Shape Up: The most important thing to do at the beginning of the season is to get in shape and make sure that your body and muscles are ready for the golf swing. Flexibility is more important than strength, so you will benefit from a nice stretching routine. Tour players will actually stretch an hour before they start hitting balls. I’d recommend 10 to 12 minutes minimum, to any of our members.

The Swing’s the Thing: One of the nicest things about an extended break is that your mind is clear from the clutter of last season’s swing changes. The one thing I would say, and this applies to all golfers, is be more concerned with your swing and what you’re doing with your body than where the ball goes. That, of course, is the never-ending challenge of golf. How do you distract yourself from the wind and sand and water, and focus on what you need to do?

Make Practice Meaningful: It’s very easy to go to the golf course and hit 100 balls, but what are you accomplishing? Take a break every five or six balls and imagine the shot… make those two flags on the range represent the fairways. If you don’t, when you go to your first tee, the pressure will be on and you haven’t rehearsed for it.

Bring Your Bag: When practicing, use your full bag and avoid developing a favourite club. Everyone says, “I love my 8 iron”. Well, don’t love your 8 iron… love your swing. Find the swing you really like as opposed to the club you really like.

Equipment: Always have your equipment checked to start the season. Over the winter, your grips tend to harden and will become really smooth if they haven’t been used. You should replace them in the spring. Certainly, you wouldn’t think of skating without first sharpening your blades.

The Donalda Club is one of Canada’s finest private family clubs, located right in the heart of Toronto, and is Harvey Kalles Recommended. For a tour, please RSVP to Brett Mance at 416 446 5872 or bmance@donaldaclub.ca.

22 Cosmic Drive, listed by Harvey Kalles Real Estate agent Janine Sheeres.

For years, Toronto’s real estate market has awaited “the correction,” an event that looms large in the public consciousness – due, in part, to the efforts of the media to hype it. The correction operates on a simple premise: Toronto’s homes are overpriced, and eventually they will fall to more appropriate heights. Moody’s says home prices could fall 44%. But TD says they’ll be relative flat over the next 10 years, rising 2% per year (and doing better than any investment other than stocks). And BMO says fears of a “housing bubble” are unfounded.

Faced with claims like that, it’s no wonder that consumers and new entrants to Toronto’s real estate market are confused, and loath to make a decision. It can seem safer to just stay in one place and not make a change. Inertia is a powerful force, and nothing keeps prospective home buyers out of the market more effectively than the idea that if they can just wait a little longer, home prices will become more manageable. Combined with Canada’s new mortgage rules, there are a lot of reasons for new entrants to stay out, or for potential home buyers to cool their jets and pursue leasing or rental agreements in between home sale and home purchase.

What consumers may not understand is that despite not entering the market, they’re still influencing it. The refusal to shop for or buy a home has an impact on the market, and this impact is helping to drive sales down. According to the Toronto Real Estate Board, sales for the first two weeks of March are down 11.5% compared to last year. TREB predicts that prices will rise 3.5% per year over the next ten years, just a step above TD’s prediction of slow growth. By holding out, prospective Toronto home buyers are creating a chilling effect on the market.

But this is not a bad thing, necessarily. For instance, lowering the price of a well-appointed home is a good way to start a bidding war, which can quickly turn profitable. The tactics learned in such a tough market can be applied in almost any other — as the old song goes, if you can make it there, you’ll make it anywhere. Moreover, the people who do decide to enter this market are almost certain to be completely committed, and ready to deal. They are less likely to dabble or get cold feet or shirk the responsibilities of staging and paperwork, because they have a deep desire or need for a home.

One element to the correction that is rarely brought up in pieces about its imminent arrival is Toronto’s “micromarkets.” Toronto is a city made up of neighbourhoods, and each of these neighbourhoods has distinctive features that differentiate them from each other. The city is also made up of different price points that are attractive to different subsets, and different numbers, of buyers. It’s entirely possible that these markets – or some, but not all, of these markets – will see individual corrections on a staggered timeline, which translates to lower prices overall but only over a prolonged period.

This is why it’s important for realtors to focus on the markets they know, and pay attention to weak signals within those markets that things may be changing – and for potential buyers or sellers to keep an ear to the ground and stay in close contact with their realtor. Take a look around. Get to know the local businesses. Go for a walk. Try to see what buyers might see. These little details are what can help people find their homes faster, and all the information you learn will be doubly relevant if and when a correction comes and the market floods with buyers.

Photo credit: Kevin Dooley.

There’s been a quiet conflict brewing over the past week between Finance Minister Jim Flaherty’s office – which has been quite concerned with the low interest rates and relative ease of getting a mortgage, so much so that they’ve tightened mortgage lending rules four times now – and Manulife Financial, which until this week was offering a promotional rate of 2.89% for a 5-year fixed mortgage.

Flaherty’s office rebuked Manulife for its low rate, telling the lender that its promotion was “unacceptable”. This was the second time in the past few weeks that the Finance Ministry has intervened directly in banks’ attempts to offer low rates to attract lenders; the first was a similar rebuke to BMO.

Flaherty argues that this is a necessary protective step taken out of “concern for the Canadian people” – and, likely, fear that overlending to buyers who would not be able to afford their mortgage at a significantly higher rate could lead to a US-style housing collapse.

However, not everyone agrees, with the Conservatives divided as to whether Flaherty’s move was a good thing. Small Business Minister Maxime Bernier disagreed publicly with Flaherty, suggesting that he “overstepped his bounds” by intervening directly in the free mortgage market. Public policy professor Jack Mintz, writing for the Globe and Mail, is on Bernier’s side:

Here we have a free-market populist Conservative government pushing a financial institution to raise a market-based interest rate while the NDP and Liberals criticize Mr. Flaherty’s move as retail interest rate regulation that undermines the rule of law and results in high bank profits. You would think we are living on another planet right now.

…

It is targeted price control that is particularly problematic with Mr. Flaherty’s intervention. As the market is responding to excess supply, the government is pressing some financial institutions to keep interest rates high. It is not clear that this response is productive. If we are going to control interest rates in this way, why not use monetary policy to tighten up credit, which applies to the whole market?

At issue here is something bigger than this small scuffle: it’s a larger question of the government’s role in the markets, and whether the government should be intervening on this level with the way private businesses conduct themselves. It’s a question of regulation, too. Certainly the government has the power to regulate mortgages – as we’ve seen four times in as many years, with the CMHC’s mortgage rule changes – but the question remains as to whether the government should be interfering with the mortgage rates offered by individual banks within the bounds of those federal rules.

What do you think? Did Flaherty do the right thing, or should he leave lenders alone?