As housing sales return to positive territory, parts of the Toronto market go from 'famine to frenzy'.
Annoyingly for buyers, rejoicingly for sellers, bidding wars for Toronto real estate have surged back from extinction. House sales for the first two weeks in May were in positive territory – 3% above the same period in 2008 – for the first time since the market's tailspin last fall.
"Buyers have returned to the market with the realization that apart from manufacturing and construction, the GTA economy is holding up well," said housing analyst and economist Will Dunning. "The surge in the stock market and the change in tone from the U.S. are also lifting confidence."
And with confidence comes a crush of buyers. Among them is developer Ross Cammalleri, who last month had his eye on what appeared to be an underpriced bungalow in the family-friendly area of Yonge St. and Lawrence Ave.
Cammalleri figured it was worth $500,000.
What he didn't expect were 10 other interested buyers. "That was a surprise, especially since the winter market was dead."
He ended up with a winning bid of $564,000, $134,000 more than the list and equivalent to 131 per cent of the asking price.
Cammalleri's story is another twist in a Greater Toronto Area real estate market that has been surprisingly resilient: The arrival of spring has seen the resurgence of bidding wars for property as a lack of product on the market and record low mortgage rates have brought out buyers in force.
A property near Danforth Ave. listed for $549,000 sold for $715,000 on Monday, or 130 per cent of the asking price. The semi-detached four-bedroom home on a 20-foot lot was underpriced by the vendor to generate interest.
The strategy is not popular with all agents, and has come under fire from some who say it does not necessarily generate a higher price.
If multiple offers are made on the property, the agent ends up "looking like a hero" just because the property was underpriced in the first place, argue Toronto realtors Thomas and Sally Cook.
Others say the strategy is a time waster for potential buyers who would not have bid on the property if they knew the price was not realistic.
But overbids are not as spectacular as they once were. In 2007, at the peak of the market, one Beach-area home sold for $1.9 million – more than $600,000 over asking price.
And most of the interest seems to be in popular downtown neighbourhoods, as opposed to the suburbs. Another characteristic: Unlike the boom times, many of the bids are not going over asking.
Cammalleri admits his was the exception to the rule. "Did I overpay?" he says. "Yes, I probably did, but this was a property I couldn't afford to lose."
Cammalleri plans to develop a new house on the site and hopes to sell it for more than twice what he paid for the original property.
As both a buyer and a seller in the current market, he has a unique view. His company, JRC Developments, recently had three properties near Yonge and Lawrence. Each was listed at $1.2 million. "They sat there for six months," he say. "Nobody was buying anything."
Then, in March, all three properties sold, two with multiple offers, although the selling prices did not go over list. "The snow melted, the grass looked greener, and we went from famine to frenzy," he says.
Still, buyers are much more level-headed, with similar houses going for about $1.4 million during the peak in 2007, he says.
Despite the multiple offers in the spring market, some analysts are wondering whether summer will be sombre. Average existing home prices are forecast to fall by about 5 per cent by the end of the year.
And while consumer sentiment is getting a lift from the more positive economic news, the ride ahead could be bumpy.
"Recent data releases have been portrayed as much improved and as signalling a pending economic turning point," says Dunning. "I remain skeptical."
"I caution that improved affordability generally results in a short-lived wave of buying. So we may see several good months, but there could be another slowing in the second half of the year."
Source: Tony Wong in the Toronto Star.