It's amazing:
Overbaked real estate markets are crashing in many parts of the U.S., sending highly leveraged buyers running for cover. But here in Toronto, our hot housing market keeps steaming ahead, with last month crunching in as the second-best August in the history of the Toronto Real Estate Board (TREB).
And with this week's mortgage rate relief, followed by the Bank of Canada's move yesterday to hold the line on interest rates, this market still has some steam left.
"Positive results like these show that the market is in good shape," says TREB president Dorothy Mason, pointing to 6,976 sales last month, which are within 7% of a record 7,498 sales last August.
Mason also points out that so far this year, 2006 sales are marginally ahead of 2005, which was the best year ever for TREB. Mason is optimistic: "As people return from their summer holidays, we are looking forward to an even more active autumn market," she said.
And so far she's right. Yesterday alone, another 321 homes were sold, with sales totalling 771 in the first six days of September.
But a telling sign that our market is finally starting to give up some steam is a slowdown in price gains, with Toronto home prices averaging $330,615 yesterday -- down from August's average of $338,192. That's also down 1% from July's average of $342,034.
Still, these prices seem high when compared with the deepest, darkest days of a deflationary spiral, after a speculative bubble burst in 1990, sending average prices to as low as $196,500 in 1996.
Bottom line is prices are set by supply and demand. And when people can't afford to buy -- like in 1989 when it took 63.1% of pre-tax income to buy an average bungalow -- the market will crash.
Now for a reality check. Even though more and more first-time buyers complain of being squeezed out of the market -- the experts say Toronto homes are still affordable, with an average bungalow eating up 42.8% of pre-tax income. Fact is, with inflation factored in, prices would have to hit $407,070 to equal 1989 levels.
Yes, higher lending rates and higher home prices have driven up affordability levels -- but the good news for first-time buyers is we're again seeing some rate relief.
After our big banks cut long-term mortgage rates by up to a tenth of a point this week, thanks to the lower cost of borrowing in the bond market -- now short-term variable rates won't be going up, after the Bank of Canada yesterday kept its key rate at 4.25%.
PRIME RATE AT 6%
That means banks' prime lending rates will remain at 6%, which also means you can get a variable mortgage rate for as cheap as 5.20%.
Meanwhile, the posted rate for the popular five-year mortgage fell to 6.75%, but you can get it as cheap as 5.49% by shopping around.
So do you lock in or play the short-term game?
Andrew Moor, president and CEO of Invis, one of Canada's largest mortgage brokerage firms, says despite seven hikes in the Bank of Canada rate over the past year, variable rate mortgages have cost about the same as fixed-term rate.
My advice: If you like to sleep at night, negotiate the best rate and lock it in. And if you're a first-time buyer, don't take on more debt than you can afford.
To help decide what you can afford, check out a new mortgage qualifier calculator at page here - http://www.torontogreathomes.com/ONTARIO_MORTGAGE/page_929364.html
Toronto MLS listings of houses for sale - http://www.torontogreathomes.com/
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