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Falling Back To Earth


FROM BOOMTOWN TO BUSTVILLE: 'A LOT OF PEOPLE HAVE NO IDEA WHAT'S COMING'

For more than 12 years, real-estate prices soared and gentrification swept from Mimico to Leslieville and beyond. Now the party's over. Does modern Toronto have a clue how to survive a crumbling housing market? Philip Preville reports

PHILIP PREVILLE
Special to The Globe and Mail
October 4, 2008

To its neighbours, the pile of rubble at 79 Ingham Ave. looks more and more like an omen of Toronto's changing real-estate market.

Early last summer, Cameron Hussyni of Infiniti Homes purchased the east-end Toronto house for $585,000. His plan: Tear it down and rebuild from scratch, with three bedrooms, crown mouldings, wood floors, and a one-car basement garage. He figured on an eventual asking price of $1-million-plus.

Mr. Hussyni's crew demolished the structure in early July, but his progress was halted on July 15 when the city shut him down for lack of a demolition permit.

Although Mr. Hussyni insists he is forging ahead, the fenced-in site has been dormant for more than two months now - two months in which the market has been turned upside-down. That has folks in this quaint corner of Riverdale wondering what's next.

"Will the changing market change his incentive to build?" asks Charlotte Kanya-Forstner, a lawyer who lives across the street. "Will he just walk away from it? I don't know, but I'm resigned to the likelihood that nothing will be built there for quite a while."

The month of August marked the tipping point for Toronto real estate, and the rules of the game are now changing beneath everyone's feet. After more than twelve years of rising real-estate values in this city, prices dropped in August by one per cent, from an average of $381,681 to $377,990. The September figures, released yesterday, were even worse, with prices falling six per cent from of an average of $420,182 last year to $393,647.

More telling, total home sales for August fell by 22 per cent, from 8,059 last year to 6,318 this year, and the total number of listings ballooned, from 19,145 to more than 25,000. The decline continued in September, though not as sharply.

Homes sales were down 11 per cent.

This new market reality isn't just an economic shift, it's a cultural one as well, and everyone involved in real estate - from buyers and sellers to house-flippers and home stagers - will have to adjust.

Real estate almost everywhere in Canada has enjoyed sustained rising prices, but in Toronto, market forces seemed to be let off the leash.

As buyers flooded every neighbourhood of the city, sellers began pitting them against one another in "bid-night auctions," where buyers were kept in the dark as they named their prices. Soon many homes were drawing 10 bidders or more, and many couples were bidding on 10 homes before finally making a purchase.

The bull market lasted so long, many of the practices turned into orthodoxy. Among the commandments of Toronto real estate: Sellers should price their homes low to attract more bids. For every additional bidder, the price will balloon by $10,000. Buyers without pre-approved financing will be ignored. Any offer conditional upon a home inspection is an automatic loser.

It was a market based upon pure desire, one in which actual physical value had nothing to do with the purchase. The price of a home was based solely on how desperately buyers wanted a particular house, and what they were prepared to do to get it.

But those days are over.

"The balance of power has now shifted from sellers to buyers," says Sally Cook of Re/Max Hallmark Realty on Kingston Road. "Buyers have figured this out, but sellers are reluctant to acknowledge it. They are still pricing their homes aggressively, still trying to create bidding wars. They still think they dominate the market, and they don't."

Nothing better illustrates the end of the bid-night frenzy better than the sale of 93 Badgerow Ave., a house near Carlaw and Dundas, which made headlines last April when its owner, house-flipper Omar Ibrahim, listed it for $1.

Mr. Ibrahim, who bought the property in November, 2007, for $342,000, had originally listed it for $489,000, then $474,000, then $449,000 - yet still found no takers. So he listed it for $1, he says, "to let the market express itself and decide the value."

While the scheme generated lots of interest from the media and from buyers, his agent, Tony Bassels, says it resulted in "no serious bids." Mr. Ibrahim eventually sold the property in June for $385,000. Mr. Ibrahim says he broke even on the renovations, and says he's not disappointed - even though, on the bottom line, the house sold for $104,000 less than his original asking price.

"A home is only worth what a buyer is willing to pay for it," Mr. Ibrahim says. "Nothing more. Most sellers don't understand that, but it's the truth." According to Ms. King, one of the reasons sellers haven't clued in is because real-estate agents aren't giving them honest advice. "A good agent will know if a seller's asking price is too high for the current market. But they fear that, if they're honest, they won't get the listing," she says. So they'll agree to list an overpriced home and let the market passive-aggressively deliver the bad news, as months go by without a buyer.

But as punishing as the new market can be for sellers, it's agents that will have to make the biggest adjustment. "For the past several years it's been hard to tell the difference between a good agent and a bad one," says agent Sandra Pate of Postcard Homes.

Because there was no shortage of bidders for every home, says Ms. Pate, working in real estate was like working at Tim Hortons, with agents serving the next person in line. "It's been basically an order-taking scenario," says the 27-year veteran of the business. "The market's been going up for 13 years. That means you can be an agent with 12 years of experience in this city and you've still never seen a down market. A lot of people have no idea what's coming."

If lower prices and fewer sales become a long-term trend, it will come as no surprise if agents start leaving the profession in droves. In the last five years, the membership ranks of the Toronto Real Estate Board have swelled by 10,000 agents, to a total of 28,089. Given that many agents who work in greater Toronto aren't TREB members, the actual number is probably higher.

All told, half of all agents in Ontario earn their living in the Greater Toronto Area, and it's doubtful the market can sustain any more. According to the Ontario Real Estate Association, since 2006 an average of 5,000 new agents per years have entered the profession - far beyond the more typical 1,400 agents per year back in 2000 and 2001. There are now 50,827 individual agents and brokers in the province.

No one keeps track of the number of professional home stagers in the city, but it's a near-certainty that their ranks will thin as well. Home stagers Bonnie Dell and Marty MacPhail, who teach a course titled Home Staging 101 at Centennial College, say they've adjusted their class discussion to account for the new market.

"We used to put the emphasis upon getting maximum value from your home," Mr. MacPhail says. "Now the emphasis is on selling fast. The home staging itself hasn't changed, but the expectations have." Mr. MacPhail says that sellers used to be able to expect a return on their home-staging investment of about three or four to one. Today, home staging is marketed more defensively - as a means of ensuring your home doesn't end up in the growing bargain bin of unsold properties.

The course fee of $50 includes three hours of instruction and a copy of the Do-It-Yourself Home Staging Kit, which Ms. Dell and Mr. MacPhail also sell on their web site, designstyletaste.com, for $34.95. While sales have been slow in this country, Mr. MacPhail says they have been strong in the United States, where the subprime crisis has already ravaged the real-estate market.

Meanwhile, back in Riverdale, Mr. Hussyni remains undaunted by grim forecasts. He expects the city to issue his permits within the coming week, and hopes to have the home at 79 Ingham ready for sale in the spring. "If the product is good, if you spend the money to do the job properly, you won't have a problem selling," he says.

Hopefully, when the market expresses itself on 79 Ingham, it will agree with him.


Posted on Monday, October 6, 2008 at 12:40PM by Registered CommenterElaine in | CommentsPost a Comment | References1 Reference

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