The Canadian Real Estate Market is Insane (But Tightly Regulated)
The real estate market in Canada—and Toronto in particular right now—is, in a word, bananas. The phrase “housing bubble” appears in headlines in the financial pages here on a near-daily basis, and absurd news stories about bungalows in boring suburban neighborhoods selling for $400,000 over asking abound (ok, there was only one story like that, but still! A bungalow sold for 50 percent over asking). This year, the average cost of a house in Toronto reached half a million dollars.
After spending almost a year trying to buy a house in this city, I have a bit of first-hand experience of just how crazy (and crazy-making) Toronto real estate is.
Expensive houses in Toronto are nothing new. After all, this is Canada’s biggest city and economic centre (for now, at least. Hi, Calgary!), and it’s a nice city to live in despite our current civic administration’s best efforts, but that’s another story. For a long time, the houses that were expensive here made sense—they were big, nice, and in good, convenient neighborhoods. Sure, certain neighborhoods were only affordable to rich people, but it wasn’t impossible to buy a decent little starter home somewhere in the city.
In 2009, when my partner Justin and I first moved in together, we moved to one of those neighborhoods where home prices were still somewhat reasonable. We weren’t ready to buy yet, but the idea was in the back of our minds. We wanted to rent in the area first and make sure we liked it before making a huge financial commitment. And after two years—one year of just enjoying cohabitation and our rooftop deck, and one year of me getting over the paralyzing anxiety that gripped me anytime the subject of home ownership came up in conversation—we realized we did.
But as evidenced by articles published in places like Toronto Life magazine, we may have missed the boat.
We are in a position of great privilege to even be able to consider buying a house in this area. We both work in the increasingly precarious media industry, but neither of us had to worry about paying off student loans, thanks to a combination of scholarships and parental generosity (mostly parental generosity), and we’d each managed to save up a respectable sum to put towards a down payment. And both of sets of parents, possibly viewing it as an investment in getting grandchildren sooner rather than later, offered us significant help in our down payment. Thanks to that and the rock-bottom low interest rates (more on those later), we were pre-approved for a generous mortgage, with monthly payments worked out to less than what we currently pay in rent. This home ownership thing was going to be breeze! And then we started looking.
We found a patient and honest real estate agent who never made us feel like the wide-eyed property virgins we were. Our wants were fairly simple, we thought: Enough rooms for us each to have a modest office space, a good kitchen with a gas stove, a cozy room that could serve as a library, a secluded backyard or deck, lots of light. We were willing to do a bit of work to make the place our own, but we probably couldn’t afford major renos anytime soon, and we wanted to be able to move in right away. And after a few weeks of getting an idea of what was out there (like a house with a mold problem, no insulation, and two gas fireplaces in lieu of a furnace—still asking over $400,000) and what we wanted (not that) we made an offer. It was rejected, but that wasn’t a surprise—without the time to book a home inspection, we’d made our offer conditional on getting one. That should be a reasonable request, but in this market, we were learning, that sort of thing gets you laughed out of a real estate agent’s office.
A couple of months later, we were better prepared. We dropped $300 on a pre-home inspection and, hearts in our mouths, signed off on an aggressive firm offer.
“Are you ready to be home owners?” our agent asked. “I think you will be tonight.”
We went to a nearby bar to drown our nerves in pizza and beer, with cell phone on the table awaiting The Call. After about 45 minutes, it came.
“There are two offers similar to yours,” our agent said. “You can sweeten your offer, leave it as is, or withdraw completely. What do you want to do?”
We’d already discussed this possibility, and we swore we wouldn’t be drawn into a bidding war. We left our offer as it was. We lost the house by $16,000. In any other context that sounds like such a lot of money, but in Toronto real estate, it’s practically nothing.
We tried again, bidding on a small but charming two-bedroom (we would have preferred three, but neither beggars nor Toronto house-hunters can be choosers) semi-detached (we preferred detached). We went through another home inspection ($250 this time, thanks to our inspector’s repeat customer discount), and another aggressive bid. This time, we lost by more than $16,000. This dinky little semi went for $112,000 over the asking price. There was nothing to do but commiserate with the F My Listings Tumblr blog, which outlines the more absurd side of house hunting in Toronto. During our search, the blogger’s frustration and humor were a source of great comfort.
We didn’t have the stomach for bidding wars like that, and when Justin’s workplace announced looming layoffs a couple of months later, we put the search on hold indefinitely. That was in June. We still scan the property listings, but it’s with a far more cynical eye.
But, you ask, why do you need to buy a house you obviously can’t afford, you entitled little brats? Doesn’t Toronto have a plethora of condos? The entitled answer to that is, we don’t want to live in a condo. The practical one is that a condo isn’t necessarily the cheaper option. True, there is a glut of condo construction in Toronto right now, but most of the condo units being built are tiny one-bedrooms, and condo maintenance fees in most buildings are exorbitant and liable to rise at any moment. I’m suspicious of buying a condo in this city for a number of reasons, but it’s the monthly condo fees that freak me out the most. To me, condo fees amount to paying rent on top of a mortgage, utilities, and property taxes. And a lot of would-be first-time homebuyers are being priced out of the condo and townhouse market too!
The rapidly rising market here is similar to what the U.S. housing market looked like before that infamous crash. So are Canadians just in denial about our housing bubble, or is our situation legitimately different from America’s was four years ago? It depends on who you ask, but it’s a little of both.
Canadians, like everyone else these days, are carrying more debt than ever before, but we still tend to cling to a common wisdom that our economy is safe because our banks are tightly regulated, preventing the possibility of anything like the sub-prime mortgage lending scandal that did in the American housing market. So while housing is probably a little bit overvalued right now, an outright crash-and-burn scenario is unlikely.
Here’s what we have going for us up in Canada: Mortgages are more tightly regulated than they are in the States. For example, mortgages must be paid off within 25 years. They are also insured by the federal government.
But the current rock-bottom interest rates (around 3.5 percent) are still extremely tempting to would-be homeowners desperate to get in on the market before it’s too late. Although the government has tightened up several regulations in an effort to cool the housing market, but the Bank of Canada still hasn’t raised interest rates on mortgages, which would have the biggest effect on slowing down the housing market. In fact, recent reports do indicate that the housing market is slowing slightly—but Toronto’s real estate hasn’t got the memo yet, and until it does, all couples like me and Justin can do is speculate about how we should have had the foresight to buy a house on our first date five years ago.