Let’s pick up where we left off on Friday, and go through the rest of the “Top Ten” real estate stories of 2014.
When you get to the bottom, and you see what I deem to be the #1 real estate story of the year, you’ll probably have that pause, perhaps expecting something sexier and more interesting. But then you’ll come to your senses, and realize that the way things are in Toronto in 2014, there couldn’t possibly be a bigger story.
And maybe, just maybe, the #1 story of 2014 will end up being the #1 story of 2015 as well. It could happen, much to the chagrin of some real estate market participants, and to the delight of others…
5) Mirvish-Gehry Condominium Project
Perhaps I’m putting too much of my own spin on this story, but I think it’s one of the most notable real estate stories of 2014 for one simple reason:
This shows that the city will not say “no” to a developer, and that Toronto is unprepared to deal with the condo boom as it moves forwards. They were probably never prepared to deal with it from the start…
Poor Jennifer Keesmat.
As Toronto’s Chief Planner, she is doing a job that should probably be split up between about seven or eight people. It’s a thankless job, although then again, I’m certainly not making it easier…
In my opinion, the condominium project at King & Blue Jays Way that is being spearheaded by Toronto icon David Mirvish, and legendary architect Frank Gehry, is going to be a turning point for our city.
I don’t know exactly which way we will turn, but my fear is that we’ll look back on this in 20 years and possibly say, “That was the first monstrosity that we allowed,” if it so happens that more misplaced 80-storey towers are built in an area where 3-storey buildings currently prevail.
We might look back and say, “Here’s where the city of Toronto showed that condominium developers run the city, and not civil servants.”
Or, maybe we’ll look back and say, “That beautiful, awe-inspiring condominium that we all worship like a church or a temple actually had to go through a re-design, and wasn’t immediately green-lit! Egad! Sacrilege!”
I’m thinking it won’t be the latter.
My problems with this project are both the density of the development, and the process by which Mirvish & Gehry obtained approval, which I think shows that the city was never going to say “no.”
As for the first problem – the density, the two neighbourhing condo towers, Festival Tower and Cinema Tower, are only 42 and 43 storeys respectively. So why would city planners EVER entertain the idea of two 90-storey towers next door?
As for the process over the last two years, it seems as though Mirvish & Gehry were always going to get the green-light, and they were always going to get close to what they wanted. Sure, they had to “settle” for three towers of 80-storeys instead of two towers of 90-storeys, but was it ever really in doubt?
If you’re really interested in how this project has moved along over the past two years, here are the key articles from the Globe & Mail:
September 29th, 2012 – Frank Gehry To Remake David Mirvish’s King Street In Toronto
October 1st, 2012 – Frank Gehry Responds To Critics Of Design For Toronto Landmark
June 29th, 2013 – David Mirvish Unveils His Art And Pitches His Big Plan For Toronto
October 3rd, 2013 – Mirvish To Plead Case For Gehry Condo To Provincial Board
November 19th, 2013 – Mirvish Gets More Time To Ease Public’s Concern Over King West Condo
December 18th, 2013 – Toronto Councillor Crafting New Deal For Gehry-Mirvish Condo Project
January 15th, 2014 – Advisory Group Seeks Compromise On Gehry Condo Project
May 30th, 2014 – Mirvish Gehry Vision For King Street Is Scaled Down
4) Bidding Wars Don’t Stop, Continue To Make Headlines
I told my colleagues in January, “The first big bidding war of 2014 will be in all the newspapers, and it will be sensational.”
When 325 Perth Avenue hit the market in January of 2014, I said, “This is it.”
You can read the original blog post in its entirety HERE.
Everything about this listing had “bidding war” written all over it, right from the start. All the stars were aligned.
It was early in the 2014 calendar, and buyers were out in full force, yet there was very little product to look at.
The house was in a pocket where many buyers were looking because they thought it was under-priced, relative to the rest of Toronto.
The house was severely under-listed; a strategy that would eventually pay off.
And to top it all off, the house was exceptionally well renovated, and “magazine worthy.”
Sure enough, this house received thirty-three offers, and sold for $848,625, listed for $639,900. 133% of the list price, and the Toronto Star and Globe & Mail were all over this story!
I wrote in my January blog post, “So hate me if you want, but I don’t think this is any indication that real estate prices are going down this year.” And in the end, the average price of a Toronto home increased by 8.5% from 2013 to 2014.
This was the first big bidding war of the year, and it merely served to set the table for others just like it.
In Friday’s blog post, I mentioned “that stupid house” that got 72 offers, because it was priced at about HALF of fair market value. That made huge headlines, but it wasn’t a real indication of where the market was.
What was an indication of where the 2014 market was?
How about 1 Fenwick Avenue, which received 21 offers, and sold for $1,725,111, listed at $1,100,000. This was notable because we’re not used to seeing this kind of action at a price point this high, and since the house was a complete gut (probably needs $500-$700K), it amazed me that 21 people were willing to: a) take on an 8-12 month renovation/build, b) outlay $2.5 Million for the project, c) know that not a single house in Riverdale has EVER sold for anywhere close to the amount of money they’d be shelling out.
Now I do think this project is worthwhile, and I do think that a “finished” house on this spectacular 40-foot lot adjacent to Withrow Park and steps to Danforth, could re-sell in 2015 for $2.5 Million or more.
But I never expected 21 offers. Not for a project, and that shows you not only how much money buyers out there have, but also how many of them are willing to think outside the box.
3) Centurium Condos
When I first heard this story, my reaction was, “I’m surprised this is the first time it’s ever happened.”
We’ve had an incredible 17-year bull run in the real estate market, and wherever there is money being made, there are usually scammers, con-artists, and people looking to make a bigger, better, easier buck.
Back in August of this year, a pre-construction development project called Centrium Condos made headlines when it was discovered that the developer fled to Korea with all the buyers’ deposits for the project.
I remember thinking, “That’s odd; how did the developer get his hands on the money? Wasn’t the money in a trust account?”
Yes, it was.
In fact, every deposit is supposed to be held in either a real estate brokerage’s trust account, or a lawyer’s trust account. If you’re a buyer, and you’re ever involved with a transaction where the seller and/or selling agent cross out the listing brokerage “in trust” on the offer, and insert the seller’s name, this is a major red flag! The entire point of a trust account is so the seller can’t touch the funds.
There are only three ways, legally speaking, in which a deposit can be released from a trust account:
1) Successful completion of a sale, and subsequent closing.
2) A Mutual Release signed by all parties involved.
3) A Court order.
Those are supposed to be the only three ways in which a deposit can be released from either a lawyer or a real estate brokerage’s trust account, however in the case of Centrium Condos, we discovered a fourth way: the lawyer simply hands the money over.
It’s been four months, and we’re still waiting for a full, logical, truthful explanation, but in today’s society, many people in cases like this are guilty until proven innocent, when tried by the court of public opinion.
The lawyer for the developer at Centrium Condos, a woman named Meerai Cho, handed over $15,000,000 to the developer, who then took the money and fled to Korea.
The money still hasn’t been returned.
When this story broke in August, it made huge headlines, and it shocked every part of the real estate market. Buyers got nervous, and began to ask more questions. Brokerages instructed their agents to explain what a trust account is to their clients. Lawyers got inundated with calls and emails from buyers under contract, who wanted to know what could happen to their own deposits.
And all the while, some experts wondered why it took so long for this to happen. You’d think on a long enough time horizon, and with all these condos being built in Toronto in the past two decades, somebody else would have stolen money from a trust account.
This story will probably make headlines again in 2015, since the legal proceedings are still ongoing. Ms. Cho was scheduled to appear in court on October 2nd, but her lawyer appeared for her and the proceedings were adjourned until December 4th. I can’t find any information on what happened on the 4th, which makes me think this case is being dragged into the New Year.
Other investors in the project whose deposits were not stolen, asked a judge to sign a court order releasing those funds. In September, $9,000,000 in deposits were released to 180 buyers, irrespective of the $15,000,000 in funds that were stolen.
It’s amazing to think that after the $15 Million went missing, and this story broke, that the project wasn’t immediately terminated, with all funds returned to the other buyers. Imagine the developer, and the developer’s lawyers, trying to forge ahead?
I don’t believe the $15 Million will ever be recovered, but I can’t wait to see what, if anything, happens to Ms. Cho.
You can read my original blog post, including a summary of 4-years worth of comments about the condo project on an Internet thread, HERE.
2) Mortgage Rates Drop AGAIN
My very first mortgage was a 5-year, fixed rate of 5.69% in 2006.
My father told me at the time, “Rates will never be this low again. You really need to consider the 10-year rate of 6.79%.”
I may have never owned property before, but I was aware at where interest rates were in the 1980’s. We’ve all heard our parents’ stories that start with “Back in my day,” and explain what life was like when rates were at 21%.
I took the 5-year rate, and I watched rates drop.
Rates dropped to the mid-4’s, before going back up to 5.99% again in late 2007.
But after that, rates dropped. And they haven’t stopped since.
When I saw rates drop below 5% in 2008, I thought, “Well this is probably where they’ll stay.”
When I saw rates drop below 4% for the first time, I thought, “Rates will never be this low again.”
In March of 2013, the 5-year, fixed rate dropped to 2.99% in an all-out “rate war” between Canada’s major financial institutions, and I thought the market had gone mad.
Now it should be noted, however, that the 2.99% rates in March of 2013 were “stripped down” mortgages that offered very few “features,” such as pre-payment privileges, portability, and acceleration. But consumers ate these mortgages up, just based on the “2” that happened to flash before their eyes.
Rates increased to as high as 3.59% later on in 2013, but then to many people’s surprise, they AGAIN came down to 2.99% in March of 2014.
You can ready my original blog post HERE.
Even more amazing than the rates going back down to 2.99%, or the fact that these mortgages had many of the features that the 2013 versions did not, is the fact that rates have stayed this low all year!
In fact, the 5-year, fixed rate mortgage hit 2.89% at some points in 2014, and you might have been able to find slightly lower.
Imagine what your parents would have said in 1981 if somebody told them, “When your kids are buying houses, rates will be about 1/10th of what they are now.”
I think back to my dad telling me about my 5.69% mortgage, “Rates will never be this low again.” What would he have told me if I’d said, “Actually, they’ll be HALF that in eight years”?
So as we move into 2015, you have to ask, “Where do rates go from here?”
“Up” is the obvious answer, but people said that when rates hit 4.99%, and 3.99%, and 2.99%.
And if rates do go up, by how much? 25 basis points? 50 basis points?
Many economists feel that an increase in 100 basis points could shake the world’s economy, so are we really going to see rates climb “all the way up” to 3.99% again?
If rates do climb, I don’t think it would have a major impact on Toronto’s real estate market. Maybe for the entry-level buyers who have more price sensitivity than those buying $900,000 family homes that they’ll be in for a decade, but I don’t see a shake up in the higher price bracket.
Early prediction: the highest 5-year, fixed rate mortgages will only climb to 3.49% in 2015.
1) Prices Increase In 2014
How can this not be the top story of 2014?
I’m sure there were more newsworthy headlines, sexier stories, and certain events that got more notice, but there’s no doubt that the biggest take-away from 2014 is the fact that the market went up, AGAIN.
2014 marks the sixteenth straight year that the average price of a Toronto home has increased.
And just to make your stomach churn with utter disgust, here are the average house prices, every year, since we last saw a decrease:
1995 – $203,028
1996 – $198,150, -2.4%
1997 – $211,307, +6.6%
1998 – $216,815, +2.6%
1999 – $228,372, +5.3%
2000 – $243,255, +6.5%
2001 – $251,508, +3.4%
2002 – $275,321, +9.5%
2003 – $293,067, +6.4%
2004 – $315,231, +7.6%
2005 – $335,907, +6.6%
2006 – $351,941, +4.8%
2007 – $376,236, +6.9%
2008 – $379,347, +0.8%
2009 – $395,460, +4.2%
2010 – $431,276, +9.1%
2011 – $465,014, +7.8%
2012 – $497,130, +6.9%
2013 – $522,963, +5.2%
2014 – $567,198, +8.5%
That’s right folks, another year, another 8.5% increase in the average price of a Toronto home.
I know that makes many of you sick.
But some of you might be smiling as you see this.
Perhaps you bought a house two years ago, after “waiting for prices to drop” for three years, and then you finally took the plunge. If that’s the case, then you’re happy to see you didn’t “buy at the top” like some of your friends and family suggested, and that your largest investment is up double-digits.
Then again, not every home-owner is going to be pleased by these numbers.
Many of you are looking to make the next move. Perhaps you’ve been in a semi-detached house for eight years, you’ve had two kids, and you’re looking to move to a 4-bed, detached house in a better area. But as prices continue to climb, even though your own house is worth more, so too are the houses that you want to buy.
In the eighteen years since the bottom of the market in 1996, the average price of a Toronto home has increased by 186%.
That means house prices have almost TRIPLED in value.
It’s important to note, however, that the average house price was $273,698 at the peak in 1989, and thus the $198,150 price bottom we saw in 1996 represents a 27.6% drop, but even if we use the 1989 house price for a comparison to the 2014 price, the average house price is still up 107% since 1989.
So the question remains: Where do we go from here?
I started to think, around 2012, that prices couldn’t go up anymore. Since then, prices have increased each and every year, and by close to 20%.
Every year, “experts” predict a market correction, or a middle-of-the-road prediction such as “stagnant growth.”
Will 2015 FINALLY be the year?
I don’t think so.
My prediction: the market increases 4.5%. Let’s come back to this in 12 months.
Wow, this blog post is obscenely large.
If you read the whole thing, and you’re not my mother, then you get a medal.
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