I hope everybody had a great long weekend!

Today is the first day “back” for all of us; those back in school, back at work, or back in a real estate market that had slowed to a crawl in the month of August.

What do you expect for the fall real estate market?  Let’s discuss as we answer five burning questions…

How was your long weekend?

I was treated to a round of golf at Wooden Sticks up in Uxbridge, and if you saw last week’s “Pick-5” video, you’ll recall that as I was suggesting I’d try to break 90, a colleague of mine shouted from the background “Yeah, try breaking 100!”  I’m pleased to say I shot a 93, but I went in the water on the island green on #17!  Anybody know what I’m talking about?  The famous island green from TPS Sawgrass?  If you’re a golfer, you’ll love Wooden Sticks!  I highly, highly recommend it.

But enough about golf.  Even though it’s all I think about, all day, every day…

Let’s chat about the fall real estate market, and what we expect to take place in the next three months.

July was a slow month, and August was non-existent, so I, for one, am incredibly happy to be back at work after Labour Day!  Plus, I get to see agents in my office that I haven’t seen since May…

The way I see it, there are five major questions that most participants of the real estate market, and those simply looking-on, should be asking themselves and those around them:

1) What Will Happen With Interest Rates?

This is probably the most important question, in my mind.

We talked last week about the interest rate increases throughout the summer, and how “sensitive” a buyer could be with respect to rates.  We were living large with 2.89%, 5-year fixed-rate mortgages, and after rates went up FIFTY basis points to 3.39%, they’ve further up-ticked to about 3.49%.

But what if rates went above 4%?

It sounds CRAZY, considering rates were at 2.89% just a few months ago, but when put into context, it’s really not that bad.

However, try telling that to a first-time buyer, who is now priced out of the market, and suddenly that means 1) staying at home with mom and dad longer, 2) buying outside their target area, 3) buying at a lower price point – if that option is available.

Somebody commented on last week’s blog, “‘When interest rates go UP, Prices will come DOWN. Economics 101.”

I don’t disagree.  But at what point will this take place?  We’ve seen increases of 50 basis points, and it hasn’t slowed the market.  So at what point will prices come down?

If mortgage rates increased another 50 basis points, and a 5-year, fixed-rate was suddenly 3.99%, I think we would start to see a trickle-down effect, but only at the bottom of the market.  I don’t believe that today’s $800,000 home-buyer would be that affected, or shall I say, feel that affected, since they’ll undoubtedly be impacted financially, but might choose not to change their search criteria.

What happens with interest rates might help give us answers to our other burning questions..

2) What Will Happen With Inventory?

There’s an insane amount of product for sale, right?

There’s too much for this market to be sustainable?

That’s the bears talking, and again, I don’t blame them.  We can make numbers say anything we want, and personally, before I did some research, I would have figured that the condo construction is WAY out of control in Toronto.

But guess what?  Housing starts are actually down!

If you’re familiar with CMHC’s housing start “trends,” which is a six-month moving average of the monthly seasonally adjusted rates (SAAR) of housing starts, then you’ll know how important these numbers are.

July 2013: 34,218
July 2012: 48,900

Again – this isn’t just a one-off.  It’s not a one-month anomaly.  This is an average of an average, and it shows that housing starts are down 34% from this point in 2012.  That’s a number that simply can’t be ignored.

And what about absorption rates?

Using July as an example, and this could be more “one-off-ish” than the numbers above:

July 2013 – 8,544 sales, 20,514 active listings, 41.7% absorbtion
July 2012 – 7,338 sales, 20,318 active listings, 36.4% absorbtion

New listings did increase from July 2012 to July 2013; from 13,809 to 14,132.

But the data shows that fewer properties are being built, and the absorption is higher.

This is a good thing if you’re a market bear, but what does it mean if you’re looking to buy now?

3) What Will Happen With “City Planning?”

I put “city planning” in quotations because we all know there is no plan.

But specifically with rampant condominium development, which I think is ruining this city, what is going to happen?

Just as an example, take David Mirvish’s ego-driven, legacy-making project on King Street West, where he wants to build THREE towers of 80+ storeys.  If you haven’t heard of it, take a look at THIS.

Yes, he calls these condos “sculptures for people,” and refers to them as “art,” instead of “monstrous, ugly towers that will dwarf anything around it, but will provide for more bags full of cash for the Mirvish family.”

Excuse my immaturity, but I can’t stand when I read crap like that, because I’m afraid somebody might believe it!

This guy wants to create a legacy, which in my mind, will be three awful condos that ruin King Street, and he’s passing it off as if he’s doing Torontonians a favour.

There are way too many condominiums being built in the downtown core, and there’s nobody (or no group of people, like municipal politicians or civil servants…) watching the way developers continue to push the envelope, with ridiculous ideas such as three 80-storey towers on one block.

Where does this end?

I’m hoping we get some idea of where the city’s development is heading, this fall.

4) When Will Market Bears’ Heads Explode?

Okay, fine, this one is just for fun, as I really only had four points to go over.

But check out this email that somebody sent me after I ran my latest column in The Grid:

“If people actually believe the bullshit you wrote about real estate this summer, we really are a bunch of fucking stupid sheep…

RE is going down and you and your colleague know it but you’re all getting so desperate that you are resorting to outright lies.. Condos are going to be competitively bid on?  Are you kidding? There are more condos in Toronto sitting unsold now we could house a city in them.

This is why your “industry” has never had any creed.  and why I didn’t use an agent to sell my own place…”

Man, there’s so much anger out there when it comes to real estate!!

I should mention that I never said condos would be competitively bid on.  This was just something that this reader made up in his mind to further justify his beliefs.

When I was a kid, I used to sit in front of the Sears catalogue and stare at toys, close my eyes, and hope really, really, really hard that I would open my mind and those toys would appear.  I was only four years old, so I had no clue the world worked, but I feel as though a lot of people really, really, really wish the real estate market would go down, and if they think about it long and hard enough, and yell at enough people, then it might happen!

You know what?  I wish the real estate market would go down!  I do!  I mean, I’ll still have a job if the market is declining, and I’d be able to buy my dream home, while working in a market climate that’s a LOT easier for buyers – for the first time in a long time!

But as I wrote in my column, which I knew would piss of anybody that is in denial about how the real estate market has risen every year for 17-years, I don’t see the market crash coming this fall.

And this leads into my next point…

5) What Will Happen With PRICES?

Sorry guys, but I think prices are going up.

I know it’s insane, and I know I sound like a salesman, and a wide-eyed optimistic Realtor, but I think prices are going up……….for family homes.

No, I don’t think prices are going up across the board.  Geographically, by style, by price – I’m not making a blanket statement in that regard.

But for family-homes, and by that I mean freehold, single-family dwellings, specifically in high-demand neighbourhoods, I think prices are going to rise.

Kingsway, Swansea, Sunnylea, Bloor West Village, Runnymede, High Park, Junction, Roncesvalles, The Annex, Cabbagetown, Summerhill, Leslieville, Riverdale, Playter Estates, Beaches, Danforth Village, Leaside, Davisville, North Toronto, Wanless Park, Bedford Park, Lawrence Park…

I believe that the price of a family home, be it $500,000, or $1,200,000, in these areas, will be higher in the fall of 2013 than it was in either, a) the spring of 2013, or b) the fall of 2012.

I do believe that the high-end product, ie. over $3,000,000, is going to soften, but it’s already been softening for 12 months, so I’m not predicting anything new.

But that 3-bed, 3-bath semi-detached house on Garden or Galley in Roncesvalles?  Yeah, you’re going to have to pay more in September than you would have in February.

As for the rest of the market, I’m leaving that open for debate.

I don’t think the average condo price is going to rise, but I think that’s because if you go back to point #1 of this blog post, I think there will be some fallout at the bottom end of the market where price-sensitive buyers are no longer able to get into the market.

I think today’s condo-buyer has to be savvier than ever to get into a unit that will out-appreciate the market average, as there are so many units coming up in so many new buildings, and it’s as easy to make a mistake as it is to walk and chew gum.

I think that the $1.7M++ market might also soften, as there are currently 80-something listings in C04 for properties like this, and I don’t know that the demand is there to soak up the supply.

So overall, I wouldn’t be surprised to see the average price flatline, since the decrease in prices for the softer segments in the market might offset the gains in the market for $500K – $1M family homes, but as most of today’s home-buyers, and by that I mean house-buyers, are looking in that latter price bracket, I think the bulk of buyers will be disappointed with fall pricing.

As I said in my fourth point – I wish it weren’t so, but it is.

If you’re looking for a 1-bedroom condo, you’ll get a deal.  And if you’re looking for a $3.5M house, it’s like shooting fish in a barrel.  But for the rest of you guys around $700K, it’s going to be the same as it was in the spring.

Okay, that’s all for now.

On your mark, get set, DEBATE!