What can you get with $1 million these days? Well, in Toronto that might net you a single family home. Last week the Toronto Real Estate Board announced the average detached homes price hit $1,040,018 in February.
When I was a kid living in a million-dollar house meant something.
You were rich.
You probably had a mansion.
You took luxury vacations and drove fancy cars.
Now it seems there’s a Millionaires Row in most neighbourhoods across Toronto. But residents of these homes are dealing with record amounts of debt. Many might take the bus to work. And nobody is going on a luxury holiday.
If you say your house is a worth a cool seven figures, I’m not impressed anymore.
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Interest Rates Driving Pricey Real Estate
It’s no surprise that after the Bank of Canada cut the overnight lending rate, borrowing got cheaper. Banks followed by slashing prime to 2.85 per cent, allowing Canadians to get into more debt for less. With Toronto less affected by the slide in oil prices, residents are feeling good about the future. The proof is in the numbers: in Toronto, 6,338 homes sold in February, an increase of more than 11 per cent from a year ago. Things aren’t getting any better in Vancouver, Canada’s most expensive city. There, the local real estate board is reporting the average price of a detached home reached $1.4 million in February.
Confidence Is Growing
If Bank of Canada Governor Stephen Poloz was seeking to instill confidence in Canadians, he’s been successful in Toronto. There’s been an almost palatable frenzy for homes in the last month. I’ve heard both sides – homebuyers are anxious and say they want to buy before things get even more expensive. However, homeowners are now thinking of selling their house after seeing what other similar properties have sold for in their neighbourhoods. Both are highly emotional reactions and anyone would be wise to ignore these impulses. Buy – if you need a home. Sell – if you were already thinking of moving. Period. Don’t try to capitalize on this market.
Bidding Wars Are Inevitable
When money is cheap and inventory is low, buyers can expect to enter into several bidding wars to get the house they want. Single detached homes in Toronto are in short supply and buyers are willing to go as high as possible to get into one. Buyers should prepare themselves before they go out shopping. Last month, a home in Scarborough, listed below market at $399,000, had 26 registered offers before bidding started. It sold for $565,000 in the end. When out looking keep your budget top of mind, its easy to get into 10s of thousands more in debt when you start negotiating.
Also read: Bidding Wars: 4 Ways to Win That House>
Not the Same Story Across Canada
Lower interest rates might have pushed the Toronto market higher, but they have been unable to boost cities pummelled by the lower price of oil. In Calgary, where job cuts have occurred on a weekly basis, confidence is waning, and it shows in the real estate numbers. Home sales there plunged 34 per cent in February compared to a year ago. It’s a similar story in Saskatchewan, where province-wide resale home numbers fell by 4.6 per cent in the fourth quarter and 19 per cent in January, also in reaction to the impact of falling oil revenue.
The Bank of Canada held rates at 0.75 per cent at the latest interest rate announcement, giving homebuyers some breathing room during what is the busiest time for real estate in the country. Now all eyes are on the next scheduled announcement on April 15th. If rates are slashed again, hot markets like Toronto and Vancouver could see their home prices climb even further, creating even more Millionaires Rows in regular neighbourhoods across Canada.