By Trevor Weir,

Toronto Condos and Estate homes decided this week to most ignorantly ignore the North American house pricing trend and in a dramatic reversal have simply decided to arbitrarily increase their value. That’s the headline and if it wasn’t for the implication that houses have minds of their own, it would almost be believable since the reality of the situation really isn’t far off from this headline.

Toronto Condo Pricing

Unless you have been living under a rock ( and a pretty big one at that ) it would have been hard to ignore the financial crisis of 2009 that caused the G8 to morph to the G20 and which finally exposed the toxic nature of the US Mortgage situation.

Btw, the G8 is trying to figure out what its new role is since the G20 now appears to have taken over much of what the G8 group of countries use to hold as their exclusive domain. The breakdown, as many of you know know, was primarily caused by 2nd and third tier lending institutions in the United States who basically gave mortgages to nearly anyone with a pulse.

There were large families with little income to support their loan applications who got not one nor two but sometimes as many as 3 mortgage loans approved. Like I said, you really only needed a pulse and a valid drivers license and some would dispute whether you needed the latter at all.

So house sales went through the roof in a 10 year upward climb in which a 200,000 condominium climbed to 275,000 then to 325,000 et al until 8 years later it was being remortgaged at 600,000 while a fleet of Cadillacs and expensive SUV’s lined the driveway.

The mortgages were bundled into fixed asset allocations and resold from the original third tier lender to second tier lenders who bundled in some better backed mortgages and then on to first tier lenders who repackaged them, mixed in a few more securities and whom then resold them internationally.

This isn’t quite the definition of a Ponzi scheme but to when a European bank finally called the bluff and demanded payment the entire house of cards started to fall. I know I said it wasn’t exactly a Ponzi scheme but to those losing their homes as prices and home values plummeted below the very high remaining mortgages the effects were the same. They simply lost everything.

Controversial action on the part of the US Govt coupled with European, Japanese and then G8 emergency action managed to stave off a what was a pretty certain collapse of the banking system but so far as everyone was concerned both consumer confidence and existing home pricing had collapsed dramatically.

Yet here we are, just 3 measly months later looking at the real-estate picture and realizing that there are at least 3 really bright real-estate communities in the US in which house pricing not only didn’t collapse but have held steady. Not surprisingly, these communities tend to have regional banks with different lending policies and or have gone through massive but painful manufacturer restructuring in the near past.

Lake Ontario Condominiums

Surprisingly Canada has its own exception, Toronto. Toronto’s Condominium and Estate Homes ( those over 600,000 ) have not only NOT collapsed but are inching skyward month over month. If the UK bookies were betting on this, they would probably give you strong odds that this quiet market will stop inching upwards and take a fantastic little leap in the very near future.

People more educated than myself have taken a half dozen educated guesses as to why this might be happening and most of them might be right on the money.

Here are a few of the reasons postulated :

Canada’s banking system was only in danger because no banking system is an island but having said that overall Canadian banks had very minor exposure to toxic loans and a smart group of investors moved quickly to organize and mitigate the risk that was exposed.

Canadian immigration which has a large and growing number of professional middle class families stayed steady, serves to push the housing market strongly at all ends.

Ontario’s premier has decided he needs more taxes and introduced a harmonized provincial/federal tax structure whose only real goal is to tax additional items that were not being taxed before. No, this isn’t what the premier is saying out loud but if the revenue to the province were to decrease would he have done this? Sometimes, one needs to only look at which culprit benefits in order to see the true motive.

In any case, this new HST which comes into affect just before summer will additionally tax Condominiums and Estate homes with those over 400,000 taking the brunt of the blow.

The upsell of this, is that ahead of the HST implementation and because of the pent up demand while potential buyers were waiting out the 2009 financial storm the supply and demand equation has shifted positively for those whom are supplying and less virtuously for those wishing to buy.

So, do I hear the phrase “perfect storm” yet? Uhmm maybe but there is more good/bad news so hold your horses. Like many other western countries, Canada’s interest rates are at all time historic lows. I am not going to say that its a 60 year low but it has to be pretty close to it.

For those without their thinking caps on, low interest rates make your monthly carrying charge on your home significantly lower, so being able to afford 1500 in carrying charges may get you a 500,000 dollar home instead of a 275,000 dollar home. Which one of these would you prefer ?

The bank of Canada would love to start nudging the rates back up but the currency speculators

Bank Of Canada - Interest Rate Movements

who historically dabbled infrequently in the Canadian dollar/US Dollar exchange rate are now camped aggressively in broad daylight – just watching to see what will happen here.

Again for those not in the know, higher interest rates attract more foreign currency particularly when the Banking system offering the higher rates is one of the strongest in terms of stability in the world.

Do I hear you quietly mouthing the words “perfect storm”. But ( and dear Mrs Richards, my former english teacher, told me never to start a sentence with ‘But’ ) there is more good/bad news for Toronto Condominium sales pricing.

A good part of southern Ontario’s manufacturing output is closely tired to the car industry. The car industry has regained some of its lost ground and GM and Toyota are once again adding additional shifts and substantially increasing production. This isn’t something that is going to happen, it has in fact happened within the past 3-4 weeks.

And lastly, it appears as if Toronto is currently running out of available Condominium space that will be availabe in the next 12-18 months. The inventory levels are getting lower and as they move towards some critical point its hard not to see a mass rush for units occurring.

Ok, you can say it out loud now – “A perfect Storm”