Special: A hot home bubble
October 14, 2009
Tony Wong
BUSINESS REPORTER
James Bazely considered carefully before deciding to go ahead with building luxury homes on expansive one-acre estate lots in Midland, Ont.
"Earlier in the year this is not something we would likely have gone ahead with," said the Barrie-based builder. "During the winter there were a lot of tire kickers, but no one was prepared to sign."
Bazely, the owner of custom builder Gregor Homes, is also the new president of the Ontario Home Builders' Association. He starts digging a hole next week on his estate homes, a project he green-lighted over the summer when the market seemed to be picking up.
According to figures released Tuesday by Statistics Canada, Toronto new housing prices rose by 0.2 per cent in August over July as developers reported more traffic at their showrooms. Toronto prices beat the national average, where the index rose by 0.1 per cent.
"We are really thrilled about that. It's certainly going in the right direction," said Bazely.
While the uptick is encouraging, new home prices are still down by 0.1 per cent year over year, especially compared with the existing home market, where prices increased by 10 per cent in September compared with a year earlier.
"Despite the rebound in the housing market and the dramatic turnaround in existing home prices in recent months, new home prices remain fairly weak," said Millan Mulraine, an economics strategist with TD Securities.
Bazely says some new homebuilders have been dropping prices and offering incentives to attract customers and reduce inventory. He hopes to have 45 homes on his development of "affordable estates" when it is completed. Prices start at the half-million dollar mark for a bungalow. While reasonable by Toronto standards, it's a luxury product in a community of less than 20,000.
In times of uncertainty, buyers tend to shy away from the new home market to existing homes, where they can see and touch the product. But strength in the existing home market and surging consumer confidence have caused buyers to spill over into new homes.
Sales were up by 62 per cent in August compared with a year earlier, according to figures by RealNet Canada. Home sales started to improve in the third quarter but a disastrous winter means sales are still 18 per cent behind last year's.
Some developers are also concerned that interest rates may be on the rise, as the Bank of Canada watches the real estate market closely to determine if an asset bubble is being formed.
The loonie also hit a one-year high this week – some investors believe the Bank of Canada may have to raise interest rates sooner than expected. As a result, some analysts think sales that might have taken place next year are being brought forward by consumers worried about higher future rates.
"I think we have certainly been spoiled by interest rates, but even if it went up a couple points it wouldn't be the end of the world. It would still be low in historical terms," said Bazely.
Toronto Star