With an initial budget of $500,000, Louise and Daniel * were in a better position than many first-time buyers. The first day of their search, their agent took the two teachers—she’s 32, he’s 30—to 16 properties in Riverdale, Bloor West Village, and around Yonge and Davisville. What they saw was typical of the current market: renovated homes were out of their price range, and even clunkers were spurring bidding wars. One fixer-upper at Mount Pleasant and Eglinton got 18 bids and sold for $120,000 over asking. After that, the houses began to blur. “We became really discouraged,” Louise says. “We thought, OK, we’re going to have to live in a shit hole. There’s something wrong when two people with good, stable incomes, with a tremendous amount of help from their families, and with very little debt can’t afford a reasonably nice house in the city. What are people without those things doing?”

Their budget inched up, first to $550,000, then 100 grand more. When they saw a detached house in Hillcrest, with its spacious bedrooms, modern kitchen and large yard, it felt like home. It was listed at $589,000, and there were two other interested buyers. Their agent encouraged them to make an aggressive offer of $647,000, a price that was just manageable because the house had a basement apartment they could rent out to help cover the higher mortgage payments. On the night of the offers, Daniel and Louise sat in their car in front of the house, with their competition parked nearby. When the owners rejected the two top bids, the couple had to decide whether to go up or let it go. “Daniel asked me if I thought the house was worth $650,000,” Louise says. “I said that I didn’t think it was worth $250,000, but that’s not what houses are going for in Toronto right now.” They bid $650,000 and the house was theirs.

When they picked up their keys last November, they had few regrets, not even about the cost of the house. “Now we’re in the game,” Daniel says.

But they hadn’t moved in yet. They haven’t had their furnace die during a February freeze, or a tenant’s rent cheque bounce, or a slow leak from the dishwasher rot the floor joists. When you’re overextended by an irrational market and barely making mortgage payments, the smallest house repair can push you over the edge.

Toronto’s seemingly unstoppable housing market has transformed us into real estate hawks, circling open houses, desperate to find a darling fixer-upper in the last affordable neighbourhood before interest rates go up or prices rise, or both. Every few months, economists dispel rumours that the market’s nearly decade-long hot streak has finally peaked. Sandra Rinomato, a real estate agent and host of the HGTV Canada reality show Property Virgins, is resolutely optimistic. “The predictions of a softening market were wrong,” she says. “If you look at Bloor West Village, in the fall of 2006 you could get a house there for $400,000. By January 2007, it cost you closer to $470,000; 2007 started off with a bang and didn’t slow down.” In 2007, the average home price in the Toronto area was $415,041, up 10 per cent from 2006. Over the past decade, the average price of a Toronto home has risen a whopping 82 per cent. Low interest rates, appreciation, a growing desire among the commute-fatigued to live closer to downtown, and flexible mortgage options have combined to create a market where houses in prime neighbourhoods are routinely selling 50 or 60 per cent above asking. In July 2007, a four-bedroom, 2,000-square-foot house in the Beach sold for $1.295 million—almost double the sticker price.

No wonder, then, that Toronto is also becoming the city of the house rich and cash poor. Though housing prices are rising faster than incomes—meaning first-time buyers with little equity are taking on big debt loads and longer term mortgages—there remains a jumpy compulsion to get into the market no matter what it takes.

Carrying debt used to come with a stigma, but that’s all changed. “Now we’re living in a society where we joke about working till we’re 90 to pay off all our debt,” says Laurie Campbell, the executive director of the non-profit counselling organization Credit Canada. “I think we’re going to see more and more people unable to retire because of the high debt they’re carrying, principally mortgages.” The country’s overall household debt amounts to 115.7 per cent of personal disposable income—up from 72 per cent in 1990. Some of the blame for that can be pinned on real estate agents who stoke clients’ fears about the runaway housing market in cities like Toronto and Vancouver, and on mortgage companies who approve greater loans than their clients can afford to carry.

“I started with this agency in 1990,” says Campbell. “We had a huge number of people coming to the organization who were in mortgage arrears. Interest rates were all over the place, and the housing market had taken a dip. In the late 1980s, the market had rocketed right up like it has now, and people had that same fear: If I don’t get in right away, I’ll never get in. We saw the fallout of that in the early 1990s with the recession.”

The pressure of the Toronto market has been heightened by the practice of under-pricing. “I’ve seen houses where there are 21 offers,” says Toronto real estate agent Kim Kehoe, who specializes in the neighbourhoods of High Park, Parkdale and Roncesvalles. “It pushes buyers to put in bids they can’t afford because they’re making decisions with their emotions. And a string of losing bids can make people extend what they can spend.”

* Not their real names