Editor’s Letter (September 2012): real estate crazy
A few blocks down the street from me, in Seaton Village, there’s a beautiful three-storey house with four bedrooms and tremendous character. Its owners, a pair of journalists in their 60s, bought it in 1972 for $35,000, which was $2,500 less than the asking price. When they moved into the neighbourhood, they were considered pioneers—none of their friends had even heard of Seaton Village. The property was a dilapidated rooming house, and the couple spent the next 40 years lovingly restoring it. When they put it on the market this spring, they got seven offers. The asking price was $1.195 million, it sold for $1.44 million, and the money they made will play a big part in funding their retirement.
This is the kind of story that drives members of my generation crazy. As baby boomers cash out on their real estate investments, their children are finding themselves either priced out of the market or buying houses they can’t afford. The big gamble of Toronto’s young professional class is that they’ll have the same luck in real estate as their parents. Torontonians in their 20s and 30s are throwing themselves into frenzied bidding wars, banking on the hope that Toronto house prices will continue to rise in perpetuity.
As close readers of this magazine know, we run a regular real estate feature that chronicles a prospective buyer’s search for a home. It’s called The Chase, but I have come to think of it as the over-asking page. The house hunter in question usually sets out with a budget, then confronts the disappointing reality of what that budget will buy, and often ends up spending tens of thousands of dollars more than planned. With the base interest rate holding steady at one per cent, first-time homebuyers can’t seem to stop borrowing, and house prices just keep going up and up.
No wonder Mark Carney and Jim Flaherty are worried. This summer, Flaherty made it a little harder for first-time homebuyers to enter the market by reducing the maximum amortization for a government-insured mortgage from 30 years to 25 years. Will this slow down the pace of purchasing? I doubt it. The city is growing, and there’s a limited number of houses on the market—especially detached, single-family homes along the subway line, which remain highly coveted. Plus, we keep fixing up our houses, renovating them, expanding them, upping their prices.
In this month’s cover story (“The Higher They Climb”), Denise Balkissoon takes us to the front lines of the cutthroat market, documenting the measures desperate buyers are willing to take to own a piece of this city. It’s stress-inducing stuff. Buyers now regularly forfeit the all-important step of a home inspection, jumping in with hasty, unconditional offers, only to discover after the ink has dried that they own a property with a crumbling foundation or ancient knob and tube wiring. Taking that kind of risk sounds bonkers to me.
Then again, the retiring Seaton Village journalists, the ones cashing in on their property this year, were considered a little bit crazy, too, back in the ’70s when they bought their house. Perhaps today’s house-buying risk takers will have the same luck as the boomers did before them. Will their properties continue to rise in value with time? For their sake, and for the sake of the city’s health, I hope so.