Riverdale, Toronto


K.M. May 10 2004

Riverdale, Toronto


K.M. May 10 2004

Riverdale, Toronto



98 Riverdale Ave. 1986: $325,000; 1997: $450,000; 2004: $1.4 million (est.)

Built in 1878 by fuel merchant Noel George Lambert Marshall, this three-storey, 5,000-sq.ft. Victorian mansion sits on a choice, tree-lined street in prime Riverdale, a neighbourhood coveted for its proximity to downtown and good schools.

1915-1997: The building is an apartment house for much of this period. Its colourful tenants and growing seediness earn it the name “Paradise Hotel.”

1997: Rosanne Baker Thornley and Michael Thornley buy the rundown rooming house, divvied up into eight dingy abodes, able to see past the mustard-coloured paint on the bricks and the sparkle stucco in the entrance hallway. Scared by the home’s condition, banks refuse to provide a mortgage, forcing the couple to arrange special financing. Summer 1998: The Thornleys camp out for seven weeks in a motorhome parked on the front lawn while the third floor is turned into a swank apartment. They then move into it while the rest of the house is completely transformed, at a cost of $400,000.

2004: The Thornleys now live with their daughter in the main four-bedroom, three-bathroom house and rent out apartments on the top floor and in the basement. K.M.

Some of them went for $30,000 more than the same-size condos in Wesenberg’s building. “It’s pretty crazy,” Wesenberg, 33, says.

LIKE AN ITCH, real estate markets are intensely local. But just about everywhere in Canada residential markets are on fire—and have been, in many areas, for several years. Since 2001, property values in most of the country have risen anywhere from 25 to 50 per cent. In parts of Montreal and Kelowna, B.C., they have doubled, or more, in just 12 months. Figures like these, combined with tales of fierce bidding wars, contribute to the fear that markets across Canada are warped, that prices are out of line with home values and that, yes, almost the whole country is in the midst of a real estate bubble. Yet, despite hair-raising sticker prices, many real estate experts reject the notion of a bubble. “This has been a market that has defied all real estate fundamentals,” says Jeff Rubin, chief economist at CIBC World Markets. And the unusual conditions that are feeding it show little sign of abating.

THE market should have run out of steam by now, says an economist. ‘It has defied all real estate fundamentals.’

FACTOR 1: MONEY IS DIRT CHEAP Rubin, a provocative market watcher who sealed his reputation by calling Toronto’s real estate bubble just before it burst in 1990, says the market in Canada would have run out of steam by now if factors that usually drive real estate cycles were driving this one. Normally, changes in things like the balance between buyers and sellers, or the ratio of renters to homeowners, or the amount of annual household income (itself affected by employment levels), will have a decisive impact on the housing market. But in today’s world, with interest rates lower than they have been since the ’60s, the only factor that counts is the record-low cost of a mortgage.

Don Saynor, one of the many renters who are leaping into home ownership, has been lured by the promise of money that is, in his words, “really really really cheap.” Besides, he’s still hurting from his stock market woes. His RRSP has improved over the past year, but still, he says of his losses, “it’s, like, my Godl” His interest in the real estate market was piqued when banks recently started offering no-down-payment mortgages, and he’s found one bank that gives—sort of— five per cent of the purchase price back to the mortgage client (the interest rate, natch, is slightly higher than market). Thinking both about lifestyle and resale value, Saynor, a 38-year-old who works in advertising, is now searching for the perfect loft-style condo in Toronto for up to $350,000. He believes lofts will stay trendy. It no longer makes sense to fork over $1,200 a month to a landlord. “I’m sick of not paying myself,” he says. Even though a mortgage will jack up Saynor’s monthly housing cost by at least $1,000, it will be worth it, he says. “Basically, it’s forced savings for me. I don’t want to wait any more.”


Many buyers are like Saynor, eager to get in before property values reach the stratosphere. Those who a couple of years ago decided to wait for the market to cool are now kicking themselves. That’s par for the course during the run-up in all real estate cycles. What’s unusual this time around is that the main concern for many purchasers is not a property’s sticker price. Rather, it’s how much house they can afford to carry through their mortgage payments.

Every three months, economist Carl Gomez prepares a revealing report on what’s called the Housing Affordability Index. If there is one statistic that explains today’s real estate market conditions, this it is. Gomez, of Royal Bank of Canada, combines various sets of data to arrive at the percentage of household income that goes toward paying for the home. In Toronto, at the height of the 1990 bubble, when mortgage rates were averaging 13.25 per cent, the cost of carrying a house was an unfathomable 71 per cent of pre-tax household income. (Given that taxes easily eat up another 30 per cent, what did those people eat?) It’s Vancouverites, though, who earn the dubious distinction of consistently having the least left over after paying their monthly housing bills (including utilities, taxes, etc.), a ratio that sits today at roughly 46 per cent. While it’s the highest in the country, houses in Vancouver are actually 15 per cent more affordable than they were in 1997, Gomez says. Except for a tiny moment in ’86, Vancouver’s affordability index has always been above 40 per cent, peaking in ’94 at 64 per cent. Just about everywhere else in Canada, the affordability rate today hovers around the very healthy level of 30 per cent.

On a market-wide basis, bankers begin to worry only when the ratio passes 35 per cent. Which implies that real estate markets just about everywhere in Canada have a way to go before they peak. Gomez rejects the word boom, because it suggests a subsequent bust. “I’d say this is a robust, strong housing market with some moderation ahead,” he says. “But it won’t collapse.” Does that mean it’s a good time to sell and not a good time to buy? “It’s definitely a seller’s market, but given the affordability, it’s still a good time to buy,” he says.

THEY started to recognize the competing bidders. One house, listed at $669,000, sold for $900,000. ‘That was stretching reality.’

Rubin agrees it will be a while before this market turns sour. “It’ll continue as long as interest rates continue to be low,” he says. Contrary to popular wisdom—and the bond market—which expects interest rates to creep up in the near future, Rubin goes so far as to suggest there won’t be a rate increase in the U.S. (which can trigger a copycat jump in Canada) at all this year. “Never in the history of the Federal Reserve Board has it raised rates during an election year,” Rubin says. In Canada, not only are interest rates not going up, they may come down further, he predicts. “As long as interest rates stay at these levels, the housing market will continue to defy what normally are fundamental constraints.”


And then there are the boomers, that generation which, just by sheer numbers, is irritatingly influential. Its front end, approaching 60 years of age, are downsizing, as 60-yearolds tend to do. But instead of moving into more modest homes, they still want “all the bells and whistles,” says Phil Soper, president and CEO of Royal LePage. Meanwhile, the back end of the boomer generation, the 40-somethings, are in upgrade mode: if they aren’t already living in the house of their dreams, they figure now is the time to go out and find it. In realtors’ lingo, they are the move-up crowd, and they are putting a lot of pressure on the middle of the market.

It’s pressure Clara Garfield and her husband know well. The two thirtysomething professionals began their search for a house in September 2002. They thought they’d spend a few months getting familiar with the central Toronto market, where they wanted to live, and then be in a position to buy a house the following spring. Their initial target price was $650,000. Wrong, and wrong. They visited more than 150 houses, even coming to recognize the faces of competing bidders. The months wore on. Garfield (not her real name) became pregnant. Houses were rejected for not having parking, for being too dark or needing too much work. Still, they placed offers on 10 different properties. In two cases, they were explicitly told the vendors would not accept list price. Each time, their bid was trumped. One house, listed at $669,000, sold for $900,000. “That was stretching reality,” she says.

Garfield’s baby was born. He’s now a happy, gurgling, eight-month-old boy. “It’s a long-running joke among our family and friends. Everyone else that was looking is already living in their house,” she says. “There were points when we were so frustrated. We just wanted to buy a goddamn house.” They kept looking, and a couple of weeks ago made yet another offer, this time on a wellmaintained, three-storey Edwardian whose list price had just been lowered to $895,000. They offered precisely that on condition the property pass an inspection, which would happen two days later. The vendor accepted. The Garfields take possession in June. “In this market, you have no idea what will happen with the price,” Garfield says. “But they probably could have got more money.”

Amid the general optimism, there is one pocket of the real estate market causing some concern. That’s condos in Toronto, which RBC’s Gomez says are showing bubble-like signs. Resale prices, particularly among the new towers in or near downtown, have begun to drop while more buildings continue to go up. The fear is that a glut of these condos will trigger a price collapse in the sector. In Vancouver, Gomez says, the story is entirely different. Land is at such a premium, buyers will continue to snap up condos as fast as they become available-even if that means spending the night on the sidewalk.