Toronto homeowners cashed out to capitalize on high prices – and many aren’t about to dive back in
Justin Wheeler didn’t expect he’d start leasing in his 30s. He’s owned a house in Cambridge, Ont., for 10 years and raised a young family there. But he changed his mind after people started flocking to Cambridge to escape Toronto’s expensive real estate market, driving the average price of a house up more than 30 per cent in a year.
“In a couple years, we were going to sell. And then we saw people selling their houses for crazy amounts of money, so we said, ‘Screw it.’”
Last month, Mr. Wheeler sold his house for well over asking price – at twice what he paid. He thinks it’d be “crazy” to buy while the market is so high, so he’s searching for a bigger house to lease while he waits for it to fall.
Toronto-area realtors say interest in leasing high-end rental homes has surged as more and more owners do exactly what Mr. Wheeler did: Cash out and lease while they wait to buy in a cheaper market. Ashley Gollogly, a local realtor, says this is setting Toronto’s high-end leasing market “on fire” – and helping to drive its prices up.
“[It] has always been crazy, but I think in the last six months it’s gotten more so just with the ones that have been selling their houses and taking a break from the market.”
With housing prices in Toronto at record highs, more people are looking to lease – and the increased demand is driving leasing prices higher. Realosophy Realty, a brokerage that collects statistics on housing in Toronto, found 403 new listings of high-end homes – defined as properties asking $4,000 a month and up – in the first quarter of 2017; a 35-per-cent increase from the same period last year. Of those listed, 219 were actually leased out – a 53-per-cent year-over-year increase.
A search of online realty sites turns up homes in the Greater Toronto Area that come with Victorian-style furniture, whirlpools, outdoor kitchens – and price tags as high as $25,000 a month.
Andy Taylor, of Sotheby’s International Realty, represents a Yorkvillebrownstone listed at $23,500 a month. It has 3,000 square feet of living space, has three bedrooms and no garage, but Mr. Taylor says there’s a market for furnished rentals in great locations, even at this price. So far, he’s seen interest from executives moving to Toronto and from people who sold their house.
Years ago, such leases were popular with businesspeople and athletes who relocated their families after finding temporary jobs in the city. Now, people who have just sold a home – often for a price they never dreamed they would get – are pushing into the leasing market flush with cash.
“People don’t want to take all their money they’ve made in appreciation of their family home and sink it back into real estate,” says local sales representative JimmyMolloy, of Chestnut Park Real Estate Ltd.
Ehson Rahmati, of World Class Realty Point, who sells and rents condos in the GTA, sees the same story playing out in high-end condo rentals. Interest in large condos increased “tremendously” last year and in March, he says.
“A lot of people obviously are moving out of their houses, so a lot of these smaller condos won’t cut it for a family. So a lot of the bigger two-bedroom, three-bedroom penthouses or just bigger units are being rented.”
The Canada Mortgage and Housing Corp.’s Rental Market Report for the fourth quarter of 2016 found the average price for condos with three or more bedrooms increased by 16.35 per cent last year. In comparison, the average price of a one-bedroom apartment increased by 7.30 per cent.
It’s not just Ontario’s recent moves aimed at curbing the housing market that have some convinced that the market is set for a slowdown, and soon. For Ms. Gollogly, it was the election of Donald Trump. For Mr. Wheeler, it is his conviction that the Bank of Canada will raise interest rates.
Penny Brown, a realtor with Sotheby’s International Realty Canada, has noticed a couple trends: People are insisting on closing sales quickly, as if the market could crash any day; people are downsizing while they’re still young; and people are moving into nearby cities such as Cambridge or Hamilton to work remotely.
While selling and leasing might offer the chance to cash in on a rising market, the sellers still need a place to live and may find leasing too expensive.
Terri Roberts lives in a Markham house worth three times what she originally paid. She wants to sell, and rent in the city so her two children have access to the perks of Toronto and to reduce her daily commute. So far, she and her realtors haven’t found a three-bedroom place that’s within her budget and in a neighbourhood that she’s comfortable living in.
“It’s frustrating. Very frustrating.”
Mr. Wheeler is having similar troubles. Although his house sold at a good price for Cambridge, a declining number of listings has made leasing as competitive as buying. And although he’s convinced banks will raise interest rates in the future, leading to a market collapse, he admits there’s no way to tell when that might happen or what the effect on the Cambridge real estate market might be.
“At this point, [the sale feels] good, but who’s to say it’s not going to get even worse and I’ll have gotten out too early? That’s the gamble you take.”