October stats are in for new housing, both high-and low-rise. For the short term, there is reason to celebrate. High-rise condominium sales tallied a whopping 2,430 units for the month, according to RealNet Canada Inc. That was up from 1,926 in September, returning us to pre-recession days.
Low-rise homes were off a bit from September's 1,955 homes, but at 1,700 units, October sales still presented a glowing picture of health for the low-rise market.
Downtown west took top honours in condos, with 1,187 sales, mainly because five new projects were launched. Launches always bring out the buyers, because that is when prices are lowest, says George Carras, president of RealNet.
But take a moment, please, before breaking out the champagne. This heady rush to snap up new homes may indeed be a further inflation of a balloon that is likely to pop within the next few years.
Yes, my friends, a good many clever people think we are right now sowing the seeds for the next residential bubble. They make a compelling case that the inevitability of rising interest rates coupled with rising gasoline prices will mean a big chunk of the group buying today will face personal financial difficulty in a few years.
"Frankly, I think we are creating the seeds of a future crisis," says James McKellar, professor of real estate and infrastructure at York University's Schulich School of Business.
Kevin Stolarick, research director at the Martin School of Prosperity at the University of Toronto's Rotman School of Management, adds: "We seem bound to repeat the mistakes of the past and I think those who are now buying homes in suburbia will be hardest hit."
What worries them both is that the main market for homes so far this year has been first-time buyers. These are the young men and women usually just starting careers. That means they have the least financial resources.
And yet they are looking for money from Mom and Dad and getting banks to advance them mortgages right up to the limit of their borrowing power to buy new homes. And new homes do not come cheap.
Mr. Carras says the average new low-rise in the Greater Toronto Area cost $451,455 in October, up from $438,078 in the same month last year and the average new condo went for $401,519 versus $389,232 in October 2008.
With a 20-per-cent down payment, that means taking on a $331,164 mortgage for a low-rise home or $321,215 for a condo.
Great - as long as mortgage rates do not rise. Today's borrowers may be able to handle monthly payments when the interest rate is 4 per cent, but what happens when things return to more normal times and rates go to 6 or 7 per cent? Monthly interest shoots up by 50 per cent or more and it is extremely unlikely incomes will jump by that much in the near future.
But interest rates and mortgage are only part of the equation, says Prof. McKellar. He says, on average, shelter costs represent 32 per cent of incomes. Transportation costs - getting to and from a home - generally run about 18 per cent of income.
If you live in a city with reasonable public transit, you can weather a jump in the cost of housing by reducing transportation costs - you take a bus, subway, walk or bike to work. But if you live in the 905 area, where a car is almost essential, you do not have that option.
"There is almost absolute certainty that both mortgage rates and gasoline prices will rise in the relatively near-term future," he says. "When that happens, it will be deeply troubling for many people.
"Most of today's buyers are men and women at the lower end of income scales and they just do not have the room to manoeuvre."
While those living in condos may be better off as far as transport goes - they can take the TTC or invest in an e-bike - they too will face a double whammy.
Monthly mortgage payments will go up, and so too will monthly maintenance fees. Energy costs represent about 30 per cent of the operating expenses of any high-rise. As oil prices surge upward, so too does the cost of other energy sources such as natural gas and electricity.
Adding insult to injury, factor in the impact of next July's Harmonized Sales Tax, which promises to raise maintenance costs anywhere from 5 per cent to 8 per cent.
Even Mr. Carras, usually optimistic about the future of housing, expresses concerns.
"We really don't seem to be giving much thought to the future," he says. "Rebounding sales is great in the short term, but you absolutely have to be concerned about what it means for the future."
Special to The Globe and Mail