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How does your Toronto neighbourhood rate, in a city where the housing prices have gone up, up and up again in the past few years? Are we in for a crash, or is this simply an overly hot market cooling down to a more reasonable level?

In some neighbourhoods, bidding wars are still common, while in others, buyers are no longer at the mercy of vendors asking for a clean offer and a very large cheque.

For the first time in more than a decade, the average house price in Toronto has declined. The relentless upward trajectory in prices reversed course last month, making dwellings cheaper than they were in August, 2007.

The slip was small - only 1 per cent - but some economists see it as a significant psychological shift. They say Canada faces the prospect of lower house prices in the coming months after 2008 sales decelerated through the end of August.

How does a home buyer make sense of it all? Toronto Real estate expert John Pasalis was online earlier for a discussion on the state of the housing market in Toronto.

John Pasalis is the founder of, a Toronto-area real estate information and services company. A graduate of the University of Toronto, he holds a B.Sc. in Economics. Mr. Pasalis began his career in real estate 10 years ago, first working as a portfolio investment manger and then moving into sales. He is a sales associate with Prudential Properties Plus in Toronto and a frequent contributor to, a prominent Toronto real estate and neighbourhoods blog.

Founded in 2006 by four friends around a kitchen table, brings consumer-focused real estate education together with cutting-edge technology solutions to serve the needs of home buyers and sellers. The website is quickly growing popular with consumers and real estate industry professionals alike. Among its service offerings is the Toronto and GTA Neighbourhood Profiler, a comprehensive resource on average home prices, school performance and transit routes for over 180 neighbourhoods.

Editor's Note: editors will read and allow or reject each question/comment. Comments/questions may be edited for length or clarity. We will not publish questions/comments that include personal attacks on participants in these discussions, that make false or unsubstantiated allegations, that purport to quote people or reports where the purported quote or fact cannot be easily verified, or questions/comments that include vulgar language or libellous statements. Preference will be given to readers who submit questions/comments using their full name and home town, rather than a pseudonym.

Danielle Boudreau, writes: Good afternoon John, and thank you for taking the time to talk to our readers about every Torontonian's favourite water cooler topic, real estate. It seems that everybody wants to know where the market is going, up, down, or just levelling off for a while. What do you think will happen in the next few months?

John Pasalis: Hi Danielle, I'm glad to be back for another online discussion about Toronto's real estate market.

As our analysis in today's Globe and Mail report shows, there are very interesting times in Toronto's real estate market.

While Toronto's housing market has certainly slowed, it's not a housing bubble I'm worried about. Experts are finding that Toronto's appreciation is based on some solid fundamentals, whereas markets in the west appear to be overvalued.

I am far more concerned about sluggish U.S. and Ontario economic growth and disappearing consumer confidence. Unfortunately nobody really knows how these events will unfold and what impact they will have on the Canadian economy.

Bank of Canada Governor Mark Carney suggests that one of the primary effects of the U.S. turmoil will be to dampen Canadian exports. CIBC's Jeff Rubin has suggested that Canada's economy will benefit from the proposed $700B bail out, but Washington is still arguing that one out.

W Tran from Toronto Canada writes: I am a young professional that has been saving up to enter the real estate market and am interested in buying a newly built condo. Given the way real estate markets are dropping in the US and unknown conditions in Canada, would it still be advisable to invest in a new development in the Toronto area in the next 6 months? Or should I just wait and purchase a re-sale unit in 1 years time?

John Pasalis:Very happy to see someone asking this questions, thanks W Tran.

In the past ten years buyers who purchased new construction condominiums did so with the underlying assumption that the condo they bought today would appreciate in value by the time it was completed 2-4 years later.

In a slowing market we have to start challenging those assumptions. We're entering a period in our economy where real estate prices are expected to remain flat or possibly decline slightly. Furthermore, there's some uncertainty as to what percentage of the condos currently under construction are owned by investors. If the percentage is high, we might see greater weakness in the condo market (read inventory glut) if too many investors choose to sell their units at the same time.

There are risks when buying new construction condos. Over the past twelve years buyers have forgotten about those risks because the market has been appreciating in value. I think it's time for buyers to seriously consider the risks involved in buying a new construction condo.

Lynn Schroeder from Canada writes: How would you advise your single, first time homeowner daughter on mortgages? Fixed or variable? If Variable, how should she determine when to lock in?

John Pasalis: Hi Lynn, Thanks for your question. There are a lot of interesting things going on in the mortgage market.

Fixed interest rates have been on the rise, largely due to higher borrowing costs for financial institutions. Furthermore, banks have been lowering the discounts they are giving on variable rate mortgages.

If your daughter is very risk averse she may want to consider locking into a fixed rate which is still relatively low when compared to historical levels. Having said that, I advise your daughter to speak with a qualified mortgage broker who can advise her on the best options for her. Speaking with a financial planner is also a very important step, remember housing is just one part of your overall financial health.

Depending on your daughter's income, future life plans and savings, a broker can recommend a tailored solution. For some, the best solution is a combination of fixed and variable. A financial planner can ensure that the mortgage strategy recommended fits with the rest of her financial goals.

Baldev Sood from Toronto Canada writes: If anything is going to destroy the world economy is the price of real estate and greed and speculative nature of the rich. We could buy a house in north york for $15000.00 (detached on the corner of Leslie and Finch in 1967 fall. The same house could be $600000.00. Cost of living has drastically increased during the same period. If not for cheap imports from China, India and poor countries the cost of living would be much higher. Will our grand children live in tents while working in Toronto?

John Pasalis: I understand your concerns, Baldev. As a real estate professional, I do recognize that housing is a commodity unlike any other because it affects the quality of our lives.

It is disheartening for younger people entering the market to listen to the glory days of their parents buying in Little Italy on modest wages. Having said that, the housing story is not as straight forward as some pundits would like to have us believe. For every "greedy" speculator driving prices up is a senior citizen on a fixed income who has been able to use housing appreciation to their advantage.

Changes in the housing market inevitably results in winner and losers - affecting real lives along the way. The good news for buyers is that the current slowdown will provide some relief and better choices for home buyers.

However, I would agree that greed is a large part of the story of the U.S. housing market (particularly the subprime debacle), with some big players (mortgage lenders, insurers and banks) now being investigated for fraud by the FBI. It will be interesting to see this situation unfold.

Michael Jefferson from Canada writes: Hi John, My question is two parts. 1. What effect do you think the current Recession in Ontario will have in Real Estate prices in Toronto? Given the Toronto Market Crashed during the last recession and Canadians have never been more leveraged financially. 2. Torontonians are feeling much poorer as the so called 'wealth effect' is being negatively impacted as they watch their stock portfolios plunge and Real Estate values dip in the wake of the most momentous financial crisis since the Great Depression. How will this affect Real Estate prices in Toronto? Mike

John Pasalis: Hi Michael, You refer to the collapse we experienced after the 80s real estate bubble - I don't think we are headed for a similar collapse.

What happened to Toronto's real estate market in the 80s was a bubble. Prices appreciated 167% in just five years. In contrast, Toronto's real estate market has appreciated by 90% over the past 12 years. Year over year prices appreciated by roughly 22% in the late 80s compared to 6% over the past 12 years.

So while Toronto's housing market has certainly slowed, it's not a housing bubble I'm worried about. I am far more concerned about threats to U.S. and Ontario economic growth and what you rightly flag as disappearing consumer confidence.

This is when debt loads and overleveraging become a problem in Canada. When job losses and declining house prices are combined with high debt loads (and reports have long indicated that Canadians are not among the world's greatest savers), this is what we should be concerned about.

Given the times, you will want to think twice about buying if you are not prepared to buy defensively. Put simply, this is ensuring that you can stay in your home comfortably (both location wise and financially) for at least 5 years. You want to give yourself enough time to accumulate some capital in your home and to recover from any potential short-term decline in prices due to our slowing economy.

Annette Dul from Toronto Canada writes: I'm currently looking for a condo in the downtown core (C1). After doing some research I noticed that all the condos in my price range $240,000 do not include a parking space. I currently own a vehicle and would like to keep it yet don't necessarily need it. Would it be smarter to buy a condo at 700 sf no parking space (in hopes of purchasing one in the future), or a 500 sf condo with a parking space? Which would be a wiser investment when it comes time to sell? Thanks.

John Pasalis: As I've said before (and will say again),this market calls for defensive home buying strategies - this means saving a lot for down payments (5% is only a minimum) and being able to stay in your home (both financially and location wise) for at least the next 5 years.

Do you need a parking space to remain where you are for the next 5 years? One thing to think about is 'real' walkability in Toronto's core, which can be deceptive. Some neighbourhoods are becoming more walkable, but that grocery store isn't quite in reach yet - at least not when you are juggling jars eggs and sauce jars.

But to answer your main question, the evidence on the value of parking space is very mixed in the downtown core. While urban car rental companies like Zipcar and AutoShare are changing incentives for home owners, other reports show that Torontonians are slow to give up their wheels even when public transit options exist. A lot depends on the actual quality of those transit services - for example, the (relative) reliability of the subway versus sporadic street car service.

Joe Smith from Canada writes: Mr. Pasalis, it has been argued by others that the relationship between average incomes and average housing prices is a good predictor of the boom-bust cycle. In a nutshell, the idea is that when average housing prices soar far above what is affordable to someone making an average income, some kind of correction is inevitable -- the high debt and/or speculation that fuels the boom cannot continue indefinitely. Right now, in the Toronto area and elsewhere in Canada, this model would seem to predict that we're ripe for a housing market bust. How would you address this prediction?

John Pasalis: Hi Joe, I don't think of the Canadian housing market as one big market. Think of it as hundreds of smaller independent yet related sub markets. The factors that impact the real estate market in Vancouver or Calgary are very different from the factors that impact Toronto's market. While affordability may be out of balance in many west coast cities, Toronto is right on the edge. The current slowdown in the market looks to bring things more inline. Probably not a moment too soon.

Danielle Boudreau, writes: That's all the time we have for today's discussion. Thanks for your advice today, John. Any final thoughts on the real estate market in Toronto?

John Pasalis: Thanks for another great discussion, Danielle. I do have some last thoughts on buying in today's market.

I notice that some professionals (in today's Globe actually) in this industry respond to this question with a strong faith in their own specialties - a particular neighbourhood, the condo market, etc. I take a different view.

Neighbourhoods within close proximity to the subway and with good public schools have performed very well in the past. But in a slowing market you should be more focused on finding the right house first and the right neighbourhood second. Buying in a great neighbourhood is foolish if all you can afford is a small condo or house that you'll outgrow in 3-4 years, or even worse, you stretch yourself too much to get into a particular area.

I have a couple of examples of good strategies. When a friend of mine asked my father, a long time real estate investor, how he managed to get through the 90s real estate crash unscathed, he had a very simple answer: "I didn't have to sell in the early 90s." Home buyers should be looking to buy a house that they won't have to sell in 3-4 years either for financial reasons or because they've simply outgrown their house.

Recently, some Realosophy clients, a young couple, both with good jobs, bought a home for which they could manage mortgage payments on one person's salary. This is a great move if you are in a vulnerable industry (and frankly, many of us will be indirectly affected by the U.S. meltdown).

Now is the time to consider a solid "second choice" home or neighbourhood (perhaps not quite the dream) if it means financial piece of mind. It's not about being scared but being prepared. It's time to think defensive.

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