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the next move

125 Albany Ave., Toronto

The Toronto-area real estate market remains fickle this spring – with even seasoned agents finding it hard to predict which properties will sell in a nanosecond and which will languish.

One recent deal that stands out for its departure from the herd is the sale of the grand dame at 125 Albany Ave. in the Annex.

The houses almost guaranteed to draw a bidding skirmish are renovated, staged and family-friendly. They’re close to the subway and a good school and they are listed with an asking price of $899,000 or thereabouts. They almost invariably sell around the $1.1-million mark.

The only thing about the circa 1900 house on Albany that fits the mould is that it was built of solid red brick in a prime neighbourhood.

The six-bedroom house was owned by the late artist Romolo Simonetti, who took in lodgers to help with expenses. Over the years, the three-storey dwelling fell into disrepair.

“We couldn’t figure out the house,” says listing agent Monika Merinat of Royal LePage Terrequity Realty Brokerage, because it was chopped up throughout. There were three kitchens, makeshift bathrooms, awkward spaces and various entrances.

Ms. Merinat had the drywall partitions torn out in order to restore the home to its original plan. But at a time when many properties are fully renovated and staged with rented, modern furniture and a framed rendering of the Eiffel Tower, Ms. Merinat left it mostly untouched.

She organized a massive cleaning and decluttering and then had the stager arrange some of Mr. Simonetti’s collectibles and objets d’art in the rooms. A vignette of antique pharmaceutical bottles stood in a window and original hardware remained on the doors.

Ms. Merinat set an asking price of $1.999-million and an offer date. While there was lots of interest in the neighbourhood, she knew the market would be limited not only by the higher price of the house but the investment of time and money it would take to refurbish it.

“People who fell in love with the house would not be able to afford it,” she says. “It’s a huge house. It needs updating.”

The artist’s daughter was adamant that she would not accept bully offers, Ms. Merinat says, and she was hoping for a buyer who would respect the dwelling’s history.

Four bidders stepped up and the house sold for $1.975-million. It’s unusual for a property to have four parties vying to own it and still sell below asking.

Ms. Merinat says she set the asking price high, anticipating that the two sides would negotiate, and that’s what happened.

The buyer is unsure whether she will live in it or renovate it for an investment, but she has assured the seller that she won’t pack it with students, Ms. Merinat says.

A similar, renovated house would fetch $3.5-million to $4-million, the agent says.

Last week, the Toronto Real Estate Board reported that sales plunged 32 per cent in the Greater Toronto Area in April from the same month last year, while the average price dropped 12.4 per cent in the same period.

Still, the market shows signs of stabilizing, market watchers say, because the year-over-year decreases are not as grisly as in previous months. Whether it will return to robust growth remains to be seen.

“‘Never bet against the Canadian consumer’ has been a good mantra” in recent years, economist Paul Ashworth says, although he warns that that wisdom seems more shaky lately.

The phrase echoes the “never bet against the U.S. consumer” bromide that was so prevalent in the run-up to the 2008 housing crash in the United States.

Mr. Ashworth, chief North American economist for Capital Economics, presented a downbeat outlook at the firm’s recent annual conference in Toronto, where he warned that rising interest rates will likely weigh on Canada’s indebted consumers – and therefore the entire economy.

Economic growth in Canada has been dangerously unbalanced in Canada for the past few years because it has come to rely so heavily on consumer spending, Mr. Ashworth says.

Unrelenting low rates were the biggest driver of the gains in housing markets, he says, but higher Bank of Canada rates and rising gas prices are a drag on consumers and their home-buying habits.

“Households have become more cautious about ramping up spending,” he says.

Meanwhile, Canadian bank yields are being pulled higher by the juggernaut U.S. and global financial markets. Some of Canada’s big banks announced rate hikes on some of their mortgages last month.

“Canadian banks have been scrambling to raise rates because their own cost of borrowing is higher,” he says.

While Mr. Ashworth frets about Canadians’ indebtedness, Bank of Canada Governor Stephen Poloz, remains unruffled. Mr. Poloz said in a recent speech that high debt loads represent a risk and make the country’s economy more sensitive to rising interest rates, but he believes the financial system is resilient.

Mr. Ashworth says he believes the Bank of Canada has some hard decisions ahead.

“In a small, open economy like Canada, the central bank doesn’t have perfect control.”

If the housing market doesn’t continue to drive economic growth, the country will have to pin its hopes on exports riding to the rescue, he says, but so far that hasn’t happened.

Mr. Ashworth expects the central bank to be on the sidelines for a while. While financial markets are anticipating another rate hike from Mr. Poloz, Mr. Ashworth predicts the next move is more likely to be a cut.

As for real estate markets in Toronto and other Canadian cities, Mr. Ashworth says they could see what he calls a mini-resurgence this spring. But while some industry pundits predict that a spurt of activity will lead to a renewed upward trend, Mr. Ashworth is unconvinced.

Even just a slower pace of house price appreciation will hurt the economy, in his view.

Mr. Ashworth acknowledges that he and his colleagues have been bearish on Canada’s housing market for years. He admits they failed to appreciate how low interest rates would get and for how long.

Also, they didn’t anticipate how the shadow banking system would step in to keep the party going, he says.

“When the party’s over, who knows what will be uncovered.”

But the danger he fears now is that continuing declines in Canadian cities could become self-fulfilling. He points to Britain, Ireland, Japan, Spain and the United States as examples of hot housing markets that unwound once the sentiment changed.

His bottom line? Compared with traditional metrics such as income growth, Canadian housing looks “ridiculously overvalued.”