Toronto’s exploding home prices may be drawing out the flippers

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One renovated bungalow in the Bathurst Manor area provides a snapshot of the action in Toronto-area real estate: The home sold in September around the $1-million mark, then swapped hands in February for $285,000 more.

Agents are seeing a lot more of this type of transaction throughout the Greater Toronto Area, where rapidly escalating real estate prices are prompting buyers to place houses back on the market not long after they’ve picked up the keys.

John Pasalis, president of Realosophy Realty, says he’s seeing the return of a particular type of investor that we haven’t seen in some time: house flippers. These speculators don’t buy a fixer-upper, renovate and then sell for a profit. They purchase a property, do little or no work, and sell a few months later.

They’re attracted to explosive price growth - particularly the type we’re seeing in the suburbs surrounding Toronto, where average sale prices have surged 16 per cent from November to January, Mr. Pasalis says. He points to examples in Brampton, Oakville and Durham, among other places.

He predicts the speculative trend may accelerate as we head into the spring.

Mr. Pasalis says that these quick turnarounds make up a small share of the market today: Roughly 6 per cent of all the houses listed for sale in the suburbs in January were bought during the previous 12 months, compared with 4 per cent in January of last year.

But the success of some will encourage others.

“These first flippers made a significant amount of money in a very short period of time and that’s the spark that is needed to fuel more investors to want to do the same thing,” he says.

The bungalow at 87 Waterloo Ave. in the Bathurst Manor area of North York provides one snapshot of the market’s history and its current trajectory.

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The three-bedroom house near Bathurst Street and Sheppard Avenue West last sold in September for $1.065-million. In February, it changed hands again at $1.35-million.

In between, a lot of white paint was used to cloak the interior walls. Other than that, the house looked pretty much the same.

Elise Stern, a broker with Harvey Kalles Real Estate Ltd., showed the house to her clients while it was on the market. She does not know what motivated the buyer in September to sell it again five months later.

Ms. Stern was familiar with the property because it had been listed, on and off, since the fall of 2017, when the sellers started out with an asking price of $1.5-million.

At that time, the house didn’t sell and the homeowners took it off the market after 12 days. They tried again the following spring with an asking price of $1,349,900. That time it sat on the market for 237 days.

In 2020 the property was back on the market for 113 days with an asking price of $1,249,900. In July, the list price was cut to $1,199,900. Still there were no takers.

In September, the list price was cut to $999,000 and finally it sold for a $66,000 premium.

Ms. Stern says the house was nicely renovated and it offered the bonus of a basement apartment. One unusual feature that may have deterred a few buyers was that the new kitchen was built in a former garage, which was a few steps down from the main level.

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The original asking price was too high, in her opinion, but the owners clearly took pride in keeping the house in good condition.

She says the risk that comes with setting an asking price too high is that potential buyers begin to believe there might be something wrong with a perfectly good house.

“Sometimes things get stale.”

Fast forward to 2021 and the most recent transaction took place after only five days on the market and with the same asking price of $999,000.

To Ms. Stern, the deal is a barometer of the current environment, where plenty of buyers are chasing very few listings.

Mr. Pasalis suspects that many recent flippers came about their windfall accidentally; they did not plan to sell again in a very short period of time without doing any work on the property.

He figures some bought with the intention of renting out the house, but when they were unable to find an acceptable tenant, opted to cash out. In other cases, they may have intended to renovate and flip but decided it would be easier and more lucrative to flip the house without investing any money in it.

He adds that, typically when markets show signs of becoming overheated, governments and regulators signal that they don’t like the trend they are seeing and may step in to end it. In recent months, the Bank of Canada and the federal government have done the opposite.

Since the start of pandemic restrictions, the overriding message from Ottawa has been that interest rates will be low for a very long time and, if the economy sputters, they have plenty of tools at their disposal to kickstart it, he says.

“I don’t blame investors for wanting to jump into this market,” he says. “The consensus view from the investors I hear from is that, if you’re going to invest in a housing bubble, you want to ride the bubble that governments are supporting on the way up and the one they’ll throw every policy tool available at to avoid a decline in house prices should things cool.”

Sri Thanabalasingam, senior economist at Toronto-Dominion Bank, says that nationwide sales and prices of existing homes now stand in uncharted territory after January’s strong performance.

Compared with one year ago, sales jumped 46.2 per cent while the average price climbed 22.8 per cent, Mr. Thanabalasingam says.

He points to low mortgage rates, a race for space and fear of missing out as the factors driving the advances.

“At some point the frenzy will die down and rising mortgage rates, limited supply and diminished affordability will cool the market,” Mr. Thanabalasingam says. “As of now, however, there’s no clear indication of any slowing in Canada’s housing market.”

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