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the next move

In 2016, Men-Chong Luk sold her luxury condo unit on Toronto's waterfront for $730,000. She and her husband promptly turned around and offered $755,000 for a six-bedroom Edwardian down the highway in Hamilton, about 40 minutes to the west.

The couple figured they could refurbish the fixer-upper and flip it if it turned out Hamilton wasn't for them. Ms. Luk is nearly finished renovating the circa 1906 house. "We're almost done. We're not selling, though – we love it here."

The port city at the west end of Lake Ontario has experienced a real estate boom for a few years now. But the movement toward Hamilton may be intensifying with new nationwide rules surrounding uninsured mortgages and a recent interest-rate hike by the Bank of Canada.

Michael St. Jean of St. Jean Realty Inc. has already tallied 20 deals in 2018 and he expects another five or so to firm up before the end of the month. The sales have been a mix of condos, townhouses and single-family homes across the price spectrum, he says.

"It's a bit surprising. We seem to be off to a good start," he says. "It's definitely a mix – and in all parts of the city."

Mr. St. Jean says December sales were fairly brisk as buyers rushed to purchase before new, tougher rules surrounding qualifying for an uninsured mortgage came into effect on Jan. 1.

But the new "stress test" also has the effect of diminishing the purchasing power of some prospective buyers – especially in high-priced cities such as Toronto and Vancouver. The Bank of Canada estimates that about 12 per cent of buyers in the Greater Toronto Area will be affected, for example.

Many real estate agents say the Toronto-area market has had a sluggish start in 2018, with slim listings and hesitant buyers. Sales in the Greater Toronto Area dipped 6 per cent in the first half of January compared with the same period last year, John Pasalis, president of Realosophy, estimates.

Mr. Pasalis says the overall market was pulled down by the condo segment, which dropped 12 per cent in the first two weeks of January compared with the same period in 2017.

In December, the average price rose 0.7 per cent in the GTA compared with December, 2016. By contrast, Hamilton saw a 9-per-cent jump in the same period.

Real estate values have risen at a torrid pace in Hamilton, but they're still sharply below those of Toronto, Mr. St. Jean points out. The average detached house price in the 416 area code of Toronto stood at $1,250,235 at the end of December and $989,870 in the surrounding 905 area code. In Hamilton, the average freehold property sold for $548,913 in December, according to the Realtors Association of Hamilton-Burlington.

Sal Guatieri, senior economist at Bank of Montreal, says some buyers affected by the "stress test" will seek out alternative lenders. Others, he predicts, will opt for smaller or more distant homes.

"The new rules risk deepening the correction in Toronto's detached-housing segment, where prices have already dropped 12 per cent since the spring," he says. Unlike Toronto and Vancouver, housing markets in the rest of the country remain affordable and should be little affected by the rules changes, Mr. Guatieri adds.

Buyers are also facing higher rates for variable rate mortgages. Last week, the Bank of Canada raised its key lending rate by one-quarter of a percentage point to 1.25 per cent. Some lenders have lifted fixed-term mortgage rates as well.

Ms. Luk, who grew up in North York and lived for a time in Hong Kong, admits she wasn't sure at the time if the move out of Toronto was right for the couple and their young son.

"I had already heard Hamilton is the new Brooklyn," she says of the decision, so she knew there was a vibrant arts and culture scene. But the old home on Claremont Drive was in need of updating. Ms. Luk, who loves modern design, had never imagined she would live in a Georgian-style house and it seemed like a daunting project. Still, she and her husband couldn't resist the setting on the brow of the escarpment – "The Mountain," as it's known in Hamilton.

Once they moved in, she was amazed to see the formal garden that blossomed on the 270- by 75-foot lot. Previous owners had planted thousands of flowering bulbs, she says, and in the spring, Magnolia trees burst into bloom.

She figures the couple will have spent about $180,000 when the renovation is complete. The house has wonderful light, great proportions and graceful details such as plaster mouldings and arched doorways.

"This actually has charm. We've managed to achieve warmth and comfort."

Ms. Luk has been keeping her eye on real estate since moving to Hamilton and she has noticed good houses selling in a day in up-and-coming neighbourhoods such as Stinson. She and her sister recently pooled their resources to purchase a large house in the St. Clair area, which they plan to turn into a duplex and rent out. For more than a century, the giant steel mills of Stelco and Dofasco dominated Hamilton's economy and landscape. But in the late 1980s and early 90s, the manufacturing sector suffered through a heavy restructuring and Steeltown's fortunes diminished.

As so often happens, the artists were the trailblazers who first migrated west in search of cheap rent and expansive studios. As Toronto real estate prices soared, the arts community discovered solid Victorian and Edwardian houses on leafy side streets.

They saw the character in neighbourhoods previous generations had neglected as they fled to newer houses in the suburbs.

"About seven years ago, we started seeing signs in parts of the city that nobody would ever want to set foot in," Mr. St. Jean says. "They were the first to go into those areas and breathe some life into them."

Mr. St. Jean says the artists were followed by millennials who want a house and a backyard for their young families but still want to live in an urban setting. There are plenty of affordable areas outside of the GTA, Mr. St. Jean points out, but often they are built around the car as transportation.

The city's economy now revolves around health sciences and technology. Mr. St. Jean says people are regularly moving into the area just to work and study at McMaster University Medical Centre, McMaster Children's Hospital and other facilities. Developers took notice of the influx of residents and began building condo towers, which in turn brought more revitalization to the core, he says.

Just as in other parts of Ontario, Hamilton's housing market roared ahead in the first quarter of 2017 before stalling after the Government of Ontario's introduction of new policies, including a 15-per-cent tax on purchases by foreign buyers.

Mr. St. Jean expects 2018 to be a strong year, but cautions that market watchers will likely see a sag in sales compared with this time last year.

"The months we're going to compare them to were the busiest months in the history of Hamilton."

Statistic Canada released data showing that foreign ownership in Toronto and Vancouver are less than five per cent.

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