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John Pasalis, realosophy.com

An economic storm has swept through the Toronto area housing market. How has your neighbourhood stood up to the tempest?

After a brutal winter in the resale homes market, March saw a modest revival: year-over-year sales were still down seven per cent, but that was the smallest decline in five months. The average resale house price in March - $362,052, according to the Toronto Real Estate Board - is now on a par with levels in mid-2006, this after dropping off a frothy high of $398,687 in April 2008 when the market was at the tail end of a 10-year-long boom.

What does it all mean to you? Toronto Real estate expert John Pasalis was online earlier to discuss the state of the housing market in Toronto.

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John Pasalis is the Broker owner of Realosophy Realty Inc, a Toronto-area real estate brokerage. 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 frequent contributor to MoveSmartly.com, a prominent Toronto real estate and neighbourhoods blog.

Founded in 2006 by four friends around a kitchen table, Realosophy.com 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: globeandmail.com 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.

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Danielle Boudreau, globeandmail.com writes: Good afternoon John, and thank you for taking the time to talk to our readers about favourite topic in Toronto, real estate. Since there has been a decrease in the number of real estate transactions in the past few months compared to previous years, did you find that the statistics were skewed in some areas, due to small sample sizes? I'm thinking of the Casa Loma area with a drop of 62 per cent, and the 40 per cent drop in South Hill as the most obvious examples from our Interactive Home Value Survey. Surely house prices in those areas haven't really dropped that far?

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

I'm glad you asked this question because I'm sure many home owners might have a few concerns after reading the statistics in today's report.

Yes, sample sizes were definitely a factor this year because sales during the first quarter of 2009 were down significantly over the previous year. The percentage change in price is calculated by comparing the first quarter of 2009 to the first quarter of 2008 (which is not displayed on today's report).

One thing I always tell our blog readers is that changes in average price should be the starting point for their analysis, not the conclusion.

In the case of Casa Loma and South Hill, it is worth noting that both of these neighbourhoods were among the top performers in our April 2008 survey. The combination of an exceptionally high average price in Q1 2008 and a below average price in Q2 2009 is driving the high percentage decline in these areas.

Average prices for these areas are down in Q1 2009 because of slower sales in higher priced homes. The homes that did sell were among the most affordable in the area, bringing down the average.

For other neighbourhoods, the completion of a new condominium in the neighbourhood can have a big impact on average prices.

If the condominium units are average priced in a neighbourhood with higher end homes, we'll see average prices for the neighbourhood fall. Not because houses are suddenly worth less in that area, but because the new condominium units are bringing down the average.

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Lyndon Martin from United Kingdom writes: We are moving to Toronto in about 5 weeks from the UK. We have around $100,000 as a down payment and want to live in Yonge/Eglinton area, probably in a condo. How open to offers are sellers likely to be and any tips for finding a good deal? Or should we rent for a year? Thanks.

John Pasalis: Thanks for your question Lyndon.

Toronto's real estate market has picked up over the past couple months so you might find that there are fewer bargains today than there were four months ago.

Deciding whether or not to buy is a highly personal question. Is your job stable given the economic downturn? What about your buying partner's? Can you commit to living in your new house for the next five years?

These are just a few of the questions you should be asking yourself before jumping in and buying a house. Falling home prices are no reason alone to get into the market - you need to have the right financial fundamentals and the right approach to home buying.

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Joanne Arfo from Toronto Canada writes: In your opinion, what Toronto neighbourhoods have (a) more or less, held their value and (b) continue to be a solid investment? Thank you.

John Pasalis: Hi Joanne, many of the traditional first time home buyer neighbourhoods like Mimico, Leslieville and the Junction have done a good job of holding their values. With respect to the neighbourhoods that will continue to be solid investments, generally the neighbourhoods along the subway line have performed very well historically.

But my advice right now would be to put your home first and neighbourhood second. You need to find a home that you can settle into for at least five years to help ensure that the investment you're about to make into your home is protected. If moving to a more established neighbourhood means buying a home that you'll outgrow in two-three years, there is a good change that your house will not appreciate enough to cover the transaction costs of buying and selling.

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J. Smith from Toronto writes: I live in a semi- that is roughly in the $550-$600 range. From a purely market perspective, is now the time to move up to an $800K home? Has that price range dropped more than the $500K category?

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John Pasalis: Hi J. Sales activity in Toronto has been most active for homes in the first time buyer price range and progressively gets lower as you reach the luxury market. Price declines also follow a similar path, they are lowest in the first time buyer market and higher in the luxury market. Depending on where you live and where you want to buy, you might find that there is more interest and activity for homes in the $550K-$600K range than homes in the $800K+ range which might make this a good time for you to move up.

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Noel Hulsman from Toronto writes: Thinking purely in investment terms, what kind of housing stock would you most recommend?

John Pasalis: Hi Noel, That depends on what you mean by investment. Are you looking for a single family home, a multi unit property or are you trying to renovate and flip a home? If you are looking to buy a residential investment property, discuss your investment needs with your agent and they should be able to help you determine if the real estate market can help you meet your investment needs right now.

There isn't one type of housing stock or one particular neighbourhood that stands out as the ideal investment. It really depends on your personal investment goals. If you're considering flipping, I would probably sit on the sidelines for a little while longer - this isn't the best market for flippers. There is too much uncertainty in today's real estate market. There's no telling what demand and average prices are going to look like six months from now when you're ready to sell.

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First time buyer from Mississauga writes: Hello John, I'm thinking of buying a condo in downtown Toronto, ideally in the waterfront area. How should buyers generally view 5-to-10-year-old condominiums? Are those good value bets, or would you be better off holding out for a brand new building? I have also noticed that the condo fees are often higher in the older buildings.

John Pasalis: You can definitely find good value in older condominium buildings. When comparing condo fees, make sure check what's included in the condo fees and what if any amenities the condo has.

With respect to buying a new building, you're going to find that most developers are offering great incentives because sales have been very slow in the new construction market.

But remember that buying new construction comes with risks. There's no way of knowing if your condo will even be completed. With speculators out of the market and many home buyers reluctant to take the risk of buying pre-construction, new condo development is going to be pretty slow over the next few years. Recently a top condo broker/developer in Toronto mentioned a startling predication - after seeing building after building go up, he predicts no new buildings will break ground until 2011.

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Spouse 2ndClass from Ottawa Canada writes: Housing prices in Ottawa appear to still going up due to the drop in interest rates. Do you think the Bank of Canada's recent statement about printing more money will cause housing prices to rise due to inflation?

John Pasalis: Thank you for the question.

The low interest rates we are seeing today is definitely one of the factors behind the increase in demand for housing in Toronto, and I am sure many other Canadian cities. But I don't expect to see high inflation to cause housing prices to rise. Instead we might see housing prices increase along with many of the other goods we purchase and the combination of these increases could drive the inflation rate higher. We are actually already seeing this upward pressure on inflation. Last Friday, Statistics Canada reported that food and shelter costs were the two primary factors driving the inflation rate higher.

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Navin Vaswani from Canada writes: Hello. I live in Toronto, at Yonge and Davisville. I'm currently renting. My lease expires at the end of August. Should I look into buying, or sign another one year lease? I feel the market will continue to drop, but I'd love some advice. Thanks, Navin

John Pasalis: Hi Navin, as I mentioned above, deciding whether or not to buy is a highly personal question. There is no universal right answer. Your personal circumstances will determine whether or not this is the right time to buy for you. Sit down with your financial planner to get a better sense of where you are financially, a mortgage broker to see you much you can spend on a home, and finally a realtor who doesn't just tell you all the benefits of buying real estate but will make you aware of the potential risks as they relate to your personal situation. Don't be overwhelmed or too intimated to get professional advice - with the right help, you can come up with a very sound strategy for buying in today's market. If the experts you consult advise you to wait for now, you can develop a plan to buy once you improve your financial foundation and economic conditions improve.

You may also want to consider not signing a new lease for your apartment but rather remaining as a month to month tenant. You keep the same rights as a tenant but you get the flexibility of moving out earlier should you decide to buy 6-9 months from now.

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Danielle Boudreau, globeandmail.com: John, thanks for taking the time to answer questions about the Toronto real estate market for our readers. Do you have any final thoughts you'd like to share today?

John Pasalis:Thanks again for another great discussion. I do have a few final thoughts.

Over the past couple of months we've seen an increase in buying activity in Toronto's real estate market. The problem we are seeing right now is that the supply of houses on the market is too low to meet the current demand from buyers. I suspect that many owners have opted to sit on the sidelines for now because they still believe it's a bad time to sell. This imbalance between the supply of homes and the demand from buyers means we're seeing a lot of houses sell in 1-2 days and we are also seeing a return to multiple offers. This upswing is surprising given the obvious slowdown we have seen in the market in the 6 months since I was last talking to Globe readers online.

I think home buyers, in particular first time buyers, need to think twice before jumping into a multiple offer situation in this kind of market. The worst thing they can do is overpay for the house they decide to buy. Get your real estate agent to tell you what the house is worth, and get them to put it in writing, before you go out and offer 5-to-10 per cent above the list price. Now is not the time to take on an overpriced home - you need to pay as close to true value as you can get.

I hear from a lot of consumers worried about the right buying decision right now - we heard from Lyndon and others on this today. We've pulled together an action plan for these uncertain times when it's especially important to be careful about the decisions you make - we call it "Defensive Buying" and our website www.realosophy.com has more on some good strategies to consider.

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