Low interest rates and an influx of first-time homebuyers has made the housing market "crazy" this year, agents say, but the favourable level of affordability will not last forever.

When trying to analyze an economic trend such as the state of the local real estate market, you can consult analysts and agents or refer to studies, charts and packages of detailed fiscal data.

Or you can look at the classified ads.

Even a casual glance at the local classifieds tells the reader all he or she needs to know about real estate in Toronto. The "For Rent" listings show a one-bedroom apartment in one of the city's nicer neighbourhoods will cost the prospective tenant at least $1,500 a month.

In this economic climate, home ownership often makes more sense than a rented dwelling. Mortgage rates are listed as low as 3.75% for a variable-rate mortgage with a major bank, although they can be found for less through a broker. Even at 5%, a $200,000 mortgage -- the cost of a decent one-bedroom condominium in a nice part of town -- requires payments less than $1,200 a month. So, the monthly payments are smaller, and the homeowner builds equity while the renter does not.

This simple analysis suggests the real estate market would be very active. That conclusion is supported by a more thorough examination.

"What we have now, both downtown and throughout the GTA, is a hot seller's market," confirms Dianne Usher, president of the Ontario Real Estate Association and manager of a Royal LePage office in midtown Toronto.

"There's a shortage of inventory, so anything that comes on the market that is well-priced and well-listed is sold within days, or even hours."

Ms. Usher says the homebuying market of early 2002 is even hotter than that of last year, which broke a number of records.

The Toronto Real Estate Board reported sales of 4,869 single-dwelling homes in January, the last month for which statistics are available. That is up 57% from the sales totals for January, 2001, and 19% higher than the previous best January on record, which came in 1997.

That continued the tend from December, when 4,762 homes were sold in Toronto -- a 57.4% increase from December, 2000.

While low interest rates are a big factor in the market, Ms. Usher says some larger demographic trends have contributed to the increased activity, particularly in the downtown area.

"The last few years have seen buyers converging on downtown Toronto. There are a lot of kids of Baby Boomers who are buying their own homes, and they want to be in the city. There are also the Baby Boomers themselves who have lived in the suburbs for years but now want a smaller place in the city."

She also says many of the people who immigrated to the city over the past decade have begun to establish roots with the purchase of a home.

It all points to a demand that far exceeds supply.

"One of the problems most agents are having these days is not being able to find a home for a prospective buyer," Ms. Usher says.

The lack of inventory is evident in some of Toronto's most desirable neighbourhoods. Patrick Rocca, associate broker with Bosley Real Estate in Leaside, says product is very limited there.

"There's not one bungalow on the market in Leaside," he says, adding that the homes that do come on the market are selling quickly.

Greg Pietras, a vice-president with Toronto investment firm IPC Securities, says while it may be a seller's market from a supply-and-demand perspective, it's a buyer's market in the sense that economic conditions -- low interest rates -- are rarely going to be so conducive to the purchase of a home.

"It's an amazing time to buy because the cost of money is so cheap," he says. "If someone was thinking about buying a home a few months ago, they would now find that they could afford a more expensive home without increasing the cost of their monthly mortgage payments."

While low interests rates encourage first-time buyers to jump into the marketplace, Mr. Pietras says, they also benefit homeowners who decide to refinance their existing mortgage.

"I'm advising a number of my clients who have mortgages at rates significantly higher than those available today that they should talk to their bank about breaking the mortgage and refinancing."

Breaking a mortgage typically requires an up-front payment equal to three months' interest, but Mr. Pietras says lower monthly payments will allow the homeowner to make that money back easily. Some banks will even waive the penalty if the homeowner is willing to extend the term of the new, lower mortgage.

Another reason to refinance now is because the current favourable interest rates are not expected to last.

"We do expect the market to stabilize in a few months' time," Ms. Usher says. "Interest rates should rise, and we'll see more inventory come on the market in the spring."

Drake Burleton, a senior economist at Toronto-Dominion Bank, echoes that assessment. "We entered this year with significant momentum, but the outlook for the job market is not particularly rosy, so we should see some cooling in demand. Interest rates should move up in the second half of 2002."

Mr. Burleton says the buoyant housing market has defied the expectations of the 2001 economic slowdown. Normally, a recession is brought about by increasing inflation and a subsequent rise in interest rates. This cools the housing market, which is typically one of the first market sectors to feel the pinch.

"This time it's different," he says. "There was no inflation, so interest rates kept falling, which has kept the housing markets stronger, but we expect this favourable level of affordability will reverse course."

Until it does, the market will remain "crazy," as Mr. Rocca describes it. He believes a lot of the current activity is a result of potential buyers who locked into 60- or 90-day pre-approved mortgage rates when they were at their lowest and who now want to close a deal before those commitments expire.

"Right now, it's crazy," he says. "Everything that comes on the market is selling at asking [price] or over asking."