A Positive August For Real Estate

Numbers reveal a positive August for GTA real estate and welcome figures for an industry that had a relatively cool summer selling season.

 

August real estate

In Toronto, sales increased by 8.5% and prices were up 4.7% from a year ago. The average price for a home is now roughly $764,000 dollars. Although nowhere near early 2017 highs, the market is showing its resilience and demand despite all the battering it received over the past year.

New listings increased by 6% and the overall number of active listings increased by 9%, showing many new sellers joining the market and feeling positive about their capacity to get good prices for their assets. General media sentiment on the figures was positive, with many remarking that the figures show a market that is rebounding, on positive footing, and in good overall shape.

On Interest Rates And The Bank Of Canada

The Bank of Canada maintained its existing rate of 1.50%. There was no increase, which some expected, largely due to uncertainty over a trade deal with the U.S. and the potential implications and affects on the economy of a bad deal.

As Tembo has noted there is a risk of the U.S. placing tariffs on the Ontario economy and Canada’s forced departure from NAFTA. Such an outcome would devastate Ontario’s economy, whose backbone is automobile assembly and its associated spin-off industries and supply chain. Core inflation exceeded the Bank’s target of 2% and is at 3%. 

The Latest Trade Negotiation News With The U.S.

Chrystia Freeland

Canadian Foreign Minister Chrystia Freeland, speaking with reporters outside the U.S Trade Representative building in Washington D.C.

The Prime Minister has stated that there will be no NAFTA deal with the U.S. unless Canada’s cultural industries (arts and broadcasting sectors) are protected. The PM is worried U.S. media conglomerates or companies could buy a Canadian newspaper or TV station. In addition the Prime Minister wants a dispute settlement clause included to to “ensure the rules are followed.” President Trump has tweeted that a deal with Canada is not a ‘necessity’ and he has repeatedly warned that he could easily exclude Canada from a deal if tariffs on Canadian dairy and eggs are not eliminated.

Major Toronto Condo Projects For 2018

Toronto’s condo boom continues unabated, the number of construction projects and the lineup of cranes over the skyline continues to grow and impress. In this blog post, Tembo will outline some of the key condo projects that are notable this year.

aqualuna toronto condo

Aqualuna at Bayside is the fourth and last market condominium development proposed for Toronto’s nascent Bayside neighbourhood. The building with peaks of 16 and 15 storeys is designed by Denmark’s 3XN architects for Tridel and Hines.

 

Danish architects 3XN, famous internationally with unconventional and unique designs, have designed interesting twin tower condos on the waterfront called Aqualuna. Additionally, construction of the One tower, Mizrahi’s signature condo megatower at the intersection of Yonge and Bloor, is well underway. This building will have 9 floors of retail space, and several massive luxury condo suites.

 

Mirvish + Gehry project

Mirvish+Gehry is a planned two-tower mixed-use building complex in Toronto, Ontario, Canada. Consisting of two towers, 92 and 82 floors respectively, when completed it will be among the tallest skyscrapers in Toronto and the tallest skyscrapers in Canada.

The Mirvish + Gehry project, an eagerly anticipated collection of massive condos downtown just east of the entertainment district is also underway, with pre-construction planning changes and revisions continuing. Sugar Wharf by Menkes is an assortment of many massive condo projects at Queens Quay East continues, with work ongoing. Massive condo projects are also underway in Peel region (Mississauga and Brampton).
 
Toronto is 16th in the world by the number of towers completed over the height of 150 meters. By North American construction standards, Toronto leads its continental competitors in the number of projects that have been planned. With low rates, a strong economy, and huge demand, Toronto will continue to see projects planned, completed, and underway.

Another Rate Hike Is Coming

July’s inflation figures are up to 3%, the biggest monthly increase in over 7 years as prices for gasoline and and air travel increased sharply.

Interest Hike Hike Coming

Bank of Canada Could Increase Rates By Another 0.25%

Tembo has consistently reminded its readers and clients that the Bank of Canada is very mindful of inflation and watches it carefully. The Bank is internationally renowned for keeping inflation in and around its benchmark target of 2%. This sudden spike in inflation is likely to increase pressure on the Bank to raise its rate by another quarter percentage point. 
 
This recent increase in inflation comes at a time when the economy has been growing strongly and the Bank has continued its policy of increasing rates in tandem with Central Banks around the world. Canada’s mortgage banking rates are still very low by historical standards, and will remain low even as they respond to likely rate hikes by the Bank of Canada. On a separate note, real estate figures in Montreal and Toronto are improving and warming up. 

New Construction Heating Up

In addition, the latest CMHC figures show that construction starts (both condo and houses) are increasing across the country, from small municipalities to the City of Toronto. On a final general update on real estate, polling shows that the biggest political issue for Millennials is the affordability of housing, given the astronomically high average prices for real estate in the country – even after recent cooling measures.

On Unemployment

Unemployment hasn’t been this low in over 40 years, having now hit 5.8% nationally. Ontario and BC lead Canada, with 5.4% and 5% unemployment respectively.

On Unemployment Cover
In hard hit Alberta, suffering from a collapse in oil prices, unemployment is at 6.7%. Unemployment is highest in Newfoundland at 15.4% and Prince Edward Island at 9.5%. The availability of jobs across the country is helping governments collect more tax revenue, is fuelling strong consumer consumption, and supporting sustained economic growth. Strong real estate demand is being fed by the robust labour market. In addition the strong jobs numbers are good news for the large number of new Canadians moving into the country.
But there is more to the low unemployment figures, many of the gains were made on the back of large numbers of part-time jobs even as full time job figures declined. Another important note is the increase in full time public sector jobs, reaching a very high 49,600. Average wage growth is improving above inflation but is cooling from previous strong trends. With inflation going up, the end result is more mixed. The figures are good for real estate and underpin the reality that the Canadian economy is in good shape. Times have not been this good in many decades, and consumers should use present stability to feather their nests and prepare for rainy days.

On The Next Mayor Of Toronto

The 2018 Toronto Mayoral election is fully on with the entry of Jennifer Keesmaat into the race.

Toronto’s former Chief City Planner from 2012 to 2017, Keesmaat was well known for her strong voice and outspoken style, unlike other high level public servants. Most expected a quiet, dull race due to the lack of a high profile opponent, with incumbent John Tory set to comfortably win a landslide.

Keesmaat’s “City Building Vision” Agenda

Keesmaat is positioning herself on the left of the political spectrum, in opposition to Tory’s centrist and slightly right-leaning agenda. She is campaigning on an ambitious, positive, expansive ‘city building vision’ agenda with new spending and a bigger role for municipal government. Her first major announcement was a pledge to build 100,000 affordable housing units over 10 years. In response Tory argued that over 20,000 units are under construction now, and that Keesmaat’s office failed to approve a single unit of affordable housing.

Keesmaat Pledges More Affordable Housing

A Keesmaat administration would likely increase spending on affordable housing, shift property taxes up above inflation (Tory has never increased them beyond inflation), and would emphasize enhanced densification, pro-cycling policies, and public transit. Keesmaat’s emphasis on affordable housing will make real estate a crucial and dominant issue in the race, which will good for observers and the housing minded. Although Tory is expected to hold on to power, many high-profile Mayoral incumbents have recently lost re-election; Denis Coderre, former Mayor of Montreal being one of them. An interesting and passionate election is incoming.

How Are Interest Rates Set

In this week’s blog, Tembo Financial will outline how interest rates are set in Canada and the United States. 

bank of canada

Rate setting by the Bank of Canada (BOC) and the Federal Reserve (Fed), most impact Canadian and GTA real estate. 

In Canada, the Bank of Canada’s interest rate is set by the Governing Council, a team of three Deputy Governors, the Deputy Governor, and Governor Stephen Poloz. 
Stephen Poloz
Image Caption: Bank of Canada Governor Stephen Poloz. 
Similarly, in the United States, the interest rate is set by the Federal Reserve’s Open Market Committee (FOMC). The FOMC is a Committee made up of senior officers of the Fed including the Fed Chair and Governors. The rate is deliberated upon by the FOMC, generally the Committee must come to a consensus agreement on the rate and the general direction of monetary policy. Each member of the Committee has the authority and opportunity to express his or her views on the state of the economy and their opinion on where the rate should go.
The FOMC is independent. It does not answer to the President, the Congress, or any public organ of U.S. power. The Federal Reserve is not audited by Congress, and is fiercely protective of its independence, privileges, and powers. It is arguably the most powerful socio-economic institution on the planet. 

Further Rate Hikes Are Coming

Tembo Financial reminds its viewers that interest rate trajectories will remain upward as long as the economy remains stable. Expect and prepare for rate hikes.

Toronto Commercial And Industrial Real Estate Is On Fire

The traditional condo, detached, and semi-detached housing market is in relatively good shape in the GTA. This week, Tembo will focus on another component of the market; commercial and industrial properties.

Toronto Commercial Real Estate
In a few of our past blogs and newsletters, Tembo has outlined that the general trajectory for commercial properties has been positive – with healthy stats; strong demand, high prices and soaring investment. In 2017, commercial property investment hit an all time high. Some of Canada’s biggest pension funds, corporations, firms, and banks invested huge amounts into building, leasing, and buying commercial real estate.

Commercial Real Estate Trajectory Continues

Commercial and industrial real estate availability hit a record low of 3.9% this year, according to the CBRE. Toronto’s availability is the lowest in the country, at 2.2%, even lower than Vancouver’s tight 2.4%. 
Massive socio-economic changes and strong growth are driving the ongoing surge. Warehouses are in high demand, as is real estate that caters to the e-commerce and food sectors. Recently, multinational Amazon announced several large scale warehouse, or Fulfillment Center investments across the country, most notably in Ottawa.
The massive commercial demand has seen the market respond with huge increases in construction activity; a 47% rise from earlier years. In provinces with relatively weak economies and increasing commercial vacancy, such as Alberta, new sectors such as cannabis and e-commerce are replacing traditional ones. Overall, residential real estate will be competing for capital that could be allocated to the commercial sector.
The boom, in all things real estate, continues.

June Was Good to Toronto Real Estate

Sales had their best month in over 14 years as growth hit 18% from June 2017 figures.

Toronto Real Estate Update
Prices rose almost 3%, with the average home now exceeding $800,000. Listings also declined, tightening supply and beginning a trend which will benefit sellers in the long term. Overall, numbers in all respects were positive for both buyers and sellers.

Sellers Are Feeling The Pinch

The very strong data comes at an important time when market watchers and participants could use good news after a very tumultuous period. Real estate is under huge pressure from multiple fronts. New insurance rules, extreme conservatism among banks, a higher interest rate environment, and lack of supply hurt buyers. Sellers are feeling the pinch from government intervention which was designed to deflate sky high prices, and which worked. 

Toronto Condo Market Continues To Soar

The condo market continues to do very well, with prices up over 7.5% on average in the city of Toronto. In all, these positive numbers and the move to a healthier market overall is a strong signal which sheds a light on how resilient the GTA real estate market is. Many experts believe these numbers point to a broader, positive long term trend which will hold for the rest of year as long as macroeconomic indicators remain in decent shape. 
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Bank of Canada Hikes Rates

The Bank of Canada to increased rates at its decision meeting on Wednesday, July 11th. The central bank increased its key rate to 1.5 per cent from 1.25 per cent.

bank of canada picture

The forces that favoured an increase in the cost of money outweighed those that supported continued loose money policies. The Canadian economy remains in very good shape. Inflation hasn’t reared its ugly head, household consumption is neither increasing recklessly nor falling precipitously. Growth and unemployment figures are very positive. Lack of price growth dynamism in the real estate markets, trade issues with the United States, and high levels of private and public debt are the key structural problems. Weighed against one another, the balance skews toward a rate hike.

Central Banks Around The World Are Adamant.

Central banks have begun and will continue a long term policy plan of ever higher rates, and more scrutiny on international banks and financial institutions. The Bank of Canada is no different. The key facts that most worry senior officials, politicians, and Central Bankers are the enormous levels of household and government debt, particularly mortgage debt. A generation of historically unprecedented record low interest rates has blown up large debt bubbles which elites are now desperate to deflate as carefully as possible.

Rates Hike To Negatively Impact Consumers

The likely hike will no doubt have a negative impact on consumers and on the real estate market. Banks are likely to raise their mortgage rates in response. The debt to disposable income ratio in Canada has hit a record of almost 175%, much higher than in the United States before the start of the Great Recession. A rate hike will be of no help to those looking for high prices for their real estate holdings. Debt to income ratios for the poorest Canadians are especially high. The lowest quintile of earners average a debt ratio of almost 350%. While higher rates will come at a cost, many believe they are absolutely necessary, and few doubt they are avoidable.

 

 

Rental Housing, We Need It

toronto skyline

The rental vacancy rate in Toronto is at a record low of 1.1%. In other words, there are few, if any, vacant rental units available in the rapidly growing city. Prices for a bachelor apartment now exceed $1,500 and condo rent is also rapidly increasing to reach $2,000 in many cases. The lack of affordable rental housing, once plentiful, consistently built, and widely appreciated in Toronto, is crunching and distorting the real estate market. From the 1950s to the early 1980s, rental apartments were consistently and routinely built. Much of the existing rental stock was built in the 1960s.

Why Building More Rental Housing Is A Good Idea

There are many financial disincentives to building rental housing. Permits are hard to come by, government intervention has interfered in building plans; mandating certain number of affordable units, and it is easier and more profitable in the short term to rapidly sell newly built condo units. Rent control measures recently introduced by the outgoing Liberal government in Ontario will make disincentives to build rental housing greater as it adds red tape to removing troublesome, potentially costly tenants. The new PC government will maintain these rent control measures, but also have the opportunity to introduce measures to spur new rental housing development.

Are We Paying Too Much To Rent?

Tenant organizations and groups have released polls showing that over half of Toronto rental tenants are reporting that they feel that they pay too much in rent. More affordable rental housing will help young millennials, student, and families save for an eventual condo and house purchase. It will also take some pressure off the condo market, under huge pressure to meet demand which is showing no signs of abating. Most housing experts believe that a heathy rental vacancy rate should be from 3-4%, four times present levels.

top ten median rent across canada