Toronto Homes Are In The gold Standard of International Real Estate

Demographia, a U.S. based consulting and research firm, just released some data on urban real estate markets. The data was used by the Visual Capitalist in one of their sleek graphics. What it showed was Toronto remaining as one of the world’s top ten expensive real estate markets. Canada’s biggest city ranked 7th on the world’s most expensive housing markets, ahead of tech mecca San Francisco (famous for extremely high rents), London, and Adelaide (an Australian city that’s seen some incredible price growth in recent years.) Toronto was beaten by Sydney, Melbourne, Vancouver, Los Angeles, and Hong Kong. Marking the huge economic and real estate disparities between upstate New York and Ontario, Buffalo NY was listed as a city with one of the lowest real estate values in the 8 countries and multiple cities listed in the Demographia study. Demographia’s data is from the third quarter of 2019, and there’s been even more price growth in Toronto since then.

One of the interesting areas of investigation for the report was land containment and regulatory regimes for house building. Not illogically, the study showed that the cities with the highest priced real estate were those with the most land and geographic constraints to building. Toronto was high up on the list given the large amount of green space, protected areas, national parks, and the Greenbelt in the vicinity of the GTA. The report noted that Toronto real estate prices rose from 4 times median annual earnings in the early 2000s to almost 10 times median annual earnings in 2019. While the overall focus of the report was on the unaffordability of housing, it shows just how valuable Toronto and southern Ontario real estate is in an international context – proving its utility to homeowners, and its growth potential and desirability for those working on getting into the housing market. What is unaffordable for some is a huge source of equity for others, and an opportunity for prospective buyers.

Demographia emphasized that the first order of demand preference in Toronto and across Canada was detached homes and not apartments or condos, pushing the demand for these types of housing up and placing pressure on available land for building. Demographia notes what Tembo has reported on in the rental sector: a recent surge in building, but noted that many of these new units are still too unaffordable for people. Finally, the report notes that London, ON has some of the most affordable housing in southern Ontario. This report is another indicator of the value of our real estate, as recognized internationally, and the strength of our real estate market compared to our counterparts and neighbours.

Mapping Ten Years of Incredible Price Growth

blogTO, always a purveyor of excellent real estate articles, released a relevant and very interesting piece outlining property appreciation in Toronto over the last ten years, from 2011 to 2021. The story starts off with a powerful graphic outlining the price growth of different categories of real estate borrowed from Detached homes tripled in value, rising from $450,000 to over $1.2 million. Semi detached homes almost tripled, rising from $360,000 to almost $830,000. Townhomes doubled from $355,000 to $768,000. Single unit condos also well over doubled from $285,000 to $600,000. Condo townhouses did a little better, going up from $280,000 to almost $670,000. These are historically unprecedented examples of price growth. They also mirror the proportionate decline in interest rates, which fell from 4.5% in early 2008 to their present near zero value.

The article includes a concise and incredible statement from realtor Graham Rowlands worth repeating: “Long story short if you bought any property in Toronto 10 years ago, you’ve likely more than doubled your money, built a fair amount of equity and likely have a mortgage payment well below the average rental price in the city.” This is testament to our property market and what many have gotten out of it in these incredible times. For those of you who fall into this category, enjoy, and for those of you who wish you were in the 2010 buyer’s shoes, we wish you all the best in fulfilling your real estate hopes. If you believe in our long term fundamentals then there’s no reason why you shouldn’t continue working to join this fulfilling and rewarding club.

Affordable real estate communities in the GTA are few and far between but Tembo suggests taking a good look at Oshawa, Peterborough, eastern Durham region, and even Windsor, where real estate for a first time home buyer looking to build equity is relatively cheap. As long as rates are low, global capital continues to flow, and we have a stable economy, Toronto real estate will keep increasing in value – for better or worse. To those who cashed in, we say congratulations, and to those who haven’t, we say there’s always opportunity out there.

Introducing the Ontario Small Business Support Grant

The Ontario Government has recently unveiled a grant to support businesses that have been forced to close or restrict their operations due to the recent lockdown. The grant ranges from a minimum of $10,000 up to $20,000 in support. It can be accessed at Tembo encourages its readers who have businesses who have been impacted to check out the site and see if they qualify for the grant. Businesses must demonstrate they experienced a revenue decline of at least 20 per cent when comparing monthly revenue in April 2019 and April 2020. The program will financially support a variety of businesses, including restaurants, retail and personal care services. It will help them pay their bills and meet their financial obligations so they can continue to employ people and support their local communities once it is safe to do so. This time period was selected because it reflects the impact of the public health measures in spring 2020, and as such provides a representation of the possible impact of these latest measures on small businesses.

Once the application is successfully submitted an eligible business can expect to receive payment within approximately 10 business days. Applications with incomplete or incorrect information, or that require additional review, will experience a delay and will not receive payment within 10 business days. The province also recently announced that it would extend the off-peak rate of hydro electricity charges to people until February 9th. This off-peak rate extends to 24 hours a day, and is one way the province is supporting people through COVID-19, especially given the impact of stay at home orders and the need to work from home. Another reason to check out the site is to see if one qualifies for the $1,000 PPE grant – to help businesses with the costs of buying the PPE and cleaning supplies they needed to comply with provincial orders.

There are other supports too. The Ontario Small Business Support Grant is just one of a number of these supports available to businesses during the pandemic, such as $600 million available in rebates to help offset fixed costs such as property taxes and energy bills, and grants to help cover the cost of personal protective equipment. Eligible business owners can apply for all of these supports through a single, hassle-free application.

The BOC Says the Detached Home Frenzy Will ‘Soften’

In their January Monetary Policy report, the BOC directly addressed the trend Tembo has been watching and analyzing for months now; a rapid, sustained, and comprehensive shift to detached homes – especially in suburban rural southern Ontario. The demand for a small slice of the white picket Canadian dream has never been stronger as people flee the cities, work from home, and yearn for privacy, space, and a ‘back to the land’ quiet and tranquility. We’ve seen home prices in the suburbs and exurbs soar and supply evaporate like never before, echoing the 30% price growth seen in the summer of 2017.

The BOC’s chart on apartment vs. single home price growth last year mirrored the late 2016-17′ frenzy. Unlike 2016-17′, where the demand for apartments and condos was just as explosive, 2020 saw a marked decline in apartment momentum. The BOC believes the COVID inspired ‘elevated’ housing activity will gradually decelerate as we head further into 2021, and that preferences will ‘normalize’, meaning the condo, townhouse, and small unit market will recover over time. The BOC believes that price growth dynamism for detached homes will then also begin to cool, exactly as was the case in mid to late 2017 and 2018 (in response to the late 2016 surge). Tembo acknowledges the logic in the BOC’s analysis, but we note the fundamental supply crunch issue and other fundamentals which won’t take away momentum from detached home demand.

Another key piece of information from the BOC is that it increasingly counts on the strong national housing market to help Canada’s economy recover from the impact of COVID. The dependence on real estate, and its corresponding construction and finance stimulus has been a key pillar of Canada’s economy since the early 2000s, when rates fell. This dependence grew in the aftermath of the 2007-8 recession, when rates fell even more. In a nutshell, this is good for the real estate community – as it signals that the BOC is openly outlining how important the market is, and thus, shows yet another strong reason why they’ll have no choice but to keep rates low. The longer they keep rates low, the longer this market will be relentless, dynamic, and on the up.

What Will a Biden Administration Mean for the Canadian Economy?

COVID has put tremendous pressures on Canada’s economy and on our public and private balance sheets. Long term economic recovery and job creation will be a key policy objective for Canadian leaders. Given that over 70% of our national trade is done with the United States (over 80% of Ontario exports go to the United State), what happens in the U.S. will have dramatic impacts on Canada’s economic recovery and prosperity. With the election of Joe Biden over and done and his inauguration completed, Tembo will outline what some of the new Administration’s economic and trade policies could be.

Keystone XL

It now seems a done deal that Joe Biden will cancel the construction permit for the Keystone XL pipeline. The pipeline would have transported crude oil from Alberta to southern U.S. refineries. The project was supported by President Trump and is backed by a number of powerful Canadian political and business forces. News of the cancellation evoked strong responses from Premiers Kenney and Moe of Alberta and Saskatchewan. Keystone would have stimulated Alberta’s battered energy industry, and the pipeline would have contributed to some job creation. Premier Kenney views a cancellation as a move that would reduce North American energy independence and bilateral ties.


President Trump and his Administration did not shy away in using the powers of the U.S. Federal Government to unleash protectionist policies against sectors of the Canadian economy; including dairy, steel, aluminum, and lumber. The naive view is that these kinds of actions will cease altogether under a new and Democratic Administration. This is unlikely. Now U.S. Senate Majority Leader and New York Democrat Chuck Schumer wrote a letter demanding the Trump Administration impose sanctions against the Canadian dairy industry – likely to appease Democratic voters in key battleground agricultural states like Wisconsin, Michigan, and Iowa. Protectionism will not completely disappear under a Biden Administration.

Spending and the U.S. dollar

The Democrats have already unveiled a $1.9 trillion stimulus plan, with a $1,400 cheques to all Americans. This stimulus plan will place added pressure on the dollar, and will continue to force the Federal Reserve to continue its policies of ultra low interest and money printing. Higher rates on all of this debt would have serious repercussions to balance sheets. These forces of low rates and money printing will continue to weigh down on the Canadian dollar by forcing the Bank of Canada to keep its rates low. Although the Biden stimulus plan will likely have a difficult time of passing with ease, it represents just one portion of the multi trillions the U.S. has been spending to fight COVID and keep its economic system afloat.

The good news is that the new Administration is staffed by liberal internationalists, who are less likely to espouse nationalistic protectionism, and who are surely eager to position the U.S. as being warmer and friendlier to its Allies and partners. We will see how this new Administration wields the power it holds (as it controls the White House, the Senate, and the House of Representatives).

Real Estate Predictions for 2021

A longstanding Tembo tradition is to discuss the buffet of real estate predictions for the coming year. There have been many price predictions floating around. Banks have best case, moderate, and worst case scenarios, as do most financial institutions. Realtors and real estate sites and blogs suggest 2021 will be a golden age of price growth, as always, and the YouTube commentariat suggest that prices can’t go down in Canada, regardless of COVID-19, so here’s the summary:

The Canadian Real Estate Association (CREA) predict a 9% overall increase in national home prices, taking the average to $620K. CREA believes that prices will go up over 13% from 2019 figures, with Ontario prices rising over 16% to $820K.

Evan Siddall, CEO of the CMHC (Canada Mortgage Housing Corp.) made a prediction several months ago that real estate prices would fall nationally by the early 3rd quarter of 2021 due to the lingering aftershocks of COVID-19. Siddall believes that bankruptcies, job losses, and broader uncertainty will force the real estate market’s hand and that the real effects of COVID-19 won’t be felt until months from now. He does believe, however, that a worse case scenario he feared has been averted.

Keep in mind that the CMHC were very bearish on prices when COVID hit, but their prediction of declines did not happen, big price increases occurred instead.

Fitch predicts a 3-5% drop in prices in 2021 due to unemployment issues and affordability concerns. They say that the market will rebound strongly in 2022. Like Siddall, the agency believes that COVID will have economic impacts that will take more time to be fully felt.

ReMax notes that 84% of brokers polled expect a sellers market in 2021 as the demand for houses outside of cities with more space and quiet will continue to drive demand.

Royal LePage predict a modest but sustained increase in prices, citing that many buyers who wanted to move or buy homes this year could not affect their transactions, and will wait to regroup for a purchase in 2021. The real estate firm predict that the national average price for a two storey detached home will hit just under $900K, while condo prices will hover in and around half a million dollars.

One thing everyone predicts is that mortgage rates will remain affordable. For this reason alone, expect the demand for housing to remain very strong in this country, one way or another.

How is the government paying for all of its COVID spending?

A question many of you might have asked yourselves, and a question many Canadians are sure to be pondering. As many of us are aware, the federal government alone is set to spend almost $350 billion this year to manage the impact of COVID-19. The deficit could reach $400 billion in a worst case scenario of continued difficulties and unexpected negative surprises.  The answer is very simple, but worth considering. Obviously, the federal government doesn’t have $400 billion sitting around. The deficit will be accommodated through the bond market and by the Bank of Canada. The federal government will issue bonds that will be sold on the open market to domestic, international, and institutional investors. Whatever people, businesses, pension funds, companies, and foreigners don’t want will be bought up by the Bank of Canada. The Bank will print money to buy the bonds issued to facilitate the borrowing. In this sense, the Bank of Canada’s importance to our country and economy will only grow. Not only are their low interest rates supporting cheap debt, a strong property market, and easy access to credit for most, but now their bond purchasing will be critical to the country in getting out of the COVID mess. As many of us are aware, the federal government alone is set to spend almost $350 billion this year to manage the impact of COVID-19.

One must keep in mind though, that the provinces and municipalities are also loading up on debt to get through COVID. Like Ottawa, the hope is that whatever bonds aren’t bought by people and investors will be purchased by the Central Bank. Ontario touched upon this in their 2020 budget. With the province projecting an over $35 billion deficit, the bond market’s appetite for the Ontario bonds was strong enough for the government to project no major difficulties in getting the funds it needs to operate. Provincial bonds are a well respected financial product that is usually in high demand. British Columbia’s provincial bonds are the most highly rated in the country, as that province has low debt, a strong economy, huge natural resources, and a geographical position and outlook that’s favourable (access to Asia). Provinces like Alberta and Saskatchewan, which traditionally had triple AAA provincial bonds, have seen their scores fall given the collapse of commodity prices. Overall, there have been no red flags on the issue of demand for provincial or federal bonds. They’re being bought up, one way or another.

The big risk is that with all of this activity from the Central Bank, inflation will begin to rise. We’re already seeing it for the price of many commodities – steel, cement, lumber, machine parts. The supply chain issues brought on by COVID haven’t helped in this regard. If inflation does begin to pick up, the central bank will be trapped, as it can’t raise rates (we all depend on cheap debt), and higher rates would simply squeeze government capacity to borrow as debt servicing costs would spiral out of control. Inflation in food and basic commodities generally perpetuates when the money supply (money velocity) picks up. This hasn’t happened as most of the inflation we’ve seen has been soaked up by businesses, governments, or through asset prices, and not in the day to day goods we consume, so it hasn’t been a problem. While inflation is beginning to pick up, the good news is that government’s understand that this deficit spending is unprecedented and will have to be reduced in the coming years.

Where The Homes Are Being Built

The Ontario Home Builders Association releases monthly data on where housing starts are being initiated across Ontario. Data for October shows some interesting patterns. The biggest year to year increases in housing starts were in Barrie, Brantford, and Oshawa, at 114%, 95%, and 78% higher than the January and October starts in 2019. All three of these communities have space for construction, economies that are stable or on the up, and are affordable compared to many of their counterparts in the Greater Golden Horseshoe. Other notable mentions where starts increased were Chatham-Kent, North Bay, and Sarnia. While COVID has had a serious impact on Barrie’s economy, the city is still diversified, fairly affordable, and economically resilient.

 November sales were up 25% from November 2019 figures. Home prices are also on the up, rising 25% from last year to an average of $672,000. It’s not just detached homes that are driving the positive figures, sales of condos, apartments, and townhomes are also increasing in the City by double digits. Realtors and urban planning experts are optimistic over the long term, as Barrie has plenty of space in its downtown core and is largely a suburban city. The sprawl and dense road network of Barrie means there are plenty of opportunities for densification, condo construction, and further low rise development. The strength of the city’s economy and real estate market is transmitting to its exurbs and surrounding communities of Orillia and Innisfil, where development and construction continues to boom. 

 Despite the challenges of COVID-19, builders keep planning massive new condos along Yonge Street in Toronto. The latest design is a 55 storey tower on the corner of Yonge and Wellesley that will house a ‘light box’, and that will have slanting, symmetrical designs and a brown steel outer shell to distinguish it from other towers in the area. Other condos in and around Yonge and Wellesley will be set to have Asian styled architectural designs to cater to their clientele and to increase their novelty. While Toronto’s condo market has taken a hit from lessened demand, people moving to the suburbs, and less international traffic, the effect of these challenges has helped to add some normality to the rental market by increasing supply and lowering rents. Also, builders will be more disciplined in their financing, design strategies, and risk taking given the volatility brought on by COVID. 

Six Straight Months of Job Growth

These are difficult times for all of us. Negative news jams the airwaves, and everyday a new challenge presents itself. The world is waiting anxiously for a vaccine for COVID even as case numbers rise and the death toll continues its upward climb. There’s light at the end of the tunnel but there’s more tunnel for us all to trudge through nonetheless. In an ocean of bad news, Tembo would like to outline some positive economic and financial news that’s accumulated in the last several days.

First, Statscan released its job numbers for the month of November. The results are positive nationally and provincially. Ontario gained over 36,000 jobs, while the national gain was over 60,000. This marks the sixth straight month of job gains for our province. COVID-19 cost Ontario 1,150,000 jobs, a huge hit to our economy. We’ve regained over 905,000 of the jobs we’ve lost. In addition, we’ve gained over 145,000 manufacturing jobs in Ontario in those six months, this takes total manufacturing employment to over 13,000 above our pre-COVID levels – a very impressive and positive feat. Keep in mind that there’s significant investment expected in the auto manufacturing sector in the next few years, over $5 billion. Ford, GM, and FCA (Fiat Chrysler). All of these firms have tentatively negotiated big plant investments with Unifor (the union that represents autoworkers). In one case, Ford is going to reconstruct the Oakville Assembly plant to build electric vehicles and GM is set to reopen its now closed Oshawa plant.

All of this manufacturing investment will have huge spin off implications, and will see smaller manufacturers increase hiring and invest more to service the production. And that’s just a snapshot of auto manufacturing, a small piece of the manufacturing puzzle. Despite all the ‘doom and gloom’, there’s lots of positive news out there. With these job gains, Ontario’s unemployment rate has fallen from 9.6% to 9.1%. There’s more. Further statistics showed that the household savings rate is up as people tighten their belts and put money aside. 3rd quarter GDP in Canada rose at its fastest rate in history, and national statisticians all noted the positive upswing and contribution the nation’s red hot real estate market has had on the overall economy. So, there’s a bit to smile about. Stay safe!

Property tax rates in the era of COVID-19

Torontonians continue to pay some of the lowest proportional property tax rates in Ontario, despite an above inflation increase that was passed by City Council earlier this year. Today Torontonians pay 0.6% of their home values in property taxes compared to 1.77% in Windsor, the highest in the province, and 1.5% in Thunder Bay. The average property tax bill in Toronto ranges from $3,000 – $5,000 a year, depending on home values. $740 of that bill goes to fund Toronto’s $1.1B a year police force, $540 goes to fund the TTC, and $400 goes to pay for long term capital projects. The GTA generally has much lower property taxes than rural and outlying regions of the province. 

We will see how COVID will affect these rates, given that Toronto is now looking at at least a $1.5B financial shortfall from the impact of the pandemic. The worst case financial hit to Toronto could be nearly $3B. The City has a GDP, or economic output of $250B, so it has the economic base to support going into debt to manage the difficulties of COVID. However, due to provincial rules and laws, the city has considerable limits on how much it can borrow. Those rules could be changed or loosened up for the city in lieu of a provincial bailout – which not only would be extremely expensive but would be looked upon with anger by other cities who are also facing serious financial and economic problems. One bailout to one city will lead to other cities asking for the same. Toronto has been leaning on debt and green bonds to patch up the city’s huge infrastructure, transit, and capital repairs backlogs that total many billions of dollars. This dependence on debt and debt servicing will only grow. 

Toronto’s growing tech. and financial sectors have helped the city enjoy significant prosperity (and high housing costs) prior to COVID, and will be counted on to support recovery from the pandemic. The city’s politicians have pointed to the strength of these sectors are reasons to bailout the city – claiming that its economy is interconnected to the rest of the country and a key driver of revenue for provincial and federal governments. Mayor Tory has repeatedly spelled out that deep cuts to services will have to go ahead if the City does not receive a bailout (firing police officers, gutting bus routes, and cutting down road funding – but not lowering the high salaries of senior bureaucrats or reducing the city’s 55,000 bureaucrat payroll through attrition).