The First Conservative Ontario Budget in 15 years

This week, the new Ford PC government released its first budget. The document outlines a new vision for the province and sets of the government’s fiscal strategy for the next few years. Contrary to the views of many, the budget did not implement massive cuts. Healthcare and education spending will be increasingly modestly, spending for most other areas will either rise extremely modestly and will be effectively frozen over the next few years. When adjusted for inflation, most departments and Ministries will see their budgets cut.

 

The province’s headline announcement is transit related. Premier Ford wants to see a number of new public transit lines built, including a 3-stop Scarborough subway, a subway to Richmond Hill, a downtown relief line from the Science Centre to Queen St .East westward to Ontario Place, a transit line along Sheppard Ave. East, and a subway across central Etobicoke. The province is setting aside over $11 billion to the construction of these lines and expects the federal government and the regional municipalities involved to foot the rest of the project $28 billion cost of these projects. If completed, these lines will have enormous implications for densification, land values, traffic, and economic growth. But massive public transit plans have been announced by provincial governments of all political stripes repeatedly over the last 40 years, and few projects have actually been completed.

There were few mentions of housing, housing affordability, or real estate; these announcements are likely to come later given recent reviews of the industry. There will be a new child tax credit for parents which is quite substantive. Overall, the budget is transit focused and seeks to maintain spending at levels where they are presently.

This Year’s Federal Budget

Budget 2019 is the final Liberal budget before this year’s election. It outlined billions of dollars in new spending to please key Constituencies across the country. The Federal government has seen its revenues rise by over $10 billion from a strong and growing economy and wasted no time in maintaining its deficit figures and boosting outlays.

The budget does, however, deliver major initiatives designed to address housing anxieties, this blog post will discuss those measures.

 

First time home-buyer incentive program

The Feds have announced a $1.25 billion first time home buyer incentive program. Households with less than $120,000 in income will be able to receive up to 10% of a home’s down payment interest free from the CMHC (Canada Mortgage and Housing Corporation). This amount of money is expected to be repaid on the eventual sale of the home. For a $400K condo, this equates to $40K in government money for a down payment. In other words, the government will provide you with tens of thousands of dollars which will be taken away from the overall equity of the home. This will also lower monthly mortgage payments by roughly $200 a month.

 

RRSP usage

The budget also boost the amount of money a first-time buyer can withdraw from his or her RRSP for a home purchase. Individuals can withdraw up to $35,000, and a couple can withdraw $70,000 for their home purchase. This was the first time this amount was amended in over 10 years. The Feds are aiming to get both the RRSP increase and incentive program initiated and out the door by September.

 

New housing builds

The Feds also announced the construction of over 40,000 new housing units in low-supply areas to be built over the next decade. These units will be rental. This announcement builds on past promises to build more housing and honours the government’s election promise of adding housing stock.

 

Mixed Real Estate Conditions and a Potential BOC Rate Cut

 

The Greater Vancouver Real Estate Board released rough real estate stats earlier this week. Reports showed that year-over-year Feb. residential home sales fell over 30%. This represents the worst Feb. sales total since 1985, over 40% below the last decade’s average.

Detached homes lasted roughly 55 days on the market before sale, while townhouses averaged 39 days and apartments and condos at 40. Prices also fell by over 6% year-over-year, while at the same time, inventories are piling up. Total listings rose by over 48% year-over-year to almost 11,600.

In Toronto, prices rose by 1.6% while listings fell 6.2%, sales fell by 2.4%. Canada’s banks are also feeling the heat of an inconsistent real estate market. Credit losses rose by double digits at the big 5. The same credit losses were seen in the Australian banking and real estate markets as well and in other countries dependent on real estate.

Economic stats have dipped into such negative territory so quickly that news is spreading of the possibility that the BOC may cut rates soon. Tembo has consistently made the point that the BOC will stick to an aggressive and consistent rate hike trajectory until economic conditions change. While most experts believe that rates will stay put, the potential for a cut will grow if economic conditions continue to worsen. As we previously reported, the economic recently contracted by a very narrow margin.

On an additional note, the City of Toronto will convene on Thursday, March 7th to pass its 2019 budget. The budget outlines a massive drop in land transfer tax revenues because of stalling real estate conditions. The City has become addicted to the previously perpetually rising land transfer tax which financed large increases in city spending. That era has come to a close.

We Are Barely Into 2019 And The Stock Market Is Already Making Some Wild Moves

2018 ended with significant stock market turbulence around the world, especially in New York and Asia. Tembo made note of this in its final 2018 blogs and newsletter (you can sign up here). As we mentioned, significant drops in the DOW were reversed by announcements that major pension funds were pouring over $64 billion into stock buys, moving away from their positions on low yield bonds. 

Canadian Stockmarket Turbulence

Apple CEO Tim Cook’s Investor Letters Causes Stock Market Jitters

Even as this news drove up confidence, the market tumbled again when Apple Co. CEO Tim Cook released a brisk letter to shareholders that stunned Wall Street and which the media called a ‘bombshell.’ The letter outlined many positive overall trends for the firm but admitted its revenues and profits were to be negatively affected by ongoing economic disruption. Sales of new Iphone devices, especially in Greater China, did not meet expectations, and gross revenue would be over 5% lower than forecast.
Tim Cook Investor Letter
Apple’s reputation as a practically indestructible giant with an unrivalled brand and relentlessly improving financial performance was hurt badly by the letter. The company’s share price fell by 10%, equivalent to over $70 billion. As so many market participants, analysts, and traders have never experienced a bear market from a low interest rate boom that has lasted a decade, the tough news was not taken well. Markets negatively reacted to the news, with the letter solidifying growing perceptions that the global economy is undergoing significant structural changes.

Fed Tries To Calm Markets

This week some good data restored confidence. Another big boost to the markets came from Federal Reserve Chairman Jerome Powell, who commented that his central bank’s policy was ‘flexible’, essentially calming the market by saying the Fed would act if further market drops occurred. It’s Tembo’s belief that the Fed will cut rates quickly and print money to buy stocks if the stock or asset (real estate) market’s fell harshly – for better, or for worse. 

Canadians Are Experience Record Low Unemployment Rates Across The Nation

November was a dynamite month for job creation, with a record 94,000 jobs created, pushing the unemployment rate lower to 5.6%.

two people working at computer
This is the lowest level of unemployment since records began in the mid 70s. Just under 90 thousands of the jobs are full time, and more than 78 thousand were created in the private sector – both are positive elements of the job growth. The strongest job gains were in Quebec and Alberta, with 14,000 new construction jobs created, 27,000 in ‘goods production’, and the rest in services, especially in professional, scientific, and technical services. 
November 2018 Canadian Unemployment Rate
While experts hailed the news as a big and very positive surprise, they also highlighted the fact that wage increases are beginning to lose momentum and to decline. The strength of the economy is boosting pressure on inflation, with the rate jumping to 2.4%. In its latest announcement, the Bank of Economy decided not to increase rates, but will likely adjust its approach in the new year if economic temperatures remain hot. While the economy is strong, rising interest rates and government intervention remain as anchors on the still generally healthy real estate market. 
These two factors have resulted in real estate dynamism in Canada’s biggest city lessening to the extent that the City of Toronto is worried it will lose up to $100 million in revenue from the land transfer tax. In recent years, the city government has become extremely dependent on the transfer tax to finance spending. Tembo will keep a close eye on economic indicators in the new year to see if these record trends continue. 
 

Rental Prices Are Soaring In Canada’s Biggest City

Rent is Soaring

 

 Apart from recent increases in interest rates by the Bank of Canada which Tembo predicted in our last blog, a big piece of recent real estate news deals with the rental market in Toronto, which is going through important changes which this blog post will outline.

Prices are increasing significantly

bidding wars

The Toronto Real Estate Board (TREB) just announced that average monthly rental costs for a one-bedroom condo in Toronto hit just under $2,000.00, up 10% from last year. Two-bedroom condos come in at just over $2,600.00 a month on average. Interest rates going up will make borrowing more expensive for first time buyers and will gradually force developers to decrease costs and improve profitability. Affordability will be even less of a concern than it is now.

Rental vacancies at record lows

no vacancy

            Low supply of rental units is fuel to the fire of higher and higher prices. The rental vacancy rate in Toronto is around 1%. Many people are being systemically priced out of the city because there are too few affordable rental units left. Condo apartments are out there but getting one is difficult, competitive, and required a solid income.

Government measures aren’t helping

ontario fair housing plan

The Ontario Fair Housing Plan was supposed to bring improve the affordable housing situation by protecting existing tenants in the city, instead rental control is proving to hurt supply because developers do not want to build now highly regulated and protected rentals that are not as profitable in the short to medium term as major condo construction is.

Condo market is hot, and supply is insufficient

condos sold out

New legislation and controls from all levels of government will add pressure to developers and will impact supply. Demand remains strong because of a stable economy and higher immigration. All of these factors will continue to affect the supply constraints within the market considerably in a way that adds to the problems.

Your Dream Home Wish List: Needs vs. Wants

With the holidays fast approaching, perspective home buyers are writing their dream home wish lists, just as their kids develop their wish lists for Santa. When it comes to buying real estate in Toronto, not all home buyers are able to afford, nor do they want to carry the mortgage on the home that “has it all”. In these cases, cosmetic and/or stylistic dreams are compromised in order to find the best and most suitable home for you and your family. What compromises should you be looking to make? We’ve provided a short list of some of common misconceptions and believed “necessities” for you to cross off your list.

“I need to live in a detached home” – When purchasing a home, especially when it comes to first time home buyers or those looking to expand with their growing family, a detached home sometimes seems like the only way to go. However, Toronto offers many other similarly suitable options, such as semidetached homes, which on average sell for $100,000.00 less than a fully detached home. Keeping your search open to stylistic changes such as these can mean more money for renovations or upgrades in the future, or for more savings long term.

“We need more space” – Do you really? Although having an extra bedroom, or a second living room does seem like a great addition to a home, what do you plan on using it for? Could you use another room for dual purposes, or convert a shed/garage/attic into your extra space?  By imagining the purpose behind these wish list items, you are able to understand if it’s truly something you need, or just a nice-to-have you could live without. Another bonus, less space = less cleaning.

“The house should be fully upgraded and finished” – This decision can be a tricky one, as buying older homes sometimes means that many of the aesthetic finishes throughout are old or outdated. However, if location, style, and size are higher priorities on your list, keep in mind that upgrades and new finishes can be changed with time. By giving yourself a home that needs a little more TLC, you’re opening yourself up to the ability to stay within budget, renovate as time and funds permit, and giving yourself more control over the final outcome of the home. This sense of control and personal validation once completed is definitely something to consider, especially for those who would initially reject an older or outdated home.

Have you sold or are in the process of selling your home, and now can use an advance on your equity before closing day, perhaps you need money for your new purchase deposit? Or to fund your renovations before sale?  Tembo Financial can help!  Tembo offers this unique service to homeowners in Ontario and the GTA.  You could receive your money in as little as 48 hours with no credit check and no appraisal* for expenses that matter to you.  Don’t wait, start today!

*Subject to qualification.

How Long Will It Take to Save for a Home?

 

saving for a home

Saving for a home with cash now takes double the amount of time today as it did in the 1970s in terms of weeks of labour. This was found by the Broadbent Institute who determined that it takes about 400 weeks of labour to purchase the average residential home in Canada, compared to less than 200 weeks in 1970. This means that current and recent homebuyers need to dedicate more time in saving to buy a home. According to the same study, in 2015, 400 weeks of labour in terms of cash cost needed to buy the average Canadian house was almost eight years worth of labour time.

Have you sold your home, and now can use an advance on your equity before closing day, perhaps you need money for renovations? Tembo Financial can help! Tembo offers this unique service to homeowners in Ontario and the GTA. You could receive your money in as little as 48 hours with no credit check and no appraisal* for expenses that matter to you. Don’t wait, start today!

 

*Subject to qualification.