Bank Mortgage VS. Private mortgage

When arranging a mortgage for your home, you are faced with many options that may be confusing to you.

Tembo Financial offers solutions that can help you decide which is the best route to take.

Though there are several differences between a bank mortgage and a private mortgage, one of the biggest differences seen at Tembo Financial, is that the bank has certain qualifications, which you must fit in order to be considered for a loan. A private mortgage gives more flexible options and can suit different needs of clients.

Bank mortgages are offered to clients in which are currently employed, have a strong credit rating, and enough equity in their home.

Private mortgages however, have the ability to lend only based on the equity in the home, meaning it is possible for credit ratings to be lower, or for the borrower to be unemployed.

Tembo Financial is a private lender, that can offer flexible solutions to clients that don’t fit the tight mold of banks. Speak to one of our representatives today to see if a private mortgage is right for you!

Regulators are concerned about the real estate market – again

The activity we’re seeing the real estate market is raising red flags with federal regulators and the Bank of Canada. When the 2016-17′ boom reached its peak governments at all levels rapidly intervened to cool activity.

We all remember the introduction of the foreign buyers tax, tighter mortgage approvals, the mandating of mortgage insurance at certain levels, etc. These government interventions succeeded, eventually precipitating what was effectively a flat-lining of prices and a slowdown in demand. Once the shock subsided and the market adjusted, the recovery kicked in though, rendering the government action a grand delay. We’re now not far off from the 2016-17′ boom peak. The boom is back, and the apprehension is back with it.

Bank of Canada Governor Stephen Poloz summed up his opinion on the present status of the housing market with one word – “froth.” The BOC (Bank of Canada) notes that the rise is unsustainable and expects the market to naturally self-regulate if the rise in prices becomes excessive for prospective buyers. As always, the BOC is standing by to raise rates in the event that inflation and housing price growth becomes excessive. This is a worst-case scenario, and in many ways, softening national economic growth would spur the BOC to cut rates instead. The BOC will definitely monitor real estate stats closely in Q1 & Q2 2020 and will review its options if the housing momentum we’ve discussed intensifies. 

As for the provincial government in Queen’s Park, it is unlikely to interfere in the housing market in any way other than stimulating the growth in supply (cutting developmental approvals). The federal government is also limited in its capacity to address a hot market as it must balance affordability with controlling demand. A federal election is also soon on the horizon, which will see activity designed to increase supply and facilitate easier buying of housing, not the opposite. At the end of the day, if regulators and bureaucrats feel that the housing market is getting out of control they will move rapidly in concert with the BOC to add new measures, despite any political pressures. 

Buttonville Airport is going for sale!

Buttonville Airport is a privately owned, public airport just north of Markham. It covers over 170 acres of the primest of prime suburban 905 real estate. The airport is a half hour drive from downtown Toronto and is just east of Highway 404, Buttonville’s strategic proximity to the rapidly growing GTA and the massive growth in air traffic over the last several decades helped transform the site from a ‘grassy strip’ to the largest, most dynamic privately owned airport in the nation. 2018 saw the airport achieve just over 44K aircraft movements, down from over 80K in 2014. In comparison, the large publicly owned Billy Bishop Airport in downtown Toronto has aircraft movements over 125K. In 2009, the family who then owned the airport announced that they wanted to initiate a broad redevelopment of the site into a mixed use commercial, retail, and residential development. This was highlighted as a golden opportunity to unlock tremendous value for a huge tract of strategic real estate. The family sold in 2009, forming a ‘partnership’ with Cadillac, and the price has not been disclosed, but the value of the undeveloped acreage was believed to be worth between $100-150 million at the time.

Cadillac’s plan would have created 10 million square feet of overall multi-use space worth billions. In comparison, the total size of the Yorkdale Mall is just under 1.9 million square feet of retail space. 6-7K new residents would have been accommodated, generating tremendous property tax revenue for the City of Markham. At least a dozen mid and high rise towers were to be constructed. In all likelihood, the ambitious scale of Cadillac’s strategy would have made the airport family billionaires. However, the immense rezoning work required to approve the project was never completed. The deal was shifted off to the Ontario Municipal Board, but negotiations involved too many stakeholders and too much work. Delays kept pushing back the project. The uncertainty and complexity of the project proved too cumbersome for Cadillac and it appears the partnership have now agreed to wash their hands of the property and to put up the holdings for sale.

The sale will create opportunities but also challenges. Significant corporate jet traffic uses the airport and will have little room to transition to as Billy Bishop is limited in its traffic and Pearson is bursting at the seams. The sale will likely up pressure on the federal government and federal transportation regulators to finally and definitively approve construction of Pickering Airport. The GTA is growing to the extent that a second international airport will be necessary, barring that, Pearson will have to be rapidly expanded. Pickering Airport’s construction will intensify development in Durham Region, create many jobs, and spur additional construction, rezoning, and densification. The recently elected Mayor was strongly supportive of airport construction and won election with over 60% of the vote on a pro-build campaign.

 

2020 set to be red hot for real estate in the GTA

Housing website Zoocasa recently got a decent amount of media attention when they released a blog outlining reasons for 2020 being a very hot year for real estate. In summary, Zoocasa is pointing to a lack of supply as the main reason prices will soar this year. Zoo is also making the point that the measures implemented to cool the rapid price growth from 2016-2018 are now well and truly spent. The foreign buyer tax and stress tests are not going to cap prices anymore, the market has priced them in and found ways to accommodate the extra burdens.

The TREB is echoing Zoocasa’s prediction and argue that buyers are now back and much more engaged in the market than before. The psychology of the market has shifted from perceptions of lukewarm activity to a once again hot and steamy outlook and prices are on the up. The market had a brief re-balancing away from sellers to buyers but has now shifted back to being a much more assertively sellers’ market. The average home price in Toronto is now just over $910K, this includes homes and condos medians.

All the data points to sales and prices now having fully hit the highs which inspired the drastic and sudden government intervention in the market some years ago with the foreign buyers tax and the stress tests. Tembo predicted that a recovery, if ignited, could easily have the market rapidly gain back the ground it lost. And we were right. What has been impressive is that the recovery has occurred at a faster pace than even we imagined. Both Vancouver and Toronto have led the way in making sharp gains and returning to the historic highs experienced in the last boom.

Nothing is pointing to a sudden and massive increase in supply. Even though the provincial government is extremely pro-development, there is little capacity in the market to build tens of thousands of extra homes and condos to meet demand. Developers have no reason to swamp the market when they can continue to anticipate and pocket bigger and bigger gains. Interest rates will remain low. There is also some possibility that the Feds will move to make it easier for people to take on mortgage debt given they are in minority government and need to bolster their standing with swing voters.

A snapshot of Toronto’s economy & construction sector as we wrap up 2019

In this blog post, Tembo will give its readers an overview of the state of Toronto’s economy and its major financial indicators. In this way, Tembo hopes to reveal the overall good shape, flexibility, and versatility of Toronto’s economic state. All in all, Toronto’s economic indicators are very positive.

The Macro-Economy

  • Unemployment is at 6.9%, slightly higher than the national figure but still a decent number, remember that population is rising by 70,000, placing pressure on job creation.
  • Mean hourly wages in Toronto meet provincial and national averages, at $29.
  • GDP is growing by roughly 2%, at the rate of inflation, it’s projected to stay at this amount for the next several years. The economy had a strong growth spurt from 2014-2017
  • Toronto’s economy boomed from 1998-2001, averaging rates of well over 5% in those years
  • There are 1,572.4 million jobs are in Toronto, contributing to an office vacancy rate of 4.1%, there have been only 10 business bankruptcies in our City this year
  • The industrial vacancy rate is 1.5%, down from 5.5% in late 2013
  • Consumer prices rose by 1.7% this year
  • Retail sales in Toronto will exceed $32 billion for 2019, most of which was cars and car parts

Buildings under construction

  • There are 246 mid and high-rise buildings under construction in Toronto as of October 2019, up from 202 in October of 2018
  • The pace of building continues to rise, Toronto is competing with New York City for the title of most mid to high rise construction in North America
  • 2022 will be a giant year for construction in our City as there are a huge number of supertall buildings that will be completed in that year
  • These will include the 83 floor The One building at Yonge-Bloor, YSL Residences at 85 floors just down the street, and Sugar Wharf Tower D on Queens Quay which will reach 70 floors
  • This article from the Financial Post has lots of information and an interactive video of some of the supertall structures that are being built right now: https://business.financialpost.com/real-estate/property-post/vertical-city-80-new-skyscrapers-planned-in-toronto-as-demand-climbs

Housing

  • Disappointingly, housing starts in Q3 2019 were 9% lower than in Q3 2018 but are up 11.5% from Q2 2019
  • There were roughly 5,000 housing starts in Q3 2019, most of which were apartments and condos
  • The average house price in our City is $925K

Most analysts and experts consider Toronto’s economy to continue

to remain healthy and reasonably stable in the coming years. Analysts believe the biggest threats are high debt levels, a rapid rise in interest rates, or a severe recession from abroad.

Emulating the Singapore model to boldly solve Toronto’s Housing crisis

Toronto is in the midst of full-blown housing crisis whose severity will soon stretch and tear at our City’s social fabric, inflame socio-political tensions, further erode our resident’s quality of life, and cripple long term economic potential.

Over two decades of insufficient private home building, historically unprecedented low interest rates, and an ongoing torrent of foreign capital investment have created a market Swiss investment banking giant UBS recently crowned “the world’s second biggest City housing bubble.” We have reached the stage where average housing unit costs have hit $880,840 pushing the price-to-income ratio to 8.2; meaning that average housing costs over eight-times gross household income, almost three times higher than ideal levels.

Buying a home is not the only challenge, with a rental market experiencing a surreal vacancy rate of 1.5% and one-bedroom apartment rent rapidly approaching $2,000. Our housing market is poorly structured and caters to investors, many of whom are foreign. Much of our private building capacity is dedicated to building miniscule, overpriced, shoddy but exceedingly profitable condominiums. Recently released data from Statistics Canada asserts that up to 37.9% of these units are vacant.

Superficial pledges from the political class and incremental, modest increases in investment (HousingTO, TCHC subsidy reform, foreign buyers’ tax) that we have seen in recent years do not address the fundamental underlying dysfunction in our market, and are window dressing measures that will do little to nothing to solve Toronto’s housing crisis. Like Singapore in 1960, Toronto is experiencing a severe shortage in housing, sustained population growth, and untapped economic potential. Singapore’s response to its past housing crisis has been internationally respected.

The country created a Housing and Development Board (HDB) that efficiently and rapidly built quality rental apartments to sell at below market rates to needy citizens. Within 5 years, the HDB built 51,000 apartment units and ended the supply shortfall. Today Singapore has a 90% home ownership rate and over 1 million publicly built, privately owned apartment units. Public housing in Singapore is of very high quality and occupied by all classes, rich and poor. Toronto’s public stock is crumbling despite record investment that will still fall short of needs. We have a waitlist of many tens of thousands who realistically will have to wait decades for affordable housing or will never get it at all. Transferring ownership of our public housing stock to current tenants will permanently transform the lives, shift repair liabilities off the city’s books, and free up resources to decisively and honestly resolve our housing supply crisis.

A deeper dive into the (re-ignited) housing boom

Real estate is red hot in the GTA again. The stagnant market conditions with meager gains in price and demand momentum has now been replaced with surging prices, demand, and overall momentum.

Tembo has already noted that the psychology of the market has changed, and it is a far more confident space with greed and fear replacing complacency and lethargy. People are now once again weighing the potential gains of selling, and fear is driving people to jump in and acquire inventory that is scarce but that shows huge potential for equity growth.

What’s concerning to an extent is that inventories of housing are falling. The data shows a near 2% drop in what was available for consumers. People are holding on to stock with the expectation that price gains will continue. Big gains were seen i sales in Durham and York Region. Whitby, Oshawa, Richmond Hill, Newmarket and Vaughan all saw powerful surges in sold inventory. This highlights that Peel Region is maxed out in comparison (there are bidding wars for rentals in Mississauga these days), Halton was less desired than Peel, York, and Durham. Sales soared over 20% in Durham and York, with Halton and Toronto hitting 7%. 

In terms of the types of inventory, detached sales are up over 18% in the GTA. Condo townhouses are becoming increasingly popular and combine a degree of affordability with more space than a tiny downtown box in the sky. Sales of condo townhouses grew by just under 16%. Condo townhouses are increasingly seen as the most positive balance of affordability and space in the GTA. In Mississauga, five of the most affordable neighbourhoods are Applewood, Meadowvale, Fairview, Mississauga Valleys, and City Centre. In almost all of these neighbourhoods, condo townhouses averaged $400-800K, whereas modest detached home prices averaged $800-900K. 

Ghost Condos in the GTA

The condo market has been booming for a generation in Toronto with a tiny blip recorded in the 07-09 slowdown.

Condo flipping made thousands of savvy investors healthy profits throughout this boom, while our skyline has been transformed and developers raked in huge amounts of money. Condos were unheard of until the late 1970s but their value to investors became apparent as they are significantly more profitable than building apartments and collecting rent long term. 

For many, if not most Torontonians, condos are the only way to get a roof over their heads. They are far more affordable and plentiful than detached homes and townhouses. Condos aren’t simply a place to live in, they are also fully financialized assets, similar to stocks, bonds, and tax saving vehicles. Statistics Canada released data in early July of this year which shows that almost 40% of Toronto condos are not owner occupied. This means they are empty, rented out, or used a second property. For many international investors, a condo in Toronto is a money laundering tool. A good lawyer can help anyone with cash use loopholes to maneuver their way through and to buy a condo despite not being a citizen or resident of the country.

This number is one of the reasons we have a housing crisis in our city. So much housing construction is dedicated to building housing units that in many cases aren’t being used by locals. Our housing supply policies are being designed to cater to wealthy investors with tons of cash who are completely disconnected from local culture, life, and history. Greed is dominating our market and it’s leaving the region with a huge supply of extremely expensive housing that few people enjoy and that is out of the reach of many. While government measures have made some progress on reducing these trends, at the end of the day there’s always a way for an investor to take advantage of loopholes. 

Where will GTA housing be next year?

The CMHC recently released a report which attempts to predict the state of housing in our city next year.

The report is bullish, suggesting prices on average will rise by roughly 5% – taking the average home price to between 740-850K. By 2021, the CMHC thinks prices will hit almost 950K. These huge home prices are expected to be sustained even as the same report suggests that home construction numbers will rebound to levels at the time of the 2017 boom peak. The big factors which will underpin these price rises are the predicted strong gains in employment in Toronto, growing migration from other provinces, and growing levels of immigration to the city. The recently re-elected Liberal government will push the immigration level to over 400K, a move that is unlikely to be opposed by the Green Party or the NDP. 

While housing starts (new home construction) are predicted to go up to as high as 36K units by 2020, this is still completely incapable of even remotely satiating demand. Only in late 2021 will pressure on the rental market begin to ease slightly, as the number of new units going online in the market is reaching multi-decade highs. This is sad news for the hundreds of thousands of Torontonians who are living in housing insecurity and who are dealing with bidding wars for rental units, a dream for landlords – who have never had it this good. In other words, don’t expect big changes, things will remain tight, competitive, and above all, expensive. Additionally, CMHC believes that mortgage payments will remain stable over the next years, suggesting that interest rates won’t be swinging widely up or down – this is one of the few good pieces of news in the report for prospective buyers and homeowners who are not interested in selling. 

On the supply side, as we’ve written and explained many times, there’s simply very little capacity for builders to meet the huge demand needs we have. Toronto is building more high rises than any other city in North America, and much of our best land for low density suburban subdivisions has been eaten up. Even with the provincial government already pushing through anti-red tape deregulation measures that will benefit and speed up construction, there is not much that can be done unless all three levels of government come up with a serious, meaty, and very aggressive pro-development housing policy with strong incentives and specific targets. But this is unlikely. At the end of the day the factors which are keeping demand strong aren’t budging, and the forces preventing supply from growing massively aren’t present.

A sizzling September

It’s striking to see the shift in the media’s tone on real estate over the last few months.

The positivity started in earnest in late June and early July, and began to pick up as the summer ended and the school year began. With September 2019 now behind us, a clear and objective picture is available with all the new data that’s been released. Stats show that prices for all types of housing went up strongly from Sept. 2018 figures. The increase was 5.2%. The significance of that growth was highlighted by the Financial Post, which noted that the now median $805.5K benchmark was just $10,000 short of the all-time record high median price set in 2017. What a year for real estate that was. We are a few percentage points away from all-time record real estate highs.

The energy behind all of this good news is the surge in sales we’ve documented a few times now. Double digit increases have returned to the market in all categories. Holy grail detached homes led that charge with 29% increases in sales. Toronto is not the only city in the country recording strong sales, Vancouver’s are up over 46%. Buyers have clearly adjusted to the strict new mortgage rules and developers aren’t able to come up with enough supply to meet demand. Canada’s population is growing very rapidly. Even as immigration targets have risen to well over 300,000 newcomers annually, natural population growth is edging up the overall net increase to well over 500,000. Most of those people settle in the GTA and Vancouver.

Some realtors are firing on all cylinders to meet the demand we’re now seeing. One realtor sold 30 condos in a single weekend and says the stats are returning to 2017 hyper-boom levels. One of the reasons supply is so limited is that so much inventory, particularly condos, are being held by investors from all over the world who rent out the units or put them on Airbnb. Estimates of the total number of condos dedicated to non-permanent use vary, but some high-end numbers put the figure at over 40%. Market watchers are noting that with luxury condo sales exploding supply is not a class issue; everyone is having trouble finding their nest!