Real Estate

March year-over-year real estate figures showed some incredible surges in prices in the greater GTA. In Orangeville, a town of some 30,000 just north west of Toronto, prices for townhouses increased by over 50%. Apartment prices there saw a similar increase, and single family detached homes increased by over 33%. These mammoth increases were replicated throughout Halton, Peel, York, Durham, and South Simcoe County. More affordable townhouses were in much greater demand than single family detached homes – by double digits in some cases.

The average price for a detached home in Orangeville is basically the same as one in Toronto at this point – at almost $1.2M. Condo prices are surging as well, with prices in Oakville up 50% from March of 2021 to just about $500,000 on average. Supplies are starting to pick up too, with listings showing some growth. It’s possible that people are in the mind to sell and cash out now before higher rates may slow the market down or dampen enthusiasm. It will be interesting to see if rising interest rates will start to chew into these massive price increases. For example, an average priced Ontario home at $850,000 bought with a 15% down payment and amortized over 25 years with a variable 5 year mortgage at around 2% today would equate to a $3200 a month mortgage.

The same mortgage with a 50 basis point rate rise means the estimated payment rises to $3,383, an increase of $186 per month or $2,232 per year. Market analysts suggest that the best bang for your buck in terms of a real estate investment at this point would be condos in well run buildings with affordable parking and maintenance fees, as they are ‘cheaper’ to buy into and will appreciate well in the coming years – especially with more and more downtown offices reopening.

Tembo outlined what the three big parties promised on real estate in three blog posts. Given that the Liberals have been re-elected, let’s recap what they promised, and what changes (if any) are in store. Many of the Liberal Party’s promises are designed to put more cash into the hands of prospective buyers – so those measures will end up increasing demand (and thus prices):

• Tax-Free First Home Savings Account
• First-Time Home Buyer Incentive
• First-Time Home Buyer Tax Credit
• Reduced Mortgage Insurance Fees

Measures against home flipping (a tax), and a temporary ban on foreign buyers were designed to decrease demand, but very few experts and market watchers believe these planks will make a dent on the market.

The big question is whether supply will increase meaningfully. The government’s plan will see capital allocated to developers who are focused on building affordable housing. It remains to be seen if this will benefit the average prospective buyer. The government has had years to implement these kinds of policies, and few have remarked on tangible impacts on the market.

Other changes we’ll see that were promised are likely to have some impacts on actual house purchasing:

• Blind bidding ban
• Legal rights to home inspection
• Price transparency
• Disclosure of all parties in a transaction

We can’t say whether these measures will contribute to prices levelling off or of demand calming, but they have been called for by many for a long period of time. Blind bidding has become a hated term and has been pilloried by the press repeatedly in recent years. Having enough of a down payment or a mortgage approved is just one fight in the house buying war, bids for available homes are another. How quickly and comprehensively the federal government moves to implement these promises is a big question, let’s wait and see.

Welcome to the second Election 2021 housing platform blog, with a quick dive into what the official opposition is proposing to do to help Canadians afford homes. The Conservatives are focusing on a platform that addresses four areas, with the first looking at boosting supply.

To “quickly” build 1M homes over three years, the Conservatives will look to transform 15% of the property the federal government owns into residential space. Tax incentives will be implemented to encourage the construction of rental units and for large landowners and businesses to donate property to trusts, and public transit will be paid for under conditions that high density housing be built close by.

Step 2 is “rooting out corrupt activities that drive up prices“. This would include changes to the Proceeds of Crime Act, among others, to give law enforcement and prosecutors tools to root out aggressive instances of real estate related money laundering. The Tories would also look at the findings and recommendations of the Commission of Inquiry into Money Laundering in British Columbia, and quickly implement recommendations at the federal level.

Like the Federal Liberals, the Tories would ban foreign investors not moving to live in Canada from buying homes for 2 years, and then reviewing the policy.

The third area of focus is homelessness. The Tories want to focus on rehabilitating homeless people from drug related challenges through an investment of over $300M over a number of years.

Finally, to make mortgages more affordable, the Tories propose to:

• Encourage a new market in seven- to ten-year mortgages to provide stability both for first-time home buyers and lenders, opening another secure path to homeownership for Canadians, and reducing the need for mortgage stress tests.
• Remove the requirement to conduct a stress test when a homeowner renews a mortgage with another lender instead of only when staying with their current lender, as is the case today. This will increase competition and help homeowners access more affordable options.
• Increase the limit on eligibility for mortgage insurance and index it to home price inflation, allowing those in high-priced real estate markets with less than a 20% down-payment an opportunity at home-ownership.
• Fix the mortgage stress test to stop discriminating against small business owners, contractors and other non-permanent employees including casual workers.

There is very little fiscal firepower attached to this plan, as it focuses on stimulating market forces, leaning on crown property, and incentivizing construction through preferential tax treatment. The Tories will likely hammer away on the need to increase supply throughout the campaign, but so far, the plan shows less government involvement in housing than the other party platforms. The full Tory platform can be accessed here.

The next and final blog will examine NDP Leader Jagmeet Singh’s plans for housing.

With Election 2021 on and in full swing, Tembo will dedicate three blog posts to outline what each of the three parties is offering to tackle housing, increase affordability, and help people get their first homes. In this blog, we’ll examine what the governing Liberals have in mind.

At its essence, the Liberal Party is rehashing its 2017 National Housing Strategy. They’ve repackaged and rehashed the older plan into a new, three-point housing pitch. The new pitch is called A Home For Everyone, and consists of:

1. Unlocking Home Ownership: Liberals will help save a family buying their first home up to $30,000.

This part of the plan starts with a new, tax free First Home Savings Account to help young, prospective home buyers afford a down payment faster. It would combine the features of a RRSP and a TFSA and would allow up to $40K to be saved and withdrawn before the age of 40 tax free.

Another piece is the $5,000 First-Time Home Buyers Tax Credit will be doubled to $10,000, putting an extra $1,500 into the average buyer’s pocket to buy a home.

And another big piece is a new, $1B Rent-to-Own program. This money will be extended to developers to build rent-to-own projects. Ownership must be completed in five years, and rents will be required to be below market. There will also be measures to help people save on closing costs.

2. Building More Homes: Liberals will build, preserve, or repair an additional 1.4 million homes in four years.

This starts with a $4B Housing Accelerator Fund aimed at increasing the housing supply in our biggest cities, for a total of 100,000 new middle class homes completed by 2024-25. Existing measures to increase affordable housing units and to convert more office space to residential housing will be made permanent. These are measures Tembo has already introduced to our readers in a past blog post. In this sense, this part of the plan doesn’t increase the net flow of funds, and just maintains what’s already going out the door.

3. And Protect Home Buyers’ Rights: Liberals will create a Home Buyers’ Bill of Rightsto make the process of buying a home fairer, more open, and transparent.

Interestingly, the Home Buyers Bill of Rights will ban blind bidding, establish a legal right to a home inspection, mandating full transparency on recent house sale price on title searchers, and many other measures. The Bill of Rights would force banks and mortgage lenders to offer mortgage payment deferral options for up to 6 months for those who lose their jobs – a clear COVID inspiration.

The Libs are also increasing efforts to ban foreign ownership and speculative activity. A national tax on non-resident, non-Canadian owners of vacant or underused housing that kicks in on January 1, 2022 will be expanded to include foreign-owned vacant land. A proposal to temporarily ban new foreign ownership of housing will also be implemented. 

As always, the Liberals plan to invest further in aboriginal housing, and to strengthen federal oversight of the housing market. All in all, the plan is decent, with some recycled components, some creativity, and some tough measures. Our next blog will look at the Federal Tory plan for housing.

You can read the Housing component of the Liberal manifesto in full detail here.

There’s been more and more talk in the media and by real estate experts on the need to implement some rule changes and stringent new measures to the real estate market to slow down the double digit, and record breaking sales and price growth activity we’re seeing. Many believe that the federal government’s budget measures and actions have been symbolic, and that tough changes are being avoided to leave construction and real estate booming to help the overall economy recover.

Rema has some broad suggestions:

“Only by grossly increasing supply in the Canadian housing market to reach the majority of homebuyers, making all purchases conditional on financing to reduce financial overextension of buyers, and implementing regulations concerning listing price thresholds, will we find the answer to cooling the exuberance enveloping Canadian real estate.”

National Bank CEO Louis Vachon thinks a solution could be banning ‘blind bidding’:

“Regulators may need to implement additional tweaks to Canada’s mortgage underwriting criteria and consider new measures. That might include banning blind bidding — the practice of bidding on a property without knowing the value of competing offers — to slow the speed of the home price growth.”

Others have called for a capital gains tax on the sale of primary homes, a political, economic, and socio-cultural sacred cow in Canada. It should be noted that the current Governor of the BOC, Tiff Maklem, when he was number 2 at the BOC, warned in 2013 that real estate was eating up too much capital, investment, and labour, and that there was insufficient investment being made in production and long term growth. Even some senior Top 5 Banking figures are calling on aggressive new measures to cool the market – that’s how dynamic things have gotten.

There’s almost $8 billion in Budget 2021 for housing, while this may seem like a huge figure, consider that those resources are for the national housing picture, and keep in mind that overall spending in budget 2021 is over $509 billion. 2021 revenue is at $355 billion. In just two years (2020 and 2021), our federal government borrowed $500 billion. All of this is real money that will have to be paid back, forgiven, printed, or inflated at some point, but that’s another story. As for housing, let’s go back to that $8 billion figure.

Over $2.5 billion will be allocated to the Canada Mortgage and Housing Corporation over seven years, to pay for a number of housing programs. These programs include the Rapid Housing Initiative, the Affordable Housing Innovation Fund, the Canada Housing Benefit and the Federal Community Housing Initiative. Many of these programs were announced months or even years ago, so much of this money will likely be recycled, re-announced, or is simply going to be pushed back and extended over a number of years. Keep in mind that not every dollar of this $2.5 billion will be new.

$1.3 billion will go to build and fix up units and buildings and will see commercial spaces converted into housing – again, not all of this is net new money, much of it has already been announced or deployed. The big chunk of the cash will go to build affordable housing, with over $3.8 billion announced. The feds say that this money will help build, repair and support 35,000 affordable housing units. That comes to about $110,000 per unit, and we’re not sure what kind of housing $110,000 will get you, but let’s see.

As we mentioned in our latest newsletter, a 1% tax on the value of vacant properties will be potentially implemented by 2022, but this will only generate some $700 million. It is unlikely that a 1% vacancy tax will have much of an impact on the national real estate market. Overall, this is not a budget focused on housing. It’s a budget focused on COVID-19 support, child care, and sprinkling money to key electoral groups (families, seniors, parents). Compare this budget to some of the very aggressive and macro measures the New Zealand government has implemented to deal with their supply crisis, and you’ll get the picture.

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.

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.