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!

On The Return of National Real Estate Price Growth

The good news we’ve been writing about haven’t been limited to real estate in Toronto, southern Ontario, and the GTA, it’s spreading across the country.

The national real estate benchmark, which outlines real estate price changes every 4 months, now shows its first uptick since the beginning of the year. After reaching its all time high in May of 2017, when market dynamism was truly ecstatic, the benchmark collapsed and reach a low point exactly 2 years later. September’s number should bring price growth back in the green nationally. What else can be done to help get that number in a better position? Let’s see.

Meanwhile, political pressure on the Federal government to do more to make real estate more accessible to prospective home buyers is building. Finance Minister Bill Morneau has been pressured to extend the amortization of houses from the present 25 years back to 30. This would provide home owners with more time to leverage a mortgage and the possibility of lower monthly mortgage payments. The previous Conservative government cut the amortization period from 35 years to 30, and then the present 25. This aggressive move was done in order to combat excessive dynamism in the real estate market and was welcomed by many, even though it had a direct and immediate impact on the market.

In the United States, 30 year amortization is common, as are fixed rate 30 year mortgages at very low rates. Imagine not having to negotiate and sign for a new mortgage after every 5 years and instead have the comfort of knowing you will enjoy a historically low, locked in rate for the life of the house. A spacious 5 bedroom, 4 bath suburban home in Indianapolis, Indiana, selling for 399K, can be mortgaged out for 1,400 a month with a 3.3% Bank of America 30 year mortgage with an 80K down payment. This is unheard of in Toronto and the GTA. 

Big Housing Projects and the Benefits of Rapid Transit

In the last four decades, major infrastructure projects in Toronto and the GTA have been few and far between. We have fallen behind. The last two major subway lines that were built benefited low density inner suburbs in North York and Vaughan.While these areas are undergoing building booms and seeing density rise, the lack of a completed downtown relief line is overwhelming Toronto’s subway system. Nonetheless, the Eglinton Crosstown is a project nearing completion that is looked upon more favourably by transit and infrastructure experts. 

 

The Crosstown will provide top notch transit service to the city’s dense and heavily populated midtown area. One major benefit of this massive project is the development and rejuvenation of housing where it is needed most. One such project has received favourable attention; the Crosstown planned community by Aspen Ridge on the corner of Eglinton and Don Mills Rd., just north of the Ontario Science Centre. Right on the Crosstown subway line, this housing project will feature almost a dozen high-rises, townhomes, and low rise buildings. It will also feature considerable green space, restaurants, and rec facilities. This kind of broad, dense, and all-in-one is made possible by the construction of major public transit projects.

 

With recent transit announcements showcasing the desire to pour tens of billions of added dollars into public transit lines in Toronto, projects like the Crosstown community will become more frequent. The 60 acres of the Crosstown community previously consisted of low rise office and warehouse buildings, largely owned by the international tech company Celestica. 

On The Value Of Land In The GTA

In May of 2017, the RGF Real Estate Fund LP bought the Toronto Region Board of Trade’s Woodbridge area golf course. The 290-acre course was iconic, the sight of many golf tournaments, networking events, and business function since its opening in the mid 1960s. Many golf courses are being sold across North America. High land values, declining golf use, and enormous demand for housing is driving the changes.

Woodbridge Golf Course
Only one third of the land sold can be developed; roughly 100 acres. The other two thirds of the sold golf course are green space off limits to real estate construction. Even though this is the case, the developer has said that the capacity to develop the 100 acres will be very profitable. The developer plans some 600 detached residential units and 60 townhomes. This plan was presented to the city of Vaughan and has yet to be fully approved. Many local residents are opposed to the development proposal, fearful of increased traffic, noise, and pollution.
In April of 2015, the 400 acre York Downs golf course was sold for $412 million. Both York Downs and the Country Club are courses adjacent to valuable suburban real estate and they are similarly sized. Assuming a similar valuation, it can be assumed that RGF bought the Country Club for roughly $300 million. Despite the fact that only a third of the course can be developed, this massive purchase will likely be very profitable. These transactions highlight the extent of housing demand in the GTA.

October Was A Good Month For GTA Real Estate

Positive numbers marked the overall situation for GTA real estate. Both the detached and semi-detached home and condo markets saw positive figures. Condo prices rose 7.5% and semi-detached home prices were up 6.6%. The average selling price for a home rose past the $700K range where it has languished for roughly to hit $810K, This was the first significant increase in prices in over 3 months. 

The positive sale price increases highlight a recovery that is steadily building momentum. Analysts saw the figures as proof that the perennial forces of supply and demand were returning to their general positions in the GTA market. The supply of homes continues to be a significant factor impacting the market – with recent inventory showing a tightening of listings. The slowdown the market saw exacerbated this issue because many prospective sellers are waiting for prices to increase again before listing their homes.
The condo market continues to show its heft. Impressive price figures and demand has not been shaken by government intervention. Higher interest rates in the medium to long term may damage the health of the condo market but it continues to be seen as a haven for young professionals trying to get into the market affordably. The recovery continues. 

The Fed eases off on its tightening

Federal Reserve Chairman Jerome Powell did not signal another rate hike in its most recent announcement this week. The Board was unanimous in its support for the not raising rates. With the U.S. economy absorbing large stimulus through tax cuts, increased government spending, and still very low rates, economic activity and job growth is on the rise. This has strengthened the Fed’s longstanding argument that rates have to be increased.
Caption: U.S. President Donal Trump shaking hands with Fed Reserve Chairman, Jerome Powell at the White House
The big opponent to higher rates has been Donald Trump. Irritated at the propensity for these rate increases to dampen economic growth, the President has vocally attacked the Federal Reserve. He has argued that all of its actions have been ‘wrong.’ It’s a possibility that the Fed’s decision to hold off on rate increases could have been prompted by this language and a desire to placate the President, especially given the U.S. mid-term elections.
The results of these mid-terms has been mixed for the President. On the one hand, his party gained Senate seats and tightened up its control of the U.S.’s upper house. On the other hand, the Democrats won back control of the House, albeit not with the momentum many in the media had predicted. Many key gubernatorial races were also won by Republicans, particularly in the key states of Ohio and Florida. The next two years will be tumultuous and difficult, and the partisan divisions in America will only increase.

Ontario Election 2018 – What’s in it for real estate?

Ontario Election 2018 – What’s in it for real estate?

In this blog post, Tembo Financial Inc. will analyze the election platform for the Progressive Conservative Party (PCs) and will outline what the official opposition is proposing to do for real estate professionals, prospective homebuyers, and homeowners if it were to replace Premier Kathleen Wynne’s Liberals as the province’s governing party.

 

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1.    Local Infrastructure Fund

This is being touted to create jobs and build infrastructure in small communities.

park infrastructure fund

2.    Investment in Parks and Green Infrastructure

Investing some money to make certain green spaces across the province more user friendly.

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3.    Increased access to apprenticeships, doubling the loans for tools program

This will stimulate people learning an apprenticeship, and could be beneficial to the real estate and construction industries hungry for skilled apprentices.

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4.    Transit

The PCs are making a big push to invest $5 billion over 4 years on top of existing funding into new subways, particularly a downtown relief line which Tembo discussed previously. They will also upload the administrative and maintenance costs of Toronto’s subway system from the TTC while allowing the TTC to keep all the fairs. In return, they want the city to build more LRTs – especially a connection from the soon to be completed Eglinton-Crosstown to UofT’s Scarborough campus. These initiatives will spur development, improve property values, and stimulate construction.

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5.    Selling transit station air rights to developers

Self-explanatory, the PCs want to develop long along and by transit stations to create more housing stock.

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6.    Reforming the Planning Act

To reduce permit delays, cut red tape, and to stimulate more housing construction and development by sending a clear signal to municipalities.

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7.    Reviewing the province’s property portfolio

In other words, see what the province owns or has rights to and look to sell chunks of it to developers so they can build. Think underused or vacant parking lots, undeveloped land, wills, etc.

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8.    Reforming planning processes

This will encourage municipalities to update their planning and zoning processes and to update them routinely so as to send regular signals to developers about what and how to build, the goal is to ultimately increase supply in the long term.

Review Tenancy Act

9.    Reforming planning processes

This will encourage municipalities to update their planning and zoning processes and to update them routinely so as to send regular signals to developers about what and how to build, the goal is to ultimately increase supply in the long term.

 

Overall the PCs are promising to make big new investments in transit and to increase housing supply. The full platform with all of its proposals is available here: https://www.ontariopc.ca/peoples_guarantee

 


Disclaimer:

Tembo Financial Inc. is non-partisan and looks forward to analyzing the party platforms of the Ontario Liberal party and government and of the third party NDP. Let’s hope that the 2018 election sees issues of housing supply, affordability, and infrastructure discussed thoroughly and qualitatively.

Now Creative Group November 14, 2017 No Comments

The Market Rebound Begins

In a promising sign that the traditionally positive seasonal effects of Fall on the real estate market are once again kicking in, October sales of homes in Toronto rose over 12% from September figures. The increase will be well received by realtors and prospective sellers, as it shows that the market is showing renewed resilience and that demand and buying potential remains firm. Growth in October is usually expected by teal estate professionals in a usual year, but the 12% increase is slightly stronger than usual metrics.

Prices for average homes also increase slightly, hitting roughly $780,000.00. Prices have been increasing for very conservative but the October increase shows an acceleration from September numbers – again, this is a very promising sign. The increase in prices and sales shows that a market that had faced rapid and dramatic cooling from a long list of government and regulatory measures after peaking in May is once again begin the slow but steady process of warming up again.

While sales and prices are slowly returning to health, concerns about a continued large gap in the supply of homes versus still shy demand remain with close market watchers and realtors. The gap may be bad for those wanting to sell, but benefits buyers, who at the height of the market in May were hard pressed to get a bid in a prospective home, let alone a fair shot of sealing the deal with a buy. The large amount of supply continues to place downward pressure on sales and price growth.

Condo market surge continues

As a previous Tembo blog has outlined, the condominium market in Toronto remains very strong and shows strong price and demand growth. Although many pockets of the GTA have lukewarm and slow condo markets, the overall market, and particularly activity in the core continues to surge. Average October prices increased over 20% in October. The average price of a condo in Toronto now exceeds $520,000.00

As Tembo has repeatedly stated, the fundamental underlying pillars of the GTA real estate market remain firm and strong, and in the long term, the market will continue to be resilient and will continue to offer opportunities for buyers and sellers.

Now Creative Group November 13, 2017 No Comments

The Rebound We’ve Been Waiting For

After having been walloped by a combination of new taxes, higher interest rates, tougher financing rules, and a massive glut of housing listings, the Toronto housing market showed positive signs of resilience and recovery by posting a 6% increase in re-sale home prices in August from September. Market watchers and realtors pointed to the increase as a good sign the market was finally pulling out of a period of price stagnation, low buyer interest, and dampened demand.

Many officials, market watchers, and financial and real estate professionals predicted the market would begin to recover and that prices would increase again in the beginning of fall. The news that this has been confirmed is yet another sign that the Toronto real estate market is in good shape and that it has strong underlying fundamentals. New listings numbers are also beginning to fall, meaning the supply of new homes is dropping, this is another positive trend for sellers who had a very tough summer selling season.

The price increase brought the average September price to $775,546.00, $20,000.00 more than the same price last year. The rebound mirrors long term trends in Vancouver, where a foreign buyer tax gutted demand and prices for almost a year, only to see prices and demand rebound and exceed past levels later. Market watchers are now eager to see if the positive trend continues into the middle of the fall and whether interest rate hikes and tighter insurance rules from federal regulators further increase pressure on the fragile market.

Housing starts increasing in urban areas

The market is responding to strong economic growth and still reasonably low borrowing costs. Urban housing construction is on pace to reach its strongest level since 2007 with a 8% increasing in urban detached housing starts which exceeded 60,000.00 units in August-September.

Now Creative Group October 31, 2017 No Comments

The Bank of Canada Holds its Ground

The Bank of Canada was generally expected to raise its benchmark interest rate from 1.00 to 1.25 this week, but decided to hold its rate at 1.00. The Bank cited strong economic growth and the desire to moderate its pace of rate increases so consumers and the economy can better adjust to more expensive money. The Bank’s decision was met with interest as many expected it to stick to its aggressive rate hike pace. Many, however, believed the bank would hold off as surveys and media coverage showed that consumers were weary about the speed of interest rate increases and were worried about their ability to service the increased costs.

The immediate market reaction saw the dollar fall 0.65 cents and the TSX drop 60 points. Investors reported their view that the interest rate holding would lower economic growth for next year. Market watchers will take mixed views. Those in the real estate sector will cheer, as new taxes and stress test rules recently implemented will inevitably serve as a disincentive for builders to construct new homes and for buyers who are already under tremendous scrutiny from banks and insurers, especially first-time buyers.

The decision to hold shows that the Bank is concerned about excessively pressuring the real estate sector, given the new stress test rules will add cooling effects to an already lukewarm market at best. The Bank is likely to keep a close eye on inflation, GDP figures, and job numbers in the coming weeks and months before deciding to raise rates again in the next quarter. Fundamentally, the international trend is focused on raising rates, increasing the cost of capital, cooling consumption, and adding space and breathing room for central banks to decrease rates in any future economic challenges.