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.

An Overview of Toronto’s HousingTO 2020-2030 plan

The City of Toronto is unveiling a broad, ambitious 10 year plan to address the major issues of homelessness, housing stress, and a lack of affordable housing options for tens of thousands of City residents.

The plan seeks to pool together resources from many City divisions, the province, and the federal government to invest over $20 billion in the next decade. At its heart, the plan seeks to bring together government, non-profits, and banks to cooperate on models to get as much affordable housing built as is possible. Pressure on politicians to address public housing repair bills, the lack of cheap aparments and homes for Torontonians, and increasing rents and housing prices is steadily building. In many ways, the housing crisis is augmenting inequality and is reinforcing poverty. A serious chunk of Toronto’s population is spending massive chunks of their disposable income on rent.

The plan has the following key goals:

Creating 40,000 new affordable rental homes approvals including:

·         18,000 new supportive homes approvals for vulnerable residents including

people who are homeless or at risk of being homeless

·         A minimum of 25% (10,000) of the 40,000 new affordable rental and supportive

homes dedicated to women and girls including female-led households

·         Preventing 10,000 evictions for low-income households through programs such as the City’s Eviction Prevention in the Community (EPIC) program

Improving housing affordability for 40,000 households:

·         31,000 households to receive up to $4,800/year/household in Canada Housing

Benefit

·         9,000 households to continue receive housing allowances

·         Maintaining affordability for 2,300 non-profit homes after expiry of their operating

agreements

·         Providing support services to 10,000 individuals and families in supportive housing

Improving housing conditions for 74,800 households by repairing and revitalizing

Toronto’s rental housing stock, including:

·         Repair of 58,500 Toronto Community Housing units

·         Revitalization of 8 TCHC communities to add 14,000 new market and affordable

homes with 5,000 replacement homes across the city

·         Bringing 2,340 private rental homes to state-of-good repair

·         Assisting 10,010 seniors remain in their homes or move to long-term care facilities

·         Providing property tax relief for 6,000 eligible seniors

·         Providing home repair assistance for 300 eligible low-income senior

homeowners

·         Redeveloping 1,232 City-owned long-term care beds and creating 978 new beds

utilizing provincial investments

·         Supporting the creation of 1,500 new non-profit long-term care beds

·         Creating 4,000 new affordable non-profit home ownership opportunities

·         Assisting 150,000 first-time home buyers afford homes through first-time Municipal

·         Land Transfer Tax Rebate Program

Is this enough to solve Toronto’s affordable housing crisis? Probably not, but the scale of the initiatives outlined in the plan and its aggressive nature in tying together a wide array of agencies, levels of government, and private and non-profit players shows how serious the city’s leaders are in trying to make tangible impacts in addressing what is the paramount socio-economic challenge our City faces. The HousingTO 2020-2030 plan will be voted on by Council next week. 

Now Creative Group November 17, 2017 No Comments

Millenials better at saving than their parents?

Labelled as the “lazy and entitled” generation, Millenials have seen their share of criticism. But revel in this – a recent study shows that millennials are better at saving than their parents, the baby boomers.

According to bankrate.com, 60 percent of 18 to 26-year-olds are planning ahead compared to just 25 percent of the older generation. Another study, conducted by Nerd Wallet, shows that millennial parents are putting away 10% of their annual income, compared to Gen X saving 8% and Boomers saving 5%. NerdWallet also found that only 7% of millennials surveyed were not saving for retirement. These numbers are most likely linked to the fact that Millenials had a front-row seat to the 2007 financial crisis. If millennials continue to save at this rate, Nerd Wallet say’s the will outsave previous generations

Regardless of the fact that Millenials are paying more bills than their parents, and facing a much higher cost of living, they still lead when it comes to savings and retirement plans. Given that most millennials have between 20 to 40 years before they retire – there is plenty of time for that money to grow. This is a very smart financial decision on their part.

 

 

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.

Now Creative Group October 6, 2017 No Comments

Stress Tests May Squeeze Homebuyers

Home buyers could lose a quarter of their home buying power if federal officials get their way in establishing guidelines to prevent people from borrowing too much. Federal officials are proposing stress testing uninsured mortgages. Uninsured mortgages are ones with a 20% minimum down payment. The government is wary about the financial sustainability and serviceability of these mortgages if interest rates rise.
If stress testing becomes a norm, it will reduce the ability of Canadians to borrow money and take on mortgage debt, and will place enormous pressures on an already pressured market to respond. Developers will see their pool of potential customers decreased, and demands for cheaper housing, which is already high, will continue to increase.
The federal agency responsible for stress tests in the financial system is the Office of the Superintendent of Financial Institutions (OSFI), located in Toronto with offices around the country. OSFI’s mandate is to ensure that risk and contagion in the financial system is a low as possible. One particular area of concern has been the long-term reality of low-interest rates and their impact on mortgage insurance, banks, overall debt in the country, and the stability of the financial system.
While many recent changes to regulation, down payment standards for housing purchases, and interest rate increases have added stability and cooled what was an inflamed market, OSFI continues to work towards tougher and tighter standards in anticipation of future market risks. When recently questioned about the state of the housing market and the need for tougher measures, Federal Finance Minister Bill Morneau made the point that he felt enough had been done and that further action was not necessary for the time being.
With future interest rate rises on the horizon and the possibility of stress tests, it is clear that regulators are weary and vigilant about the potential risks to Canada’s housing market – a market that has become crucial to economic activity and the livelihoods of hundreds of thousands.

Now Creative Group October 2, 2017 No Comments

How Millennials Can Prepare for a Real Estate Investment

If you’re a millennial thinking of venturing into the real estate world, there’s a few things you need to learn about before taking your journey. You might be already drowning in student debt, and generating low income, however, knowing how to make your process easier will ultimately help you stress a little less and reach your goal a lot faster.

Think about long term property value

The first step you can take is to do your research and to find a location that matches affordability with long term equity (value) growth potential. Once you figure out where you would like to see yourself living, plan around it. Find out about the local community, restaurants, malls, gas stations, neighbours and school districts. Setting a goal for yourself will not only help you narrow down where you want to live, but make your agent’s job easier in finding what you’re looking for.

Increase your credit score

There is a good chance that your credit score may not be as good as you would hope for it to be due to student loans, job insecurity, or unstable financial circumstances. If you plan on making your purchase within the next few years, it would be a good idea to spend the time leading up to it building a good credit score. Money lending officers will scrutinize your credit score and decide whether giving you a loan would be a good fit for them. Spend some time planning your finances and learn to discipline your spending habits.

Save up

Saving up could be a challenge especially if you are a millennial with student loans. But being able to save can be a testament to your self-restraint and what you can accomplish when you set your mind to it. Taking out a percentage of each of your paychecks and stashing it away, paying off high-interest loans first, making bigger minimum payments, and spending the rest on necessities will help you save a lot quicker.

Know the market

Start out by knowing your budget and how much you’re willing to spend on your home. Match this budget to what your desired location of stay is and work around it. Learn about how long it takes the houses in that area to sell, how many times they’ve been sold, and if the price ever drastically changed. Knowing all this information will validate which home will be the best investment.

Now Creative Group September 18, 2017 No Comments

After the Rate Hikes

The Government of Canada is carefully examining the effects of two rapid Bank of Canada rate hikes on the economy, the real estate market, and consumers. The immediate impact of the hikes saw prime mortgage rates increase across the entire spectrum in Canada, with variable rate mortgage holders affected the most. The rate hikes will likely slow down economic momentum, cool the housing market, and encourage consumers to keep on eye on their borrowing and spending habits – which were the intentions of the rapid hikes to begin with.

The economic data to be released in the next few weeks will likely influence the Bank’s decision on rates in October. There is a strong expectation that the Bank will likely increase rates again, as its position has become very hawkish. If the economic and real estate data is exceedingly poor and falls flat of baseline expectations, the Bank is likely to send warmer signals to the market that it will take its time on rates and raise them in a more gradual way over the medium to long term.

Governments around the world are very sensitive to interest rates. Increases that are too fast and too significant can significantly dampen economic growth and can spawn considerable resentment and unpopularity amongst voters. One of the key indicators of a government losing an election is the trajectory of interest in the run up stages. Federal Finance Minister Bill Morneau did not appear to voice his intention or opinion to act further on cooling the housing market. Interest rates in Canada are set by the Bank of Canada, which is fully independent of the government and which has complete and total purview over monetary policy.

Now Creative Group September 5, 2017 No Comments

Why Toronto is Immune from a Real Estate Crash

The imposition of a foreign buyer tax, stricter and more comprehensive rules and regulations, higher interest rates, and higher taxes has upended the Toronto real estate market. What was once the most dynamic sellers’ market in the history of the region in February of this year has now shifted in a much more balanced way towards buyers. A market where sellers were seeing double digit price increases and massive demand has been extinguished and now prices and sales are faltering with huge influxes of inventory hitting the market.

The talk now is of where the market will be in the medium to long term. Will prices and demand remain steady, recover, or crash? This is the grand question on the minds of professionals, buyers, sellers, politicians, regulators, bankers, and everyone else interested and affected by real estate. The best way to predict and ascertain the future is to look back to the past. The last time the market experienced a genuine, painful, and widely feared crash was in 1989. At the time speculation was rife, price growth explosive, money reasonably cheap, and demand strong.

But what triggered the ultimate inflection? What was the spark which led to a near decade long depression with a 40% real drop in prices? Ultimately, two factors broke the back of Toronto real estate. The first was a rapid increase in interest rates unveiled by the Bank of Canada to stem the inflation from the cheap money of the 80s boom and the second was a subsequently massive and sudden spike in unemployment. These two forces unleashed the early 90s recession which particularly hurt Ontario and caused 11% unemployment.

For the Toronto real estate market to crash, rates and joblessness would have to soar. The Bank of Canada has little reason to spike interest rates, as inflation is very low, and the economy is stable. Canada’s banks are healthy and sound, prices for many key commodities still remain competitive, and there are several economic sectors which are growing, particularly real estate, high tech, robotics, and advanced services. Leaving out a spectacularly sudden and damaging event, likely offshore, stability remains foreseeable in the medium to long term and jittery observers have little to fear from a full on 1989 real estate crash occurring