Rental Housing, We Need It

The rental vacancy rate in Toronto is at a record low of 1.1%. In other words, there are few, if any, vacant rental units available in the rapidly growing city. Prices for a bachelor apartment now exceed $1,500 and condo rent is also rapidly increasing to reach $2,000 in many cases. The lack of affordable rental housing, once plentiful, consistently built, and widely appreciated in Toronto, is crunching and distorting the real estate market. From the 1950s to the early 1980s, rental apartments were consistently and routinely built. Much of the existing rental stock was built in the 1960s.

Why Building More Rental Housing Is A Good Idea

There are many financial disincentives to building rental housing. Permits are hard to come by, government intervention has interfered in building plans; mandating certain number of affordable units, and it is easier and more profitable in the short term to rapidly sell newly built condo units. Rent control measures recently introduced by the outgoing Liberal government in Ontario will make disincentives to build rental housing greater as it adds red tape to removing troublesome, potentially costly tenants. The new PC government will maintain these rent control measures, but also have the opportunity to introduce measures to spur new rental housing development.

Are We Paying Too Much To Rent?

Tenant organizations and groups have released polls showing that over half of Toronto rental tenants are reporting that they feel that they pay too much in rent. More affordable rental housing will help young millennials, student, and families save for an eventual condo and house purchase. It will also take some pressure off the condo market, under huge pressure to meet demand which is showing no signs of abating. Most housing experts believe that a heathy rental vacancy rate should be from 3-4%, four times present levels.

top ten median rent across canada

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.

Toronto’s Condo Market Crackles On

As Tembo previously reported in its newsletter and past blogs, the Toronto condo market is undergoing a massive upsurge in activity and dynamism. In the last 20 years, Toronto’s real estate sector has enjoyed tremendous growth in activity, prices, and supply, especially in the form of condos. The city’s previously impressive skyline is now on track to surpass many American megacities traditionally viewed as architecturally and structurally more imposing, such as Chicago’s. A huge number of the new skyscrapers and high rises built in the city are condo buildings.

New figures show astronomical price increases in many Toronto neighbourhoods, particularly in Scarborough, where some prices increased over 60% from a year ago. As the price of detached homes continues to steadily increase with demand remaining strong, many first-time buyers continue to turn to the condo market to begin their respective real estate journeys. Despite a vast slew of new factors impacting the market, condos continue to be available in strong numbers and are far more affordable than detached, semi-detached homes or townhomes.

The most dynamic price growth was seen in much of Scarborough, north-west Etobicoke, and along the downtown core and lakeshore areas of the city. While 20-40% price growth was common throughout the city, it is important to note that base prices a year ago for many condos in the city’s periphery were very low, partially explaining the explosive nature of the price increases. Prices increases were most modest in the city’s midtown area.

The supply of condos continues to increase and generally is meeting demand as approvals and new construction continues to improve market supply. Another important factor is that many millennials are now in a position to afford an entry into the real estate market, and are turning to condo purchases to start building equity. Investors, foreigners, and retired, affluent baby boomers are also buying condominium units.

An ever-healthy housing market

Despite a fall in sales and a slowdown in prices, the fundamentals underpinning the Toronto housing market remain strong. The impact of a recent rate hike and a slew of measures at the provincial level, largely a 15% foreign buyer tax, have cooled what was once the most dynamic seller’s market in GTA and Southern Ontario history. New data released shows two important trends that underpin the stability and long term strength of the GTA housing market.

The first is that mortgage delinquencies are now at a record low and continue to fall. Data released by Equifax Canada shows that mortgage delinquencies have been falling in Canada, and large banks, like TD, report extremely low rates of default and delinquency. Another important and positive statistic has been the fact that home building has now been found to exceed demand in Toronto. For many years, industry groups, real estate professionals, and some politicians and economists have complained that not even housing stock was being built and that the government should be providing more incentives for builders to develop.

Recent data shows that between 2011 and 2016 there were 146,200 new households in Toronto, compared to the 175,825 homes that were built. This shows that housing supply exceeded established demand by over 30,000 units. While the supply of single detached homes in Toronto remains largely fixed due to space constraints, the latest census data shows that home supply has kept pace with home demand for many years. This proves that the GTA real estate market is adept at responding to the signals of demand and supply.

While having decreased month over month marginally, prices in Toronto are still significantly higher today than they were a year ago. The condominium market is on fire in Toronto, with double digit price and sale increases recorded in the last few weeks. Many realtors are predicting that the double whammy impact of a 15% foreign buyer tax and a small interest rate hike will temporarily cool the market before it heats up again, as was the case in Vancouver. Overall, the Toronto housing market remains rock solid.

Predicting The Future Canadian Housing Market

The Canada Mortgage and Housing Corporation is predicting that the fall in sales and property prices for the Greater Toronto Area will soon come to an end. CMHC pointed to the recent history of the Vancouver market, where a foreign buyer tax had a strong impact in reducing prices and sales volume but where the market quickly recovered. Prices and sales in Vancouver are now higher than before the foreign buyer tax was implemented. The CMHC believes Toronto prices and sales will also rebound in the medium term.

Interest rate increases have exacerbated the slight slowdown in the GTA market but were expected and anticipated. Further interest rate increases before the end of the year and next year are also being factored in by consumers and real estate professionals, and have been hinted at repeatedly by the business press. Canadian banks already have very high standards for issuing mortgages, and so interest rate increases should not come as a shock and are unlikely to dissuade the best prospective home buyers from being approved. Canadian banks’ strict regulations and tight monitoring see them enjoy exceedingly low default rates on multi-billion dollar mortgage portfolios.

In terms of prices, the average condominium cost in Toronto has now hit $500,000.00. While overall prices have declined slightly, the picture is not uniform throughout the city, with some neighbourhoods recording slight price drops and others recording price increases. Realtors are still reporting a tough environment in which to sell but also continue to remain optimistic for the long term. The factors which saw the Vancouver market recover so strongly were its strong, underlying fundamentals. A strong economy, limited space for building, a robust international reputation and great weather all propelled the real estate market back. Toronto enjoys many of the same strengths; limited supply, a strong economy, and a solid international reputation.

If the Vancouver story unfolds in Toronto, prices and sales will recover and potentially exceed pre-foreign buyer tax levels.

Tembo Tips: Save on your Remodel

Tembo Financial offers equity advances so you can receive the proceeds of your sale before your closing date. This service helps homeowners purchase a new home faster, assist with moving costs, or even help pay for a vacation or new car. But did you know that you can use advance financing services to help with renovations? Renovating can help increase the value of your property, or can help turn your new fixer-upper into your dream home. Here are a few tips that can help you save when you’re renovating your home!

Increase Efficiency, not size:

Re-organizing and equipping your kitchen or bathroom can help you avoid blowing walls to gain additional square footage. Consider which type of storage is most efficient for space, from lazy susans to vanity mirrors, you don’t need to compromise storage for aesthetic. The best of both worlds is attainable if you maximize your space and research thoroughly!

Donate your trash:

Invite your local Habitat for Humanity chapter to your home before renovating. They can help you remove fixtures and materials for later resale. You will save money on Junk Removal services, you will receive a charitable tax credit, and you are engaging in a good cause! Additionally, this is a much more eco-friendly way of renovating, as you are avoiding sending your junk to a landfill.

Long Term Savings vs Short Term Gains:

Even when it comes down to the type of paint you’re purchasing, consider the long term savings vs the short term savings. Will you need to replace it in the next couple years? If the long term costs exceed the current savings, consider splurging a little bit. You will save in the long run.

Auctions:

You can often find building supplies at a local auction for half the price of the retail cost. If you’re planning on building cabinets, this would be a great place to search for supplies. Home centers will increase prices to cover some of the overhead costs. These extra costs can easily be avoided.

Whether you’re planning on a full home renovation or a small project, Tembo Financial has various financing options to meet all of your home improvement and lifestyle needs. 

Moving towards a buyer’s market?

As Tembo outlined in our previous blog post, several trends were beginning to emerge in the GTA real estate market which benefits buyers. The first was that prices were beginning to plateau, with increases not nearly as large as the preceding few months. Secondly, listings of new properties were rapidly increasing, quickly improving the historically low stock of housing. And third, sales were beginning to slow down, and in some cases, decline.

With early June data now available, many of these trends are continuing. In Oakville, for example, prices have dropped by 9% in the month of May with sales also dropping a whopping 43%. In the GTA, listings continue to increase even as sales are declining and prices are leveling out, also new data shows that housing stock is returning to historical averages after years of extremely tight supply.

The sales to new listings ratio, a measurement of the new number of overall sales compared to the number of new listings have also dropped below 40% for the first time in many years. This shows that supply is increasing and demand is falling. A 40% sales to listings ratio means that for every 100 new houses listed, 40 have sold. 40% is considered balanced and usually implies that prices will increase, but modestly in the single digits. With a drop below 40% appearing to now be the case, the market appears to have begun to shift steadily from a seller’s market to a buyer’s market.

These trends are likely to continue. Supply will continue to increase and will most likely exceed historical trends soon. The huge demand for housing has incentivized builders and governments to stimulate housing construction. The Canada Mortgage and Housing Corporation recently released data showing single family detached home completions in the city of Toronto increasing by almost 5,000 units. Many new condos and townhouses are also nearing completion or under construction. Supply will continue to increase.

The key question is what will happen to sales and demand. If sales trends continue, demand will begin to fall. The result of increased supply and cooling demand will be downward pressure on prices. In the end, the market could end up providing two factors buyers love; plenty of supply and lower prices.

A More Balanced Housing Market

The latest Toronto real estate news reveals changing patterns. On the one hand, prices have tumbled slightly but are still 15% higher than this time one year ago. More and more home owners are listing their houses for sale on the market, with the latest figures showing a record breaking 42% increase in listings in late May. At the same time, the number of sales has dropped by over 20% and the amount of housing inventory is at almost generational lows despite the flood of new listings.

There is increasing downward pressure on prices in the market, and the average house price fell by 6% from April to May. Prices are beginning to dip because of a slowdown in sales and an increase in supply. The sales to listings ratio of Toronto housing (ratio of demand and supply) has been decreasing from record highs, this means that there are fewer sales and increasing listings on the market. The present ratio is now 39.5% as of May, which means that 39 houses were sold for every 100 new listings on the market. This is considered balanced, in that both buyers and sellers are benefitting, without one of the two groups in an over-advantageous position.

If present trends continue, prices could plateau overall or begin to increase at much more marginal levels than was previously the case. In Vancouver, a foreign buyer tax resulted in large prices declines, but those declines have been reversed and prices are now higher than ever. It would not be impossible for a similar long-term impact to occur in the Toronto market. Enhanced market balance will improve the health of the housing market and will assist those individuals who have long wanted to buy real estate and who couldn’t afford prices, were nudged out in aggressive bidding wars, or who weren’t happy with the buying options presented to them and wanted more choice.

 

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!

Land values surging in the GTA

In another sign of how strong and resilient the GTA’s real estate market is, housing suppliers are having trouble accessing land to build properties on because of incredible competition and strong demand from builders, developers, and construction companies. The cost of a single-family lot in a cheaper Toronto neighbourhood now averages some $500,000.00. Similar lots outside of the GTHA could cost from $100-150,000.00.

Government thirst for tax revenue has also increased land prices as development charges and fees have been steadily increasing over the past several years. While Toronto development charges are fairly low for regional standards, averaging roughly $25,000.00, other municipalities more dependent on real estate and development for their revenues charge much higher fees than Toronto. Prices for commodities such as concrete have risen, along with the costs of skilled labour, which are in very high demand, particularly in the condo construction side of the market.

While the prices of most housing continue to increase, albeit not as aggressively as before the government implemented a 15% foreign buyers tax and Home Trust ran into trouble, land prices are continuing to increase rapidly.

Land prices won’t be coming down anytime soon. The government of Ontario has been implementing comprehensive policies to restrict land for agriculture and greenspace for many years now. The hallmark policy along these lines has been the famous Greenbelt, which locks out housing development from a massive belt of land on the outer periphery of the Greater Toronto and Hamilton Area. Additionally, the government is imposing new rules on developers and builders, forcing them to build a greater proportion of residential housing in existing neighbourhoods as opposed to new subdivisions.

Farm land values in Ontario increased by over 155.5% from 2005 to 2015. This was the second highest increase in value in the country, overtaken only by Saskatchewan, where prices increased by over 200%. The average price of an acre of prime southern Ontario farmland is now just over $10,000.00.

Take advantage of a sizzling seller’s market

New taxes on foreign purchases, the start of the red hot Spring listing season, and continuously increasing demand for housing is reinforcing the GTA’s already rock solid seller’s market. The number of new listings has increased massively as of April 2017, with the latest figures showing a 33% upswing.

Homeowners who were previously reluctant to sell are now doing so in large numbers, recognizing the huge windfall potential of this historic market. For the time in many years realtors are reporting huge floods of new homes on the market which means more choice, flexibility, and less worry for buyers. Many buyers who have lost out on ferocious bidding wars and who have been waiting to buy will find it much easier to do so today and in the future.

As Tembo has previously written in a past blog, this is the best seller’s market in the history of the GTA. Never have low interest rates, a stable economy, and massive demand coincided with such force before.

If you are a homeowner looking to sell your home for a maximum return, this is time to do so. If you plan on closing a sale several months off into the future and need a deposit to purchase a new home or to downsize right away, Tembo can help. We provide equity advances on your sold property, so waiting for your closing date to get your money will now be a thing of the past. We do equity advances quickly, efficiently, and with the best customer service. We can have your funds ready in as little as 48 hours. Tembo takes the worry out of waiting for your money.

If you want to sell but realize your home could use a renovation to boost your sale price, Tembo can help. We offer short term loans for renovations, can provide the funds fast, and can help you see an even bigger return in this supercharged market. Studies show that a $25,000.00 renovation can increase the sale price of a house by over $100,000.00.

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!