The History of Home Prices in Toronto

A few generations ago in the halcyon golden age of 1950s prosperity in Toronto, family homes were incredibly cheap. With newfound post-war home loans for returning GIs, abundant land for development, and a rip-roaring economy, young couples were blessed with plentiful real estate opportunities. The disparity in prices to what is considered average today is mind-boggling. Using the handy Bank of Canada inflation calculator, this blog post will outline decade by decade house transactions to show the state our prices over time. 

Late 1950s

A couple buy a home in midtown Toronto for just over $30K, adjusted for inflation this comes to $130K in today’s dollars. The house is two stories, detached, in a fairly large lot in the Davisville and Yonge area, and considered suburban at the time. (The area of Forest Hill was developed in the 60s and 70s, and was well outside the city’s limits at the time). The house was sold a few years ago for $1.6 million, more than 50 times the purchase price. At the time, a $30K purchase was considered high end, given normal suburban homes in North York, East York, and Scarborough averaged $15-17K at the time. Bidding wars were unheard of, paperwork was minimal, and property taxes were low. 

1960s 

By the late 1960s home prices had risen, but modestly. The average price was in the mid 20K range, or 180K in today’s dollars. Couples could buy comfortable family homes just outside the traditional city core for prices in the high 20K range. Price increases were much more modest and organic then the fluctuations we’ve seen in the last 10-20 years. At the time the economy was not as financialized as it is today, and credit and money supply growth was much more constrained. Throughout the 1960s, homes generally sold for less than 200K in today’s dollars. 

1970s

A similar picture as the 1960s, but with slightly stronger price growth and some fluctuations. Average prices were in the 30-40K range. 

80s

The financialization of the economy took off in the 1980s, and loosening credit and a big stock market boom stimulated a concurrent real estate boom. The late 80s boom was felt worldwide and in almost every economic indicator, Toronto real estate saw incredible growth in that time. But it all ended in 1989. 

90s and transition to 2000s and present

The 90s were a difficult time as interest rates were very high and the bursting of the 80s bubble took its toll. Only by the late 90s, as rates had come down, the dollar had gone up, and prices had recovered, did the seeds of our current boom truly begin to sprout. The rest, as they say, is history. Only 2007-2009 saw a slight blip in the pace of price increases, the rest of the period from the early 2000s to the present has seen rapid price growth. 

Stress Test Relief!

There’s a very big real estate story that isn’t getting much widespread coverage in the community. When federal regulators announced the unveiling of tighter rules on uninsured mortgages and mortgages with down payments of less than 20 percent, the market sputtered.

The move was designed to clamp down on risky mortgages, tighten confidence in the housing sector, and to cool a market that was literally on fire. The tests required that borrowers needed to prove they would be able to manage the costs of their mortgage if rates were to rise. Experts believed the move single handedly knocked out 10% of prospective buyers from having a shot at sealing the deal on a home purchase. We’re talking about tens of thousands of people, at the least. The stress tests were praised by experts, economists, and some bankers but were lambasted by the real estate lobby and politicians. 

After almost a year of criticism and calls for reform we finally have some relief. The rate at which a mortgage holder has to qualify being able to pay for has now gone down from 5.43% to 5.19%. While not a significant change, it will have an impact on those prospective buyers on the margin. Some experts believe that the continuation of a lessening trajectory could have a significant impact on the market, with as little as a further 0.50% reduction lifting thousands into home ownership. Tim Hudak, CEO of the Ontario Real Estate Association asked for federal regulators to restore 30 year insured mortgages, to further ease stress test rules for new homebuyers, and to scrap the requirement that those who change their lender on an existing mortgage have to also pass stress tests. With an election rapidly approaching, don’t be surprised if further loosening of these rules continues, real estate has been repeatedly polled as one of the biggest concerns on peoples’ minds.

 

Finally, when Canadians were asked to pick which city they would own real estate in, the result, quite strongly, was Toronto! That’s right, our city is seen by most average Canadians as the best place in the country in which to own a home. Despite Vancouver’s beautiful natural environs, great weather, and lack of winter blues, and Montreal’s thriving cultural scene, affordable prices, and great food choices, Toronto still won out. Unfortunately for those polled, rents and home prices continue to rise in the city, with one metric showing that the price for two bedroom and one bedroom units is effectively the same. The demand for ANY space is so great that it doesn’t matter how many bedrooms it has. This summer continues to deliver positive news on the real estate file. 

Thaws, Rebounds and Real Estate Leaders

In our last blog, Tembo expressed optimism and positivity over the latest real estate stats in Toronto. Sales did well in April, and the amount of listings of new homes rose sharply.

 

Analysts were particularly optimistic over the rise in prices, which went up for two consecutive months. This combination of successively positive data suggest a healthy underlying market and the potential for growth and opportunities over the summer. Toronto’s market continues to dominate Canada’s housing sector, with almost as many homes sold in our city as Montreal, Calgary, and Ottawa combined. Positive expectations for increased demand, sales, and higher prices over the next few months are not without merit.

From May 20-23, Toronto will host Collision, one of the pre-eminent technology and AI Conferences in the world. One of the highlights of this Conference has been the focus on the growth and dynamism of tech. job growth in the city. Over the last 5 years Toronto has created more jobs in the tech space than any other urban area in North America, including mighty Silicon Valley. All of these young tech. professionals will need quality housing in the city and the amount of FDI (foreign direct investment) going to tech is expected to grow ever more rapidly in the next few months and years. This will be a big boon to housing. Economic growth in the city is projected to continue growing in real terms (above inflation), and immigration is growing, not slowing. These two macro trends suggest overall demand will continue rising.

On a final note, Toronto’s leadership in the real estate space continues to be cemented internationally. The biggest real estate company in the world is Brookfield Asset Management. It leads all of its peers in sales, amount of assets, and is extremely competitive in terms of the profits it generates. Separately, the volume of condo projects being built in Toronto and the GTA continues to build up. Chinese developers are building major condo towers in Scarborough, Newmarket is seeing its first major condo development in over 30 years, and Peel Region continues to see the ambitious condo projects underway. 

Bully Bids and Bans

Ontario’s powerful realtors and their respective lobbying vehicle, the Ontario Real Estate Association (OREA) have asked Doug Ford’s provincial government to outlaw the practice of ‘bully offers.’

A bully bid is an offer submitted by a prospective buyer ahead of a seller’s established offer time. These bids are largely designed to aggressively pre-empt purchasing activity from other potential buyers and to place pressure on the seller to accept. This aggressive bid is submitted before the designated offer day. Sellers accept the bully bid if they believe that it will exceed what they will get conventionally. 

The practice can occasionally result in one buyer out-muscling potential counterparts and entices a seller to close a deal quickly without reviewing and considering other potential bids. The move is seen as unfair and limiting to realtors, who have little room to bid up prices if only one bid is submitted and ultimately accepted. Realtors also feel banning bully bids would enhance fairness in the market and allow all prospective buyers, or at the very least a greater number of them than present, will be allowed to participate in bids. OREA submitted 28 recommendations on reforms to their profession to the government which is currently reviewing the Real Estate and Business Brokers Act; the landmark legislation governing real estate professionals.

OREA is headed by Tim Hudak, the former Leader of the now governing PC Party of Ontario. The organization is heavily staffed with politically minded employees and is close with the present administration and enjoyed reasonable ties with the former Liberal Government. Several PC lawmakers and government staffers are former realtors and the government is keen to develop and maintain strong ties with realtors, developers, and the construction industry. These groups have heavily bankrolled the PC Party in the past. 

 

This Year’s Federal Budget

Budget 2019 is the final Liberal budget before this year’s election. It outlined billions of dollars in new spending to please key Constituencies across the country. The Federal government has seen its revenues rise by over $10 billion from a strong and growing economy and wasted no time in maintaining its deficit figures and boosting outlays.

The budget does, however, deliver major initiatives designed to address housing anxieties, this blog post will discuss those measures.

 

First time home-buyer incentive program

The Feds have announced a $1.25 billion first time home buyer incentive program. Households with less than $120,000 in income will be able to receive up to 10% of a home’s down payment interest free from the CMHC (Canada Mortgage and Housing Corporation). This amount of money is expected to be repaid on the eventual sale of the home. For a $400K condo, this equates to $40K in government money for a down payment. In other words, the government will provide you with tens of thousands of dollars which will be taken away from the overall equity of the home. This will also lower monthly mortgage payments by roughly $200 a month.

 

RRSP usage

The budget also boost the amount of money a first-time buyer can withdraw from his or her RRSP for a home purchase. Individuals can withdraw up to $35,000, and a couple can withdraw $70,000 for their home purchase. This was the first time this amount was amended in over 10 years. The Feds are aiming to get both the RRSP increase and incentive program initiated and out the door by September.

 

New housing builds

The Feds also announced the construction of over 40,000 new housing units in low-supply areas to be built over the next decade. These units will be rental. This announcement builds on past promises to build more housing and honours the government’s election promise of adding housing stock.

 

On Real Estate Predictions for Spring 2019

It’s hard to predict real estate trends and long term changes. Experts, economists, and real estate watchers will all have their views. Southern Ontario and GTA residents are generally positive about the long term fundamentals.

 

They believe that immigration, a stable economy, and a sound financial system will all facilitate long term growth and general real estate stability. This positivity comes from the fact that since the early 1990s, the real estate market has been on a positive upswing. Only two brief periods saw prices and demand ease, in the early 2000s with the popping of the dot-com bubble, and in 08-09, with the Great Recession.

 

Overall, given the data we now have and the trends we’re aware of, there is little that suggests there will be drastic changes to the real estate market. Expectations suggest that the price growth we saw in the last few years are unlikely to return. Interest rates will remain stable. While the BOC will want to raise rates when necessary, there is the dual pressure of not overwhelming consumers with higher borrowing costs and managing economic expectations.

 

Demand will continue to be strong. Experts are predicting stable or increased demand for luxurious apartment and detached home units as international money shifts out of Australia, the UK, and New Zealand in favour of Canada and the U.S. Condo prices and demand are likely going to trend higher, as detached home prices are still too high for first time buyers. As for prices and sales, both are expected to trend upwards in the Spring. A 30 year fixed rate mortgage is trending at 4.375%.

 

 

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.

Toronto Commercial And Industrial Real Estate Is On Fire

The traditional condo, detached, and semi-detached housing market is in relatively good shape in the GTA. This week, Tembo will focus on another component of the market; commercial and industrial properties.

Toronto Commercial Real Estate
In a few of our past blogs and newsletters, Tembo has outlined that the general trajectory for commercial properties has been positive – with healthy stats; strong demand, high prices and soaring investment. In 2017, commercial property investment hit an all time high. Some of Canada’s biggest pension funds, corporations, firms, and banks invested huge amounts into building, leasing, and buying commercial real estate.

Commercial Real Estate Trajectory Continues

Commercial and industrial real estate availability hit a record low of 3.9% this year, according to the CBRE. Toronto’s availability is the lowest in the country, at 2.2%, even lower than Vancouver’s tight 2.4%. 
Massive socio-economic changes and strong growth are driving the ongoing surge. Warehouses are in high demand, as is real estate that caters to the e-commerce and food sectors. Recently, multinational Amazon announced several large scale warehouse, or Fulfillment Center investments across the country, most notably in Ottawa.
The massive commercial demand has seen the market respond with huge increases in construction activity; a 47% rise from earlier years. In provinces with relatively weak economies and increasing commercial vacancy, such as Alberta, new sectors such as cannabis and e-commerce are replacing traditional ones. Overall, residential real estate will be competing for capital that could be allocated to the commercial sector.
The boom, in all things real estate, continues.

June Was Good to Toronto Real Estate

Sales had their best month in over 14 years as growth hit 18% from June 2017 figures.

Toronto Real Estate Update
Prices rose almost 3%, with the average home now exceeding $800,000. Listings also declined, tightening supply and beginning a trend which will benefit sellers in the long term. Overall, numbers in all respects were positive for both buyers and sellers.

Sellers Are Feeling The Pinch

The very strong data comes at an important time when market watchers and participants could use good news after a very tumultuous period. Real estate is under huge pressure from multiple fronts. New insurance rules, extreme conservatism among banks, a higher interest rate environment, and lack of supply hurt buyers. Sellers are feeling the pinch from government intervention which was designed to deflate sky high prices, and which worked. 

Toronto Condo Market Continues To Soar

The condo market continues to do very well, with prices up over 7.5% on average in the city of Toronto. In all, these positive numbers and the move to a healthier market overall is a strong signal which sheds a light on how resilient the GTA real estate market is. Many experts believe these numbers point to a broader, positive long term trend which will hold for the rest of year as long as macroeconomic indicators remain in decent shape. 
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