Tuesday, April 24, 2018

Monthly Market Figures Reported By GTA REALTORS

Toronto Real Estate Board President Tim Syrianos announced that Greater Toronto Area REALTORS® reported 7,228 residential transactions through TREB’s MLS® System in March 2018. This result was down by 39.5 per cent compared to a record 11,954 sales reported in March 2017 and down 17.6 per cent relative to average March sales for the previous 10 years.

The number of new listings entered into TREB’s MLS® System totaled 14,866 – a 12.4 percent decrease compared to March 2017 and a three per cent decrease compared to the average for the previous 10 years.

“TREB stated in its recent Market Outlook report that Q1 sales would be down from the record pace set in Q1 2017,” said Mr. Syrianos. “The effects of the Fair Housing Plan, the new OSFI-mandated stress test and generally higher borrowing costs have prompted some buyers to put their purchasing decision on hold. Home sales are expected to be up relative to 2017 in the second half of this year.”

The MLS Home Price Index Composite Benchmark was down by 1.5 percent on a year-over-year basis for the TREB market area as a whole. The overall average selling price was down by 14.3 per cent compared to March 2017.

While the change in market conditions certainly played a role, the dip in the average selling price was also compositional in nature. Detached home sales, which generally represent the highest price points in a given area, declined much more than other home types.  In addition, the share of high-end detached homes selling for over $2 million in March 2018 was half of what was reported in March 2017, further impacting the average selling price.

“Right now, when we are comparing home prices, we are comparing two starkly different periods of time: last year, when we had less than a month of inventory versus this year with inventory levels ranging between two and three months.  It makes sense that we haven’t seen prices climb back to last year’s peak.  However, in the second half of the year, expect to see the annual rate of price growth improve compared to Q1, as sales increase relative to the below-average level of listings,” said Jason Mercer, TREB’s Director of Market Analysis.

TREB continues to stress that housing and housing affordability need to be at the forefront of the policy debates leading into this year’s provincial and municipal elections.

“A well-functioning housing market is not only important to ensure that people have a place to live; it is also important because it supports hundreds of thousands of jobs, billions of dollars in spin-off expenditures and billions of dollars in government revenues.  Issues such as the below-average level of housing supply and often inadvisable policy ideas and negative measures such as land transfer taxes, vacancy taxes, speculation taxes and second home taxes should also be thoroughly debated by all candidates,” said Mr. Syrianos.  

Sunday, April 8, 2018

Mortgage renewals in 2018: Prepare for nasty rate surprises

The era of pleasant surprises for people renewing their mortgage is done.

Years of falling interest rates in the aftermath of the 2008-09 financial crisis taught a generation of home buyers that renewing a mortgage is a chance to reduce your payments. Now, we're heading into the first wave of postcrisis renewals at higher mortgage rates.

If you bought your house five years ago and chose a mortgage with the ever-popular five-year term, rate hikes since last summer mean your payments are headed higher on renewal. Competitively discounted fixed five-year mortgage rates today run from 3.19 per cent to 3.59 per cent, depending on your particular home and mortgage details. Five years ago, a comparable rate was 2.74 per cent. The lowest five-year rate widely available in the past five years was 2.44 per cent in mid-2016, according to RateSpy.com.

David Larock of Integrated Mortgage Planners said he's starting to hear from homeowners who are taking in this shift in rates. "I get e-mails from people once in a while to say, if you can get me my old rate of 2.49 per cent, I'd be happy to renew," he said. "I have to break their hearts."

Higher rates are just half the story. New mortgage-industry rules are complicating the process of taking your mortgage elsewhere if you don't like the rate offered by your current lender. Vince Gaetano, a broker with MonsterMortgage.ca, said a lot of people seem to think the new rules applied only to first-time buyers. "Now, they're coming up to their renewals and they're saying, I had no idea this impacted me. I would have planned for this last year."

The new rules require buyers with a down payment of 20 per cent or more to undergo a stress test that ensures they could afford their mortgage payments at the greater of the Bank of Canada's five-year benchmark rate (now 5.14 per cent) or the actual rate being offered plus two percentage points. People with down payments below 20 per cent already faced a stress test, but it was set at the five-year Bank of Canada rate and thus slightly less stringent.

For existing homeowners, the stress tests are a non-factor as long as they're renewing their mortgage with their current lender. If they want to move the mortgage to a different lender, a stress test must be applied. Unless you can pass the stress test, you're likely stuck with your current lender. Mr. Gaetano expects lenders, notably the banks, to use the new rules as an opportunity to become less competitive in the renewal rates offered clients who appear to be less creditworthy. Better rates may be out there, but these clients won't be able to get them.

A recent column looked at how people refinancing their mortgages to add other debts must also pass the stress test now. Refinancing is a popular tactic used by people who are getting overwhelmed by their debts. How popular? Mr. Gaetano said about 80 per cent of his clients who are up for their first mortgage renewal have in the past refinanced as opposed to simply renewing.

The biggest rate shocks will be felt by people who thought they were being prudent borrowers by putting down 20 per cent or more and thus avoiding the cost of mortgage-default insurance. This insurance makes a mortgage more attractive to lenders because the equity built up in the house means they won't lose money if borrowers can't repay what they owe.

That competitive 3.19-per-cent, five-year fixed rate mentioned earlier is for people who started with a so-called high-ratio mortgage, where the down payment is less than 20 per cent, and/or for those who have a mortgage that is less than 65 per cent of the current value of their home. Also, the purchase price had to be below $1-million. The best rate applies here because the mortgage is insured against default.

Expect rates in the area of 3.39 to 3.59 per cent if you're renewing a mortgage of between 65 per cent and 80 per cent of the home's current value (for example, a couple that put down 20 per cent at the time of purchase several years ago) and/or had an original purchase price of $1-million and higher. The same applies to people who are refinancing when they renew.

If years of declining rates have reduced the motivation for homeowners to shop around for a mortgage deal, Mr. Larock expects that to change this spring. "If their costs are going up, a lot of people are going to be more inclined to see what else is out there."

Sunday, April 1, 2018

Ontario's best investment hubs this year

A new report from independent research think-tank Real Estate Investment Network (REIN) ranked Ontario’s largest metropolitan areas by real estate market performance and suitability for investment over the next 5 years.

In terms of growth, diversity, and fundamental strength, Ottawa came out on top of the wide-ranging survey, which looked at multiple factors including economic health, employment numbers, GDP and population growth, housing prices and overall affordability, rent and vacancy rates, and several others.

REIN ranked the following cities in order of their housing market strength and potential performance over the next half-decade:
  1. Ottawa
  2. Kitchener -Waterloo-Cambridge
  3. Hamilton
  4. Barrie
  5. Brampton
  6. Durham Region
  7. Toronto
  8. Kingston
  9. Orillia
  10. Grimsby and St. Catharines
REIN also cited the following cities as honourable mentions, in no particular order:
  • Milton
  • Niagara Region
  • London
  • Thunder Bay
  • Vaughan
  • Chatham

Saturday, March 10, 2018

Most Buyers Won't Delay Despite Rate Rises

The recent increases in interest rates appear not to have dampened the intentions of most Canadian home buyers.

Just 1 in 4 surveyed for CMHC’s 2018 Prospective Home Buyer Survey said that an interest rate would make them very likely to delay purchasing a new home.

However, the tight inventory in some markets is likely to delay home purchase with more than 40% saying they would wait to find the ideal home and a similar share willing to compromise on the size and location.

All groups of prospective buyers would prefer a move-in-ready home or a newly built one.

While many are not put off, the tighter mortgage regulations and interest rate rises were not a top motivator for their purchase; most respondents cited better accessibility and investment as their top motivators.

“The Survey findings provide insights and valuable information for mortgage professionals about their future clients and their needs,” said Nathalie Fredette, Vice-President, Client Relationship Management. “It brings awareness amongst the industry and contributes to financial literacy by helping Canadians make informed and responsible home buying decisions.”

Most respondents will finance their home purchase with a mortgage – especially first-time buyers – with a downpayment saved 1 to 2 years before purchase. 

Wednesday, March 7, 2018

Capacity Issues Revealed in GTA Condo Report

Condo developers in Toronto are under extreme pressure to deliver more units as demand continues to escalate.

An assessment of the market from Urbanation reveals that 35,074 new condos were sold across the GTA in 2017, rising sharply from the 26,893 sold in 2016.

Absorption hit record highs (84% of units launched were sold by year-end) and demand from investors escalated even as prices jumped 33% year-over-year to $876 per sq ft in Q4.

Unsold inventory was down to below 8,000 – it hasn’t been that low since 1999 – but completions dropped to a five-year low of 13,513 units in 2017, with only 62% of units that were scheduled for delivery last year reaching occupancy.

“While the results for 2017 prove how remarkably strong demand can be for GTA condos, the level of activity underway is putting the industry under tremendous pressure to push the units through the development cycle”, said Shaun Hildebrand, Urbanation’s Senior Vice President. “A more sustainable pace of roughly 26,000 sales is likely in store for 2018.”

Urbanation’s calculations show that speculation dropped in 2017 from 4% of units bought and sold within 12 months in 2016, to 2.9% by the end of 2017.

Sunday, March 4, 2018

Monthly Market Figures

Toronto Real Estate Board President Tim Syrianos announced that Greater Toronto Area REALTORS® reported 4,019 residential transactions through TREB’s MLS® System in January 2018. This result was down by 22 per cent compared to a record 5,155 sales reported in January 2017.

The number of new listings entered into TREB’s MLS® System amounted to 8,585 – a 17.4 per cent increase compared to 7,314 new listings entered in January 2017. However, it is important to note that the level of new listings was the second lowest for the month of January in the past 10 years.

“TREB released its outlook for 2018 on January 30th. The outlook pointed to a slower start to 2018, especially compared to the record-setting pace experienced a year ago. As we move through the year, expect the pace of home sales to pick up, as the psychological impact of the Fair Housing Plan starts to wane and home buyers find their footing relative to the new OSFI-mandated stress test for mortgage approvals through federally regulated lenders,” said Mr. Syrianos.

The MLS® Home Price Index Composite Benchmark was up by 5.2 per cent year-over-year. This annual rate of growth was driven by the condominium apartment market segment, with double-digit annual growth versus the single-family segment, with prices essentially flat compared to last year. The overall average selling price was down by 4.1 per cent year-over-year to $736,783. This decline was weighted toward the detached segment of the market. In the City of Toronto, the average selling price was up for all home types except for detached houses.

“It is not surprising that home prices in some market segments were flat to down in January compared to last year. At this time last year, we were in the midst of a housing price spike driven by exceptionally low inventory in the marketplace. It is likely that market conditions will support a return to positive price growth for many home types in the second half of 2018. The condominium apartment segment will be the driver of this price growth,” said Jason Mercer, TREB’s Director of Market Analysis.

“With the City of Toronto’s Executive Committee meeting today to make recommendations on the City’s 2018 Budget, City Councillors would be wise to note the vast difference between last January’s real estate market and this January’s, given the City’s inadvisable reliance on the Municipal Land Transfer Tax. The amount of revenue that the City generates from this tax goes up and down with the real estate market. The last year should be a wake-up call for City Council. They should heed the City Manager’s ongoing warnings of over-reliance on this tax. The Land Transfer Tax is not a good way to fund municipal services,” said Syrianos.

The revenue generated by the Municipal Land Transfer Tax is based on the number of real estate transactions and the value of those transactions. When the MLTT was first implemented in 2008, it made up less than 2% of the City’s operating budget. Today, it makes up 7%, a 250% increase.

Tuesday, February 27, 2018

GTA condo rental prices soar as demand outweighs supply

The construction cranes seem to be everywhere you look in downtown Toronto, but finding a condo to call home is becoming increasingly more difficult, and costly, for a legion of desperate renters.

Recent statistics compiled by real estate consulting firm Urbanation show rental costs have spiked in tandem with a sudden supply shortage.

According to its annual report, condo rents in the Greater Toronto Area have risen nine per cent in the fourth quarter to an average price of $2,166. The average monthly price was even steeper in downtown Toronto at $2,392.

But it also appears more people are staying put in their condos, and a large number of construction projects remain incomplete, leaving fewer units available to renters.

“Lease activity declined in 2017 to 8.3 per cent, the lowest level of condo rental turnover since 2013,” Urbanation said. “Lower condo rental supply in 2017 was the result of an increased share of units resold as investors took advantage of quickly rising condo prices, as well as a decline in new project completions to a four-year low.

“At the same time, high rent levels and new rent control regulations are leading tenants to move less often, further reducing available supply.”

But Urbanation believes the supply issues will embolden developers to continue building at a rapid pace.

“Persistently strong rent growth throughout 2017 was simply the result of demand fundamentals for renting far outweighing supply” said Shaun Hildebrand, Urbanation’s senior vice president.

“This has raised the confidence of developers to add more units to the pipeline, a trend that will need to continue in order to meet future housing needs for the GTA.”

Here are some of Urbanation’s key findings.
  • Average monthly rents grew by 9.1 per cent year-over-year in the fourth quarter to $2,166.
  • Per-square-foot rents increased by 5.8 per cent to $2.93, marking a slower rate of growth than previous quarters due to compositional changes from a shift in activity to the suburbs.
  • The number of units leased in the fourth quarter fell 11 per cent annually as listings dropped 16 per cent.
  • Supply has been weighed down by low condo completions and reduced rental turnover rates.
  • The average length of time between lease transactions increased to a high of 23 months.
  • The share of units leased through companies as opposed to individuals was 10 per cent in the fourth quarter.
  • Rents for available purpose-built units built since 2005 grew 10.8 per cent, with vacancy of 0.3 per cent.
  • Rental development increased to a two-decade high of 7,184 units under construction

Wednesday, February 21, 2018

Luxury living here to stay

Coming off a strong showing in 2017, luxury real estate markets in Canada’s three largest cities will remain robust this year, according to Sotheby’s International Realty Canada’s Top-Tier Real Estate Report.

Sotheby’s President and CEO Brad Henderson says that with strong projected GDP growth in Toronto and Vancouver, there will be a strong absorption of luxury properties.

“Luxury properties in great locations will always be in demand,” Henderson told REP. “There were strong, stable prices over the last year and I expect that will continue over the coming year. GDP growth in Vancouver and Toronto is expected to be well over 2.5%, so it should continue strong in both markets.”

Activity in the GTA’s top-tier condominiums market last year outpaced all other Canadian markets, both in percentage gains and volume. Sales in the region’s million-plus category were up a whopping 59% year-over-year, and even more impressively, sales for $4mln-plus homes were up 91%.

“When we saw the actual statistics, what we were surprised at is how resilient condos were in Toronto in the face of the Fair Housing Plan,” said Henderson.

Sales in Vancouver’s luxury condo market weren’t up quite as high, although the 27% year-over-year increase in 2017 was still robust.

Montreal has been riding a high the last couple of years, and there’s nary a reason to believe that won’t continue in 2018, according to the report. While activity has been overshadowed by Toronto and Vancouver, where growth is beginning to taper, the Quebecois metropolis is enjoying an ascendance it hasn’t seen in years.

“Montreal is going to continue to be a very healthy market,” said Henderson. “When you compared it to Toronto and Vancouver in the past, it always looked like a comparatively slow-growing market. But that was always comparing a relatively healthy market with markets experiencing hyper growth. Toronto and Vancouver are retrenching, but Montreal’s standing out as a strong performer. Expect it to continue on over the next couple of years with upward pressure on price.”

Henderson says 2018 will be a strong year in Calgary, where GDP growth is expected to surpass 3%, suggesting the worst is behind the city. Henderson

“I would think that’s most people’s views, and what we’ve seen, is better quality properties in better quality neighbourhoods have responded first and fastest, and that will have allowed other properties to come along with them,” he added.

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