Report highlights next year’s real estate trends

Housing affordability continues to dominate the conversation in the Greater Toronto Area’s housing market. A new report released by the Urban Land Institute in conjunction with PwC, called Emerging Trends in Real Estate described governmental regulation as likely to exacerbate the affordability problem.

The laws of supply and demand lie at the heart of surging housing prices. Not only are single-family detached homes in high demand and low supply, but the condo market, too, is beginning to see signs of strain, as priced-out buyers realize they have no other choice to settle for skyward balconies over backyards.

The foreign buyer tax cooled the Vancouver and Toronto markets, where prices grew astronomically, but the report makes mention of suspicious players within the real estate industry, one of whom believes growth will continue with or without the tax because of natural growth. The report also noted that prices cooled temporally before rebounding and pushing condo prices upwards.

Those interviewed by the report parroted the need for government to stay out of the market, except to address the need for increased supply. It’s unanimously believed that the approvals process is one reason supply isn’t keeping up with demand.

Affordability will catalyze a growing trend: co-living. As the number of single people among the millennial cohort in expensive markets like, Toronto and Vancouver, continue rising, they’ll live with roommates out of necessity. While some may live alone, affordability will compel them forego ownership and rent. One in three young adults in Canada lives with at least one parent, and as others marry and look to start families during an inventory shortage, they’ll settle for living in condominiums. According to the most recent Census data, 6.3% of Canadians live in multigenerational households – a number that’s likely to rise.

The ’18-hour city’ is a burgeoning secondary market. Where NYC, London, Tokyo, and now Toronto, are 24-hour cities, the high cost has resulted in an exodus to smaller cities, like Austin, TX, Raleigh, N.C., Nashville, TN, which have grown in vibrancy. Montreal, Vancouver and Calgary are considered 18-hour cities and will continue staking their claim as emergent centres. Previous versions of Emerging Trends in Real Estate anointed Hamilton an emerging 18-hour city, and that’s likely to continue as affordability drives people further from the Toronto core.

Transit infrastructure is integral to attained 18-hour city status, and Hamilton is planning a downtown LRT.

The only condo growth associated with condos in recent years has been their popularity, but they have, in fact, been shrinking in square footage. The need for larger, family-sized condos will likely buck that trend.

Montreal’s rental market is as strong as ever, however, Ontario – already suffering from a shortage of rental units – has reintroduced rent control, much to the dismay of the report’s interviewees, who noted some planned purpose-built rentals rebranded as condos. Ontario’s rental vacancy rate is dangerously low, and it’s expected it could worsen.

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How housing policy is impacting one hot market

The Hamilton market is showing some signs being impacted by Ontario’s Fair Housing Plan, according to recently released statistics.

There were 1,638 residential home listings in August, up 6% year-over-year from 2016’s mark of 1,546. Those listings are 4.2% higher than the 10-year average. Sales, meanwhile, were down 18.2% with a total of 1,086 last month.

That didn’t stop price growth, though, with the median residential home selling for $485,450 – up 14% year-over-year from $426,000.

All of these stats together point to a balanced market, according to the Realtors Association of Hamilton-Burlington.

“The tendency toward a more balanced market that we have seen over the last few months has continued into August,” RAHB CEO George O’Neill said. “The sales to new listings ratio is at just over 65 per cent, which is still in the low end of a seller’s market, but much closer to balance than earlier this year.”

The median freehold home price jumped 13.2% year-over-year and the median condo home price increased 20.9%.

“The median and average prices continued to rise,” O’Neill said. “There had been speculation that with more listings on the market and fewer sales, prices would decrease as a result. That is not the experience in our market area – at least not so far.”

The average days on market increased to 33 days from 27 days for freehold homes and to 29 days from 27 days for condos.

Source: RAHB

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Why we shouldn’t worry about debt-to-income record

One big bank is arguing the debt-to-income ratio is the most “useless economic indicator out there.”

167.3%.

You’ll read a lot about these two numbers in the coming days. That’s the debt to income ratio for all Canadians and it just hit a new high in Q4 of last year.

It’ll be whipped out when arguing against mortgage debt and for policies aimed at safeguarding Canadians from taking on even more debt.

But it isn’t that simple, according to Benjamin Tal, chief economist with CIBC. And the ratio isn’t even that useful.

“The attractiveness of the ratio is that it’s simple —one number catches all. But as we all know, the cost of simplicity is, at times, very high. The ratio compares the stock of debt to the flow of income,” Tal wrote in response to the release of the figure. “You are not required to pay off your mortgage in one year, so on that ground, that approach is faulty.

“It’s also the debt of people with debt, relative to the income of people with and without debt. Again a suboptimal comparison. And if foreign income plays a role in the housing market (and it does) that income is not part of the calculation.”

Still, news organizations jumped on it.

“Canadian households owed $2 trillion at the end of 2016,” the CBC proclaimed.

“Debt-to-income hits fresh record,” Reuters said.

But while debt-to-income levels seem frightening, CIBC argues it’s anything but.

“In many ways this ratio is designed to rise. In the past 25 years, the debt-to-income ratio fell only twice,” Tal wrote. “In a normally functioning economy, debt will rise faster than income.

“For the ratio to fall notably you need a significant shock such as the US financial crisis which led to the US debt-to-income ratio falling from over 160% to 140%,” he continued. “Is the ratio rising too fast? Not really. Total real household debt is now rising by just over 4% (year-over-year)—a rate that is in line with the performance seen during the jobless recovery of the 1990s.”

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Investor payments delayed

Investors in Calgary’s Orchard project have been told of delays to interest payments.

“Funds raised to date have been appropriately utilized towards project costs keeping the development moving forward. Orchard has surpassed 60% in sales on the first tower, with discussions already in place to have tower 2 purpose built rental. This would reduce timelines, increase cash flow, and allow for a more flexible development plan,” Building & Development Mortgages Canada Inc., the broker offering the syndicated mortgages, said in a memo to investors. “This allocation has resulted in the payments due April 16th and July 16th to be delayed, as there have been a lack of funds closing into the project’s interest reserve (IR) as originally anticipated.

“Brokers are actively raising money for the project to bring the development budget up to date, and top up the IR for current and future payments.”
The memo, which was shared with CREW by a lawyer who represents one of the project’s investors, also states further delays could happen.

“Funds will continue to be used for project costs to ensure the current momentum is kept, until such funds can be moved towards soft costs such as interest payments,” the broker said.

Despite this, both developers of the project – Lamb Development Corp. and Fortress Real Capital – remain unconcerned about the health of the project.
“Orchard is an incredible project at a fantastic location. It is no secret that the housing market in Alberta has changed quite a bit over the past few years,” Brad Lamb said. “LDC and Fortress are completing and occupying one tower called 6th & Tenth in spring 2017, and plan to break ground on Orchard shortly afterwards.

“All lenders will be paid out on 6th & Tenth upon completion, and I anticipate the same for Orchard when it finishes also.”

A rep for fortress added: “Fortress is very pleased that 60% of the Orchard project is sold. Consultants and the development team are working on detailed design drawings and the project will be advancing to the construction financing stage next year.”

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CMHC raises its overall risk rating for national housing market to strong

Alexandra Posadzki

There is growing evidence of risk in the country’s real estate markets as home prices have climbed faster than income and population growth, a report by Canada’s federal housing agency says.

Canada Mortgage and Housing Corp. increased its risk rating for the national housing market on Wednesday to strong, from a moderate rating that it gave in July.

“We now see strong evidence of problematic conditions overall nationally,” CMHC’s chief economist Bob Dugan said in a news release.

“This is fuelled by overvaluation _ meaning house prices remain higher than the level of personal disposable income, population growth and other fundamentals would support. This overvaluation coupled with evidence of overbuilding in some centres means that growth in house prices will slow and housing starts are expected to moderate in 2017 and 2018.”

The agency also said it now sees moderate evidence of price acceleration. That occurs when home prices go up at a faster pace and is a possible sign of speculation.

Back in July, evidence of price acceleration was weak, the agency said.

CMHC is also predicting that home sales and the pace of new housing starts will decline next year before stabilizing in 2018.

CMHC CEO Evan Siddall said earlier this month that the housing agency would raise its risk rating to strong for the first time ever.

CMHC said there is strong evidence of problematic conditions in Vancouver, Calgary, Saskatoon, Regina, Toronto and Hamilton.
Edmonton, Winnipeg, Montreal and Quebec City show moderate evidence of such conditions, the agency said.

The housing market assessment is intended to be an early warning system to alert Canadians about problematic conditions developing in the country’s real estate markets. It covers 15 regional markets and the national housing market as a whole.

The Canadian Press

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Toronto area housing prices, sales volume soar in September: real estate board

By David Paddon

TORONTO _ Housing sales in the Toronto area continued to soar last month, with the average price rising 20.4 per cent from September last year to $755,755, the Toronto Real Estate Board reported Wednesday.

The price increases came as the number of transactions in the Greater Toronto Area rose 21.5 per cent, a stark contrast to a big drop in the number of transactions last month in Vancouver’s residential real estate market.

The real estate board said Wednesday there was strong growth in sales transactions for all major home types in the area but a lack of supply limited growth in the City of Toronto itself.

By comparison, figures released Tuesday by Vancouver’s real estate board showed a 32.6 per cent drop in sales transactions compared with September 2015 _ prior to a new 15 per cent provincial tax on foreign buyers that came into effect in August.

Vancouver prices continued to rise but some analysts expect a prolonged decline in demand will lower the sky-high cost of housing in Canada’s most expensive real estate market.

There’s also been anecdotal evidence that some foreign buyers have shifted their focus from Vancouver to other cities, including Toronto. On Monday, the federal government unveiled measures to tighten rules for prospective buyers and lenders.

“The Toronto Real Estate Board will be closely monitoring how the recent changes to federal mortgage lending guidelines and capital gains tax exemption rules impact the housing market in the Greater Toronto Area,” Jason Mercer, the board’s director of market analysis, said in a statement Wednesday.

“While these changes are pointed at the demand for ownership housing, it is important to note that much of the upward pressure on home prices in the GTA has been based on the declining inventory of homes available for sale.”

The real estate board’s benchmark price index was up 18 per cent from September 2015, after adjusting to various types of housing..

The average sale price for detached houses in Toronto proper rose to $1.29 million, up 23 per cent from a year earlier. The comparable price for detached houses in surrounding areas was $928,414, up 26.6 per cent.

By contrast, prices for condos in Toronto proper grew only 6.5 per cent to $446,729. Condo prices in other parts of the Greater Toronto Area were up 19.4 per cent to $367,260.

THE CANADIAN PRESS

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Meanwhile In Canada, A Real Estate Bargain Emerges… | Zero Hedge

We’ve long known that Canada, like Sweden and Denmark, is sitting on a giant housing bubble.

Indeed we took a close look at the issue back in March of last year and have revisited in on several occasions since. Put simply, the divergence between crude prices and the country’s housing market simply isn’t sustainable a you can see from the following chart:

image

And while the boom is rapidly turning to bust in places like Calgary, things are humming right along in Waterloo, where Napoleon was defeated in 1815. No, wait – wrong Waterloo. This is Waterloo, Ontario, a town of 140,000 that’s being billed as “Canada’s Silicon Valley.”

As Bloomberg reports, “the town revolves around two universities and a burgeoning technology sector that’s attracted companies such as Google Inc. and dozens of startups.” Here’s a look inside the Kitchener-Waterloo Google office:

The buzz has created a “land grab” and now, condos are renting for nearly C$2,000 per month while one-bedroom units are selling for more than a quarter of a million dollars.

Vacancy rates are at 13-year lows and Google’s country manager for Canada calls the city “lightning in a bottle.”

If that sounds like a bubble to you, you’d be correct but some investors don’t see it that way.

Take Bill Ring for instance, head of operations for a property management company who Bloomberg notes drove two hours to Toronto to attend a rowdy sales pitch for condos in Waterloo put on by a Bay Street trader turned-tech investor, turned-real estate mogul. “Students are coming in and need a place to live, tech companies are opening. It’ll all drive the value up,” he says. “I don’t want to invest in stocks because they’re crazy and real estate is a solid, safe investment.

Yes, Bill wants a “solid, safe investment” that isn’t “crazy.”

Like Canadian real estate.

Which definitely isn’t a bubble.

After all, if the housing market in Canada were overheating, you wouldn’t be able to get “bargains” like the listing shown below from Vancouver.

image

image

h/t @penultsquire

Good luck Bill.

4.78788

Your rating: None Average: 4.8 (33 votes)

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Canada markets are facing a turbulent 2016

With oil dropping to less than $30 per barrel and the Canadian dollar reaching its lowest levels in 15 years, the beleaguered Canadian economy is struggling to achieve stability this year despite the continued dynamism in the country’s real estate markets.

Housing prices will rise by nearly 10 per cent this year, TREB predicted. Surging demand in high-volume locales like the Greater Toronto Area will play a crucial part in this significant increase, the same projections noted.

Analysts point at the continued downturn of Canada’s energy sector as a main driver for real estate trends this year.

“Certain oil producing countries and companies have flooded the market with a surplus of supply, driving down the cost of crude. As a result it’s been a downhill slide for the Canadian energy sector that plays a huge role in the national economy,” the Rent Seeker Team wrote in their analysis piece published by The Huffington Post.

“When Canadians lose jobs, the real estate market suffers,” the authors added.

Complicating matters is the increasing presence of foreign capital, especially since a weak loonie fosters exchange rates that make domestic markets attractive to international investors.

“For those who own property, increased foreign investment has been welcomed as they have seen their own property value increase. However, for the majority of Canadians who rent, foreign investment means increased real estate prices that were already unaffordable,” the analysts warned.

All of these developments amid a backdrop of historically low mortgage rates, which are stimulating greater transaction volume.

“As long as borrowing money is cheap, real estate prices won’t be. For those who are priced out of the housing market, while rents have also risen across the country, it is the only option for many,” Rent Seeker said.

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Mortgage rises negligible despite turbulent economy

According to industry players, this mid-long-term stability can be attributed to global developments and government regulations that have conspired to reduce risk-taking in the housing industry.

In particular, new guidelines that compelled banks to set aside money for addressing delinquent loans have given the industry a “war chest” for use in a worst-case scenario.

All of these factors have contributed to keeping potential monthly payment rises in check.

“I think that mortgage rates will remain relatively stable. I just don’t see anything that will send them up,” the CIBC’s Benjamin Tal told CBC News.

While major banks have implemented rate hikes since December—with the CIBC setting its three-year fixed term to 2.59 per cent and the RBC increasing its five-year fixed rate to 3.04 per cent—observers noted that these slight spikes shouldn’t give home owners and would-be buyers reason to panic.

“I think the rise we’ve seen in mortgage rates isn’t really very significant,” Queen’s University real estate academician John Andrew said.

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