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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Analyzing years of mortgage rule impact

The most recent mortgage rule changes have had a much smaller impact on the market than previous policy changes and there’s a simple explanation for that, according to a new report.

The most recent mortgage rule changes have had a much smaller impact on the market than previous policy changes and there’s a simple explanation for that, according to a new report.

There has been an unprecedented number of housing policy changes over the past year-and-a-half, according to TD Bank, and each has been aimed at tempering housing demand.

And while the industry viewed the last round of changes as particularly invasive, they have proven less impactful than previous iterations.

“Each successive regulation change at the federal level has left a smaller mark on home buying activity. Our estimates suggest that the most recent federal rule changes may have only shaved 2% off demand nationwide,” TD Economists Beata Caranci and Diana Petramala, wrote in their latest report, Canadian Regional Housing Outlook Navigating a Soft Landing. “In contrast, the first regulatory changes implemented in 2008 dampened home sales by roughly 10%. That policy increased the required down payment from 0% to 5% for insured borrowers and lowered the allowable amortization period from 40 years to 35 years.”

The reason for dwindling influence, according to the economists, is that each round of mortgage rule changes has specifically targeted borrowers who require mortgage insurance.

“This incented a shift away from high loan-to-value mortgages into conventional mortgages,” the economists wrote. “New loans that require homebuyer’s insurance now account for less than 20% of all new chartered bank mortgage originations, compared to 40% prior to 2008. So, each round of policy changes has targeted a shrinking share of the overall market.”

The Bank of Canada claims insured mortgage originations fell 43% in 2016 and early 2017 from the peak in late 2015.

However, that shrinking share was up by a growing number of Canadians relying on conventional mortgages.

Looking forward, it seems federal policymakers aren’t quite finished with their market tinkering.

The Office of the Superintendent of Financial Services (OSFI) has proposed additional rules in the form of income tests for all borrowers at a rate of 2% higher than the contracted rate.

And that policy is expected to temper housing demand even further.

“ … if the new measures are put into place, which will cause buyers in the former group to adjust their behaviour by coming up with a bigger down payment, opting for a lower priced purchase, scaling back other debt, or delaying a home purchase altogether,” the economists wrote. “In the year of implementation, we estimate that this new rule could depress demand by 5% to 10%, and shave 2% to 4% off of our current forecast for the average price level in 2018. This will be yet another force limiting price growth in the future.”

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Should investors target this market again?

According to one recent report, rents have bottomed out and are on the upswing.

“Private landlords in Alberta have endured a rough ride over the past 24 months, rental rates dropped while vacancy rates climbed rapidly,” Shamon Kureshi, president and CEO of Hope Street Management Corporation said. “Leading indicators suggest that there is cause for optimism in 2017 as rental rates appear to have bottomed out, and can only go in one direction from this point forward – up.”

According to Hope Street, rental markets across Alberta have been struggling mightily; the number of available listings peaked at 8,200 in Calgary and 5,200 in Edmonton at the end of last year.

However, Hope Street claims rental prices have stabilized, according to a six month price review.

“The feedback from our renters seems to suggest that there are several factors at play to cause a market shift, including: an improved outlook on oil and gas in the province, less new rental properties coming online, and a slowing of outward migration away from the province.”

“Edmonton’s current average rental rate of $1161 per month appears to have been largely stable in the past 90 days, and Calgary current average rental rate of $1469 per month shows a slight trend upwards,” Hope Street said.

Alberta-based investors have been hard-hit as a result of the oil downturn; and while this report is certainly the first good news current and would-be homeowners have heard, many will likely hold off on jumping into the market until further evidence comes to light.

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What’s in store for Canadian investors in 2017?

We have the answers to all your investment questions in our Property Forecast Guide — the industry’s very own crystal ball, which will appear in the January issue of CREW.

Think of the guide, which spans dozens of pages, as your handbook for investing in real estate in 2017. Want to know what’s in store for the economy? How about hot, up-and-coming areas? This guide will help you get rich – or even richer – by giving you the best research, right in your lap. Click here to Subscribe today and ensure you don’t miss out.

We spoke to veteran investors, respected economists and profiled every market and every trend that investors need to know about.

Below is just a sample of what you can expect.

Dan Campbell on GTA and the surrounding area

Tech Triangle (KWC)
Strong and growing economy, stable and growing post-secondary institutions, airport, expanding highways, increase Go Train service and now a rapid transit system all point to a strong year for the KWC real estate market. Rental demand will continue to grow, especially around the new LRT and Go Train stations as well as the renewed downtown cores. This region is growing into Millennial Central and that bodes well for market demand for decades to come.

Hamilton
It is still a market where investors and homeowners need to have very localized knowledge in order to ensure they aren`t buying in neighbourhoods that will underperform the market. 2017 should begin a slowing of demand from investors and landlords, but increased Go Train service, a renewal of Hamilton`s reputation and the promise of LRT will keep interest high.

Barrie and Orillia
Although two very separate cities, they are economically co-joined. In one year Barrie will lead in growth and housing demand, and in the following Orillia will. Orillia looks to grab the lead in 2017 with the Hydro One purchase of the local utility and the development of a high-tech research center bringing in above average salaried employees. The demand in Barrie’s mid-range market should continue to be strong as new mortgage rules push people out of Vaughn and Toronto.

GTA
Anything ground-oriented (single family homes, semis, townhomes) are poised to outperform the rest of the market, especially given the Provincial Places to Grow act limiting the amount of new-land sprawl, thus driving up the price of developable land within these constrained boundaries. Condo demand will continue with a movement to larger and therefore further from the core units beginning to feel the upward demand pressures as young families begin to grow and require more room. Units located within 800 Meters of TTC subway stations or 500 meters of street car stops will feel the highest demand increases in both rental and purchase in 2017.

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Investment Hot Spots:
Woodstock, Saint-Hippolyte, Burtts Corner, Stoney Island, Meacham

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Toronto sales set record

One of the nation’s hottest housing markets just broke a record in April.

There were a reported 12,085 home sales in Toronto last month, according to the Toronto real estate board, who argues that figure could have been even higher had there been more supply.

“While April’s sales result represented a new record for sales, that number could have been even higher if we had benefitted from more supply,” Toronto Real Estate Board President Mark McLean said. “In the City of Toronto in particular, some households have chosen not to list their home for sale because of the second substantial Land Transfer Tax and associated administration fee.

“The lack of available inventory, coupled with record sales, continued to translate into robust annual rates of price growth.”

Sales increased 7.4% year-over-year in April, according to TREB, which set a monthly sales record.

“As we move into the busiest time of the year, in terms of sales volume, strong competition between buyers will continue to push home prices higher,” Jason Mercer, TREB’s Director of Market Analysis, said. “A greater supply of listings would certainly be welcome, but we would need to see a number of consecutive months in which listings growth outpaced sales growth before market conditions become more balanced.”

The lack of supply is likely one reason prices continue to sky-rocket as well.

The average price in the City of Toronto increased from $690,058 to $766,472 over the past year.

Prices in the GTA also saw an increase, settling in at an average of $739,082 – up from $636,094 a year ago.

Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage. Click here to get help choosing the best mortgage rate

Investment Hot Spots:
Brigus Junction, Arran, Woodham, Alma, Upper Tantallon

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The property type investors should avoid?

It may be one of the hottest markets for investors, but there is one type of property potential landlords should avoid according to one industry veteran.

Waterloo is the current hot spot for investors and while many may be tempted to purchase student housing, that’s the one property type potential landlords may want to avoid.

“Student rental has been overbuilt,” Karl Innanen, managing director at Colliers International, told CREW. “A study was recently put out, which found that there is an oversupply of (rental units) — 27% more than the market needs.

“It’s something (investors) should avoid.”

The city has an oversupply of approximately 1,200 beds, according to the Waterloo Region Record, and with all the planned buildings that number is expected to skyrocket above 8,000.

According to Colliers, there are 41,440 post-secondary students in the Waterloo region but nearly 10,000 of those are commuters who don’t require student housing.

Still, the region does offer some interesting investment prospects.

Speaking to CREW last week, Innanen broke down the region’s most enticing opportunities.

Waterloo offers opportunities for office investment; Cambridge is known for its industrial offersings; and Kitchener is home to many urban office opportunities.

And there are plenty of residential opportunities throughout the region for investors as well.

“Residential is front-and-centre in the Waterloo Region; there are 3,200 new homes built every year … and the demand is there (for rentals),” Innanen said at the time. “There are a lot of condos being built; 2011 was the first time there were more apartments built than there were single-family homes.”

Indeed. The Kitchener Waterloo region saw its average home price increase by 8.9% year-over-year to $353,108 in January of this year, according to the Canadian Real Estate Board.

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What could make Golden Horseshoe even greater for investors?

It’s already identified as a hot-spot for 2016, but if the Golden Horseshoe addresses these concerns it could be even more attractive for investors.

TREB contacted a number of stakeholders in the Greater Golden Horseshoe area – an area that has already been identified by Phil Soper, CEO of Royal LePage as a hot market for 2016 – to determine what could make it an even more attractive real estate market.

“Taken together, it is clear that all stakeholders view the GGH as a great place to live, work and play. Many stakeholder responses described the GGH in terms of its diversity, opportunity, prosperity, growth, and livability,” TREB said in its inaugural Year in Review and Market Outlook. “All of these terms underscore the region’s reputation for a high quality of life and economic vibrancy. A positive reputation also helps encourage migration to the GGH, which can sustain population growth and contribute to the region’s economic wellbeing.”

Those stakeholders identified a number of areas that would make the Greater Golden Horseshoe even better.

Transportation
“A coordinated, modern, multi-modal transportation network is required,” TREB said.

Infrastructure
“Residents and businesses of the GGH require and depend upon reliable public infrastructure,” TREB said. “For the future of the GGH, public infrastructure must be vast, interconnected, and in good standing.”

Affordability and housing options
“ … as the population has continued to grow (more than 100,000 people per year, on net), the demand for new low-rise home types has remained very strong,” TREB said. “The result has been higher land costs and ultimately higher new home prices.”

That, of course, has benefitted investors in recent years. However, even if affordability is addressed, there will still be plenty of options for investors to add to their respective portfolios.

Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage. Click here to get help choosing the best mortgage rate

Investment Hot Spots:
Minitonas, Saint-Henri, Campbellcroft, Ottawa, Richards Landing

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Forget Vancouver and Toronto; consider these markets instead

Although Royal LePage admits that Canada’s housing market “unfolded closely along the lines as we expected,” in the fourth quarter of 2015, the data still contains valuable information for investors looking ahead to 2016 and beyond.

In particular, while Vancouver and Toronto remain “sellers’ markets where there’s not enough product to meet demand,” other parts of the country show considerable potential for returns, according to Phil Soper, president and CEO, Royal LePage

“For most of the country, in real terms, we’re seeing flat appreciation. Prices are moving at approximately the same rate as inflation,” Soper said. Moreover, the CIBC calculated that lower energy prices represented a 9% tax cut for Canadian families, which may serve as an economic driver of certain regions.

Quebec, in particular, posted a “reasonable” year, but should look more optimistic soon.

“We believe that other factors were at play, such as the new government’s mandate to get the provincial books in order and their focus on austerity and fiscal prudence,” Soper said. “Now they’ve reached the halfway point of that mandate, and will begin looking to stimulate Quebec’s economy in the latter half of it.”

While he considers Vancouver to be Canada’s real estate MVP, he believes that “Quebec, and Montreal in particular, is well-poised to be the most improved player year-over-year.”

Moreover, he advises investors who are able to take a more long-term approach to consider Alberta. While cities such as Calgary may be suffering now, he believes that they are destined to an eventual rebound.

“The softness of the Calgary market would lead some to be brave and look there for investment opportunities, but I’d say the first half of 2016 is too soon,” he said.

Soper is “very bullish” on Alberta over the long-run, since he believes it has a diversified economy and educated workforce that will allow it to recover from oil’s downturn.

“There’s a difficult adjustment right now with the dramatic reduction in the value of its primary export product, but along with the instability of bounding prices and uncertain markets, you have a period where uncertainty can lead to opportunities for investors,” he said. “Right now is fairly risky, however, as I think there’s more downside to come.”

Still, despite the high barrier to entry, investors may not want to turn a blind eye to Vancouver and Toronto just yet.

“We have a general manager in Vancouver who told me, ‘I don’t have a crystal ball and I don’t know if or when market correction is coming, but I do know that people who thought they were going to wait because things were too expensive a year ago are finding it’s a much tougher entry into the market today,” Soper said.

Along with Southern Ontario’s “Golden Horseshoe,” Soper predicts that the two will remain “very good prospects for 2016, even though it’s more expensive than other areas of the country.”

Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage. Click here to get help choosing the best mortgage rate

Investment Hot Spots:
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The unexpected city that should be on every investor’s radar

For over 90% of real estate investors, the focus of their portfolio is the market they live in. As Toronto-based real estate investors with almost two decades of rising prices, this has worked out very well.

At the same time, Connect Asset Management noticed yields in other Canadian markets were higher, while appreciation is typically lower. Having traveled both the country and internationally over the past few years, we began to develop a strategy for determining the best places to invest as a Canadian regardless of where we lived.

While “location, location, location” is the key to real estate, the most important determinant of long term real estate appreciation is city selection. Buy in a city with a declining economy, your returns will suffer no matter how good the “location” is. While an A site might be easier to sell than a B or C location, property rarely makes money when real estate prices drop in a city.

A COMPETITIVE ADVANTAGE

That is the bottom line for why we chose Waterloo (often referred to as Silicon Valley North) over any other city was that no other market we looked at a significant competitive advantage in any industry the way Waterloo does with technology and the sciences. To quote Dave Caputo, CEO and co-founder of Sandvine Inc, “Waterloo right now, I have to believe, is one of the best places in the world to build a technology company”

This is confirmed by major international companies like Microsoft and Google setting up head offices here, as well as major Canadian technology companies like Shopify that recently opened a 40,000 sq ft office to take advantage of the engineering talent.

The foundation for all this is the University of Waterloo and Wilfrid Laurier two of Canada’s top universities with strong international reputations as well as an industry leading co-op programs. Around these organizations, major research institutions have developed as well as, incubators, angel investor and venture capital networks linked directly to Bay Street and Silicon Valley.

In addition, our research indicates that while Waterloo still has commercial vacancy, the residential market is much tighter with vacancy rates sub 2%. New condos projects targeting students and young professionals which sold out during their pre-construction launches have rented very well with ICON 330 renting over 1500 beds in under two months.

Essentially, in Waterloo, the market for prime student housing has been waitlisted. The shortage in luxury furnished rentals to us seems like one of the greatest opportunities for investors with a strong growth from both student and young professionals. Office space also presents tremendous opportunities but those risks are more significant with there being a significant vacancy backlog.

With Waterloo commercial real estate renting for less than a third of what these companies would be paying in major centres, and the low Canadian dollar, established international companies will continue to establish offices in the region. To use Google as an example, in Mountain View, California where they are headquartered, the average rents are $97 US per square foot in Waterloo they are less than $15 CDN.

This doesn’t even begin to describe the difference in salaries vs Silicon Valley. Even Toronto based companies are looking at a 1/3 of the cost for even B office space.

Combine this with the different tax incentives from various levels of government and the business case for Waterloo will continue to be very compelling for years to come. That, combined with the talent from the education system and the start-up funding ecosystem, will drive the growth of Waterloo for years to come.

Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage. Click here to get help choosing the best mortgage rate

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Should investors have cause for worry in T.O.?

Condo rentals have been booming in Toronto, especially in 2015 but that doesn’t mean investors don’t have cause to be skeptical of the future of that market, according to one industry professional.

“I don’t know if the trend will continue, but obviously I hope so; there are a lot of trends competing against (single condo investments in Toronto),” Brendan Powell, a real estate broker with the BREL Team Sage Real Estate in Toronto, told CREW. “A lot of rental-only buildings are now going up and that market could expand.”

Still, there is no argument that market has been a lucrative one for investors heretofore.

According to Urbanation’s Q4 statistics, the number of condo apartments rented through the MLS system last year in the GTA spiked 19%, reaching 27,166. That trend picked up steam to close out the year, as well. Total lease volume in the fourth quarter increased 26% year-over-year to 5,628 units.

However, the purpose-built rental construction increased to a 25-year high of 3,476 units last year; double the national annual average since 1990.

And that trend is one that may cause concern for area investors.

“Who knows how much that will put pressure on the market,” Powell said. “I think it’s smart to be cautious.”

Nevertheless, the long-term outlook for Toronto real estate remains strong, according to Powell. And that argument is only strengthened by the renewed interest in purpose-built buildings which, for many years, remained mostly untapped.

“The long-term vision is solid; a lot of people want to live in Toronto,” he said. “People will continue to move here.”

Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage. Click here to get help choosing the best mortgage rate

Investment Hot Spots:
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