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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Mortgage rule change effects extend to small market

Last year’s mortgage rule changes are being blamed for dwindling activity outside the areas they were intended to target, according to a recent report.

“The impact of the new mortgage stress test is impossible to ignore. It has effectively caused a knee-jerk reaction in (Winnipeg), impacting activity and contributing to declining house prices,” Michael Froese, managing partner, Royal LePage Prime Realty, said. “However, given that our region is home to a very stable, diverse economy, which has helped insulate the housing market from significant downward price adjustments over the long term, we expect to see market factors bounce back as the year progresses.”

According to Royal LePage’s Q1 housing report, the aggregate home price in Winnipeg dropped 0.9% year-over-year to $274,844.

Still, the brokerage remains optimistic about the market’s future.

“Winnipeg is the most affordable major city centre in Canada, offering prospective homeowners – particularly first-time buyers – a great deal of value for their dollar,” said Michael Froese, managing partner, Royal LePage Prime Realty. “The region’s real estate market is coming off its best year on record. Although home values dipped slightly in January and February, March saw a surge of activity, helping to buoy prices in Winnipeg. Sales in the first quarter of 2017 also remain consistent with the same time last year, and are above the 10-year average for the quarter.”

Last October, the federal government released a suite of mortgage rule changes – which included tougher qualification requirements – that were widely regarded as a move to address affordability in major markets such as Toronto and Vancouver.

However, the spill over effect has been felt in smaller markets, such as Winnipeg.

And just six months later, the industry and politicians remain concerned about the Toronto and Vancouver markets.

“The overall Canadian market is healthier in 2017 than it has been in years, yet the downside risks are greater too,” concluded Soper. “Our economy, which has recovered nicely from the 2014 oil crisis, is sadly dependent on moves by an unpredictable U.S. federal government and can be swayed by unforeseen global events, such as fallout from Europe’s restructuring. Still, housing activity is strong and prices are rising at a healthy mid-single-digit rate across the land. The trend in Alberta, Quebec and Atlantic Canada is particularly encouraging. Our concerns with the state of Canadian real estate begin and end in Toronto and Vancouver.”

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5 Highlights from the latest housing report

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CREA spotlights challenges

The Canadian Real Estate Association has released its first report of 2017, highlighting the challenges homebuyers are poised to face this year.

“Canadian homebuyers face some challenges this year, including new mortgage rules that make it harder to qualify for a mortgage and regulatory changes that will push up mortgage financing costs,” CREA President Cliff Iverson said. “It will take some time to gauge the extent to which these challenges will weigh on home buyers in different housing markets across Canada.”

Home sales fell 1.3% in January from December’s total. Sales activity was down in half of all local markets, led by the GTA, Greater Vancouver and Montreal markets.

Inventory continues to be an issue.

“The shortage of homes available for sale has become more severe in some cities, particularly in and around Toronto and in parts of BC,” said Gregory Klump, CREA’s Chief Economist. “Unless sales activity drops dramatically, the outlook for home prices remains strong in places that face a continuing supply shortage.”

The number of newly listed homes fell 6.7% in January – that’s the second consecutive monthly decline. New listings, meanwhile, were down in two-thirds of all markets.

“With the monthly decline in new listings surpassing the decline in sales, the national sales-to-new listings ratio jumped to 67.7% in January compared to 64.0% in December and 60.2% in November,” CREA said in a release. “A sales-to-new listings ratio between 40 and 60 is generally consistent with balanced housing market conditions, with readings below and above this range indicating buyers’ and sellers’ markets respectively.”

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Major investor hotspot no longer seller’s market

Real estate association tries to find the positive in a downward trending market.

“BC home sales trend toward ten-year average,” the British Columbia Real Estate Association proclaimed in its latest sales report.

“Moderating consumer demand in the province’s largest population centres continues to trend home sales toward the ten-year average,” Cameron Muir, BCREA Chief Economist, said. “The seasonally adjusted annual rate of MLS® residential sales was approximately 89,000 units last month.
The ten-year average is 83,000 unit sales, while the 15-year average is 85,300 unit sales.”

But is that the big story?

For investors with interests in the province, not likely.

Sales were down 20.1% year-over-year in November, coming in at 6,419 total residential sales.

Prices also took a dip, falling 6.4% year-over-year to $625,871.

Vancouver, specifically, had a tough month. Unit sales fell 37.4% to 2,225 and the average price dropped 3.8% to $895,084.

According to the Canadian Real Estate Association, Vancouver is no longer a seller’s market

“A sales-to-new listings ratio between 40 and 60 percent is generally consistent with balanced housing market conditions, with readings below and above this range indicating buyers’ and sellers’ markets respectively,” CREA said in its monthly stats release. “The ratio was above 60 percent in almost half of all local housing markets in November, the vast majority of which are located in British Columbia, in and around the Greater Toronto Area and across Southwestern Ontario.

“In Greater Vancouver, the ratio has moved out of sellers’ market territory and into the mid-50 percent range.”

Still, it’s not all bad news.

“Year-to-date, BC residential sales dollar volume increased 22.8 per cent to $74.5 billion, when compared with the same period in 2015,” BCREA said, again focusing on the positive. “Residential unit sales climbed by 12.1 per cent to 107,488 units, while the average MLS residential price was up 9.6 per cent to $692,745.”

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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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Community trust bullish on Kamloops

One community trust is establishing a neighbourhood in British Columbia it believes offers great value and the potential for major growth.

“We’re attracting the development community to partner with us on the build, but our pre-approved zoning for up to 7500-8000 residents, 3500 units, and just under 200,000 square feet of commercial,” Finlay Sinclair, president and CEO of TRU Community Trust, told Canadian Real Estate Wealth. “We’re attracting both developers to come and partner with us but also the community to come live here. We think there’s a good local, regional, and provincial opportunity for people to make this the place they want to live.”

TRU Community Trust is trying to establish Kamloops’ newest neighbourhood around Thompson Rivers University.
We asked Sinclair why investing in Kamloops is an attractive option for investors.

“It’s a stable economy, it’s a growing economy, and it’s an affordable real estate opportunity for anybody in this country at any income level,” he said. “We are right on the leading edge of all the service, commercialized land that anybody living in the future on the property is ever going to need.”

And the area is attracting investors from across the country. Many of whom have been priced out of province’s expensive lower mainland markets.

“Absolutely, we’re the affordable alternative. I think it’s pretty clear to people across the country that Vancouver has exceeded any normal, reasonable threshold of affordability for younger families that don’t have an equity position in the market already,” Sinclair said. “You can get in and have a wonderful lifestyle either in our development … but Kamloops as a whole has very affordable housing comparable to Vancouver, Victoria, Kelowna, Calgary. We have weather that unmatched in Canada. We have hot, hot dry summers and short, short winters.”

And the market is expected to experience continued growth.

“We see the real market opportunity is the fact that Kamloops is constantly increasingly land value and an increasing real estate market,” Sinclair said. “It doesn’t spike and go up and down irrationally in ways the larger market does. It’s constantly going up and is a stable environment.”

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Home sales fall further in August: CREA

National home sales have declined for the fourth straight month, according to the Canadian Real Estate Association.

On a national level, sales fell 3.1% month-over-month in August. However, they were up 10.2% year-over-year.

Sales were down in 60% of the country’s markets, with the Greater Vancouver Area showing the most precipitous decline.

“The sudden introduction of the new property transfer tax on homes purchased by foreign buyers in Metro Vancouver has created a cloud of uncertainty among home buyers and sellers,” CREA President Cliff Iverson said. “That the tax applies to sales that had not yet closed shows how the details for a new tax policy can unnecessarily destabilize housing markets. More broadly, it speaks to the importance of evidence-based decision making to ensure that unintended consequences and collateral damage are minimized when new policies or tighter regulations affecting housing markets are being actively considered.”

Last month was the sixth month in a row sales declined in the Lower Mainland in B.C.

Again, CREA blames the newly-enacted foreign sales tax.

“Single family homes sales were already cooling before the new land transfer tax on foreign home buyers in Metro Vancouver came into effect,” Gregory Klump, CREA’s chief economist, said. “The surprise announcement of the new tax caused sales to brake hard.”

On the price side, August marked the seventh consecutive month of year-over-year price growth.

“Two-storey single family home prices posted a 16.3 percent year-over-year increase in August 2016, as did townhouse/row units,” CREA said in the release. “One-storey single family homes followed close behind with a y-o-y increase of 14.4 percent, while apartment unit prices rose 11.7 percent y-o-y.”

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B.C. to bring in a 15 per cent additional real estate tax on foreign buyers

Foreign nationals who buy real estate in Metro Vancouver would pay an additional property transfer tax of 15 per cent under legislation being brought in today by the British Columbia government.

Finance Minister Mike de Jong introduced the tax as part of legislation aimed at addressing low vacancy rates and high real estate prices in southern B.C.

The government says the additional tax will take effect Aug. 2 and will apply to foreign buyers registering the purchase of residential homes in Metro Vancouver, excluding treaty lands in the Tsawwassen First Nation.

De Jong says the additional tax on a $2-million home would amount to $300,000.

He says recent government housing data indicates foreign nationals spent more than $1 billion on B.C. property between June 10 and July 14, with 86 per cent being made on purchases in the Lower Mainland area.

The legislative package would also enable the City of Vancouver to amend its community charter in order to levy a vacancy tax.

Last May, de Jong said he wasn’t in favour of a tax on foreign investment, saying he worried it would send the wrong message to Asia-Pacific investors.

(The Canadian Press)

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Investors flocking to this property class

Looking to make major capital gains? You may want to invest in this one property type.

Investors are being drawn to the commercial condo market, according to one industry veteran, because of the strong returns and red-hot markets.

“Office condos are attractive to investors for a couple reasons; the commercial market offers strong returns and you benefit from a strong economy and rising rents,” Scott Chandler, senior vice president, advisory and investment services at Colliers International, told Canadian Real Estate Wealth.

And investors seem to agree.

According to a Colliers research report, released Wednesday, investors now own 83% of office condos in Vancouver – up from 31% in 2010.

“Owning office space offers the advantages of having a fixed and clear cost in the wake of major increases in leasing rates, full control over the design taste and feel of your environment, the prospects of capital gain, and no longer having to worry about the lack of flexibility that is usually coupled with a leasing contract,” Chandler said in the research release. “As lease rates continue to increase and Canadian lending rates remain low, business owners are discovering the advantages and opportunities to own their own office space rather than lease and the market has responded.

Chandler says both Vancouver and Toronto’s office condo segments are attractive for investors.

“In Toronto and Vancouver, core locations – especially close to transit – [are attractive investments],” he said.

And many investors who have trouble raising their own capital are partnering with others to purchase these units, according to Chandler.

However, they aren’t the sort of investment that interest landlords looking to make a quick buck.

“Office yields are pretty low, in the mid-single digits; what’s driving interest is future capital gains,” Chandler said. “It’s medium to long-term investors; not flippers.”

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