Value of GTA condos nearly doubles in four years

Condos in the Greater Toronto Area appreciated by 44% between their April 2017 peak and June 2021, says realty brokerage Properly.

Interestingly, condos in the GTA struggled through most of 2020, save for before the COVID-19 pandemic and the very end of the year, but they nevertheless managed to subsequently surge in value again.

“This past year, condo sales were hit the hardest by the pandemic. While sales are now back up to pre-pandemic levels, it’s relieving for condo owners to know that their investments have appreciated significantly over time,” said Anshul Ruparell, co-founder and CEO of Properly. “Moving forward, it’s forecasted that solid growth in condo sales will continue as pandemic restrictions ease. I anticipate we’ll see people coming back to the city centre and back to our incredible city that offers world-class dining, entertainment, and liveability.”

There’s a host of reasons for rapid appreciation in the condo market, beginning with the price spread between low- and high-rise housing growing too wide beyond most homebuyers’ means. That, in effect, spurred such strong demand for condominiums that there were too few units available for purchase.

“There was a lag in condo pricing for the couple of years prior to 2017, and with that and the slow appreciation from 2014-2017, condos were due to jump in price,” said Alex J. Wilson, broker of record and owner of RE/MAX Wealth Builders Real Estate in Toronto. “You had a growing gap between the freehold and condo markets and the tipping point was affordability.”

The preponderant reason for supply constraints in the condo market is the timetable for developments. Wilson noted that, from the time a project is conceived to delivery, eight to 10 years could pass. Coupled with extremely robust demand for precious few units, values skyrocketed. Additionally, assignments appreciate in the years between their purchase and delivery, and as a result buyers often flip them, which further adds to condos’ surging valuations.
“You can’t just build condos tomorrow; from the launch period, it takes three to five years, but you have to go through zoning and approvals before that,” said Wilson.

The other reason for surging appreciation is most condos are developed in very close proximity to the strongest market fundamentals, namely transit and entertainment amenities. There aren’t any low-rise subdivisions built in downtown Toronto, but there are myriad condo units on subway lines, close to Scotiabank Arena, bars, restaurants, and the highway network. Wilson anticipates that, in H2-2021 or early 2022 when more people return to the city, the chasm between detached homes and condos will grow even wider, pushing the value of condos higher.

“The best market fundamentals drive appreciation and downtown Toronto has amenities, and people will want to live near work so that they can walk there, especially now that the end of the pandemic is near,” said Wilson. “The convenience and lifestyle factors that condos have to offer are they’re relatively maintenance-free, meaning you only have to worry about what goes on inside the unit, not outside.”

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74% of Ontarians 18-34 don’t think they can buy home: survey

A survey of Ontarians revealed that three-quarters of respondents aged 18-34 don’t believe they will be able to afford a home in their city or town.

“Having worked in this industry for 35 years now, I have seen one group [among the aforementioned cohort] able to get into the market, and that’s thanks to assistance from parents who are able to do it, and certainly low-interest rates don’t hurt, but you do have to have a good job,” said John Lusink, president of Right at Home Realty, which conducted the survey with Maru/Blue. “It’s challenging all around. If it’s their first time purchasing, and with mortgage qualification rules tightening up yet again, it is discouraging and tough for young folks, so I empathize greatly with them.”

The anxiety isn’t just felt by buyers aged 18-34, says Erica Mary Smith, broker of record at Stomp Realty in Toronto.

“Every time I talk to my older clientele who have kids, the first thing they always say is, ‘I don’t know how my kids will ever afford a home,’” she said. “Now I’m seeing a lot of gift money from parents, and parents are transferring existing homes, namely condos into their kids’ names so that they’ll automatically be in the market at some point and they won’t have to deal with taxes. There’s a lot of parental help right now.”

Asked if easing mortgage qualification rules, including rescinding the 200 basis point stress altogether, for younger buyers might help them get a foothold in the housing market, Lusink noted that the rules exist for a reason, and as a parent himself he’s glad they do.

“As a parent, I’d be concerned about seeing my kids get into mortgages that are in the $600,000-800,000 range if they didn’t have the jobs and incomes to support that,” he said. “I am in favour of having stricter rules in place so these guys don’t get into trouble.”

Right at Home Realty and Maru/Blue’s survey also found that 47% of respondents aged 35-54, and 37% over 55, did not believe they could buy homes where they live.

Additionally, 42% said moving away from larger cities could hurt their career advancement while a majority working from home weren’t willing to move further away in case they’re called back to the office post-pandemic.

Eighteen percent of Ontarians would consider selling their homes to move to a smaller community, which Lusink says is evidence that the exodus from major cities in 2020 may have been media hype.

“While the pandemic necessitated working from home, what it has done is increase people’s desires for bigger space, some backyard space, but I think that because only 18% would move out of the city to smaller space means it’s not an exodus, as has been put forward in the media.”

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Hamilton’s ‘hidden gem’ properties

To say COVID-19 has been bad for small businesses would be an understatement, but mixed-use properties that will invariably hit the market because of the economically calamitous nature of the pandemic could help boost housing supply.

“There’s a hidden gem: mixed-use commercial properties in downtown Hamilton that might be able to be converted into residential properties,” said Sandy MacKay, founder and CEO of MacKay Realty Network. “A lot of business owners own small mixed-use properties that aren’t excited about working from their offices or they’re shutting their businesses, or going fully remote, and those properties have potential for residential conversion.”

The only hurdle to overcome, in addition to actually finding such properties, is Hamilton’s slow rezoning approvals process—not out of character for the region. Still, MacKay says it would be a worthwhile endeavour.

MacKay Realty Network works with investors around the GTA, although it favours Hamilton, to find cash-flowing properties primarily in the multifamily residential sector. MacKay says that properties with at least two units carry easily, but the sweet spot is properties with five to 50 units.

“The last number of years, Hamilton’s downtown core has been booming and such a great area to be investing in, especially with a lot of renovation projects that are happening there,” he said. “There’s been a great commercial push there in the last five-plus years, although not so much in the last year because of the pandemic—but that’s not unique to Hamilton; it’s happened all around the world—and multifamily residential is our bread and butter because it’s the area in which we see the most potential. We see a lot of opportunities in the bigger buildings that have over five units, even up to a 100 units, which are harder to find. If you can navigate the difficult tenant situations that come with larger buildings, it’s a great payoff, and fortunately, our property management company, Executive Properties, can help with that.”

The rules governing Ontario rentals, including the Landlord and Tenant Board, favour renters, and the COVID-19 pandemic has been particularly arduous for investors stuck with problem tenants they’re legally prohibited from evicting. Moreover, when evictions are no longer proscribed, there will be a massive backlog to contend with.

“Landlord problems can turn into a great opportunity for the right person,” said MacKay, adding that MacKay Realty Network leverages its vast contact list to help its clients find those properties.“It’s definitely harder to find right now, and not all that realistic to find, but if you get a duplex and triplex, or a building with even more units, you will definitely find properties that carry themselves and mortgages and other expenses associated with the properties.”

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Home sales fell again in May, but don’t get used to this

Sales in the Greater Toronto Area moderated for a second straight month in May, indicating that a semblance of normalcy is beginning to return to the housing market. However, it could be short-lived.

There were 11,951 sales in the GTA last month, according to the latest data from the Toronto Regional Real Estate Board (TRREB), down from 13,650 in April and 15,646 in March, when activity peaked. The number of transactions last month was shy of the May record, which was 12,789 in 2016.

“There has been strong demand for ownership housing in all parts of the GTA for both ground-oriented home types and condominium apartments. This was fuelled by confidence in economic recovery and low borrowing costs. However, in the absence of a normal pace of population growth, we saw a pullback in sales over the past two months relative to the March peak,” said Lisa Patel, president of TRREB.

But despite buying activity decelerating in May, the average selling price still crept up by 1.1% month-over-month to reach a record $1,108,453, which TRREB’s analysis attributed to new listings decreasing to 18,586 from 20,825 in April.

There were 5,718 detached home sales in the GTA in May that averaged $1,415,698, while semi-detached sales totalled 1,233 and averaged $1,064,361. The GTA’s townhouse segment saw 2,182 transactions for which the average price was $866,349, and the condo segment of the market had 2,710 sales for an average price of $682,280.

The slight softening in purchasing activity might also suggest buyer fatigue, says mortgage broker Elan Weintraub, but he doesn’t expect that to last for long, thanks in large part to the rising rate of inoculated Torontonians.

“The COVID-19 vaccines are starting to really come out, and by fall and beyond, downtown businesses and most of Bay St. will start opening up, maybe not to the extent of before the pandemic, but bars and restaurants will start reopening and there will be more demand for real estate as people come back to the city,” said Weintraub, co-founder and director at Mortgageoutlet.ca. “Maybe not this year, but certainly early next year immigration will resume and a lot of people will want to come to Canada.”

Even with a slight reduction in transactions, prices still managed to rise and Weintraub doesn’t anticipate that stopping.

“Even though the market is still hot, the next three to 12 months are when the market will get hotter. Even though volume is down, I think that prices are going to remain strong. Those two things don’t work hand-in-hand; we will see prices continue increasing once immigration, universities, businesses and bars open up.”

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Economic update with Benjamin Tal – get ready for the second half of this year

Benjamin Tal — CIBC’s Deputy Chief Economist — is seemingly everywhere. And earlier today, he was delivering an annual economic update at an online event hosted by Brattys LLP (our condo lawyers) in partnership with CIBC. Below are a handful of slides that I found interesting and that I tweeted out during the event.

 

All of our personal risk curves changed during this pandemic. When the first wave hit, we all had no idea how bad this was going to be and what to expect. And so we all stayed home and washed our hands and our groceries. That changed with each subsequent wave. And now we’re all ready and anxious to be done with this.

Tal referred to this as one of the most unequal recessions we’ve ever seen. If you had a high paying job, you probably kept it. And after you stopped spending money on eating out, entertainment, travel, and watching the Leafs lose in person, you likely had a meaningfully higher savings rate. That has created some $100 billion of “excess cash” sitting on the sidelines.

This cash wants to be spent and I think we’re going to see it flying out the door in the second half of this year. Much of it will also flow into services, which should help to prop up the hardest hit segments of the economy. So while there has been some real pain, many are expecting the economy to snap back pretty quickly. Get ready for some euphoria in the second half of this year.

This last slide is particularly relevant to the kind of things we often talk about on this blog. It is essentially showing the increased demand for housing outside of the city during this pandemic (as of Q4 2020).

A flatter line (Vancouver, Calgary) indicates that year-over-year price growth was less affected by “distance from the city center.” On the other hand, a steeper line (Toronto, Ottawa) indicates that price growth was stronger the more you moved outward from the core. In the case of Toronto, it was nearly 20% YoY when you got about 60-70 kilometers out of the city.

But it’s important to keep in mind that the core of Toronto still grew at about 5% year-over-year. About the same as in Vancouver. And in the case of Ottawa, the number looks to be about 17.5% in the city center. These are meaningful numbers and not the kind of symptoms you would expect to see from downtowns in the middle of a death spiral.

I would argue, as I have many times before, that this last chart is the result of short-term phenomena. I bet we’ll see a number of these pitches reverse by the time Q4 2021 arrives.

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