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Over 4 In 5 Canadian Real Estate Markets Have Seen Price Growth Slow

Canada is in election mode, and all politicians have a plan to cool real estate markets. The thing is, most markets have begun to cool on their own. Canadian Real Estate Association (CREA) data shows a third of markets made a monthly pullback in July. The trend is likely to get stronger as well, as over 4 in 5 real estate markets have seen annual growth drop. There’s still a long way to go before it would be a “correction,” but it may be a sign cooling measures aren’t as urgently needed.

Momentum And Price Growth

Every new trend starts with a change in direction. The momentum of price growth is one of the most important measures of this. It drops a few hints on the direction of where the market is heading, and how people may react.

When price growth accelerates, the rate of growth is rising. If it abruptly begins after a downturn, it may be marking the bottom of the market. Early in this stage is when buyers make the most money, and feel the luckiest. As the trend accelerates, sellers have more incentive to hold onto their property. It doesn’t matter if it’s negative cap, as long as it rises in value, right? The faster prices accelerate, the less likely an investor is to sell. Ironically, this means lower inventory, potentially accelerating prices further.

Price growth deceleration is when the rate of growth is getting lower, or even negative. If this happens after a period of acceleration, it can mark the top of the market. This is when sellers make the most money, and feel the luckiest. As the trend decelerates, more buyers tend to stand back and delay their purchases. Often they’re waiting to see if prices fall. The FOMO to jump into the market immediately may also disappear. If you’re not as worried about being “locked out” of the market, you’re not in as much of a rush to purchase.

The best time to sell is often the worst time to buy. Conversely, the best time to buy is often the worst time to sell. It’s tricky identifying when those turns happen. The momentum of price growth is a pretty good starting point though. Remember, that’s starting point. Not your comprehensive, single-point market guide.

A Third Of Canadian Real Estate Boards Reported Lower Prices In July
First, let’s start with which markets are actually pulling back in dollar terms. A third of boards, 16, reported monthly drops for the July composite benchmark. Data also shows 38 markets printed smaller monthly gains than the previous month. Prices don’t move in a straight line, so some variance should be expected. Once it turns into the annual trend changing direction though, it’s harder to see a turnaround.

Canadian Real Estate Price Monthly Change
The monthly change in the composite benchmark price of a home for July 2021.

Over 4 In 5 Real Estate Markets Saw Annual Growth Decelerate
Annual growth of composite benchmark price has dropped in the majority of markets. Over 4 in 5 markets reported the annual rate of price growth as fallen. Just 8 markets have seen flat or accelerated price growth. Some of these rates are astronomically high, so it’ll take a while to get back to reality. But once these trends start to fall, a catalyst is often needed to reverse them. It’s an election though, so a capital injection in the name of affordability might be seen. Never underestimate how poorly bureaucrats can misread the market.

Canadian Real Estate Price Annual Change
The annual change in the composite benchmark price of a home for July 2021.

Most markets are now seeing a deceleration in price growth. It’s also happening during falling home sales, which is interesting. Most industry observers have attributed falling sale volumes to a lack of inventory. However, if the shortage of inventory was the problem, prices would be rising. They aren’t. This is one of those narrative-reality mismatches.

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Trudeau vows ban on foreign buyers

Prime Minister Justin Trudeau has promised to introduce a two-year ban on foreign home buyers and make the home purchasing process more transparent if re-elected.

The Liberal Party leader told a crowd in Hamilton, Ontario that a Liberal-led government would “crack down on predatory speculators that stack the deck against you,” if returned to power in the September election, while also pledging to build more homes and introduce a rent-to-own scheme.

“You shouldn’t lose a bidding war on your home to speculators. It’s time for things to change,” he said. “No more foreign wealth being parked in homes that people should be living in… If you work hard, if you save, that dream of having your own place should be in reach.”

In its newly-published “Home Buyers’ Bill of Rights” the Liberals also promised to lower CMHC mortgage insurance rates by 25% and introduce a tax-free savings account for first-time buyers.

Trudeau’s comments were the prime minister’s latest bid to win over voters on the housing issue, one that has emerged as a potent topic in the federal election campaign with house prices having surged across Canada during the COVID-19 pandemic.

Hamilton, the scene of Trudeau’s remarks, saw a 23.8% year-over-year increase in aggregate house prices in the second quarter of 2021, rising from $613,750 to $760,000.

Current policies around foreign buyers have faced particular criticism in Vancouver, with real estate purchases by non-residents becoming increasingly popular.

Conservative Party leader Erin O’Toole has vowed in his party’s own housing plan to introduce a two-year trial ban on foreign buyers who don’t intend to live in Canada, a measure he said was aimed at addressing the country’s housing “crisis.”

“The supply of homes – to own as well as to rent – is not keeping up with our growing population and too many foreign investors are sitting on properties as investments.”

New Democratic Party leader Jagmeet Singh said that he would implement a 20% foreign homebuyers’ tax on the sale of homes to individuals who are not Canadian permanent residents or citizens.

Canadians are set to go to the polls on September 20.

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Toronto Condos No Longer Dominate GTA’s Highest Appreciating Properties

Only one Toronto building makes Top 10; best investments are outside city limits
For the first time in six months, Toronto condominiums no longer dominate Strata.ca’s list of properties with the highest appreciation rates. If the latest data is any indication, it appears that condos outside the city are offering much higher returns on investment.

Properties in Oshawa and Burlington appeared multiple times in the Top 10, which also included condos in Hamilton and Whitby. But a luxury building in Yorkville was the only Toronto property to make the list.

“This may simply reaffirm what many of us have known all along,” says Robert Van Rhijn, Broker of Record at Strata.ca. “Homebuyers are increasingly looking outside city limits for affordability, and the data is finally starting to reflect that trend.”

In Toronto, condos are selling on average for about $895 per square foot compared to just $647 in Burlington and $505 in Oshawa.

“By looking outside the city, you’re buying into a market at much cheaper prices with the potential to earn back that investment at a much quicker pace,” explains Van Rhijn.

Top 10 Highest Appreciating Condos in the GTA

Here are the properties that have appreciated the most in the past 12 months:

1) Burlington | Lakepoint Condos | 2190 Lakeshore Rd | +53%

2) Toronto | Pears on the Avenue Condos | 127-135 Pears Ave | +41%

3) Burlington | Vibe Condos | 5030, 5010, 5020 Corporate Dr | +40%

4) Oshawa | Wentworth Gardens Townhomes | 401 Wentworth St W | +39%

5) Hamilton | Kenora Townhomes | 250-262 Kenora Ave | +37%

6) Whitby | Sprucedale & Palisades Townhomes | 1-118 Sprucedale Way, 10-34 Palisades Crt | +37%

7) Mississauga | Glen Erin Drive Townhomes | 4171 Glen Erin Dr | +37%

8) Oshawa | Glen Street Townhomes | 1010 Glen St | +36%

9) Oshawa | Pearson Street Townhomes | 222 Pearson St | +36%

10) Oshawa | Dorchester Drive Townhomes | 540 Dorchester Dr | +34%

Glass ceiling of affordability

The latest appreciation data simply illustrates the spillover effect from Toronto’s red hot housing market where the average price of a condo is just over $720,000, according to Nathaniel Hartree-Hallifax, a realtor at Strata.ca. When it comes to buying something decent in Toronto, a lot of people have “psychologically written that off”, as he puts it. “So they’re moving around to places outside the city that they can afford.”

Strata.ca broker Cliff Liu caters to a wide demographic of buyers, including baby boomers in Toronto’s outskirts. He thinks this group may be fuelling those soaring appreciation rates as well.

“Many seniors are cashing out on their suburban homes, and choosing to downsize in these same neighbourhoods,” says Liu. “So they’re also adding to the demand, driving up values even faster in these areas.”

Hartree-Halliax notes the famous slogan that “a rising tide lifts all boats” to illustrate the impact of Toronto’s rising prices on the wider region.

“Even still, properties outside the city have so much more room to appreciate,” he explains. “Whereas condos in Toronto have already hit that glass ceiling of affordability.”

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Competition for low-rise rentals in GTA sparks bidding wars

Parsimonious rental data in the GTA makes tracking hotspots difficult, but stories about leasing bidding wars are commonplace and, according to the president of the Residential Construction Council of Ontario (RESCON), that’s a direct consequence of developments completing at a snail’s pace.

“I’ve been hearing about bidding wars on rentals. You’ve got bidding wars on single-family homes in York Region because people looking for houses have to pay 10-20% more than the asking price in certain situations, so they’re priced out as buyers. I’ve been hearing stories about people having to pay a full year’s rent up front to rent those same places,” said Richard Lyall. “We have a housing supply crisis; we’re not building enough according to our current demographical needs and we’re running an annual housing deficit. The biggest problem in all this is the process through which projects get approved, and go through rezoning and site plan restrictions, takes too long.”

Insufficient housing supply has been blamed for exorbitant ownership price points, but Lyall contends that it also explains why rents are so high. There’s a pronounced dearth of purpose-built rental units in the GTA and investor-owned condominiums have resultantly become surrogates, he says, however, they’re without the same security of tenure that purpose-built rentals offer, to say nothing of their inadequate supply.

In fact, to understand the depth of the neglect and how it roils GTA rental markets today, Brampton, located just west of York Region, is getting its first purpose-built rental development in 17 years. But that bidding wars to lease single-family homes are increasingly common is a newer development.

Dr. Murtaza Haider, a professor in Ryerson University’s department of real estate management, says York Region’s low-rise homes are hot commodities because, unlike purpose-built rental and condo apartments, they provide families functional space, and the existing paucity of family-sized units has sparked demand for homes that are typically end user-oriented.

“It has to be in the low-rise segment because those units are desirable for families,” he said. “Rental households are smaller in size than non-renter households, and low-rise houses are more desirable for families with children, especially school-aged children, therefore, competition, when it arises because of proximity to subways and transportation infrastructure, makes a difference. Proximity to a park makes a difference, but proximity to highly regarded schools also triggers competition between interested renters.”

Citing monthly rental data, Dr. Haider says that bidding wars don’t occur with every vacancy, but they tend to cluster in desired neighbourhoods and buildings.

“If rents don’t increase drastically, that is my evidence that, while bidding wars are happening, they don’t have the ability to move the average market rent because they’re sporadic, sparse and concentrated in certain areas by virtue of location or by virtue of the list price,” he said. “Typically, adequately listed units won’t see bidding wars, but coveted school districts could spark bidding wars if a house in a particular catchment becomes available.”

Dr. Haider surmises that, to some extent, fierce competition in the low-rise rental market has to do with York Region having more immigrant households than Toronto proper, and because some communities put such a premium on education that desirable catchment areas determine where they live.

“What I can comment is that in York Region—that is, the areas north of Steeles—there’s a higher concentration of immigrant families unlike the City of Toronto, which has a lower concentration of immigrant families, but when you have families that put a higher premium on education for their children, then location decisions are motivated by proximity to good quality schools.”

Although family-sized rental housing is a pressing issue, Lyall says creating sufficient supply of purpose-built rentals is a priority because that will keep rents in check, which would help families, especially those on the margins.

“We’re not building enough housing to meet our needs. Prior to COVID coming along, we had a serious housing supply deficit in Ontario of 25,000 units,” said Lyall, adding that price surges in the aftermath of the pandemic created an even larger pool of renters who couldn’t afford to purchase. “Demand for all forms of housing went up. In York Region, they don’t build enough purpose-built rental units, and half the people who work in York Region can’t afford to live there, for starters, and we’re grossly under supplying housing.”

 

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House prices shot up more than 40% in these three GTA cities

The GTA real estate market has reached historic highs over the past year, with house prices in outer-lying cities seeing unprecedented surges in interest.

As homebuyers searched for larger spaces in more suburban areas of the GTA during the pandemic, it drove demand and, consequently, home prices through the roof.

A new report from RE/MAX found that detached homes in three unexpected GTA cities saw unbelievable growth between 2020 and 2021, rising over 40% in value.

Uxbridge experienced the largest growth, with detached home prices there increasing a whopping 46.4% to a new high of $1,365,983. It was closely followed by Scugog — directly to the east of Uxbridge — where prices jumped 43.9% to a new high of $986,878.

King, located just north of Vaughan, saw house prices rise from an average of $1,555,302 to $2,179,739 — a change of 40.2%.

Other outer-lying GTA cities like Brock, Pickering, Clarington, Oshawa, Caledon, East Gwillimbury, Whitby, Banbury-Don Mills, and Milton all saw substantial increases in detached home prices, each rising 34-40%.

This upswing in prices came alongside an upswing in the number of sales, the report says.

“Halfway into 2021 and the Greater Toronto housing market continues to fire on all cylinders,” said Christopher Alexander, senior vice president of RE/MAX Canada. “Overall home sales topped 70,000 between January and June, the strongest first half in the history of the Toronto Regional Real Estate Board, while values smashed through record levels set in previous years.”

With interest rates falling to a historic low during the pandemic, aspiring homebuyers raced to these once-more-affordable communities and pushed up the prices. In 2019, 28 GTA communities had average detached home prices under $1,000,000. In 2020, that number fell to 18. This year, there are only six.

“More transit options and hybrid work schedules have made relocation to the city’s outlying areas even more attractive,” said Alexander. “First-time buyers are feeling the squeeze but are still determined to become homeowners, with many happily travelling further afield to make it happen while working from home. The beneficiaries of the trend have been suburban communities in Durham, Peel, Dufferin County and the most northern part of York Region.”

And with low inventory levels not changing anytime soon, the trend of rapidly rising prices likely won’t either.

“Without a serious influx of new listings to ease the upward pressure on pricing in the coming months, the market will likely continue on this upward trajectory,” Alexander said.

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Why real estate investors shouldn’t worry about inflation

Rising inflation is a growing concern, but real estate investors can rest assured that their investments are, at least for the time being, inflation-proof.

“Real estate has been protected from inflation since the 1970s but it won’t work if there’s anything extreme, if we go back to a 15% benchmark interest rate,” said Patrice Groleau, owner of McGill Real Estate and of Engel & Völkers’ rights to the Quebec market.

However, even if rates somehow surged into the double digits, the value of real estate is mostly tied to the value of land and the cost of construction, namely materials and labour, which rise commensurately with inflation.

After the subprime mortgage fiasco that led to the Great Recession, real estate in major cities like Miami and New York quickly returned to their base values, which Groleau noted is why investors always pounce on properties in the immediate aftermath of economic downturns. Nevertheless, under normal economic conditions, inflation increases slowly and is always matched by rents, offering property investors a measure of protection.

“Rents adjust to inflation. In Quebec, every time you have a rental increase, the government looks at inflation to justify that increase, and if the price of rent goes up, the value of the building obviously goes up too,” said Groleau. “The problem with monetary policy in Canada is most decisions are all based on inflation—the biggest concern for the government is always inflation, inflation, inflation, so as soon as inflation rises, you see a direct link to real estate. It’s not perfect but if you look at all other options, there’s almost nothing better than that. Stocks don’t even match inflation the way real estate does, unless they’re blue chips.”

Groleau added that two-thirds of a downtown property’s value is tied up in the land, with the remainder determined by material costs, while it’s the opposite in suburban markets.

It is highly unlikely that interest rates reach the double digits, at least any time soon. In Japan, for example, interest rates have been near the basement since the aughties and Groleau suggests that, with Canada following suit—many advanced economies have had declining interest rates for over two decades—real estate is one of the safest investments today.

“As Andrew Carnegie said, ‘90% of all millionaires became so through owning real estate,’” said Groleau. “It has a stable core value over time because everybody needs somewhere to live, and every study and financial professional I’ve spoken to says we will follow the Japanese model. People don’t think rates can stay low forever, but in Japan they’ve been low since the early 2000s and inflation is under control.”

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Prime prices exceed mainstream for first time since pandemic

Prime prices across 46 cities increased at an average rate of 8.2% in the year to June 2021, up from 4.6% in March.

What’s happened?

Until now, the pandemic-fuelled house prime boom was most evident in the mainstream market but the prime sector has now surged ahead.

The mainstream market now lags behind with prices across 150 cities increased by 7.3% on average in the year to Q1 2021 (latest data available).

The Prime Global Cities Index is a valuation-based index tracking the movement in prime residential prices across 45+ cities worldwide using data from our global research network. The index tracks nominal prices in local currency.

Toronto leads this quarter’s results recording annual prime price growth of 27%, driven by strong buyer appetite and low inventory levels. Despite a recent raft of cooling measures, the next three rankings are occupied by key Asian cities – Shanghai (21%), Guangzhou (20%) and Seoul (20%). Miami (19%) completes the top five this quarter.

Interestingly, the proportion of cities registering prime price growth has increased only marginally to 76%, instead it’s the scale of growth amongst the top-performing cities that is behind the index’s acceleration.

Last quarter, the top-performing city recorded annual prime price growth of 19%, three months on four cities exceed this threshold.

Other hotspots include Canadian and US cities which, on average, registered annual price growth of 16% over the 12-month period.

What’s driving prices higher?

Housing markets are undergoing the most unusual of recoveries. An easing of travel rules in some markets, a surge in safe haven purchases by domestic buyers, a flurry of activity ahead of the tapering of stamp duty holidays, and an overall reassessment of lifestyles and commuting patterns, all set against a backdrop of low interest rates.

Where next?

Talk of housing bubbles are grabbing headlines worldwide but we expect the prospect of rising interest rates, government intervention and the withdrawal of stimulus measures to rein in the market’s exuberance in the second half of 2021.

Expect more cooling measures as policymakers grapple with the affordability conundrum. The Chinese mainland’s long debated national property tax now looks more likely.

We expect to see London, New York, Paris and Dubai move up the rankings in Q3 as travel restrictions ease and international buyers start to recognise the relative value in these cities.

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Toronto neighbourhood could be totally transformed over the next decades

A Toronto neighbourhood could see massive changes over the next few decades.

More than 500 acres around Downsview Airport and Downsview Park are part of a planning process to develop residential and non-residential property called id8 Downsview.

Just as neighbourhoods around #Downsview were built over time, this plan will likely take 30+ years to fully implement. Our thoughtful, step-by-step approach prioritizes collaboration so decisions continue to be informed by priorities of the community, stakeholders & the City.

— id8Downsview (@id8Downsview) July 28, 2021
Northcrest Developments and Canada Lands, have named the planning process id8 (ideate) Downsview “because we know a lot of ideas will be shared and discussed between a lot of people to plan a future for these lands.”

The process began when Bombardier sold the Downsview Airport property to the Public Sector Pension Investment Board (PSP Investments – a federal Crown corporation that manages funds for the pension plans of the federal Public Service, the Royal Canadian Mounted Police, the Canadian Armed Forces, and the Reserve Force) in 2018.

Northcrest Developments was established a short time later to create a master plan and develop the Downsview Airport lands on behalf of PSP Investments. Downsview Airport is slated to close in 2023.

They hit a snag with some disagreement over rezoning employment lands as residential. Plans now state there will be a minimum 12 million square feet of non-residential space – including a recently announced film and television production facility.

Now id8 Downsview is preparing a proposal for the City of Toronto and is asking for feedback on plans for the property.

Developing this area will take 30+ years. We want this space to serve the community in the interim as well as in the future. What could we do with this space while planning is underway? Share your thoughts on our survey

— id8Downsview (@id8Downsview) July 27, 2021
An early vision for the property includes three new mixed-use neighbourhoods anchored by Downsview Park and the airport. Mid-rise buildings and taller buildings near transit are mentioned in the plans.

Planning this big area will take time and collaboration with the public, stakeholders & City. The early focus will be on 3 new, mixed-use neighbourhoods, anchored by #DownsviewPark and the runway. This will enable us to start close to transit and support the creation of new jobs.

— id8Downsview (@id8Downsview) July 24, 2021
Downsview Park won’t be cut.

“The size of the Park will not change and there will be additional green spaces added as we develop the neighbourhoods,”

There are also suggestions to include new parks, re-use heritage buildings, celebrate Indigenous people and reimagine the airport runway.

With the departure of Bombardier and the availability of the airport lands along with a TTC subway extension and GO service expansion — there is a potential for development.

This is just the first step in what is likely a multi-decade process of “re-imagining this area of Toronto.”

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