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Condo buyers facing rising costs, challenging affordability

A 26-storey condominium in Abbotsford, BC has been rocked by astronomical increases to its insurance premiums—a 780% increase from its rates last year.

BFL, which insures the aforementioned Mahogany Tower, raised the property’s rates from $66,000 in 2019 to $588,000 in 2020.

Mike Pauls, president of the building’s strata council, said that the increase will affect condo owners in the form of a one-time tax of $3,000 per unit. This does not include the additional monthly costs of $600. The insurer explained that the increase was due to fewer insurance entrepreneurs willing to share the risk of insuring the high-rise building, which is valued at $79 million. The insurer has since offered a lower premium of $241,000—but with reduced coverage.

Condo insurance prices all over Canada are experiencing significant leaps in rates thanks to severe weather events in recent years. Industry stakeholders and experts cautioned that if this issue persists, the costs may soon be unsustainable.

As single family home prices continue to rise in much of the country, condos have stepped up as the more affordable option, and that demand shows no sign of slowing anytime soon. Affordability has always been an issue for homebuyers, but investors are also becoming concerned as to how this will impact their bottom line. Pauline Tonkin, mortgage advisor with DLC’s Blue Tree Mortgage in Vancouver, has been contacted by both buyers and investors regarding the issue.

“I definitely see that it is going to be an issue,” she said. “In conjunction with the mortgage rule changes and rates, there are so many factors that we have to review for clients to make it affordable, and strata fees are a number that’s included in the debt servicing ratio. So if that goes up, it automatically reduces their ability to qualify. The more it goes up, the more it impacts them.”

Climate-related weather events are driving up insurance premiums for condominium owners across Canada. A condo complex in Ottawa found that its insurance premiums had climbed by 730% because of wind and fire damage. Some Alberta condos are facing insurance premiums of up to 700%. And Tony Gioventu, executive director of the Condominium Homeowners Association, said that condos in British Columbia are facing premium hikes up to 300%.

Not all condo corporations, however are seeing these huge increases. Rob de Pruis is the director of consumer and industry relations, Western region, for the Insurance Bureau of Canada and he says that claims frequency, repair and maintenance procedures and schedules, changes in coverage, and increase in replacement cost all play into evaluating costs.

“We do see a number of areas, especially in B.C., where the rebuild costs on these properties have been growing fairly significantly over the last couple of years,” he said. “Every property is assessed on its individual risk merits. Anything that the corporation can be doing and unit owners can be doing to reduce that risk and prevent claims is going to be very helpful over the long term.”

Strata unit owners are being advised that if their strata corporation is faced with a substantial increase in insurance rates, the cost will be reflected in the annual budget that determines annual strata fees, according to the Insurance Brokers Association of B.C. (IBABC).

If the deductible is dramatically increased to $100,000, for example, any claims under that new limit aren’t covered by insurance and, subject to bylaws, each owner is likely responsible for damages to their strata lot with the strata corporation responsible for common property.

“The result is many of the repair and replacement costs that have been covered by the policy of insurance taken out by the strata corporation will now be downloaded onto the affected owners in the event of a claim,” IBABC writes in a memo addressing the issue.

“Unfortunately, a large swath of the population is never going to be able to afford a detached house, so they’re going to be in a condo one way or another,” said Iain Macfadyen, a mortgage broker in Vancouver.

For those people who are right at their financial limit, it will bring their budget down, but Macfadyen said it’s also the feeling is that a strata fee is simply lost money, whereas people feel as if they’re getting more from a mortgage payment.

It’s unclear how much of an impact this will have on affordability and demand for buyers, investors, and even builders is unclear. Tonkin says that these increases don’t’ just affect buyer qualification now, but the affordability of the property in the future.

“We may not see too much of a hit right away, but it’s going to come, and I really think it’s about after they move in. [Buyers] need to really need to be aware of including that in their budget, and that’s where working with good mortgage professionals will go through that with them.”

Like other financial instruments such as interest rates, insurance rates are constantly being revised in reaction to market forces and emerging trends. This is the current scenario with commercial insurance in general and strata building insurance in particular, according to the IBABC.

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Ontario’s rental vacancy rate is starting 2020 at a near record low

New year, no vacancy. Renters in cities across Ontario will spend another year struggling to find rental housing as prices continue to rise in the face of tight market conditions.

In 2019, the vacancy rate was 1.6 percent and it will likely drop further through 2020 to a near record low of 1.5 percent, according to Central 1 Credit Union economist Edgard Navarrete. For context, the vacancy rate for Ontario’s rental market averaged 2.6 percent between 1991 and 2018.

In his 2019-2022 housing forecast published at the end of 2019, Navarrete noted that the province has seen a substantial uptick in completed new rental units over the last three years. Through the same 1991 to 2018 period, the average number of new rental units added to the market was 1,500. From 2017 to 2019, the average increased to 7,000 units.

The trouble is that increase still doesn’t satisfy the demand for rentals in some of the province’s most competitive markets, especially Toronto, which is said to have the worst rental supply deficit in Canada.

“Government investments in rental housing will continue to add to the rental universe but expect [the province’s] rental vacancy rate to remain stubbornly lower than the long-term average due to continued strong demand from immigrants settling in Ontario and existing renters opting to remain in rental longer until they have a sufficient down payment to qualify for a mortgage loan,” wrote Navarrete in the Central 1 Housing Forecast.

Unfortunately, the main takeaway here for Ontario renters is monthly rents will continue to climb above inflation as long as this sharp disparity exists between rental supply and persistent demand. Navarrete singles out Toronto, Ottawa-Gatineau, London, Kitchener-Cambridge-Waterloo and Hamilton as markets where rental prices will log especially steep increases and bidding wars will keep intensifying. These cities will feel the strain on their rental markets particularly acutely because they are set to absorb the most new residents to the province.

There is hope for a rental unit supply uptick in the next few years, but for those looking for a new rental this year, it’s unlikely to offer much relief. The provincial government under Premier Doug Ford rolled back the rent control measures introduced by the Wynne Liberal government just a couple years earlier. With more flexibility to price rental units in response to market demand, investors are more likely to see condos as a solid long-term moneymaker and purchase units to add to the rental market.

These investor-owned condos are known as the “secondary rental market” since they are not built for the sole purpose of being added to the rental pool. Purpose-built rental units are known as the primary rental market.

The caveat is that the positive market changes this policy shift from the Ford government intended to inspire won’t be felt for at least a few years.

“If we see a large number of investors entering the market today, with the average completion time of high-density housing such as condo apartments anywhere from two to three years from the time shovels hit the ground, it wouldn’t be until after 2022 when the increased rental market supply will alleviate some of the pressures from the primary rental market,” wrote Navarrete.

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Supply pressure to impel intensified home price growth in 2020

The lack of housing supply, especially in the Greater Toronto Area, will aggravate Canadian home price growth this year, amid already acute pressure from investors and speculators.

Coming off the heels of at least nine consecutive months of sales growth on a national level, it can been seen that the moderating effect of mortgage stress testing first implemented in 2018 was not sufficient to prevent demand from overtaking inventory, according to a recent analysis by real estate information portal Zoocasa.

“While factors such as foreign and domestic investment have also contributed to too-hot-to-handle price growth, that there have been too few homes to satiate demand, particularly in the GTA markets, set the stage for bidding wars and a stratospheric rise in home values over the course of 2016,” Zoocasa explained.

“That infamously led to the implementation of the Ontario Fair Housing Plan, which included a number of measures including a foreign buyers’ tax and rent controls, to cool the demand end of the market.”

And while such measures helped cut down demand noticeably, “Canadian real estate as a whole could be considered a sellers’ market in November, with a sales-to-new-listings ratio of 66.3%, as new supply shrank by -2.7% year-over-year.”

The total months of inventory are also at their lowest since 2007, at a mere 4.7 months.

Toronto’s consistently intense levels of demand are a stark microcosm of the national situation, if statements from the city’s real estate board are any indication.

“Strong population growth in the GTA coupled with declining negotiated mortgage rates resulted in sales accounting for a greater share of listings in November and throughout the second half of 2019,” TREB chief market analyst Jason Mercer said.

By the end of last year, the sales-to-new-listings ration in the region stood at an alarming 81%.

“Increased competition between buyers has resulted in an acceleration in price growth. Expect the rate of price growth to increase further if we see no relief on the listings supply front.”

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2020 rates will likely remain at reasonable levels

This year, mortgage rates will most likely remain low and qualification will be easier, real estate information portal Zoocasa predicted.

Much of the impetus for these developments could stem from renewed calls to give the B-20 mortgage stress test another look, given the policy’s moderating impact over the past two years.

“In December, a letter from Prime Minister Justin Trudeau indicated Federal Finance Minister Bill Morneau will take a second look at the controversial test’s criteria, and potentially make tweaks to allow for more flexibility when qualifying borrowers,” Zoocasa stated.

And while the details have yet to be divulged, “this could include lowering the qualifying rate from its current 5.19%, or making it more dynamic based on individual borrowers’ profiles,” Zoocasa added.

“As well, they could remove the current requirement for borrowers to be re-stress tested when switching lenders, a measure that has drawn heavy criticism from the mortgage industry for discouraging consumer empowerment and competitiveness.”

This might continue a trend of Canadians paying for lower loan interest rates, which started becoming apparent last year, according to Bank of Canada data.

Between October and November, the effective interest rate went up by 0.27% to reach 3.70%.

“The rate is lower than [2018], but the longer-term movement is still towards higher rates,” real estate information portal Better Dwelling stated, noting that any recent declines have been more than offset by the gains seen over the previous years.

“[In 2018], rates during the same week were up 14.53% from a year before. The year before that, they increased 14.29% from the year before. Overall, rates are 9.79% higher over the past 5 years,” the analysis added. “Before 2018, you would have to go back to 2011 to find rates this high.”

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Developers answer the call for housing outside downtown core

Housing affordability is a significant conversation that is taking place across the country, especially in high-density, urban cities. Even as the risk profile for Toronto and Vancouver housing markets have come down to “moderate” levels, the fact remains that the demand hasn’t gone away, and that means that prices are remaining out of reach for many people.

British Columbia in particular, is seeing more people choose to live outside of the Vancouver core or being compelled to live in surrounding regions to find appropriate housing. Their demands, however, haven’t changed: they want to live in convenient locations that are close to shopping centres and transit, even as they move beyond the downtown area. This means that developers are having to think outside the box of the single-family suburban norm.

Many of these areas lack a lot of options when it comes to housing, and people are increasingly demanding more variety in developments in order to meet their needs.

Hari Homes is a developer in British Columbia that is catering to this shift in demand. Their recent revitalization project, Chalet, is meant to increase density in Delta, B.C., in order to keep young families in the area. With Chalet, they didn’t want to build towers, but instead wanted to create something that would compel various swaths of the community to take advantage of the units.

The development plan includes units that range from 491 square feet up to 1,300 square feet and sidewalks that connect the community to local schools and amenities. They are particularly paying attention to affordable units for first-time buyers who are struggling to find other options in the area, given that a single-family home in Delta are older and still at least $900,000, said Aloke Chowdhury, managing director of Hari Homes. This puts them out of reach for a lot of middle-income buyers, such as people who are newly married or who have small families.

“The thing you have to understand is that the land prices are going up day by day,” Chowdry said. Hari Homes bought the land for Chalet five years ago and began work in 2017, but if the land had come available today, Chowdry expects it would be three times more expensive. From a developer’s perspective, he continued, “if they don’t make the small units, they would not be able to provide affordability to the people.”

According to a report published last year by GWL Realty Advisors (GWLRA), neighbouring suburbs of Toronto and Vancouver have seen substantial growth and demand overflow because neither city has added sufficient housing to account for recent population growth.

GWLRA is specifically building new rental housing in both cities, with over 4,000 units in the development pipeline in Toronto.

“Young families migrating to outlying areas is driving rapid population growth in these markets—along with retail demand as this is a prime spending demographic. GWLRA continues to seek grocery-anchored shopping centres in these fast-expanding nodes and recently purchased Sumas Mountain Village in Abbotsford as part of this strategy,” writes Wendy Waters, vice president of research services and strategy at GWLRA.

“We are running out of land, people have to understand that,” Chowdry said. “I have gotten some resistance in this neighbourhood that this neighbourhood will be ruined, or that traffic will be creating more chaos with the hi-rises coming. We cannot control the traffic, because the population growth is there.”

New immigrants are supporting population and housing growth in Canada, and big cities are obvious choices for those new to Canada.

Developers and municipalities are increasingly having to come together to figure out plans for new projects that may have previously not been considered, particularly in high-demand cities. Chowdry says that all of the local cities in the lower mainland—Vancouver, Richmond, Burnaby, New Westminster—are intensely focused on planning ways to create more affordable housing options available.

That includes rentals as well; Chowdry says that developers are being encouraged to come up with more rental housing solutions than they would’ve considered in the past.

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2019 is officially one of the biggest years ever for Toronto’s new condo market

It didn’t look like it was meant to be a banner year for Toronto’s new condo market as sluggish activity marred the early months of 2019. But after a spring awakening that was followed by a string of strong months for new condo sales, the year has now earned the distinction of one of the Toronto market’s strongest ever.

In a media release published Monday, Patricia Arsenault, executive vice president of Altus Group, named 2019 as one of the best four years ever for Toronto new condo sales as the real estate consultancy shared its November market data.

“After a slow first quarter, new condominium apartment sales in the GTA have shown impressive resiliency since the spring,” said Arsenault in a joint media release with the Building Industry and Land Development Association (BILD). “With one month still to go, 2019 has already earned a spot among the top four years ever for new condo sales.”

She also noted that November was busier than usual for the GTA new home market, with 4,720 total new home sales for the month, up 53 percent from a year ago and 19 percent higher than the 10-year average for November.

While the new condo market obviously had a strong showing — with sales up 32 percent versus November 2018 — it was the new single-family home market that decisively beat out its 2018 total, rising 207 percent year-over-year. Over the last few years, the single-family home market has been characterized by weak activity that has sunk lower and lower with each passing month.

Those in the industry argue that there’s plenty of demand for the housing type, but government policies rolled out over the last decade have increasingly favoured high-rise development and made it more challenging to bring new single-family home projects to market.

In November, there was clearly an uptick in supply brought to both the condominium and single-family home markets. However, that wasn’t the only reason sales have continued trending upward since the spring.

“We are seeing robust demand for new homes, and with a healthy economy and continued low interest rates, that demand is likely to continue strong into 2020,” said David Wilkes, BILD’s president and CEO. “We need to keep our focus on increasing housing supply to ensure that housing prices remain stable and that our sector continues to be a source of good jobs and a driver of economic growth.”

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The Average Home Price In The GTA Crept Closer To $1M In 2019

The average selling price of a home in the Greater Toronto Area (GTA) in 2019 increased 4% to $819,319 according to a new report from the Toronto Real Estate Board (TREB), and those looking to enter the buyer’s market can expect prices to continue to rise in 2020 unless there is an increase in supply, the board predicts.

According to the latest report, residential sales in the GTA this past December were up by 17.4% year-over-year to 4,399, contributing to the overall total of 87,825 home sales in the calendar year. This is up 12.6% compared to the decade low of 78,015 sales reported in 2018.

 

While sales were up in 2019, the number of new listings entered into TREB’s MLS System was down 2.4% year-over-year. The report revealed that for the past decade, annual new listings were largely in a “holding pattern” of between 150,000 and 160,000, despite the upward trend in home prices over the same period.

“Taking 2019 as an example, we experienced a strong sales increase up against a decline in supply,” said Jason Mercer, TREB’s Chief Market Analyst. “Tighter market conditions translated into accelerating price growth. Expect further acceleration in 2020 if there is no relief on the supply front,” said Mercer.

According to TREB, the average selling price in December 2019 was $837,788 – up nearly 12% year-over-year. For the 2019 calendar year, the average selling price was $819,319, up by 4% compared to $787,856 in 2018.

 

For December, detached homes recorded higher price gains, up 11.6% in the month to $1.05 million as sales increased 26.2% from a year earlier. The average condo price was up 10.4% to $612,464, while sales were up 6.9%.

TREB said the increase in sales activity in the second half of the year was primarily due to a strong economy throughout the region and an overall decline in mortgage rates.

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Residential construction investment down in 6 provinces

There was a decrease in Canadian construction investment in October, the latest month of data released by Statistics Canada.

The agency says that total investment in construction was down 0.5% month-over-month to $15.5 billion with the residential sector down 1% to $10.6 billion while the non-residential sector gained 0.5% to $4.9 billion.

Residential construction investment was down in 6 provinces with Ontario posting the largest decrease ($129.6 million), its first decline for four months, while BC posted its first gain (up 5.3% to $1.9 billion) after 4-monthly decreases.

The decline for residential to $5.3 billion was the result of a 1% decline for single-family units and a 0.9% decline for multi-family.

Non-residential gains
Investment in the non-residential sector rose 0.5% to $4.9 billion in October with the commercial component leading with a 1.1% increase to $2.9 billion, largely due to increases in Ontario (2.0% to $1.0 billion) and British Columbia (3.8% to $546.9 million).

There were declines though for the industrial (-0.3% to $902.4 million) and institutional (-0.4% to $1.1 billion) components in October.

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Toronto is among the 10 most valuable ‘city brands’ in the world

Having a strong brand is vital for successful businesses but for cities it can enhance everything from investment to immigration.

A new report from Global City Lab has ranked the top 500 city brands in the world with more than 80% of them in North America, Europe, and Asia. Europe leads with 177 cities in the list, Asia has 151, and North America has 96, mostly in the US (66) but including one Canadian city in the top 10.

The brand values of major cities in each country are calculated based on six factors: economy, culture, governance, environment, talent and reputation.

Toronto is placed 10th in the list, joining Los Angeles (5th) and New York (1st) as the only North American cities in the top 10. Toronto’s brand value is U$773 billion, while top-placed New York has a value of $2.2 trillion.

Toronto recently announced a major new housing plan to grow the city’s households by more than 341,000 over the next decade.

A city brand needs several components including being able to tell a story in which local residents, government, and media share consensus. Global City Lab says that local governments are recognizing the importance of building a city brand and urban branding is becoming a promising public management tool.

 

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These are some of the best cities for real estate investment in 2020

Toronto and Vancouver are among the prime cities for real estate investment.

London tops the Global Prime Real Estate Securities Strategies rankings from real estate investment management firm Heitman LLC followed by New York, and Singapore.

Toronto ranks 11th while Vancouver is 24th.

Heitman’s Real Estate Securities Group compiles the list as part of the screening process it uses to identify cities and investee companies and REITs for potential inclusion in the firm’s Prime strategies.

“Our Prime strategy’s hypothesis is that ‘prime’ real estate markets around the globe are select in number and characterized by strong demand from tenants, owners, and consumers,” said Jerry Ehlinger, Heitman Senior Managing Director and Head of Global Real Estate Securities.

Ehlinger says that these gateway markets tend to be supply constrained both by high land costs and difficult permitting and planning regimes.

“As a result, ‘prime’ real estate assets in these markets are consistently in high demand from investor capital from across the globe due to locational advantage, prestige, attractive leases to credit tenants, stable income, and stable or increasing value but can also be difficult to access through direct investment,” he said.

European gain
While the US continues to boast seven cities, the most in the rankings for any single country, major continental European cities experienced the largest upward movement in the rankings.

The rankings are compiled using several metrics incorporating economic, trade, property human capital, and cultural and political characteristics.

“There were no changes to the composition of the cities included in our screening from last year’s rankings. However, there have been some significant positioning changes, partially resulting from relative economic developments, spillover impacts from Brexit, and an increased focus on sustainability in this year’s market update,” said John White, Heitman Senior Managing Director, Public Real Estate Securities. “New to this year’s ranking, we have also incorporated longer-term sustainability factors into our research to gain a better sense of how cities are adapting to a changing climate.”

Source: Heitman LLC

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Ontario, federal government make $1.4B housing deal to help low-income renters

Toronto’s low-income renters may soon get some relief from the city’s overheated market following the announcement of a $1.4-billion rental housing benefit co-funded and agreed on by the provincial and the federal governments.

Housing Minister Steve Clark said he expects the Canada-Ontario Housing Benefit, which eligible participants can use wherever they decide to rent, will support roughly 5,200 households provincewide during the first year of the program and that number will increase annually. He made the comments following a Thursday morning press conference announcing that Ontario would be the first province to start the rollout of the national program.

Clark said households can expect to receive on average about $575 per month, although more precise details are expected to be negotiated based on city size and needs identified by service providers. In terms of program expansion, Clark said “this is something we are going to take our time with as we roll it out.”

The minister’s office later confirmed to the Star that Toronto is expected to receive about $7.5 million over 2020 and 2021, just the start of a program expected to continue for about an additional seven years.

Mayor John Tory described the announcement as “another great example of how governments are working together” to help residents in need, in a statement released before he spoke at the conference. “Making sure people have access to affordable housing is a top priority for me as mayor and that requires the co-operation and support of other levels of government.”

The national rent program is expected to help at least 300,000 low-income renters across Canada, over seven years, as part of the National Housing Strategy, and is valued at $4 billion, once provincial and territorial cost matching is factored in. Exactly how the $1.4 billion will be divided across the province has yet to be worked out.

Priority will be given to households eligible for or on a “social housing waiting list and households in financial need living in community housing. This includes survivors of domestic violence and human trafficking, persons experiencing or at risk of homelessness, Indigenous persons, seniors and people with disabilities,” a government release states.

Asked how this will be worked out, as some cities, like Toronto, are facing higher costs than others, Clark spoke to the accepted calculation that affordable housing is about 80 per cent of what is considered average market rent and that no household should be paying more than 30 per cent of income to cover those costs.

While the National Strategy has been publicized as being worth as much as $55 billion, Ontario’s Office of the Parliamentary Budget Officer determined the actual federal dollars pledged represented a “nominal” increase in spending on housing once current spending and the winding down of existing housing programs are factored in, as outlined in a June 2019 report.

For the national benefit to work, the federal government is operating on the assumption provinces and territories will kick in their portions of the money for the length of the program, according to the report, and “it is still not clear this would require a meaningful increase in spending as, for example, social assistance payments could be reclassified as matching funding.”

The active wait-list for subsidized housing across Toronto was counted at more than 102,000 households during the first quarter of 2019. More than a third were identified as seniors, according to numbers posted on the city’s website.

Thursday’s announcement was made in front of a Toronto Community Housing building at 150 River St., near Dundas Street East, and part of the newly revitalized sections of the Regent Park neighbourhood. That building contains 125 rent-geared-to-income units and 33 units of what is defined as affordable housing and whose residents were chosen through a lottery-like system, said TCH spokesperson Bruce Malloch.

People who wanted to live in those affordable units, two- and three-bedroom apartments costing $1,194 and $1,331 respectively, submitted their names into a random draw and if selected their applications were considered.

The maximum household income for the two-bedroom units was $57,312, and $63,888 for three-bedroom units.

Malloch said more than 1,800 applications were made for the two-bedroom units and more than 1,600 applications for the three-bedroom apartments. Residents are starting to move in this week.

What constitutes affordable housing is typically based around numbers reported by the Canada Mortgage and Housing Corp., which tracks what people are paying for occupied purpose-built rental units. Condominiums are considered a separate category and are not included.

Housing is considered affordable if it matches or is lesser than the average of those occupied purpose-built rentals, which are subject to rent control. In Toronto, landlords can charge whatever they want for empty units, and any units occupied after mid-November 2018 have no rent controls at all.

Across Old Toronto, the average cost for a two-bedroom apartment in 2018 was $1,829 and a three bedroom was $2,473, according to the most recent CMHC rental market housing report for the Greater Toronto Area.

Research firm Urbanation reported that average rents for newly leased or available purpose-built rental units was about $2,515 per month, in an October news release. The release did not include unit size.

Correction — Dec. 19, 2019: The benefit is expected to help 300,000 low-income renters across Canada. A previous version of this story said the number would assist 300,000 people across Ontario.

 

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Canadian Home Sales and Prices Surge for 9th Month in a Row in November: CREA

Canada’s housing market improved for the 9th month in a row in November, with strong gains in both sales and price growth – a trend that’s expected to continue into 2020, according to the Canadian Real Estate Association.

The latest data reveals the number of homes trading hands nationwide rose 0.6% from October levels, and 11.3% from 2018. Meanwhile, the number of newly-listed homes continues to shrink, down -2.7%; that’s increasingly putting the squeeze on buyers and pushing more local markets into sellers’ conditions, which helped drive the national average sale price to $529,000, an increase of 8.4%. That indicates the market has recovered by 20% from the six-year low recorded this February, though it still lingers below the 2016 – 2017 peak by 6 – 7%.

The MLS Home Price Index, which measures the price benchmark for homes, also rose 0.8% month over month and 2.6% year over year.

Strong Housing Market Growth to Continue in New Year
It’s a dynamic housing market participants should get used to, as CREA has updated its forecast for this year and next, calling for sustained growth trends across the country over the long term; a total of 486,800 home sales are expected to be logged for 2019, up 6.2% from last year. Sales were stronger than expected in the second half of the year, while months of inventory continued to brush rock bottom (with the Prairies stripped out, there’s just a 0.1 month of supply of available homes for sale, a 15-year low). The average home price is expected to clock in at just over $500,000, up 2.3%.

CREA forecasts a total of 530,000 units will sell in 2020, an increase of 8.9%, while prices are expected to surge 6.2% to an average of $531,000.

It expects that the same regional price trends that defined the 2019 market to largely continue throughout the new year, namely uneven price growth between the west- and east-end provinces, overall slower performance in the Prairies, and Ontario and BC making up the bulk of activity.

Sales on the Rise in Most of Canada’s Major Markets
CREA reports that November home sales were up in nearly all of Canada’s major markets, with demand on the rise for British Columbia and the Greater Toronto MLS listings, which helped offset declines in Calgary.

According to CREA President Jason Stephen, markets that continue to struggle with sales volume are those that have been disproportionately affected by the OSFI federal mortgage stress test, which has had an overcorrecting effect in cities that had largely balanced or buyers’ conditions before it was implemented.

“Sales continue to improve in some regions and not so much in others. The mortgage stress test doesn’t help relieve the ongoing shortage of housing in markets where sales have improved, and it continues to hammer housing demand in markets with ample supply,” he states.

Check out how price growth differed in Canada’s major markets in the infographic below:

 

Supply-and-Demand Gaps Growing in Hottest Cities
As has been the long-term trend, uneven supply of housing across Canada is also contributing to mixed price growth, as some locales face a tight supply-and-demand crunch, while others sit on a plethora of available listings.

Gregory Klump, CREA’s chief economist, says that as long as these imbalances persist, prices will continue to grow in the nation’s largest cities.

“Home prices look set to continue rising in housing markets where sales are recovering amid an ongoing shortage of supply,” he says. “By the same token, home prices will likely continue trending lower in places where there’s a significant overhand of supply perpetuated in part by the B-20 mortgage stress test that continues to sideline home buyers there.”

As a result of higher sales volume and declining new listings on a monthly basis, the sales-to-new-listings ratio (SNLR) for Canada as a whole hit 66.3% in November – deep into sellers’ market territory, and well above the long-term average of 53.7%. This ratio, which measures the level of buyer competition in a market, is calculated by dividing the number of home sales by the number of new listings brought to market over the course of the month. A ratio between 40- 60% indicates a balanced market, with below and above that threshold signalling buyers’ and sellers’ conditions, respectively.

Conditions Uneven Between East and West
According to this measure, just over half of all local markets were balanced in November, with Alberta and Saskatoon remaining largely over supplied, with the opposite occurring in Ontario, BC, and the Maritimes.

The overall months of inventory – a measure of how long it would take to sell off all available homes for sale – sank to 4.2 months, the lowest it has been since the summer of 2007, and below the long-term average of 5.3 months. As has been the case, it remains higher than usual in the Prairies and Newfoundland and Labrador, while below typical levels in Ontario, Quebec, and eastern markets.

Overall, conditions remain balanced in BC, including on the Vancouver MLS, though CREA warns that markets within the province are primed for price growth and buyers rebound in solid numbers.

Price Gains by Province
BC: While year-over-year prices remain down in both Greater Vancouver and Fraser Valley, the pace of those declines is slowing, down -4.6% and -2.9%, respectively. However, the remainder of BC’s markets are on an uptick; prices rose 1.4% in the Okanagan, 1.5% in Victoria, and 2.9% elsewhere on Vancouver Island.

Prairies: Price growth remains subdued across the board, down -2% in the Edmonton, Saskatoon, and Calgary real estate markets, while falling -5.5% in Regina.

Ontario and Eastern Canada: According to CREA, “… price growth has re-accelerated well ahead of overall consumer price inflation across most of the GGH. Meanwhile, price growth in recent years has continued uninterrupted in Ottawa, Montreal, and Moncton.”

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Australia lost 124,000 millionaires last year

Global household wealth is currently estimated at about $360 trillion, according to Credit Suisse’s 2019 Global Wealth Report. This represents an increase of about $9 trillion (~2.6%) from 2018-2019.

Over the last decade, much of this growth in household wealth has come from two countries: the United States and China. 40% of the world’s US dollar millionaires reside in the United States, and China now has the second highest number of dollar millionaires. (If there are any curious Canadians reading this, Canada represents 3% of the world’s total.)

The number of ultra-high-net-worth individuals — individuals with a net worth greater than $50 million — exhibits a similar pecking order. The US is by far the most dominant.

Of course, dollar millionaires represent a small percentage of the world’s total population. Credit Suisse estimates that there are about 5.1 billion adults in the world. About 56.6% have a net worth under $10,000 and about 0.9% (okay, 1%) are millionaires. This 1% controls/owns about 44% of global wealth. Thinking back to figure 7 (above), consider this math: 50% of the world’s millionaires are now in the US and China.

Fluctuations do happen, however. Australia lost some 124,000 millionaires last year largely because of a (-6%) drop in home prices, which tends to correlate pretty closely to the real asset part of household balance sheets. Australia shed about $443 billion in household wealth since 2018, making it the biggest loser in Credit Suisse’s report.

The other thing that you may find interesting from this report is the wealth/GDP ratio that they use. Household wealth and GDP tend to correlate. But the ratio of wealth to GDP also has a tendency to increase as a country develops. This makes sense because things like the rule of law and access to capital tend to increase people’s willingness to invest/borrow. But in developed countries, it could also be a signal for asset inflation.

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The Canadian Real Estate Association Updates Resale Housing Market Forecast

The Canadian Real Estate Association (CREA) has updated its forecast for home sales activity this year and for 2020 via the Multiple Listing Service (MLS) Systems of Canadian real estate boards and associations.

Evidence suggests housing activity will continue to improve into 2020, with prices either continuing to rise or accelerating in many parts of Canada. Additionally, the Bank of Canada is widely expected to not raise interest rates in 2020.

Mortgage interest rates have declined, including the Bank of Canada’s benchmark five-year rate used by Canada’s largest banks to qualify applicants under the B-20 mortgage stress-test.

Under the $1.25 billion First-Time Home Buyer Incentive, the federal government contributes a portion of the home purchase price in exchange for an equity share of the home’s value.

Recent national sales trends have improved by more than expected over the second half of 2019 while new listings have fallen. These trends have caused many housing markets to tighten, which has sharply lowered the national number of months of inventory. In November 2019, this measure of the balance between supply and demand hit its lowest level since mid-2007.

Excluding the Prairies together with Newfoundland and Labrador, the combined number of months of inventory for the rest of Canada is at a 15-year low – just 0.1 months above the lowest level on record – and continues to fall.

The number of homes available for sale in these provinces, which represent over 80 per cent of national activity, is at a 15-year low. This is anticipated to support solid home price growth in 2020.

National home sales are projected to recover to 486,800 units in 2019, representing a 6.2 per cent increase from the five-year low recorded in 2018.

The small upward revision compared to CREA’s previous forecast reflects a stronger than anticipated uptick in activity in recent months in B.C., Ontario, Québec and Nova Scotia.

This represents the return of activity to around its 10-year annual average. On a per capita basis, the forecast for national sales this year is tied with 2008 and 2013 for the lowest since 2001.

British Columbia was the only province to weigh on the national sales figure in 2019, with sales for the province this year finishing 2.3 per cent below where they stood in 2018. Ontario and Québec provided most of the improvement in sales this year, with activity expected to be up 9 per cent and 11 per cent respectively.

The national average price this year is on track to rise by 2.3 per cent on an annual basis to just over $500,000.

In line with the balance between supply and demand across the country and trends earlier in the year, average prices in 2019 are expected to be down in the three westernmost provinces together with Newfoundland and Labrador, with robust gains in Ontario, Québec and the Maritimes.

National home sales are forecast to rise by 8.9 per cent to around 530,000 units next year. While sales are expected to trend higher, most of this annual increase in 2020 reflects a weak start to 2019 rather than a significant change in sales trends over the forecast horizon.

Of the forecast 40,000+ sales increase for 2020, British Columbia and Ontario are expected to contribute close to an additional 15,000 transactions each, while Québec and Alberta are anticipated to contribute 8,000 and 2,000 additional transactions respectively.

The national average price is forecast to rise by 6.2 per cent in 2020 to $531,000. Average price trends across Canada in 2020 are generally expected to resemble those in 2019, with small declines in Alberta, Saskatchewan and Newfoundland and Labrador, and solid gains in Ontario, Québec and the Maritimes.

In British Columbia, the average home price is expected to rebound next year following this year’s decline. In regions with supply shortages, price gains may exceed forecast levels should shortages become more acute than anticipated.

 

 

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Six real estate trends to watch for in 2020

Thankfully, success in real estate doesn’t require an ability to predict the future. But having an idea where the market is heading is critical to making the right decisions.

PropertyGuys.com recently released a list of six trends that the company feels will have a lasting, potentially transformative effect on Canada’s real estate market in the coming years. Based on consultations with PropertyGuys’ network of agents, developers and customers in both Canada and the US, the trends presented paint a picture of a rapidly changing real estate environment where fulfilling tenant desires will require more of investors than simply adhering to the status quo.

PropertyGuys co-founder and lead analyst, Walter Melanson, says the trends identified suggest fundamental changes in the real estate market “that have us believing that this is more of what the future has to hold.”

Co-living

Before its catastrophic public flameout, We Work changed how the owners of commercial properties could exploit the sharing economy to drive rents for properties that were otherwise either vacant or failing to achieve the rent appreciation they needed to remain profitable.

Melanson says residential landlords are now considering using rental properties in the same way.

Most young city dwellers expect to have roommates anyway. By providing this new generation of renters what they’re looking for – furnished apartments, bigger shared spaces, free cleaning and wifi, and the company of likeminded people – landlords can charge premium per room rents. It’s like running a student rental, minus the holes kicked in the wall.

“The whole idea is that it builds community, it gives landlords a boost on rents that were going the wrong way for them, and it gives the people who rent the upside of having a way better place than they could ever afford on their own,” says Melanson.

Climate change impacting sales of new builds

As changing environmental standards force developers to alter how they build their properties, the cost of doing so will only increase over the short-term.

“We see this as one of the things that puts a lot of pressure on new development and new construction,” Melanson says. “The world’s becoming way more complex as it relates to building – getting permits, getting through the red tape. It changes so quickly, and it just gets harder and more expensive.”

Higher prices for new product could put a damper on sales of pre-construction properties, but the built-in appreciation associated with such assets should ensure that, by delivery date, an investor will have paid far less than the going rate.

New builds are old news

The increasing cost of new product and the built-out status of many urban communities has forced developers to move further and further away from city centres. Buyers still want new product, but the distances being placed between where they work and where they can afford to buy are becoming untenable. Melanson’s prediction is that buyers will see less value in new builds if it means being locked into an exurb lifestyle hours from where they actually want to live.

“What we’re seeing is people’s flight for affordability is pushing them as far as humanly possible from the city because there’s nowhere else to build,” he says.

That may be, but in Ontario and British Columbia, two provinces with surging populations, it’s safe to assume that there will always be someone willing to drive two hours to work if it means they can get a foot on the property ladder. And there is still plenty of room to build within minutes of most cities in Atlantic Canada.

Condos for families

Investors commonly think that the smallest property a family will be interested in renting is a townhouse. Melanson says that is no longer the case, and that new arrivals from overseas are frequently choosing condos as an affordable, convenient alternative to single-family properties.

“Newcomers don’t all have the same view as you and I on what a home’s supposed to be,” he explains. “We want all this space, and it doesn’t make sense for a lot of people moving from other parts of the world where they never had this space.”

Investors basing their choice between one- and two-bedroom units based on demand, take note.

Prices on the rise

Bad news for anyone hoping for a slowdown in the price increases affecting major markets like Montreal, Toronto, Vancouver and Victoria: increased demand will keep pushing home prices higher. The flatness in prices witnessed in Vancouver and Toronto over the first half of 2019 was a blip, a mirage. Investors looking for value will have to set their sights on less densely populated cities.

“Everyone in the world wants to live in Toronto, it would seem,” says Melanson. “And there’s nothing you or I could ever do to stop them. I don’t see anything in the foreseeable future that could change that fact.”

PropertyGuys also predicts noticeable price increases in Edmonton and Calgary. Based on recent government cuts and the headwinds that are still battering the province’s oil sector, CREW respectfully disagrees.

The move away from real estate agents

“Real estate is a hundred-year old business,” Melanson says. “The big brands trade the same way today they did almost a hundred years ago. The dynamics of their business being so agent-centric worked when the agent had the goods. They had the listing, they had the smarts, they had the data, and they had the secret data.”

Those days are over. With buyers growing more confident in the data they have access to, paying a realtor to provide similar, if not in identical, information will no longer be an automatic choice – particularly for new investors who may have never dealt with an agent before.

“You can learn more, do more, understand more and play the market a lot different than you would have 10 or 20 years ago when your reliance on a real estate agent was at its highest,” says Melanson.

CREW sees a day when buyers and sellers choose to market and list their own properties through an app rather than having to sit through a realtor’s sales pitch. But in our opinion, investors hoping to build a rock-solid, diversified portfolio are better off paying commissions to an investor-focused realtor than paying the higher long-term costs associated with choosing the wrong property.

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Ontario, federal government make $1.4B housing deal to help low-income renters

Toronto’s low income renters should soon learn how they can access a portable rental housing benefit following the announcement of what amounts to a $1.4 billion deal co-funded and agreed on by the province and the federal government.

“Today’s announcement is another great example of how governments are working together to help our residents,” said Mayor John Tory, in a statement released prior to a Thursday morning press conference. “Making sure people have access to affordable housing is a top priority for me as Mayor and that requires the cooperation and support of other levels of government.”

Ontario’s program is expected to help at least 300,000 low-income renters, a federal target outlined in a bi-lateral agreement agreed on under the previous provincial government, dated April 2018, and was considered a significant victory for advocates who fought to have a benefit as part of the overall National Housing Strategy.

Priority will be given to households eligible or on a “social housing waiting list and households in financial need living in community housing. This includes survivors of domestic violence and human trafficking, persons experiencing or at risk of homelessness, Indigenous persons, seniors and people with disabilities,” a government release states. It did not contain specifics on when people could apply and exactly how the program would unroll.

Thursday’s announcement was made in front of a Toronto Community Housing building at 150 River Street, near Dundas Street East, and part of the newly revitalized sections of the Regent Park neighbourhood. That building contains 125 rent-geared to income units and 33 units of what is defined as affordable housing and whose residents were chosen through something of a lottery, said TCH spokesperson Bruce Malloch.

People who wanted to live in those affordable units, two and three bedroom apartments costing $1,194 and $1,331 respectively, submitted their names into a random draw and if selected their applications were considered.

The maximum household income for the two-bedroom units was $57,312 and the $63,888 for three-bedroom units.

Malloch said more than 1,800 applications were made for the two-bedroom units and more than 1,600 applications for the three-bedroom apartments and residents are starting to move in this week.

What constitutes affordable housing is typically based around numbers reported out by the Canada Mortgage and Housing Corporation, which tracks what people are paying for occupied purpose built rental units. Condominiums are considered a separate category and are not included.

Housing is considered affordable if it matches or is lesser than the average of those occupied purpose built rentals, which are subject to rent control. In Toronto landlords can charge whatever they want for emptied out units and any units occupied after mid-November 2018 have no rent controls at all.

Across Old Toronto, the average cost for a two-bedroom apartment in 2018 was $1,829 and a three bedroom was $2,473, according to the most recent CMCH rental market housing report for the Greater Toronto Area.

Research firm Urbanation reported that average rents for newly leased or available purpose built rental units was at about $2,515 per month, in an October news release. The release did not include unit size.

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The most expensive city in the world in which to build

Using data from Turner & Townsend, Curbed recently reported that the most expensive city in the world in which to build is now San Francisco. On average, it costs USD 417 per square foot. San Francisco is followed by New York ($368 psf), London, Zurich, and Hong Kong. New York took the top spot last year, but San Francisco shot up this year because of, you know, tech.

This number was calculated using a blend of six different types of construction, everything from apartment high-rise and prestige office to general hospital and warehouse distribution centers.

Now, I’m not exactly sure what this number includes. But I’m assuming it is only direct construction costs and doesn’t include (contractor) general conditions, land, or any soft costs, which are all significant. Once you add in these other cost inputs, I am sure that you can start to see how things — including the cost of new housing — can quickly escalate.

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Mississauga rental prices expected to grow faster than Toronto’s in 2020

If you’re struggling to find a place to rent in Mississauga, you should prepare for a challenging market marked by even higher prices in 2020.

In fact, the recently-released Rentals.ca December 2019 Rent Report, produced by Rentals.ca and Bullpen Research & Consulting, suggests that rents could climb 8 per cent in Mississauga next year.

When it comes to significant increases, Mississauga leads the pack. Other cities where rental rates are expected to increase include Toronto (7 per cent), Montreal (5 per cent), Ottawa (4 per cent) and Vancouver (3 per cent).

Rents in Calgary and Edmonton could drop 1 per cent, according to the report.

The report predicts that average monthly rents for Canada overall will increase by 3 per cent in 2020.

As for where rates stand right now, the average rent for Canadian properties in November 2019 was $1,918 per month, an increase of 9.4 per cent annually.

In November of 2018, the average rental rate was $2,232 for all property types listed on Rentals.ca in Mississauga. According to the report, that rate increased to $2,405 for November 2019, an increase of 10.2 per cent annually.

Overall in 2019, the average rent was $2,504 per month.

Mississauga finished sixth of 34 cities listed for average monthly rent in November for one-bedroom units at $1,934 and fifth for a two-bedroom at $2,416.

Toronto remains the priciest city for renters looking for a one-bedroom home, with the average monthly rent sitting at $2,314. Vancouver has the most expensive average monthly rents for a two-bedroom, topping the $3,000 mark at $3,058.

What prices can Mississauga tenants expect in 2020?

The report says the linear forecast calls for the average rent in 2020 to surpass $2,600, but Rentals.ca and Bullpen forecast that December 2020 rent will be $2,585 per month on average, an 8 per cent annual increase.

The report says this forecast is a slight moderation from the correct 10 per cent annual growth forecasted from December 2018.

“Mississauga will continue to move parallel to the former City of Toronto with prospective renters fleeing Toronto for less expensive units or larger properties,” the report reads.

The good news is that the price increases could, in time, be modified by an influx in new rental inventory.

The report says the impact of the mortgage stress test has started to fade and developers and investors are looking to increase rental supply to offset the increase in rental demand. At a time when fewer people can afford to purchase homes (and when more and more people are moving into the GTA), developers are working on developing more purpose-built rental housing—and that’s good news for tenants.

At the end of the third quarter, the Canada Mortgage & Housing Corporation reported that almost 72,000 rental units were under construction in Canada, the highest rate in over 30 years.

The majority of listings on Rentals.ca are rental and condominium apartments and the chart below looks at the average rent and the annual change in average rent for a select number of Canadian municipalities (and former municipalities prior to amalgamation) in November 2019.

Average monthly rent for Mississauga rental and condominium apartments only increased 7 per cent year over year.

According to the report, Hamilton and Scarborough led the pack with year-over-year rent growth of 25 per cent and 23 per cent, respectively for apartments with rental or condo tenure.

On a provincial level, Ontario had the highest rental rates in November, with landlords seeking $2,339 per month on average (all property types), up from $2,334 in October, and 9.1 per cent annually from $2,144 in November of 2018.

The report says the annual increase in rents is supported by some of the smaller municipalities such as London, Hamilton, Kanata, Burlington, and Kitchener, which are all experiencing double-digit rent growth when considering all property types.

The report also notes that developers are looking to cater to more affluent renters, including those shut out of the ownership market by increasing prices, younger renters choosing to be tenants for lifestyle reasons, and boomers and empty-nesters trading down from a larger dwelling.

“After years of focusing on the ownership housing market,” said Ben Myers, president of Bullpen Research & Consulting, “The media has focused more attention on the rental market as the mortgage stress test, expanded rent control, changing Airbnb legislation, rapid population growth, and record rental housing construction continues to disrupt the balance between supply and demand nationally. We expect the market to continue to be undersupplied overall in Canada in 2020.”

Some moderation is expected in 2020.

“After two years of unprecedented rent growth, we expect some moderation in 2020,” said Matt Danison, CEO of Rentals.ca. “There should be some supply relief in the Greater Toronto Area in 2020, but Rentals.ca and Bullpen expected average rental rates for all property types in Toronto and Mississauga to increases by 7 per cent to 8 per cent next year.”

The National Rent Report charts and analyzes monthly, quarterly and annual rates and trends in the rental market on a national, provincial, and municipal level across all listings on Rentals.ca for Canada.

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Vancouver firm claims a world first for real estate AI platform

The use of technology to review contracts is already rising fast in the legal services industry but a Vancouver firm hopes to find traction in the real estate industry.

Eli Technologies has claimed a world first with its artificial intelligence (AI) powered condo and strata document review platform which helps real estate professionals to review and uncover potential issues.

Using machine learning, the Eli Report platform can review years of documents and data within minutes.

“We recognize that buying a condo is one of the largest and most important purchases an individual can make, especially first-time home buyers,” says Jamie Hankinson, CEO of Eli Technologies. “A proper review of the strata documents can be very time consuming and complex, but is an essential part of the condo purchase process. We are excited to launch Eli Report in B.C. so real estate professionals can use the platform as a second set of eyes to identify potential concerns, allowing them to elevate their level of service, and better inform their clients.”

The platform has been in beta testing since last year but now has over 500 realtors across 75+ brokerages in Metro Vancouver and Victoria registered and is now available to all realtors, mortgage brokers and property managers throughout British Columbia.

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Bank of Canada announces interest rate decision

The Bank of Canada (BoC) announced today that it would keep the overnight rate at 1.75%.

The Bank Rate is correspondingly 2% and the deposit rate is 1.5%. The BoC has maintained the current overnight rate since last October, when it was raised from 1.5%.

No one really expected the central bank to raise rates, but there was speculation that the rate would drop back to 1.5%, even though a recent survey indicated a “near certainty” of a rate hold, This lack of movement makes Canada somewhat of a holdout among other central banks around the world that are dropping rates to help their local economies in an uncertain global economic climate.

“There is nascent evidence that the global economy is stabilizing, with growth still expected to edge higher over the next couple of years. Financial markets have been supported by central bank actions and waning recession concerns, while being buffeted by news on the trade front. Indeed, ongoing trade conflicts and related uncertainty are still weighing on global economic activity, and remain the biggest source of risk to the outlook,” the central bank wrote.

Growth in Canada slowed as expected in the third quarter of 2019 to 1.3 percent, and stronger wage growth led consumer spending to a moderate expansion. Housing investment was also a source of strength, supported by population growth and low mortgage rates. Consumer spending and housing activity are important sources of resilience in the Canadian economy, and the BoC indicated that it would continue to be on alert for any financial vulnerabilities that may affect the household sector.

“Future interest rate decisions will be guided by the Bank’s continuing assessment of the adverse impact of trade conflicts against the sources of resilience in the Canadian economy – notably consumer spending and housing activity. Fiscal policy developments will also figure into the Bank’s updated outlook in January,” the BoC wrote.

The overnight rate is the interest rate at which major financial institutions borrow and lend one-day (or “overnight”) funds among themselves; the Bank sets a target level for that rate. This target for the overnight rate is often referred to as the Bank’s policy interest rate.

Changes in the target for the overnight rate influence other interest rates, such as those for consumer loans and mortgages. They can also affect the exchange rate of the Canadian dollar.

The next interest rate announcement is January 22nd.

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