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August: Hottest. Condo. Market. Ever.

 

Never in the history of the Greater Toronto Area has there been a hotter August for condo sales.

In the midst of a pandemic, the Building Industry and Land Development Association said sales jumped 35 per cent from a year ago and sat 129 per cent above the 10-year average. Single family home did less well, down 15 per cent from the 10-year average.

“Buyers flocked to the new condominium apartment market in record numbers in August as builders pumped in unprecedented levels of new supply,” said Edward Jegg, analytics team leader at Altus Group. “But in the new single-family sector, supply shortages continued to weigh on sales.”

That shortage led to higher prices – with the benchmark price for a single-family home hitting a record high of $1,521,968 in August. That’s an increase of 30 per cent in a year.

The benchmark price for new condominium apartments eased in August compared to the previous month, to $1,069,700, which was up 10 per cent over the last 12 months.

Over the past 12 months, housing starts have been their strongest since the mid-1970s and the number of homes under construction is at an all-time high, according to new research published today by RBC’s senior economist Robert Hogue.

The COVID-19 pandemic triggered a historic drop in interest rates. Coupled with changing homeowner needs and increased levels of household savings, Hogue says buyers gobbled up the stock of existing for-sale properties and drained new home inventories.

“These, and sky-rocketing prices, proved unambiguous signals for builders—and municipal permit-issuing authorities—to get cracking and expand Canada’s housing stock,” said Hogue.

Over the past 12 months, builders have poured foundations for 260,500 homes, which is considered a housing start. This is the highest quantity since 1977. It also marks a 26 per cent increase, or 53,600 more units, relative to the 2015-2019 average pace of 206,900 units.

There are almost 320,000 housing units under construction nationwide, 30,000 units more than the end of 2019. Three-quarters of this total is dedicated to apartments, most of which are tenured as condos according to Hogue.

Homeowners paid $769 less than renters a month last quarter

 

There’s the old adage in the industry that buying a home is cheaper than renting long-term. Despite sky-high property prices in many Canadian cities, that still rings true according to research published today.

In a study conducted on behalf of the company by economist and housing market analyst Will Dunning, new data shows that for those who are able to secure a “sufficient downpayment,” it is still more financially advantageous to buy compared to renting in 91 per cent of cases studied.

The study used pricing data from 278 scenarios that are organized by city and housing type, and is said to approach the question of “Is it better to buy or rent?” from multiple angles, including historical data and views on home ownership as an investment. The scenarios also assume that the homeowner has secured a 20 per cent down payment.

“For many people, buying a home – especially the first – is a landmark event and one of the most challenging decisions we’ll make in our lives,” said Will Dunning, president of Will Dunning Inc, in the report.

“It is a decision that is usually based on a lot of hard work. This research tests a belief that is held by a lot of Canadians, that owning is better financially than renting. And, it finds that this belief is very often correct,” he added.

The report explained that while the total monthly costs of owning a home are higher than renting, the principal component of a mortgage payment “can be seen as a form of saving,” and the principal is considered to be “not a true cost.” The interest portion of the mortgage payment is also at its highest in the first month and gradually reduces over the lifetime of the loan, the study said.

Of the 253 out of 278 cases analyzed (91 per cent), the net cost of ownership — the total ownership cost excluding the saving that takes place through principal repayment — is less than the expenses of renting. The report refers to this as the “ownership advantage.”

As of Q2-2021, the average net home ownership cost was $769 per month less than the expense of renting an equivalent dwelling.

In nine per cent of cases where renting was considered to be better than buying, these scenarios occurred in luxury homes within high-priced neighbourhoods.

The study scenarios also tested a mortgage renewal at five years with an increased interest rate of 3.62 per cent, which still resulted in homeownership remaining more affordable compared to renting in most cases.

“While Canadians do want their homes to appreciate, potential homebuyers will find it reassuring that significant price appreciation is not necessary for ownership to be financially worthwhile,” said Karen Yolevski, chief operating officer of Royal LePage Real Estate Services Ltd. “There are other benefits to owning a home, in addition to the financial advantages.”

Yolevski added that owning property offers more freedom and stability than renting, and provides owners with the opportunity to decorate and renovate their home as they please.

The report pointed out that Canadians often view their property as an investment, and tested how home ownership might perform as an investment based on various value factors over the next 10 years. Even with a 10 per cent drop in home prices, roughly half of those homeowners studied would still see a positive rate of return on investment. The remaining half would break even or see a “modest” loss.

In the majority of cases where there is no growth in value, ownership would result in a positive rate of return on investment according to the study.

“Although supply has reached historic lows and home price appreciation continues to trend upward, the findings of the report show that owning a home remains financially advantageous for most people,” said Yolevski. “However, all Canadians would benefit from swift and material government action to solve the country’s housing supply crisis.”

Downtown Condos Rents Roaring Back

A major concern that the industry has had for nearly a decade is that the pace of new condo price growth has far exceeded condo rent growth.

The chart below looks at the average price for new condos in postal codes M5A and M5V in Toronto (Downtown East, King West, Entertainment District), as well as the average rent per-square-foot for a sample of condos for lease in those postal codes via data from Rentals.ca.

At the start of 2020, prior to the pandemic, condos for rent were going for about $3.90 psf on average in these areas. Rent fell a whopping 20% over the next year, while new condo pricing stayed constant at $1,320 psf (there were a limited number of launches).

Since February, the average condo rent has increased by 13% to $3.50 psf, while condo prices have increased by 6% to $1,396 psf.

A 500 sf unit at $3.50 psf is $1,750 per month. When just looking at the mortgage payment of a 500 sf unit at $1,396 psf, before the condo fee, taxes, insurance, etc. is added, that equals about $2,425 per month at 20% down.

How much longer can the disconnect between rents and prices go on, or is this the new normal? Do you think that we will never have any relationship between the two measures moving forward? We'd love to hear your thoughts.

New Condo Pricing in the Central Downtown Core is up 10% Annually

 

Bullpen Research & Consulting works with big data from Buzzbuzzhome (BBH), America's largest online marketplace for new construction homes, and monitors the average price of "popular" floorplans based on the thousands of monthly data points and pageviews. The chart above looks at the average price for the central downtown core based on the popular unit data over the past three and a half years (the coverage area is generally south of College Street between Strachan Avenue and the DVP - postal codes M5A, M5B, M5C, M5E, M5G, M5H, M5J, M5K, M5V, M5T).

In August of 2021, the average price of new condominium floorplans on BBH in the downtown core was $1,431 psf, an increase of 10% annually compared to August of last year.

During the pandemic, pricing had declined by nearly $95 psf from $1,398 psf in late 2019 to $1,305 psf in June/July of last year. A lack of launches, especially luxury launches, and a slow sell off of smaller units with higher per-square-foot pricing was the likely reason, as opposed to developers actually lowering prices. There were a few "less aggressively" priced launches last year during the second wave.

The chart below looks at a sample of suites offered in 2021 by rounded unit size at five of the most prominent launches this year (suites above 1,049 sf were eliminated). The average price for these suites is $1,420 psf on average, with enormous pricing for the suites rounded to 300 sf and 400 sf ($1,632 psf and $1,582 psf, respectively).

The GTA suburban new condo prices have been booming - as we mentioned in a recent newsletter - and there are worries around downtown prices rising too quickly as well. A good measure of whether new condo pricing is too high is to compare those prices to a 'newer' resale project to see how much higher they are. In the past, 15% to 20% has been a "reasonable" gap or new price premium. A look at a few examples below using recent resale trades via Condos.ca.

1. Natasha Condos, ~500 sf = $1,545 psf. Peter Street Condos, recent 506 sf unit sold for $1,206 psf. Price gap of 28%.

2. Prime Condos, ~500 sf = $1,474 psf. Stanley Condos, recent 502 sf unit sold for $1,273 psf. Price gap of 16%.

3. Goode Condos, ~500 sf = $1,443 psf. Clear Spirit, recent 538 sf unit sold for $1,301 psf. Price gap of 11%.

4. 400 King Condos, ~500 sf = $1,362 psf. King Charlotte, recent 495 sf unit sold for $1,202 psf. Price gap of 13%.

5. The Whitfield, ~600 sf = $1,470 psf. Sixty Colborne, recent 585 sf unit sold for $1,060 psf. Price gap of 39%.

As a reminder, the pricing in the chart below is NOT a comprehensive look at all suites in the project, but based on a sample of available product only.

 

What’s driving housing starts?

 

Supply shortages are hitting single family starts, despite an overall rise in the number of homes being built and homebuilder sentiment improving for the first time in three months, two reports show.

Builder sentiment rose in September by one point, according to the National Association of Home Builders/Wells Fargo Housing Market Index, amid a drop in lumber prices and a rise in buyer demand.

Last month also saw a 17.4% year-on-year rise in private housing starts, as well as a month-over-month increase in permits, according to a separate report released this week by the US Census Bureau and Department of Housing and Urban Development (HUD) on new residential construction.

The increase in permits and starts is seen as a response to near record-low rates, the limited supply of existing homes for sale and the unrelenting demand for properties.

The upbeat news from the construction sector was, however, offset by the fact that starts on single-family homes fell 2.8% month-over-month during the same period.

First American deputy chief economist Odeta Kushi (pictured) told MPA that while the homebuilders’ sentiment and the overall housing starts increase “was good news”, she pointed out that multifamily housing starts had been the main driver.

She said: “The multifamily has really been responding to the people coming back to the city; the lower vacancy rates and the higher rents that we’ve been seeing.

“Builders are responding to that and to the demand for apartments, and we’re starting to see that creep up in the numbers. This was not at the expense of single family, necessarily, because the decline in single family starts really has a lot to do with supply shortages as opposed to any sort of weakening demand.”

She added that the homebuilders’ sentiment helped to confirm her view that they were responding to strong demand for homes, but that “they would like to build more single-family homes”.

She pointed out that the rate of single-family home projects which had been approved but were still waiting to commence had soared by 50% year over year.

“That’s clearly a sign of ongoing supply chain issues - builders are kind of trying to finish up projects rather than starting new ones,” she said.

The current projects she referred to include a record number of single-family homes under construction, which had increased to 702,000 units - the highest level since 2007.

She, however, expressed concern about material shortages and was less effusive about data showing that lumber prices had plummeted, from more than $1,600 per thousand board feet to the more recent price of about $400.

“Lower lumber prices are reflected in the stock market, but they have not yet made their way to builders. The hope is that they will, which should help to ease the cost,” she said, warning that there were still significant shortages in construction materials, particularly for windows and cabinets.

In addition, she alerted to the fact that more skilled laborers in the construction industry were needed. “Those were headwinds that existed even prior to COVID and made worse by the pandemic,” she said. “So I don’t anticipate they will disappear entirely.

“The bottom line is the housing market has been underbuilt for a decade and builders can’t close the gap between supply and demand overnight, but they are trying.”

Nonetheless, she said she expected the easing of supply shortages as the country entered the fall and winter months, which would give builders “a chance to catch up”.

Her comments echoed the views of Dr Robert Dietz from the National Association of Home Builders (NAHB), who last week said that supply chain problems could ease over the next year to year-and-a-half.

“I would generally agree - I think that we’re starting to see that in other parts of the economy as well,” she added.

Looking ahead, she said she expected to see a modest rise in mortgage rates over the medium term due to the improving economy.

She said: “The 30-year fixed rate mortgage is loosely benchmarked to the 10-year Treasury yield, and when times are good, you see that yields creep up and mortgage rates alongside it, likely by the end of the year.

“With that said from a historical perspective, we don’t anticipate that increase in mortgage rates to be substantial. It’ll be a pretty modest increase.”

Mortgage delinquency rates ease in Q2 – Equifax

 Government support and payment deferrals played major roles in improving Canadians’ financial health, Equifax said

Despite the end of payment deferral programs, Canadian mortgage delinquency rates declined from first-quarter highs in Q2, according to Equifax Canada.

The 90+ day mortgage delinquency rate fell by 32.6% annually in Q2, while the rate for non-mortgage products dropped by 28.6% during the same period. On average, the Equifax credit score for consumers grew by 12 points over the last two years.

“The consumer credit market continues to recover from the effects of the pandemic, with government support playing an important role in improving Canadians’ credit health,” said Rebecca Oakes, assistant vice president of advanced analytics at Equifax Canada.

However, with this support steadily winding down, a near-future spike in late payments is possible, Oakes said.

“We may see surprise insolvencies occur where consumers with no delinquency history on file and a decent credit score end up filing without warning,” Oakes said.

Another major area of concern is the growing volume of mortgage debt taken on by Canadians with lower credit scores, Oakes said. While this cohort accounts for just 10% of all new mortgages, their average loan amount has increased at the same rate as consumers with higher credit scores.

The risk is amplified by the 3.7% inflation rate in the 12 months ending August, the highest annual increase since May 2011.

“Prices for consumer goods have risen and if the inflation trend continues, there is potential for an earlier-than-planned interest rate increase to curb this,” Oakes said. “With many consumers now heavily leveraged and the potential for increases on variable rate mortgage and HELOCs, consumers may find themselves not in a position to pay back their debt obligations if interest rates rise.”

Source: Equifax Canada 

Canada retail sales bounce back
 
Retail sales in Canada rebounded after falling earlier in the summer months, a reassuring sign that consumers continue to spend.

The value of receipts rose 2.1% in August, according to preliminary results provided by Statistics Canada on Thursday in Ottawa. That more than offset a 0.6% decline in July. Retail sales are still below the record monthly total reached in March, but are well ahead of pre-pandemic levels.

August retail sales were at about CA$57 billion, according to Bloomberg calculations. That compares to an average monthly total of CA$55.2 billion between April and July for retailers, when sales stalled.

Some economists suggested the spending pause over the summer was due to reopenings that shifted consumer activity toward services businesses like restaurants and gyms.

Source: Bloomberg News
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.

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.
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.”

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.”

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.

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.” 

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.

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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