Each week, The Glenn Team provide highlights from the weekly CP office meeting to provide a balanced overview of the Toronto and GTA markets and relevant issues affecting real estate markets. Meetings are overseen by Chestnut Park's CEO and Broker of Record, Chris Kapches, LLB, who provides weekly analysis and commentary. Additional input is provided by the CP Toronto office Realtors who give a day to day, real life perspective of the local markets.

MARKET UPDATE

We started this week's meeting as we do every week, reviewing the stats for the month. As we continue to wait for TREB to republish weekly stats, Chris continues to develop his own for the 416 area code. We're currently on track for about 3000 sales for the month of November, which would account for a negative variance yr/yr of about 12-15%. This negative variance is likely to dwindle as we close out the year, but will skyrocket as we head into 2018 given the intense market we experienced for the first half of 2017, so be prepared for some negative press at that point. 

The average sale price for the 416 this past week came in around $785,000 across all housing types; about a 1.5% increase from this week last year. Chris now feels we've reached "the perfect market", stating that this is “how the market should be behaving.” Sales are consistent with an active but not overheated market though some analysts remain pessimistic about the potential for a return to the high numbers we saw up to April of this year.  

Active listings are currently around 5800 in the 416 which is down significantly from the approximately 7500 when Chris began collecting stats in August/September. Though this isn't the case in the 905 where sales numbers stay high and average sale price continues to move at a slower pace, the 416 seems to be experiencing an inventory shortage consistent with what's happening in Toronto's rental market. If we stay in the 5800 range, we should have about 1.6 months of inventory which is quite a quick market. Furthermore days on market are remaining around the 16-18 day market, which is also very fast compared to "normal" market activity. Reports from Toronto CP agents indicate as much, as many open houses saw lots of visitors and many listings in the office are experiencing multiple or bully offers; particularly if the property is unique or move-in ready. We will have to wait for TREB's final numbers to get a read on whether the entire GTA is on track for similar results.

THE TROUBLE WITH RENT CONTROLS

The media are finally being critical of the measures taken by the Ontario government putting controls on rental price increases. In a new segment from the Financial Post, Murtaza Haider and Stephen Moranis argue that rental controls have never been a good solution to rising rental rates. Since April’s introduction of the rental control, Urbanation reports that "no fewer than 1,000 planned purpose-built rentals have been converted to condominiums in the GTA." 

In what is perhaps the most concise analysis of the situation, the authors quote Nobel Laureate Paul Krugman from the New York Times, stating that the “analysis of rent control is among the best-understood issues in all of economics, and — among economists, anyway — one of the least controversial.” Krugman noted that 93 per cent of members of the American Economic Association believed that “a ceiling on rents reduces the quality and quantity of housing.” 

The article goes on to list the reasons why rent controls don't work beginning with the builder, who has less cash-flow incentive in building rental-specific housing given the capped rate increases. Secondly, those who investors who have purchased condominium units (for example) also see less upside and so might choose to sell their investment, rather than rent it, lowering the inventory for the 84% of Toronto renters who are already renting in the private market. Lastly, the article notes that "when rent restrictions limit landlords’ profits, they are less likely to keep rental stock in a state of good repair. As the profit margins squeeze periodic maintenance and upgrades become less frequent. This is also true for public landlords. All one needs is to look at the dilapidated housing units owned by municipal housing authorities in many cities."

There is good evidence to support the article's thesis in Massachusetts, where rent controls were eliminated 1995. The elimination increased condominium conversions and overall condo numbers by 32% from 1994 to 2004 in Cambridge. "Decontrol even benefitted the valuation of housing that had not been subject to controls: It appreciated on average by 12 per cent as a result."

So what was intended to help renters has actually hurt them. It appears there are more voters who rent than who own, too many of whom don't know a bad thing when they see it. 

GOING ONCE, GOING TWICE...

A new company based in Vaughn called On The Block Realty are now selling properties by auction. Properties will appear on MLS and the brokerage's website for 6-7 days before any bids are taken. During that period, potential buyers can go to view property with an accompanying Realtor. After the 6-7 day period there can be up to 4 days (determined by the seller) for potential buyers to bid on the property; the seller sets the reserve price for the property. The brokerage is intent on providing an open and transparent offer process, as all bidders can see any new bids coming in and are notified when bidders "max out".

This practice is common in other countries such as Australia, where approximately 20% of all listings are done by live auction. Chris pointed out that this type of process has been attempted in Ontario before but wasn't ultimately successful. This could be due to a disadvantage to the seller as in typical "bidding war" scenarios, buyers can increase bids by any amount, easily overbidding their competition and winning the sale.

The process would likely be more successful in a strong buyers market, but clearly that's not something we're in currently; at least in Toronto. Perhaps the brokerage is targeting the 905 area where sales continue to be slower. The auction system has had great success in Sweden, where there are no buyer's representatives and buyers must do their own due diligence on any property they might but. Chris argues that our current system, bolstered by the MLS system works quite well. 

What are your thoughts? Should all properties be put up for auction or will this just lead to a lot of litigation? We'd love to hear from you. Leave a comment below or contact us directly

We've got a special treat for you today! The President and CEO of Chestnut Park Real Estate has recorded this market update, detailing this last month's market activity. If you've been keeping track with our weekly meeting updates, then this should be more of a synopsis but always worth your time to hear a veteran in the Toronto industry share his thoughts on the market. If you'd prefer to read, we've included a written assessment and infographic below...

The Toronto residential resale market returned to form in October. It returned to where it should have been before the frenzy set in at the beginning of this year and buyers began competing for properties indiscrimately and paying unreasonable prices. Price increases of 30 percent on a year-over-year basis are simply unsustainable. Even without the implementation of the 15 percent foreign buyers tax introduced in April the market would have returned to reality. Reality was accelerated by the tax.

Comparing the resale market today with what was happening in the first four months of 2017 is pointless, although that appears to be a favourite pastime of journalists. Rather, if we compare the market to last year, and assess what has happened since the end of May, we get a picture of a strong, stable market, that surprisingly has yet to move to a balanced market. Having said that, we also see a fractured picture in which some trading districts in the greater Toronto area are much stronger than others.

In October, there were 7,118 reported sales, a substantial improvement compared to the 6,379 in September. Last October there were 9,830 reported sales in the greater Toronto area. Although the year-over-year variance was 26 percent, that variance was a dramatic improvement compared to the monthly variances between May and this month.

Except for the condominium apartment sector, what has changed is the supply of properties on the market. In October supply was up by almost 70 percent compared to last year. At the end of October there were approximately 18,850 properties available for buyers to purchase. That compares to only 10,563 last October. It was last year’s lack of supply, coupled with historically low mortgage interest rates, that drove the market into the frenzy that we experienced during the months from January to April.

Buyers are still alive. They are now more deliberate. However when attractive homes in desirable neighbourhoods become available buyers respond quickly, often still finding themselves in competition. This is clearly demonstrated by the fact that all sales in the greater Toronto area took place in only 26 days. By any assessment this is a scorching pace.

Twenty-six days represents the overall days on market. Depending on housing type and location the market is even faster. For example, and notwithstanding that the average sale price for detached properties came in at $1,287,765 in the City of Toronto ($1,008,207 in the 905 region), all detached properties sold in only 19 days. Semi-detached properties, with an average sale price of $948,309, sold in an astounding 17 days. Historically strong neighbourhoods like Riverdale, Leslieville and the Beaches are seeing sales take place in only 10 to 12 days, and for average sale prices substantially higher than asking prices. The market place in these neighbourhoods appears to be shockingly unchanged when compared to the pre-April market.

The average sale price for all properties sold also strengthened in October. It came in at $780,104, up 2.3 percent compared to October 2016. In September, the average sale price was $775,564. A year-over-year increase of approximately 3 percent is ideal. It is consistent with inflation and more importantly wage increases. During the later part of last year and into this year, price increases were manyfold times higher than increases in wages. That is an unsustainable situation. Since April we have also seen the Bank of Canada increase the bank rate by 50 basis points, causing mortgage interest rates to rise, although at 3.5 percent (five-year fixed term) they continue to be historically low. Looming ahead is the stress testing that will take place in January. Even though borrowers will be paying the lenders reduced mortgage rates, they will be qualified on a rate 2 percent higher than what they will be paying. The new stress testing will act as a further control on exuberant increases in home prices.

Although prices generally have come under control and are in the sustainable range, condominium apartments continue to sell for approximately 21 percent more than a year ago. There are two reasons for this unique activity. Even though condominium apartments are becoming pricier, they are still the most affordable housing type available to buyers. Secondly there is little supply. Whereas the overall supply of housing year-over-year has increased by almost 80 percent. There have been no appreciable increases in the supply of condominium apartments.

Under these circumstances it is not surprising that condominium apartment prices are rising. In October, the average sale price for condominium apartments came in at $555,004. In Toronto’s central core where most condominium apartments are located and where most sales take place, the average sale price was an eye-popping $620,000.

In October, we also witnessed an improvement in the numbers of high-end sales, properties having a sale price of $2,000,000 or more. In September, there were 188 sales in that category. In October that number jumped to 208, an increase of more than 10 percent.

As the resale market moves towards the end of the year and a form of balance that we have not experienced in some time, both buyers and sellers should be thrilled with the markets transformation since April. We have an increase in supply for buyers, and steady but sustainable price increases for sellers. The area of major concern, which is beyond the scope of this residential resale market report, is the rental market and its critically low vacancy rate. 

Prepared by: Chris Kapches, LLB, President and CEO, Broker 

Each week, The Glenn Team provide highlights from the weekly CP office meeting to provide a balanced overview of the Toronto and GTA markets and relevant issues affecting real estate markets. Meetings are overseen by Chestnut Park's CEO and Broker of Record, Chris Kapches, LLB, who provides weekly analysis and commentary. Additional input is provided by the CP Toronto office Realtors who give a day to day, real life perspective of the local markets.

MARKET STATS

As TREB has continued it's freeze on anything other than monthly stats, Chris has taken it upon himself to collect his own stats for the 416. Here's what's been happening since the start of November...

So far for the month, we've had 1,100 sales; half of which are condo apartments! That puts us on track for about 3000 sales by end of month, about 11% down from last year. This might seem bad news, but in fact this negative variance is less than last month's and lesser still the the month previous which is further indication that the market has turned around and has picked up more steam. The 905 hasn't responded as positively unfortunately; it's still off by about 30% year over year. 

The average sale price in the 416 is tracking slightly lower year over year around $780,000; a 2% increase from last year. Again, though this may seem paltry by comparison to numbers earlier in the year, Chris feels this is the most "sustainable" figure we've seen since January, as 2-3% growth would make for a much more balanced market going into 2018.

The media has begun to pick up on this positivity, with some speculating that the new stress test coming Jan. 1, 2018 has some buyers scrambling to get something prior to being assessed at the new stress levels. Others argue that we may be headed back to higher average prices, faster than anticipated due to increased immigration and what accounts to a real rental crisis in the city. Pundits of the aforementioned claim have also used Vancouver's 35% yr/yr price growth as evidence for Toronto's potential price overload, as the Vancouver achieved such highs after a long lull due to foreign buyer's tax rules. Objectors to this theory argue that the new stress test rules along with already increasing interest rates have kept this from happening thus far and will continue to do so into 2018. Unfortunately only time will tell but it's clear that Toronto continues to be on the rebound. 

CAN'T STRESS THIS ENOUGH

Diane Hanley of Hanley Mortgage Group wanted to remind CP agents of how the new stress test will affect buyers. As a reminder this stress test takes the buyer's broker contracted rate and adds 2% or uses the bank posted rate of 4.89% (whichever is greater) to see whether a buyer is capable of maintaining their mortgage payments. Under the new rules, anyone putting down 20% or more on a purchase isn't subject to the test so long as they have mortgage approval and a firm offer in place prior to January 1st, 2018. Anyone doing a refinance must also be approved before Jan. 1st and must be closing on their new purchase within 120 days of the purchase. Finally, anyone purchasing a new construction property can close at anytime but again, must have mortgage approval and a firm deal in pace prior to January 1st, 2018. If you're considering making a purchase and fall into the conventional mortgage (20% or more downpayment) category, it would be wise to consult with your broker. 

ANOTHER ONE BITES THE DUST

Buyer beware! Another condo project in Toronto, the 5th in the last year, has gone belly up. According to this Financial Post article, the developer Castlepoint Numa cited lengthy delays in obtaining the necessary approvals, building permits and, in turn, financing, as reasons for the halt. Additionally, they stated on their website that "recently, the industry has been experiencing the most significant cost increases in a decade.” That may be true, but it's also true that land value has gone up significantly since the project got underway, it's possible some developers are attempting to reap the benefits of a great market and stick it to the consumer in the process. 

Some legislators argue that better policies need to be put in place in order to protect consumers, who in many cases are buying their first property and leaving a less than favourable rental property. Unfortunately most developer contracts don't give much power to the buyer and typically can't be modified. Real estate lawyers can be costly and often can't do much either. Until better protection can be put in place for consumers in the form of insurance or fines for developers that go back to the purchasers, there is currently nothing to guarantee a buyer's purchase. 

A TRIBUNAL CALLED QUESTIONABLE

The final meeting item focused on the Condominium Authority of Ontario who recently established a Tribunal to address disputes between condo owners, other owners, condo boards and property managers. The Condominium Authority Tribunal (CAT) asks applicants (offended party) to register and attempt resolution with the respondent (offending party) via an online messaging application. This 1st stage: Negotiation, costs the applicant $25. If a resolution is not reached via stage 1, then stage 2: Mediation is entered and for an additional $50, 1 of 15 trained members of the CAT will attempt mediation of the issue. If this doesn't result in a resolution then stage 3: Adjudication is entered for an additional $125, where a different CAT representative will adjudicate the case, much like the courts, to reach a resolution. No indication of fines are addressed on the website and CAO says they are currently only dealing with records disputes, ie. documents that owners have not received from boards or management. 

The reaction to this in the CP office was decidedly negative and we tend to agree. How a tribunal made up of only 15 members to deal with issues from potentially thousands of aggrieved parties seems paltry. They must assume that most records disputes will be resolved through the system between the two parties. But that leads me to question the necessity of the CAT at all. Couldn't resolutions occur via normal communication channels or in person? Will this actually prove effective or is more money simply going to government bureaucrats? 

We'd love to know your thoughts!? Please send us an email or leave a comment below. Until next week!