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

As we typically do, we began this week's meeting with an update of the Toronto (read 416 area code) stats. Though the media is reporting on most negative aspects of the market, this last week (Jan 22 - 29th) saw the best sales average for the month of January at about $759,000. That makes the current average sale price for the month around $736,000, up 1.2% since last year. Despite prices having begun to sky rocket in January of last year, we're still seeing increases in the average sale price. Inventory, or lack thereof, seems to be the primary contributor to these price increases; especially in the condominium apartment market. The number of sales in total is down by about 20-25% from January 2017. 

The 905 hasn't faired as well. Though condo sales are also leading the way in both sales and prices, they are still down overall from last year; 8% from April to Jan. 1. Freehold properties are doing even worse dropping 20% since April 2017. 

Despite the new stress test rules, some condo owners may do well to attempt to get into the freehold market now, while demand for condos is high and freehold prices are softened. 

WHAT ARE YOUR QUALIFICATIONS?

Speaking of stress testing, Karlee Kusnierczyk from Hanley Mortgage Group stopped by to discuss the current climate of the mortgage market under the new stress test rules. They did a random sampling of 50 clients looking to renew their mortgage and found that 15% of those clients wouldn't have qualified for the fixed rate they obtained 5 years ago under the new stress test. Karlee stated that if a larger sample size was used, she estimates that number would have gone up to 20%. This falls in line with what many economists predicted the stress test would impact. Karlee felt that this wouldn't take people out of a buying position so much as it would knock their price point down. 

Anyone needing to renew their mortgage is likely best to stick with their current lender, as any new lender will use the new stress test rules for qualification, effectively making shopping around a moot point. 

RENT RELIEF

Though it's not well advertised by the city, landlords should be aware that if they apply for a reduction in property taxes and the reassessment results in a reduction of 2.49% or more, their tenants have the right to seek an adjustment to their monthly rental amount. The City of Toronto website details the calculations for this law. I expect that most new landlords, and likely many seasoned landlords are unaware of this law, so it's important to be aware of. Though the reassessment might only result in a 1-3% reduction in monthly rental income, new landlords may depend on those amounts to keep their investment sound, so it's good to know it's at least on the table for landlords. It's not clear as to how the city knows when the property is being rented but the rule nevertheless applies.

Don't just be a spectator on the sidelines of the real estate market. Contact us today to formulate a game plan! We love helping our clients determine their next best steps to real estate joy. Email us here or contact us at 416-925-9191. 

 

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.

 

TORONTO MARKET SUMMARY

As TREB continues it's freeze on weekly stats, Chris has continued to collect his own in the 416 area code. More deals were done last week than in the first two weeks, though not many more. Inventory levels remain low and are looking to be about 20 - 25% lower than last year. As of the January 18th, there were 771 properties reported sold putting us on pace for around 1,500 sales for the month, compared to the 1,900+ from January 2017. The average sale price in the 416 is about $710,000, a decline of about 1.5 - 2.5% from last January. This is actually pretty good considering the highs the market came from in January 2017. Where the market continues to fall short is in inventory, which will almost certainly affect sale prices going forward. This continues to be the case with condo apartments whose average sale price came in at $556,156 for the 155 sales across the 416 area; 93 of which sold in the Central districts.

Other parts of the country are up and down. Vancouver continues to outperform any other city nationally, with their average sale price going up 16% year over year to $1,060,000. Regina and Calgary have had harder times with their average sale prices coming down by 4% and .4% respectively. Ottawa's average sale price is up by 6% year over year, which could be an indication that foreign capital is looking to our capital to invest in other markets; though this is simply speculative. Oakville and Milton prices are down by about 4.8%, which is comparable to other GTA markets. All of this makes for a confusing and fractured marketplace nationally, especially in light of the next agenda item.

 

INTERESTED?

Our resident mortgage expert, Darlene Hanley came into the office to discuss how the new stress test and BoC interest rates are affecting those looking at purchase, pre-approvals and refinancing. 

Here's a summary of what she said. We've also included a link to her presentation here, which contains more examples of the info. below.

NEW RULE CHANGES

On January 1st, 2018, OSFI implemented new conventional (uninsured) mortgage rules, attempting to protect homebuyers from mortgage default in a rising interest rate environment.

The government introduced a rate cushion which will affect all uninsured mortgages (those with a down payment of 20% and all refinances). They must now qualify at the greater of:

The Bank of Canada posted rate (4.99%)
OR
Their contract rate + 2%

This means, if your rate is 3.39%, you would be qualifying at 5.39%

Some Other Important Notes

• If a legally binding Purchase and Sale Agreement is dated/signed prior to January 1, 2018, the customer can qualify under the old rules.
• If the legally binding Purchase and Sale Agreement is dated/signed on or after January 1, 2018, the customer must qualify under the new rules.

BANK OF CANADA RATE INCREASE

On January 17th, 2018, the Bank of Canada increased its overnight lending rate to 1.25% from 1%. The major 6 banks have followed their lead, and increased their prime rate. Each lender decides what their prime rate will be. 

EX: Scotiabank’s Prime Rate is now 3.45%, RBC as well, up from 3.20%. TD has a prime rate of 3.60%, up from 3.45%.

Changes in Prime influence variable interest rates, ie. if you have a variable rate of Prime – 0.50% with Scotiabank:

Before the stress test: 2.70%

After the stress test: 2.95%

= Increase of .25%

INSURED MORTGAGES

Insured mortgages are only available for properties under $1M for purchases with a down payment of less than 20% and are insured by one of the three insurers in Canada. The minimum down payment is 5% on the first $500,000 and 10% on the difference up to $999,999.

EX: If you are purchasing for $800,000, the minimum down payment would be $55,000 ($25,000 on $500,000 and $30,000 on the other $300,000)

Those looking for an insured mortgage will be qualified at the Bank of Canada posted rate of 4.99% or their contract rate, whichever is higher. This means, even if your contract rate is 3.14%, you still have to be able to qualify for a mortgage with a rate of 4.99%.

This may price many first time buyers out of the market, whose only hope of homeownership in Toronto is/was through insured mortgages.

UNEMPLOYMENT = UNRELIABLE

Due to the Real Estate market being so wrapped up in the economy, and economies tied to indicators such as the unemployment rate and the GDP, Chris thought this new study by The Fraser Institute was instructive as far as how we should view unemployment, or rather employment, as a means to determining economic strength. 

Essentially, the study looks at how unemployment rates have traditionally been used to indicate strength in labour markets but that "the unemployment rate can decrease for two reasons that imply very different performance: 1) people are finding work, which is positive; or 2) potential workers are dropping out of the labour force and not looking for work anymore, which is usually negative." 

Additionally, since 2008, the labour force participation rate has declined 67.6% - 65.7% and is expected to decline further due to Canada’s increased ageing population. So the institute is recommending going forward that we should be using the employment rate as the best barometer for the state of the labour market. Click the link above to read more. 

WHAT DO YOU THINK?

Are you enjoying our weekly posts? Looking to get something else out of them? Is there a way we can improve? We'd love to hear from you. Please leave a comment below or get in touch directly! 

Once again, our wonderful President, CEO and Broker of Record Chris Kapches breaks down the Toronto market from December and into 2018. This month we've got both video or print, so take your pick and get some real insight for the year ahead. Happy 2018!

We move into 2018 saddled by a number of market factors that make predictions more difficult than they already are for any year in real estate. 2017 was, without doubt, one of the most remarkable years in the history of the Toronto residential real estate market. The year began in the most frenzied fashion possible. During the months of January, February, March and April, sale prices were increasing in an unsustainable fashion, topping out at 33 percent on a year over year basis in March. By April the average sale price for all properties sold in the greater Toronto area had reached an alarming $920,000. That number included all condominium apartment sales, the least expensive housing form available to buyers.

On April 20th, everything changed. On that day the provincial government announced the Ontario Fair Housing Plan. Amongst other measures, it imposed a 15 percent tax on residential real estate purchases by foreign buyers. Technically this measure should have had an insignificant effect on the market – after all only 4 percent of all homes were purchased by foreigners, as defined by the legislation. But the implementation of the tax acted as a psychological wake up call, causing buyers to stop, look at the astronomical amounts they were paying for properties, and wait to see what the impact of the tax would be on sales and sale prices.

By May sales of residential properties had declined by more than 20 percent (with more to come in the ensuing months) and average sale prices began a steady decline. By June the average sale price for all properties sold had declined from $920,000 in March to $794,000.

During the first four months of 2017 Canadians had become the most indebted households in the
world, carrying 170 percent debt compared to household income.

In the months that followed, and on the strength of the Canadian economy, the Bank of Canada
increased rates twice by a quarter point on each occasion. Suddenly buying a residential property
in the greater Toronto area became more expensive to service the associated debt. But government intervention was not yet at an end. The Office of the Superintendent of Financial Institutions announced that effective January 1st, 2018 new stress tests would be applied to buyers borrowing from federally regulated lenders. These stress tests would also be applied to conventional borrowers, that is, borrowers with a down payment of 20 percent or more (high ration borrows have always been stress tested). Effective 2018, conventional borrowers will be qualified using the Bank of Canada’s 5-year benchmark rate (which is approximately 5 percent) or at the current contracted rate plus 2 percent if that rate exceeds the benchmark rate. A buyer currently approved at 3.5 percent will now have to qualify at 5.5 percent.

This brings us to December. Notwithstanding the market upheavals of 2017, December closed the year in a very positive fashion. There were a respectable 4,930 reported sales, only 7 percent less than the 5,305 sales reported in December 2016. The average sale price came in at $735,000, almost 1 percent higher than the average sale price during the same month last year.

A deeper analysis of the resale market indicates that the 416 region has fared much better than the 905 region. The average sale price in the city of Toronto remains strong, with detached properties selling for $1,250,000, semi-detached for $903,000 and condominium apartments for $532,000. By comparison detached properties in the 905 region sold for $910,000, semi-detached for $636,000 and condominium apartments for $430,000.

The most dramatic change between December this year and 2016 was the change in the number of active properties available for sale. Last year there were only 4,930 available properties. This December that number has increased to 12,926, a startling increase of 172 percent. Once again, a deeper analysis indicates that the bulk of the properties available for sale are located in the 905 region, where sales have been slower and prices have declined. Last December there were 2,736 properties available for sale in the 905 region. This year that number has swollen to 9,190 an eye-popping increase of 235 percent. By comparison last year in the 416 region there were 2012 properties available for sale, this year that number rose to 3,736, or 85 percent, considerably lower than the increase of inventory in the 905 region.

Considering everything that occurred in 2017, we should take comfort in December’s numbers. Going forward buyers will have more choice, and given the new stress tests, they will need that choice to find the property that best suits their now more restricted debt servicing budget. Sellers can take heart in that value, for properties reported sold, particularly in the 416 region, have remained strong, with only a slight, and sustainable increase, compared to 2016. All this points to a balanced, sustainable, yet strong residential resale market for 2018. Desirable properties in desirable neighbourhoods will continue to attract buyer attention, generating multiple offers, and over-asking sale prices. What we don’t need is any more government intervention. The market will do nicely without it in 2018.

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