Month: January 2021

A report from Lowestrates.ca with an alarmist headline predicts that housing prices will “correct” sometime this year, but according to a mortgage professional in Vancouver, a fundamental misunderstanding is at play.

“It’s as simple as this: basic, unreported inflation,” Dustan Woodhouse, president of Mortgage Architects, told CREW. “There’s an ‘elite class of people’ known as nurses, school teachers, firefighters, and the police, and what they have in common is with a bit of experience, qualification, overtime, they can all make about $100,000 a year. The other thing they have in common is they marry one another and they’re in a 25% tax bracket, so you now have more dual-income households than ever before in history, and those dual-income households are in reasonably accessible jobs in our society.

“Those families now have $12,000 per month after tax in their households. To take on an $800,000 mortgage with a $3,200 monthly payment, they still have $9,000 a month in cash left over. So where’s the problem? That’s what’s driving house prices. That and there aren’t enough of them to buy.”

Lowestrates.ca’s report, entitled “Will the Canadian housing market crash in 2021?”, used a hyperbolic headline, to be sure, but it postulates that the country’s housing prices are headed towards a correction because of the COVID-19 pandemic. The report quotes Hilliard MacBeth, a financial advisor and author of “When the Bubble Bursts: Surviving the Canadian Real Estate Crash,” who says household indebtedness could trigger a financial crisis, and that debt loads are much higher than they were in 1990 when much of the Western world entered a recession.

“The household is much more indebted than it was in 1990,” MacBeth said in the Lowestrates.ca report. “The bursting of the bubble would be much more serious and will probably trigger a financial crisis. It didn’t really trigger a financial crisis in 1990. It was a crisis, but not a systemic financial crisis. This one is likely to be a financial crisis.”

MacBeth further predicted that mortgage defaults will skyrocket and that urban condo markets will spark the crash.

“Rents have dropped a whole lot,” he said. “So monthly losses that were $200 or $300 are now probably $500 to $800. And some of the owners will have trouble with their employment. So they’re going to have to face a real personal crisis in terms of what they are going to do because those condos are really hard to sell. 

“That’s probably where the crisis and the crash is going to start is in those investor-owned condo buildings in Toronto, Vancouver and Calgary.”

However, Woodhouse notes that the overwhelming majority of Canadian debt is related to mortgages and that underwriting guidelines have been bolstered to avoid the exact scenarios MacBeth is warning about. In fact, mortgage arrears data has long demonstrated that Canadians curtail their spending before missing mortgage payments.

“When did the investor buy the condo?” asked Woodhouse. “I have clients who paid $250,000 for their condo that’s worth $750,000 today. Other investors who bought more recently put 20% down and had to be very qualified. It’s not some random dude who makes $32,000 a year and owns 19 apartments. Underwriting guidelines to be an investor are so high now. Your rental income coming down by 30% does not trigger a sale of property.”

In other words, investor-owned condos, especially in markets like Toronto and Vancouver, have accrued so much equity that, if forced to sell, the owners won’t incur losses.

“If they bought in the last five years, the qualifying criteria is so high that they have to be very well-heeled investors to purchase property,” continued Woodhouse. “Are there condo investors hanging by a shoestring? Sure. But the mortgage market is 6% rental, and of that 6%, 90% have no trouble servicing their mortgages. You’re down to 1%—if half of that 1% bought five years ago, they’ve got a ton of equity.”

Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage. Click here to get help choosing the best mortgage rate

Calgary’s housing market followed a countrywide trend during the second half of 2020 when it defied the economically calamitous effects of the COVID-19 pandemic, and more of the same can be expected this year.

“It is expected some of the momentum recorded at the end of 2020 will continue into 2021, fuelled by exceptionally low lending rates and pent up demand,” Ann-Marie Lurie, the Calgary Real Estate Board’s chief economist, said in a statement. “While sales are expected to rise by nearly 5% on an annual basis in 2021, persistent economic challenges are expected to prevent stronger growth in our housing market.”

Indeed, the city is beset by record-high unemployment—the pandemic compounded existing employment struggles that began with the oil and gas sector’s downturn in 2014—but its housing market performed above expectations in H2-2020. Perhaps, then, a 5% boost in sales activity is a positive development given the circumstances.

“I think if we’re flat in 2021 compared to 2020, we should be happy,” Croft Axsen, owner of Dominion Lending Centres Jencor Mortgage Corporation in Calgary, told CREW. “Unemployment in Calgary is high, whether because of COVID—which caused high unemployment in the restaurant, entertainment and transportation sectors—or oil and gas. There are a lot of vacancies in high-rises downtown that used to be filled with oil and gas engineers. Unemployment is a problem.”

However, few listings and, in general, low supply have buoyed the market. It might also be what’s prevented prices from decreasing in a city that was struggling with joblessness even before the pandemic triggered lockdowns across the country in March.

“It’s a normal market for people selling as long as their homes are priced properly,” said Axsen. “A lot of people are selling their houses for less than they paid for them, especially if they bought pre-2014. You can get a home for under $600,000-700,000, but it’s about listings and supply keeping the market relatively balanced, and that’s reflective of the interest rates. For a lot of people, if they renewed at 14% or 15% like they did in the 1980s, we’d be seeing a different situation than we are with people renewing at 2%.”

Although there isn’t much to celebrate about Calgary’s economy, the city’s housing market has just come off its two strongest quarters in years. But headwinds will nevertheless persist, warns Axsen.

“The last two quarters of 2020 were good, relative to the previous three or four years, but we’re still much below our long-range averages of past years, so it’s still a recessionary environment here.”

Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage. Click here to get help choosing the best mortgage rate

The door is open to real estate investors looking to get into the multi-family residential sector, but if they wait too long they might miss their chance.

“I think getting in now is a good idea because it’s one of the very few times in recent history where there’s been a little bit of weakness in the apartment sector,” Keith Reading, director of research at Morguard, told CREW. “We really haven’t’ seen a drop off in value, but if you’re going to get in, now’s a good time because once the [COVID-19] vaccine is distributed, in a year from now you’ll say ‘I missed my opportunity.’ Things are going back to where they were with apartments becoming expensive to buy. It’s a unique time for rental apartments because there’s a little bit of downward pressure on income streams, so now’s the time to get in because it will likely be more expensive going forward.”

Morguard’s 2021 market outlook report has the multi-suite residential rental sector returning to pre-pandemic levels of strength this year, provided vaccines are distributed expeditiously. Once that occurs, public health restrictions will ease and the Canadian job market will markedly improve, which will spur demand for rental accommodations.

“Increased international migration will boost rental demand, along with the return of international students,” stated the report. “Youth employment will also increase, in support of a more robust demand cycle. An improved rental demand trend will drive vacancy levels down closer to the all-time lows of the pre-pandemic period.”

As that drives up market rents, construction activity will be robust again by 2022. However, all of these variables are contingent upon efficacious vaccine dispersal.

“If the vaccine is slower than anticipated, in terms of distribution, I think you’ll see more of the same in 2021 that you saw in 2020—you’ll see vacancy hold at current levels, up significantly from the prior level and down significantly from prior rents. But the government is committed to providing funds for Canadian families so they can pay their rents. The resiliency of the sector we saw in 2020 will carry through in 2021.”

Reading anticipates that his glass-half-full scenario will come to fruition by H2-2021, at which point the Canadian border will reopen and international students will once again be a substantial cohort of renters. Despite the pandemic weakening multi-suite residential sector fundamentals, investors, namely the large institutional players, have been banking on what the report forecasts as an imminent economic recovery.

“If you look at it from the investment standpoint, investors have given the sector a vote of confidence, and investor sales haven’t really fallen off much at all through the pandemic, compared to, say, office and retail,” said Reading. “Those markets have really slowed to the point of very few significant sales, but rental apartments and industrial have held up well.”

Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage. Click here to get help choosing the best mortgage rate

Condominium rentals in the Greater Toronto Area surged by 86.3% last quarter over Q4-2019, owing to a deluge of condominiums dumped into the long-term rental pool, says the Toronto Regional Real Estate Board (TRREB).

“Demand for condominium apartment rentals reached record highs in the second half of 2020, particularly in the fourth quarter,” Lisa Patel, TRREB’s president, said in a statement. “However, at the same time, growth in the number of available units far outstripped growth in rental transactions, as many investors chose to make their units available due to the impact of COVID-19 on tourism and the short-term rental market, City of Toronto restrictions on short-term rentals and the prospect of a vacancy tax.”

The 12,584 new rentals in Q4-2020 far outstripped the 6,757 leases during the corresponding period in 2019, owing to empowered renters who took advantage of listings increasing by 131.6% during that period to 33,280. The average one-bedroom condo rental in the GTA declined by 16.5% in Q4-2020 to $1,845 from $2,209 during the fourth quarter of 2019, while the cost of a two-bedroom unit decreased 14.5% to $2,453 from $2,868.

The majority of the leases were in the City of Toronto, which accounted for 10,047 of total leases last quarter.

“As we move through 2021, rental demand will remain strong as the economic situation continues to improve, especially as the pace of the vaccine rollout increases and immigration and non-permanent migration into the GTA accelerates. Eventually, this will result in much of the current rental unit inventory being absorbed, but market conditions will likely continue to favour renters through much of 2021,” Jason Mercer, TRREB’s chief market analyst, said in a statement.

Although there is clearly voracious demand from renters, particularly in Toronto proper, the proliferation of vacant condo rental units has put downward pressure on the rents commanded by landlords. But according to Royal LePage’s CEO, the demand will return.

“Actual rents landlords can get from new tenants is falling, so there’s clearly more supply than demand,” Phil Soper told CREW. “One of the mistakes people make is assuming everybody is abandoning the cities. In fact, a major contributor, perhaps the major contributor, is missing demand altogether. It’s missing demand that comes from foreign students, domestic students and new Canadians.”

Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage. Click here to get help choosing the best mortgage rate

In 2017, the price gap in Toronto between detached homes and condominiums reached $700,000, and while the latter market segment caught fire and bridged the chasm, history appears to be repeating itself.

“Today, you’re seeing first-hand a very similar market—it’s the sharpest incline in the shortest amount of time we’ve seen in recent history,” Jason Lam, VP of sales and marketing at CentreCourt Developments, said in a recent webinar about 8 Wellesley Residences.

“What happens to condos? They catch up. As the price of condos increases, the gap goes down. For several years, condominiums became mainstream and we saw transactions increase and surpass low-rise sales. People understood the lifestyle, convenience factor, and the amenities. As condo prices went up, the price gap went down.”

Toronto’s condominium market is experiencing a rare lull in demand, but it’s sure to return with gusto when the COVID-19 pandemic begins receding. In fact, with multiple efficacious vaccines in circulation, the end could occur sooner than most people think.

However, the vaccine isn’t merely a panacea for the virus: it will strengthen market fundamentals that have been temporarily weakened. And with the end in sight, some of those fundamentals are already regaining their vigour.

“The best news we’ve received recently has to do with Canada’s immigration policy—the Trudeau government announced that [in 2020] we brought in 120,000 new immigrants, but what we’re finding out is over the next three years, 1.2 million qualified, educated individuals are coming in from around the world, and that sets us up for a huge boom because that’s a lot of demand we simply cannot meet. Nobody benefits from a very aggressive immigration policy more than the GTA’s real estate market, and this is paramount because this is an express highway to a pre-COVID market.”

The difference between the pre- and post-COVID-19 real estate markets is that the latter will have historically low-interest rates, which will bolster buying power and, as sales continue their torrid pace, valuations.

“2021 will be the ‘Year of the Condo,’” said Lam.

8 Wellesley, located on the northwest corner of Yonge and Wellesley Sts., is a 55-storey, 599-unit tower slated for occupancy in 2025, when the pandemic will have become a distant nightmare. In addition to a subway station located on the opposite side of the street, 8 Wellesley will have 21,000 sq ft of indoor and outdoor amenity space, including 6,000 dedicated to a state-of-the-art, 24-hour gym. It will also have a commodious lobby featuring a grand piano and a beautiful chandelier.

The real value, according to Lam, comes from the fact that around one in every 10,000 condo units in Toronto is located in the Yonge St. corridor, which happens to be the most important street in the region, if not the country. 8 Wellesley’s vicinity to University of Toronto and Ryerson University will boost demand by about 100,000 potential renters from those two post-secondary learning institutions alone, and coupled with the difficulty of building near the iconic street, the development’s units will retain their long-term value.

“You want to invest in something that’s scarce but that’s in increasing demand. It’s really hard to develop land in the 416, while the 905 is virtually limitless. Scarcity, when you’re trying to make money, is vital,” said Lam, adding that 8 Wellesley’s larger units are sure moneymakers. “Only 10% of condo units in the market are three-bedroom units and they do the best on the resale market.”

Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage. Click here to get help choosing the best mortgage rate