Benchmark price of Canadian home up $120,000 in March

The spring market certainly hasn’t failed to meet expectations, but unlike years past the largest gains in March were in Canada’s smaller cities, says an RBC research paper.

Canadians’ exodus from large urban centres in 2020 didn’t dissipate through the first quarter of the year, as evidenced by the month-over-month price gains in small Ontario and British Columbian housing markets. Woodstock-Ingersoll’s property values increased by $42,000 in March from February, while Southern Georgian Bay, the Niagara region and Cambridge each saw increases of $37,000, and Fraser Valley homes rose by $31,000. In Ontario, year-over-year price gains topping 30% were present in 75% of the province’s markets, while 20% saw prices increase north of 40%.

In March, new listings set a record by reaching 1 million across Canada, a 7.5% increase from the month prior, while Victoria was the sole market in which new listings didn’t climb. However, the surge of new listings isn’t at all cooling prices because demand, driven by low interest rates and surplus cash in Canadian households, is arguably hotter than it has ever been. As a result, noted RBC, heavier supply won’t temper prices in the short term because too many markets are badly imbalanced.

“A gradual rise in longer-term interest rates, deteriorating affordability and the resumption of office work will eventually restrain demand but it’s difficult to know when that will be,” said the report from Robert Hogue. “OSFI’s [Office of the Superintendent of Financial Institutions] proposal to tighten the stress test for uninsured mortgages on June 1—by raising the qualifying rate from 4.79% to 5.25%—will reduce the purchasing budget of some of the most financially-stretched buyers by a little more than 4%.”

In fact, despite a record-number of coast-to-coast sellers, bidding wars were commonplace and inventories fell to their lowest in decades. With such tight supply and demand conditions, the benchmark price of a Canadian home increased by $21,000 in March, up 3.1% from February, which had set a record increase of $22,000. Compared to a year ago, the benchmark price of a Canadian home increased by 20.1% to $120,000.

Home sales in the country also set a record at 833,100 in March, with a pace of over 50% above the record of 550,300 recorded in all of last year. Manitoba, B.C., Central and Atlantic Canada, and individual markets in Alberta and Saskatchewan, including Edmonton, Calgary, Regina and Saskatoon, either had record-high activity or approached it, but the paucity of single-family homes for sale in Toronto, Montreal and a few other markets resulted in small month-over-month decreases. Although the frenetic energy in Canada’s housing market during the ongoing COVID-19 pandemic is driven by evolving household needs, RBC warns that surging price appreciation may occur for a decidedly different reason.

“Rapidly-rising prices have also likely opened the door to speculative activity in several markets.”

2021-04-30 14:22:52

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Here’s how much monthly rental profit the average GTA condo earns

The average GTA condo made a $63 monthly rental profit in 2020, according to a research report.

“Using payment data on all registered mortgage loans on rental units and adding in condo fees and property taxes, the average unit had ownership carrying costs of $2,077 per month. For these same units, the average achieved rent after completion was $2,140, leaving a small positive cash flow,” said the report from Urbanation’s Shaun Hildebrand, president of Urbanation, and Benjamin Tal, CIBC Capital Markets’ deputy chief economist.

Sixty-three percent of investors in the GTA were cash flow neutral or positive last year, up from 56% in 2017. Although using credit vehicles, including HELOCs, on title would slash the share of cash flow positive investors, the report noted that many investors don’t require mortgages at all. In fact, low interest rates mean that about half of mortgage payments during the first year go towards the principal on a 30-year amortization. For the average GTA investor—the average age of an investor who closed on a condo last year was 47—principal repayment becomes more favourable with each passing year.

Investors who purchased presale condo units fared better from a cash flow standpoint than landlords who bought resale units and leased them in 2020, with 80% of the latter becoming cash-flow negative.

“In fact, more than half of all condo investors were cash flow positive by up to $600 per month and less than 15% were cash-flow negative by more than $400 per month. Those that were cash-flow negative by $1,000 or more per month represented just 5% of investors.”

The average unit price was $415,175 with an 85% loan-to-value at closing, and among investors with positive cash flow, their average net income was close to $400, up from over $360 in 2017. However, larger units’ cash flowed negatively.

“In terms of unit type, there was a clear negative correlation between the size of the unit and the amount of cash flow, with studios performing best but still only representing 6% of the market. Only three-bedroom units had average negative cash flow, although these larger units comprised only 2% of rental investments.”

2021-04-30 12:57:20

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Toronto suburb sets sales record

Home sales in Mississauga surged by 86.6% year-over-year in March to reach 1,411, according to the city’s real estate board.

“March was a record-setting month for resale homes in Mississauga,” Asha Singh, president of the Mississauga Real Estate Board, said in a statement. “MLS home sales set a new monthly record in March. We also saw a significant increase in the number of newly listed properties during the month. The infusion of new listings combined with the strength in demand set the stage for the average price to cross the million-dollar market for the first time in history.”

There were 3,067 home sales in Mississauga through the first three months of the year—a 63% increase over the first quarter of 2020.

The total value of home sales nearly hit $1.5 billion last month—a 130.4% increase over March 2020, and the largest amount ever recorded for any month—and easily smashed the previous record of $485 million. Singh anticipates buyer activity will really heat up as COVID-19 vaccines become more readily available.

“As vaccines become more widely available, pent-up supply from sellers that have been riding out the pandemic in their home for the last year should start to come online. This should continue to fuel the market through the spring and summer months.”

The benchmark price of a single-family home in Mississauga increased by 19.2% year-over-year to $1,281,200 in March, while townhouses rose by 27.7% to $874,600, and condos climbed 4.4% to $611,000. Last month, the average sale price of a home was $1,061,988, up 23.5% from March of last year, while the year-to-date average price of a home increased by 17.7% year-over-year to $1,003,087.

According to the real estate board, new listings shot up 45.8% last month to 1,976, which is the largest number of new listings in March in over 10 years, while active residential listings marginally fell by 0.9% year-over-year to 889.

There were only 0.6 months of inventory at the end of March, declining from 1.2 months a year earlier and below the 1.5 months long-run average for the time of year.

2021-04-29 13:53:32

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‘Boxy’ condos optimize space for end users, investors

A functional layout is imperative for condominium design because, in addition to creating healthy unit interiors, it keeps costs low for purchasers, whether they’re single millennials or growing families.

Condoville Realty Inc. is a sales team that doubles as strategic partners in real estate developments and works in secondary and tertiary markets, specializing in infill sites that have the potential to house small multi-family or boutique mid-rise residences. As such, layout design is one of Condoville’s specialties.

“When we’re sitting with developers, they generally have the idea that bigger is better and they rationalize that if they were going to be living in a condo they’d need a two-bedroom, two-bathroom that’s 1,400 sq ft.,” said Shaminder Gogna, Condoville’s broker of record and founding president. “However, the operating cost would be burdensome and if maintenance fees would be approximately $0.60 psf, and if you’re over 1,200 sq ft, you’re paying over $700 in monthly maintenance fees.”

The sweet spot, noted Gogna, is a 550-800 sq ft unit that would range between 1-bedroom, 1+dens, and 2-bedroom suite designs because the space can be optimized for functionality while also keeping the costs low.

“With millennials, it’s more effective to design functional layouts instead of automatically creating bigger spaces,” he said. “If it’s a one-bedroom, you’d want to have a living area, a kitchen with a breakfast bar, which definitely helps because then you get rid of your dining area, and the function would really come down to making it as boxy as you can. They’re easier to design and furnish. By boxy, I mean fewer angles.”

According to Mitchell Coburn, Condoville Realty’s director of marketing and sales, units with multiple tenants require maximizing personal space as much as possible.

“The least amount of sharing walls as possible is important,” he said. “Two-bedroom units should be bedrooms on both sides of the unit rather than side by side.”

That includes separating both bathrooms in much the same way the bedrooms are separated—one on each end—because it makes living with a roommate easier, which will increase demand for the investor’s rental unit.

Condoville is presently working with a landowner in Beamsville to develop a new site as well as selling Bench Condos, a five-storey, 32-unit boutique building that will have three ground-level commercial suites yet to be sold. Because it’s not in a downtown core, the project’s target market calls for a different set of design principles.

“Understanding our target market is always the first question we have to answer,” said Gogna. “If we’re selling in a tertiary market, like we are with Bench Condos, we have to make sure we have larger spaces for empty nesters, but with that being said, if the layout is smart and functional enough, we can serve the millennial market as well.

“Now you’re dealing with clients who are purchasing and living there themselves, so you have to consider how they want to spend that time in the unit, and the quality of the unit makes a difference. In terms of functionality, they might be okay with more square footage, so do the numbers make sense from an investor standpoint if they want to purchase, and do the numbers make sense for end users as well?”

One thing is for sure: post-COVID-19 condo design is different than it was before March 2020 when people often used condominiums for little more than sleeping at night.

“Architectural firms are encompassing more spaces for doing work,” said Gogna. “Buildings themselves have more green space, more amenities for people who are living in these condos. A lot of people are changing their perspective of condos. They used to be urban and you’d only go there to sleep, but older generations realize this is part of the real estate landscape now. You’d be surprised how many people still say they are against condos, but condos are here to stay with Ontario having a record number of sales year-over-year.”

2021-04-29 13:27:10

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BMO reveals where first-time purchasers plan to buy

Nearly half of first-time homebuyers intend on purchasing homes in either suburbs or small cities, indicated a new survey from BMO.

Forty-seven percent of Canadian respondents are eyeing suburban homes—in both Ontario and British Columbia, the figure grew to 53%—with 44% citing affordability, and 41% wanting more space.

The survey, which was conducted by Pollara Strategic Insights, revealed that 30% preferred living in major city centres, with 27% choosing Toronto, 15% Vancouver, and 11% apiece for both Montreal and Calgary. Forty-nine percent of respondents wanted to remain in their current area, while another 49% wanted to stay close to work.

“With remote work expected to continue over the long term, first-time homebuyers have the flexibility to look for a home that isn’t necessarily next door to where they work,” said Hassan Pirnia, BMO’s head of personal lending and home financing products. “Between this added work flexibility and price appreciation in some major cities, the expectation is that we will continue to see a push into the suburbs.”

Small cities outside of major urban cores have had an influx of newcomers in the last year, including many first-time buyers whose luck might have run out after months of runaway prices. In Barrie, the average sale price of a home increased by 32.6% year-over-year in March to $714,654, while Simcoe County home sale prices rose by 46.2% to $783,385 during that period. In Toronto, the average sale price increased by 21.6% year-on-year to $1,097,565, signifying frenetic activity in the surrounding area.

“Barrie has seen major appreciation in just one year. In places like Hamilton, Windsor, Guelph, St. Catharines and London, we’re seeing a lot of action because millennials who were renting or owned a downtown Toronto condo and needed to be near work obviously don’t have to anymore. They really don’t want a place where they only go to crash because now they’re stuck in their homes all the time,” said Laura Martin, COO of Matrix Mortgage Global in Toronto.

“The only way to get an advantage, in terms of space, even a yard and multiple bedrooms, as well as enough room for a home office, is to move out of the city. A townhouse in the City of Toronto now costs over $960,000, but you can get a very sizable home in London or Guelph for $400,000.”

The BMO survey also noted that 61% of first-time homebuyers expressed interest in purchasing a detached home, while 32% were looking for townhouses, 28% preferred semi-detached houses, and 27% were planning to buy condos.

But ground-related housing might be an ambitious purchase for a first-time buyer who doesn’t already have home equity to leverage, especially in light of the incoming mortgage stress test, which will essentially eradicate the affordability gains that were made when the Bank of Canada plunged interest rates in the wake of the pandemic. Martin says that the monthly payment on a $700,000 mortgage at 1.5% is about $2,000, but buyers now have to qualify for monthly payments of $3,000 because they’re being stress tested at 5.25%.

“First-time buyers are most likely doing this with help from the bank of mom and dad as cosigners. Even Gen-Xers are getting help from the bank of mom and dad,” she said. “I can see first-time homebuyers in the GTA buying preconstruction condos. They can still get them in the Upper Beaches, borderline Scarborough, in the upper $400,000s if they don’t mind starting off with a smaller amount of space.”

2021-04-26 15:13:10

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