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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Here’s when GTA condo rents will increase

The Greater Toronto Area’s condo rental supply imbalance tilting renters’ favour resulted in year-on-year price declines in Q1-2021.

There were 13,168 condo apartments rented last quarter, according to the Toronto Regional Real Estate Board (TRREB), compared to 7,251 during the first quarter of last year, marking a 81.6% increase, but listings also surged by 78.8% during that period and drove down prices.

“The number of condo apartment rentals reported in the first quarter represented a new record for the first three months of the year. This suggests we are accounting for pent-up rental demand from 2020. Strong rental demand is also an indicator of broader economic recovery with people willing to sign rental agreements because they are confident in their future job and income prospects,” said Lisa Patel, TRREB’s president.

However, rents for one-bedroom condo apartments declined by 16.8% to $1,820 last quarter from $2,187 in Q1-2020, while two-bedroom unit rents dropped by 13% to $2,447 from $2,812.

nevertheless sees rental demand gradually outpacing new listings through the rest of the year, and says it will become particularly pronounced by 2022 when both immigrants and non-permanent migrants begin entering Canada in greater numbers.

Condo sales surged in Q1

Investor confidence in the GTA’s condo market was robust last quarter, as sales grew by 79.8% to 9,398 from 5,226 in the first quarter of 2020. The number of new listings also increased by 42.8% to 11,373 from 7,964 during that period, while active listings grew by 23.6% to 2,811 from 2,275.

However, the average sale price of a GTA condo declined by 1.4% to $645,219 last quarter from $654,570 in the first quarter of 2020, which is reflected in the average days on market rising by 35.3% to 23 from 17 in Q1-2020. In the City of Toronto, there were 6,475 sales in Q1, up substantially from 3,637 in Q1-2020, however, the average sale price dropped to $675,844 from $708,298.

The reason the sale price declined in Q1, despite higher sales than in the first quarter of last year, is the pandemic hit at the tail end of March 2020. Although there’s no reason to believe condo sales will decelerate in Q2-2021, pandemic-related restrictions could hamper some activity.

“I was selling a condo at Spadina and Bloor, which had over 50 showings, listed at $598,000, and on offer night we sold for $706,500,” said Davelle Morrison, a broker with Bosley Real Estate. “This week I have another condo listing in Yorkville that’s over 1,000 sq ft, and you’d think it’d be hopping, but with the new stay-at-home order, things are quieter. I only have nine showings so far and offer night is coming up on Monday.”

2021-04-26 15:18:11

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Low transit use imperilling critical infrastructure projects

The paucity of transit riders has left city coffers reeling, says a new report from the C.D. Howe Institute, and it’s snowballing.

“Transit authorities in Canada rely on farebox revenues from paying passengers as their largest source of revenue,” said the report.

“In the short-term, the COVID-19 pandemic has drastically changed the way transit is used in the GTA. Many who would usually commute to work are at home as their companies shifted to work-from-home models and their offices temporarily closed. Lockdown measures have further limited the extent to which people travel and make use of TTC services. At its lowest point, Toronto transit demand fell 85%, causing the TTC to drop service levels 80%.”

The snowball effect, as it pertains to municipal coffers, is the lost revenue has, in many cases, precluded investment in critical infrastructure projects. If they aren’t outright cancelled, they’re shelved, says Nadia Todorova, interim executive director of the Residential and Civil Construction Alliance of Ontario (RCCAO).

“Overall, I agree with the premise of the report, which highlights the economic value of a comprehensive transit system for a city,” Todorova told CREW. “I think the premise of the report is something we’ve always focused on. Reduction of ridership as a result of COVID-19 isn’t just revenue loss to cities. It has had a snowball impact on other industries, including ours, like infrastructure and construction.”

Municipalities are reallocating money from their capital budgets and refunneling them towards alleviating operational pressures, which has resulted in a significant decline of infrastructure projects tendered by municipalities.

Fortunately, subsidies provided by the federal and provincial governments have helped in that respect, highlighting the importance of delivering infrastructure works that sectors like residential real estate construction rely on.

“RCCAO focuses on critical infrastructure like water, waste water, roads and bridges,” said Todorova. “We saw quite a few drops in tenders last year and that was fairly significant. It’s an overall body of infrastructure projects that have been impacted, or delayed by six or seven months, or shelved for another capital year. The drop in tenders we saw has been across the board.

“The paper C.D. Howe did bolstered the case that municipalities need funding pathways from the federal and provincial governments because those investments in transit and infrastructure have brought job creation and they build hard assets that contribute to the economic competitiveness of the province.”

 

2021-04-23 12:37:32

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Toronto needs more family-focused condos

Multigenerational living is commonplace in Asia, and while that isn’t the case in Toronto, that could change in the short years ahead.

Aoyuan International’s Canadian arm is building M2M on Yonge St. in a very dense North York neighbourhood, but unlike typical condominium developments in the city, M2M is a master-planned community that’s emphasized the need for family-sized units. In Asia, master-planned communities comprising 20-30 buildings are the norm but M2M will only have five, although they’ll total about 2,000 units.

When Yang moved to Toronto with his wife and six-month-old son, he found the family a one-bedroom-plus-den condo, which he loved because his 10-minute walk to work meant that he had more time to spend with his family each night. That included countless sunsets by Lake Ontario and taking his son to Ripley’s Aquarium three times a week.

But by the time Yang’s daughter was born three years later, the family’s condo was no longer sufficiently sized. Yang’s subsequent search for a three-bedroom condo in downtown Toronto didn’t yield much, save for in the 1,500 sq ft luxury category, which isn’t what the family was in the market for.

“It was difficult to find a family-focused community with that many bedrooms in an urban area because most condo supply downtown are investor-driven one-bedroom units,” Yang said during a recent webinar about multigenerational living.

When Yang joined Aoyuan, he’d helped steer the company towards family-focused developments, noting their paucity in the Canadian market. Despite initial scepticism, the company decided to buck the trend, which had theretofore been to build condo units for investors and students.

“We spent a lot of time thinking about the question, why would a family live in a condo?” said Yang. “But in Asia, it worked well because a lot of families happily live in high-density communities, and while we were told it wouldn’t work in Toronto, we decided to challenge this stereotype to give one more option to families who enjoy urban convenience. We wanted to turn the daily three-hour commute into playtime for families, because this will be very good for children, parents, and the whole family.”

At M2M, a daycare with a glass wall is next to the gym so that both child and parent have peace of mind knowing where the other is at all times. Although there’s an outdoor kitchen for communal meals, the playroom is indoors. The master-planned community also has co-working space, retail and office units too, because, as Yang says, the point of such communities is convenience and optimizing family time, part of which can be spent at the 36,000 sq ft community centre.

The first phase of M2M was one of Toronto’s fastest selling condo projects in 2018, and Yang’s anecdote about their 1,003 sq ft, three-bedroom model unit might explain why.

“When we launched in 2018, we were happy to see families coming in with their children and grandparents together, looking at our model and debating who would live in which bedroom,” he said of the unit containing two master-bedrooms located at opposite ends. “Sometimes there were six or seven people together. Kids would sometimes say, “Mommy, I want to live in this bedroom,’ and they’d say, ‘No, you’re going to live in the smaller bedroom. That one is reserved for your grandparents.’”

Norman Xu, head of the Norman Xu Team at Royal LePage Signature Realty, agrees that there is demand for family-sized condo units, especially in the COVID era where more people work from home than ever before, however, he believes the economics are prohibitive.

“On the other side, new construction is so expensive that it’s being sold for as much as $1,500-1,800 psf, and to buy an 800 sq ft unit, you’re looking at $1.3-1.5 million if you want to buy downtown,” he said. “Most people cannot afford it, and the developer can’t sell it any cheaper because they buy the land for a certain price and they have to sell their units at around $1,500 psf in order to make a decent profit. From what I see, more people are leaving downtown in today’s market as one of the solutions. People have to buy something they can afford and it won’t be downtown, so they’ll have to expect to commute after COVID.”

2021-04-23 12:49:34

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Don’t worry if interest rates rise sooner than expected

The Bank of Canada expects the country’s economy to rebound faster than expected, and that could mean interest rate hikes are in the cards next year instead of in 2023 as previously predicted.

The Bank of Canada predicts GDP growth of 6.5% this year, up from its initial forecast of 4%, and while it will hold rates until the economy has recovered, that could happen a year ahead of schedule. However, where the housing market is concerned, that would still have a negligible effect, which means the white-hot market won’t be slowing down any time soon.

“What the Bank of Canada does with prime over the next 12-24 months is 100% not relevant to the housing market because any kind of moves they make will be incremental, i.e. 0.25% at a time, and cumulative to what total?” said Dustan Woodhouse, president of Mortgage Architects. “A 0.75% or maybe a 1% increase still means nothing for Canadians with mortgages because 80% of Canadians are in fixed mortgages and the other 20% in variable rate mortgages were stress tested at 4.79%, so an increase from 1.45% to 1.95% or 2.45%, again, is too small to cause anybody to start selling their homes and increase the supply of homes.”

On the contrary, added Woodhouse, whenever policymakers intervene, irrespective of how much or how little, it sets off a buying frenzy.

“What ends up happening if interest rates increase is the opposite of what policymakers would prefer, and that is the fear of missing out increases significantly,” he said. “If interest rates rise, people think, ‘We’d better hurry up and buy.’”

The COVID-19 pandemic was the obvious impetus for Canada’s central bank plunging rates, and given that mortgage rates could be had at sub-2%, Canadians began chasing those elusive single-family detached homes. Leah Zlatkin, mortgage broker and expert with LowestRates.ca, says it will still take quite a while until interest rates rise to a level that dissuades Canadians from buying homes.

“The bank has changed its wording around the timing of the rate increase, and this shift in tone and predicted timeline likely means we’ve seen the end of the record-low mortgage rates we have seen on offer from lenders in the past,” she said. “While the record low rates may be gone, historically, we’ll still be at very low mortgage rates, which is good news for buyers,” she said.

And, as Woodhouse noted, nothing is set in stone.

“On top of all of that, it’s all still speculative language,” he said. “There’s no commitment to raising rates at that time; it’s just a vague suggestion that it might happen.”

2021-04-23 13:00:17

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GTA exodus makes its way to Barrie

The exodus from the GTA is well documented, but an Engels & Völkers report is shedding light on what buyers are leaving for.

Although COVID-19 has spooked people into leaving dense cities like Toronto, the pandemic has elucidated the importance of social interaction, and while people yearn to feel safe, they also crave community now arguably more than ever.

“They want more elbow room and more space that they don’t have in the main urban centres, but they still want to be connected to people. They don’t to be out on 20 acres in a rural area,” Barrie-based Jeremy Brooks of Engels & Völkers told CREW. “They want a place that has a sense of community, park space and great outdoor amenities that they can access on a regular basis.”

Barrie teems with mile upon mile of walking and biking trails, not to mention beautiful beaches.

To that end, buyers are looking for a combination of cottages and full-time homes, which is why people are winterizing cottages. Barrie is known for its four-season great outdoors and, added Brooks, 65% of buying activity in the city is coming from people leaving the GTA. That’s also had a profound effect on the price of single-family detached houses in Barrie, a city replete with subdivisions.

“We’ve seen the most demand from people moving from a semi-detached home or a condo into a 3,000-4,000 sq ft house in a subdivision here,” said Books. “Those houses cost $600,000-700,000 a few years ago but now they’re million-dollar homes because people have realized they can increase their living space. They want more space both inside and outside their home.”

Inside their homes, the so-called “Zoom room” is also in high demand from buyers, many of whom permanently work from home and desire optimal space. If they have children, a room that’s soundproofed from commotion in their homes is important.

“We have a lot of buyers who want larger homes with more bedrooms that they can dedicate as an office, if there isn’t already dedicated office space in the homes. They can go close the door for six-to-eight-hour workdays and be connected to their offices while being disconnected from the rest of the home so that there aren’t any interruptions. There’s high demand for dedicated closed door work space.”

2021-04-23 12:55:42

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