Month: October 2021

The Toronto Regional Real Estate Board (TRREB) is reporting a busy fall market, as sales and average sale prices rose from August to September, although new listings declined.

While activity increased in September from a month earlier, sales decreased by 18% year-over-year. Davelle Morrison, a broker with Bosley Real Estate, is confident the market is healthy and considers last year’s statistics “a bit of an anomaly.”

“I feel that last august was really inflated because we’d just all come out of lockdown and people were making decisions to move simply because they were out of lockdown and they could. The results of last august are really an anomaly because of what we were going through at the time, so it’s almost like you have to skip a year and look at what the results were back in 2019,” Morrison said.

With her knowledge of previous years’ activity, Morrison forecasts few surprises for the coming months, predicting a strong market for the remainder of the year.

“I feel like right now things are pretty stable,” Morrison said.“Fall is here and I don’t see anything really changing. Rates are still low, even if they bring them up by a quarter of a point. Our federal election is now over, so people don’t have that hanging in their heads, wondering what various governments are going to do. I would expect that next year the January, February, March markets will be similar to what it’s done in previous years.”

Also predicted to continue is demand for work from home spaces and the role it will play in buyers’ decisions.

“I think that’s one of the biggest things that’s changing the dynamic. As long as people are going to be working from home, they need more space, and this is the same reason that drove the market up last year,” Morrison said. We’ve got a lot of corporations who at first thought people were going to go back to the office in September, and they’re pushing that back to November or even February, which just exacerbates that need for home office space.”<.p>

Despite the growth in work-from-home positions, Morrison ponders the effects of a workforce returning to offices in the city and how this change could further drive the condo market. Condos were the only market segment that saw an increase over September 2020, with TRREB data indicating a 13% year-over-year increase in sales

“One of the things I wonder is that when some of those people that moved out of the city realize they actually have to work from the office, they may need to get a condo downtown so that they can actually work from the office, let’s say three or four days a week before they go out to the place they bought outside of Toronto. To me, that’s the next trend that I’m waiting to see because I feel like that was a bit of a knee-jerk reaction to our lifestyle last year and our lifestyle is going to go back to where it was before.”

For current property owners considering selling this fall, Morrison offers a few pieces of advice.

“We’re not seeing the crazy prices that we were before, so I think that anybody who’s looking to sell right now just needs to temper their expectations in terms of the price that they hope to get. They will get market value but I don’t see them getting anything crazy above them at this point,” says Morrison

And despite a fall in listings, buyers may be gaining more leverage in the offers they tender. Even with tight demand, Morrison says buyers are more cautious than before.

“I will say that some of the offers we’re seeing now are conditional and that’s something new. Before we weren’t really entertaining conditions and now we have to. That’s definitely a change I’ve seen in the market.”

Canadian home prices should rise another 5% before the end of 2021, says a new report from RE/MAX.

Perhaps unsurprisingly, single-family detached homes have grown the most in price this year compared to 2020, rising between 6.8% and 27.3% across 26 markets RE/MAX included in its analysis. According to the company’s brokers who participated in the survey, the market segment will continue seeing price gains through the remainder of the year.

“As our brokers and agents predict, the fall market activity is expected to remain steady, which is promising, despite the ongoing challenges presented by the Delta variant,” Christopher Alexander, senior vice president of RE/MAX Canada, said. “This is particularly relevant given the Canadian housing market is often a good indicator of economic activity in the country, and with the Bank of Canada forecasting economic growth of 4.5% in 2022, a strong fall housing market is a good sign that things may be starting to return to a more natural rhythm.”

In Ontario, single-family detached homes experienced price gains that are among the highest in the country, with 13 of 16 regions seeing increases of 20-35.5% year-over-year, says the report. However, Toronto is not one of them—single-family detached homes rose by 14.6% compared to a year ago, followed by Mississauga at 19.7%, and Thunder Bay at 17.1%.

Low housing supply in Vancouver hasn’t been able to keep up with robust demand, but RE/MAX suggests that alternative markets present viable options for many of the city’s frustrated homebuyers. In Edmonton and Calgary, however, local housing affordability, low interest rates and higher purchasing power have put homebuyers in the driver’s seat, and there’s no sign of that trend dissipating this year.

Nanaimo, Victoria and Vancouver have seen home prices grow compared to a year ago by 23%, 19.1% and 16.4%, respectively. In fact, Nanaimo’s condo prices rose by 17.6% year-over-year to $343,713, while its townhome segment surged by 65.8% to $511,549. Edmonton, Saskatoon, Vancouver, Victoria, Winnipeg and Nanaimo will see price gains between 4-9% through the remainder of 2021.

“Housing activity throughout the pandemic has remained strong, so it comes as no surprise that the outlook for the remainder of the year continues on an upward trajectory, which is great for homeowners and their equity, but challenging for first-time buyers who have been priced out of the market,” Elton Ash, executive vice president of RE/MAX Canada, said. “We must continue to educate Canadians from a practical, real world, point of view. What is affecting the Canadian housing market right now? Low interest rates, economic stimulus, higher home-buying budgets, a higher savings rate, homeowners too scared to sell, and not enough new construction. These factors have created current market conditions.”

Packing up and moving is arduous enough, but making matters worse for many Canadians is that there are many additional charges they’re often unaware of.

According to a survey by BigSteelBox, a moving and storage company, 19% of respondents didn’t realize they would be charged by weight, of which 36% were not aware of how they would be charged before booking. Thirty percent of respondents paid more money for their move than they were initially quoted.

“The average cost of moves climbed for a couple of reasons. Destination cities, which are rural non-urban areas, increases the cost,” Brian Hawkins, BigSteelBox’s director of operations, told CREW. “People have been leaving Toronto, Vancouver, Edmonton and Calgary because the pandemic taught us we can do our jobs from anywhere, so they would cash in on the housing market in bigger centres and move somewhere smaller.

“Whenever you take trucks off a key lane—trucks typically go where the population is—they have to get to you and back, so if there’s an opportunity for them to provide you a fixed price, that will set consumers up to win. A lot of companies charge extra fees, including a storage fee if the truck has to wait a couple of days or even a fuel surcharge.”

The survey noted that scales ultimately determine the final price consumers pay for moves, which is why final invoices rarely match quotes.

“The challenge for moving companies is the lure of underestimating the weight to make their quote look cheaper than their competitors,” said the survey report. “Our research indicates that this is an exception and not a common practice.”

However, there is another factor that, since 2020, has added to the cost of moving, Hawkins says. Commercial carriers in Canada now use electronic locking devices to track a truck’s duty time, reducing how many trucks are on the road at any given time as well as the hours spent on the road.

“It makes it safer,” Hawkins said. “They can’t get as far in the same day and that puts pressure on costs. We don’t push unsafe hours but I have heard it has put pressure on the industry for sure.”

The housing crisis facing our country is finally receiving the attention it deserves, but there is another equally troubling situation that the construction industry must contend with that also threatens our economic recovery.

The construction industry faces a shortage of skilled trades. We need more youth, women and underrepresented people to take up training and pursue careers in the industry to offset anticipated retirements. Without the workers, we will not be able to build that much-needed housing.

Ontario Citizenship and Multiculturalism Minister Parm Gill noted at a recent webinar sponsored by RESCON that over the next decade the province’s construction industry will need 100,000 workers to keep pace with growth of the industry and the number of Baby Boomers expected to retire.

Unfortunately, that’s almost 22,000 more workers than are likely to enter the industry over the 10-year period.  We must get more people into the industry—whether it be in the field or in the office.

Hefty investments in infrastructure such as subway expansions, rail electrification projects in the GTA and a number of large hospital projects will fuel demand for trades on the industrial, commercial, institutional side. On the residential side, an upward swing in housing starts is expected over the coming decade, bolstered by pent-up demand and immigration-driven population growth.

The challenge our industry faces is how to recruit and retain workers, and ensure the province has the talent it needs to build the supply of housing and rental buildings.

RESCON has three solid ideas.

First, we must focus on marketing in-demand careers to youth and immigrants, second, enable jobseekers and workers to easily access information about in-demand careers and industries, and third, provide support for employers who hire and employ skilled trades.

We outlined our plan recently in a submission to the Ontario Workforce Recovery Advisory Committee (OWRAC). The committee was established by Labour, Training and Skills Development Minister Monte McNaughton to provide recommendations to shape the future of work in the province.

To ensure Ontario is the top jurisdiction for talent, it is crucial that greater focus is put on high-growth sectors like construction and the jobs that are in demand. 

Construction will continue to drive the economic recovery of Ontario so marketing and promotion of our industry must be aimed at youth and immigrants who are looking to settle in Ontario.

Many of the anticipated jobs, including bricklayers, stucco installers, concrete and drain workers, elevator installers, crane operators and other finishing trades are in the residential construction sector and will require specialized skill sets.

We must recruit individuals who are willing to learn the specialized skill sets needed to have a fulfilling and lucrative career in residential construction.

Ontario needs to go back to what worked before and welcome immigrants interested in specialized careers in the residential sector. In construction, specific voluntary-based trades continue to rely on skilled foreign workers to offset domestic training programs. The current immigration system has trouble recognizing these careers as skilled and therefore has created barriers for immigrants with these skills.

The trade equivalency assessment process should consider skilled immigrants and their contributions to the construction industry.

We must also support workers by ensuring that jobseekers can easily access information publicly about in-demand careers and industries and find out what requirements are needed and where to go for training.

Digital tools and existing marketing materials should continue to be used by industry and government alike. For example, the Job Talks Construction resource is an open-source video series profiling 25 different jobs in the construction skilled trades. These visual tools are a great way to help students learn more about the trades.

I am encouraged that a digital portal will be created through the formation of Skilled Trades Ontario to help ensure that apprentices are progressing through their training and remain on track to certification. Our hope is that the digital portal will be easy to use, for both apprentices, jobseekers, journeypeople and employers.

Employers must also be fully supported so they can adapt to today’s ever-changing environment. The government should consider increasing on-the-job support for employers who hire and employ skilled trades people—specifically graduates of specialized training and college programs.

Most skilled trade workers in the residential construction industry fall under voluntary trades. This means that training is largely done on the job. Employers should be compensated for the training they provide.

Employers with robust mentorship programs should be rewarded and government-funded training programs should have significant mentorship components to ensure that youth are guided through their career pathways. This will ensure youth are kept on track and reduce drop-off rates among new trainees.

Training the next generation for a career in construction needs to be a priority. Our economic future is at stake.

Richard Lyall, president of RESCON, has represented the building industry in Ontario since 1991. Contact him at [email protected]

Canada’s luxury residential real estate market is flying high these days, thanks in large part to robust consumer confidence and economic optimism, says a new report from Sotheby’s International Realty Canada.

Driven by what Sotheby’s Fall 2021 forecast report called “pandemic-related influences,” such record-low interest rates, H1-2021 saw record-breaking activity in the country’s luxury housing market, including in urban centres which reverses a trend that lasted through 2020. Canadians’ propensities to resume city living has been buttressed by a reopening economy, including in the entertainment sector, and it is driving luxury condominium sales in major urban centres.

“This has been further magnified by the shortage of single-family and attached home supply, and resulting affordability challenges, which are compelling prospective buyers across every generation into condominiums out of necessity,” said the report. “In recent two months, across every metropolitan market, top-tier condominium sales activity has exceeded industry projections and contradicted anticipation of a seasonal summer slowdown. In the GTA, which has seen demand for luxury condominiums steadily increase since the start of 2021, sales of luxury condominiums over $4 million were up 40% year-over-year in July and August. Montreal’s luxury condominium sales surpassed optimistic industry expectations over the summer months, as $1 million-plus sales increased 30% year-over-year, with $4 million-plus condominium sales remaining consistent. Similarly, sellers’ market conditions were sustained in Vancouver’s top-tier condominium market through the summer, as sales over $1 million increased 22% year-over-year and luxury condominium sales over $4 million remained on par with 2020 levels.”

The employment picture in Canada has ameliorated this year and is expected to remain strong through the remainder of the 2021, however, recovery has been uneven throughout the country. In August, employment increased for a third straight month, putting it up 0.5% year-over-year and bringing the national unemployment rate down to 7.1%—the lowest since the pandemic began.

“During this time, unemployment rates fell in every major metropolitan real estate market. Vancouver’s August unemployment rate saw the most dramatic decline as it fell to 7.1% (down 5.9% year-over-year), while Montreal’s unemployment rate fell to 7% (down 4.9% year-over-year),” said the report. “Although unemployment rates in Toronto and Calgary remained above the national average, they also decreased to 9.3% in Toronto (down by 4.7%) and to 9.6% in Calgary (down by 4.8%). Although the economic and labour market recovery remains deeply unbalanced, its improvement, particularly for mid/high wage sectors, has bolstered confidence and will continue to support the recovery of Canada’s conventional and luxury housing market in the months to come.”

One reason for the luxury market’s gains is critical undersupply of housing inventory in Toronto’s, Vancouver’s and Montreal’s conventional housing markets. Sotheby’s anticipates that this trend will continue undermining transactions this fall. The $4 million-plus segment of the luxury market saw sales surge to historic levels in the first half of the year before softening during summer, albeit temporarily.

“Activity has resurged in the preliminary weeks of fall. While a balanced market is anticipated for Calgary, extreme demand-supply housing imbalances across Toronto, Vancouver and Montreal are deeply embedded. This is now revealing itself in increased activity in the comparatively accessible top-tier condominium market, buyer fatigue and hesitancy, market conditions that almost universally skew in favour of sellers, and continued price gains in the months ahead.”

Ontario’s rent freeze concludes January 1, but in Toronto where rental income hardly carries condo mortgages, some investors might not be able to achieve market rents for the foreseeable future.

“Because I have to give 90 days notice to increase rent, which means it had to be done before the end of September, my property management company is in the process of issuing over 100 N2s,” Ryan Coyle, co-founder of Connect.ca Realty and Marco Property Management, said. “We have so many of our clients’ properties below market rent because of the pandemic. I had a lot of tenants at market rent who stayed during the pandemic, and those I will increase slightly or some will remain unchanged, but I had tenants leave because they found cheaper places and I had to refill them at cheaper rents. My portfolio took a hit and my cash flow decreased by about $30,000-50,000.”

The rental increase, which is based on the Ontario Consumer Price Index, will be 1.2%, but Coyle advises that, despite the relatively meagre increase, the tenant isn’t obliged to pay, in which case the landlord should consider what the cost of replacing them would be. Nevertheless, in a strong rental market like Toronto’s, a replacement tenant shouldn’t be difficult to find.

“Using a realtor or property management company usually costs about a month’s rent as the fee,” he said. “Most of my clients are mom and pop investors who were extremely stressed when it took three months instead of three days to rent units, and at $500 below market. It’s important to use a property management company because they do all the communication between the tenant and landlord.”

Landlords who capitulated to tenants’ demands to lower their rents lest they move out likely won’t recapture the lost monthly income with a 1.2% increase but Davelle Morrison, a broker with Bosley Real Estate Ltd., says a landlord whose rental income doesn’t carry mortgage payments can at least write it off as a loss.

“They don’t really have any recourse other than asking tenants if they can bring the rent back up, and chances are the tenants will say ‘No,’” Morrison said. “They will have to wait until their tenants give notice to vacate because there is no legal way to bring rents up to market; the landlord just has to wait it out.

“But sometimes people like to have a loss because they make income elsewhere, so they don’t have to pay as much in taxes. There is a bit of benefit to doing that because they write off rental income, maintenance fees and property taxes as their loss, and it helps reduce the taxes they pay. For people who already make a lot of money, there’s a benefit to taking the loss.”

Housing starts in Canada are the highest they’ve been since the 1970s but that isn’t the case in Toronto, where scarce supply is causing home prices to surge.

And according to a local developer, the cost of housing in the city is about to escalate even more for different reasons.

“I’ve noticed that costs are escalating at a very alarming rate. If you’re producing and transporting less material, their costs spike, and the same thing is happening with labour,” Scott McLellan, senior vice president of Plaza Corp., told CREW. “In general, it’s happening with prices for everything else too, and it’s probably going to get worse because inflation hasn’t fully kicked in yet. Material will cost more because gas prices have gone up, and that will have a major impact on the affordability of a new home.”

RBC recently reported that there were 260,500 housing starts in the country over the last year, but Toronto only saw an increase of 500 units. The city’s housing supply shortage is well documented and often cited as the reason for exorbitant prices, but insufficient availability aside, McLellan estimates that the cost of new builds could rise by as much as 20-30% within the next year. Moreover, it will take years for those housing starts to reach completion.

“Even a year ago in downtown Toronto, a condo would be launched at $1,100 psf, and today it’s closer to $1,500,” he said. “Most of our materials are delivered by trucks. There’s a truck driver shortage for a number of reasons, but I’m certain it has to do with the cost of fuel. To get your kitchen to the site, the cost has already gone up 25% because gas prices have gone up 25%. Gas prices are on the verge of spiking here in Canada. The guy who delivers your kitchen has to pay those extra fuel costs.”

Mark Cohen, managing partner of TCS Marketing Systems, works with a lot of Toronto’s developers and says costs are indeed rising. In addition to COVID-induced supply chain issues delaying the delivery of materials to construction sites, development charges are up.

“I’ve worked for developers most of my life and the shortage of materials is a real problem because it drives pricing up, and that means things take longer to get done,” Cohen said. “Delays are common in the new construction business for low- and high-rise, but people’s inability to get the supplies and products they need is becoming a major issue. In the GTA, there’s very little for under $1,000 psf—Mississauga, Vaughan and Pickering are all north of $1,000 psf.”

When prices rise too quickly and reach a certain threshold, which in this case would price out a significant chunk of buyers, market activity decelerates and Cohen believes this is one of those times.

“It just can’t keep going because it’s scary what’s happening to our pricing. Some things will flatten because affordability is key, and we have fallen behind on a national basis with keeping up with demand. New home sellers need to be bullish on the future but we need a reality check. When things slow down sometimes, it’s because people realize there’s too much, too fast, and right now is one of those times—too much demand and price increases. I don’t see dark clouds on the horizon but it will have to slow down otherwise people will spend a million dollars to live in little apartments. We’re in the 22nd year of a seven-year cycle.”

Andrew Brennan has been an investor since 2008 and today has about 725 doors. The trick, he says, is to build a portfolio in the multifamily sector because commercial mortgages are much easier to obtain than residential mortgages.

“Part of challenge over the last four, five years is it’s harder to get mortgages from the point of view of debt coverage ratio for a portfolio, or the amount of mortgage you can get in the residential space, but we don’t have that problem when it comes to commercial,” said the co-founder of Palm Tree Investments. “I’m able to get mortgages and not have the same frustration. The other thing is when we deal with a bigger amount of dollars, it’s the same amount of time to get a quote for a roof for a 40-unit building as it is for a four-unit building, so it’s the same economy of scale.”

The other trick is to steer clear of Toronto and much of the GTA, where cap rates are too low, Brennan added. As a result, Palm Tree Capital is most active in Simcoe County and along the 401 corridors by Belleville and Kingston—the company has even set up a new office in the latter.

“[The GTA] requires much more upfront funds sometimes,” Brennan said. “I had one down in Oshawa but I decided to wholesale the building. If I found a decent building that was large enough and if rent roll was significantly below market, then I’d consider it based on the value-lift.”

Brennan doesn’t see anything wrong with buying single-family homes as investment properties, but he recommends duplexing them to extract more rental income from the property.

“Multifamily or even a duplex would be good for a beginner,” Brennan said. “The other option would be to buy a single-family home and put a basement apartment in it, which would overcome the debt-rent ratio. I have some friends who do those conversions but even some of them wouldn’t get 80% loan-to-value.”

Nevertheless, choosing the right location appears to yield better returns on investment. Brennan has properties in Midland, ON, a town of 18,000 people with $500,000 homes. But in this town, he says, the smart money is on duplexes.

Just avoid condos.

“Condos and single-family homes have poor debt ratios when you compare the rent amount to value, and that limits how many properties you can buy in the future.”

A new study from Royal LePage has found that homeowners who can afford 20% down payments are much better off in the long run than renters.

In fact, buying a home in Canada with an uninsured mortgage puts homeowners ahead of renters in 91% of cases analysed.

“Canadians strongly value homeownership for many reasons. Not only is it a great source of pride, it is likely the largest and most significant financial investment most people will ever make,” Karen Yolevski, chief operating officer of Royal LePage Real Estate Services Ltd., said. “Historically, homeownership has been very profitable for Canadians, many of whom have factored their real estate investments into their retirement planning. Owning a home is widely viewed as a means to save money and build equity.”

The Royal LePage-sponsored study was conducted by Will Dunning, an economist and housing market analyst who analysed 278 scenarios based on city and housing type and took into consideration historical data and future projections. Dunning ultimately determined that owning is a better future prospect than renting.

Despite monthly ownership costs being greater than rental expenses, a mortgage’s principal payment component is a form of saving because it is not a true cost. Moreover, interest payments on the mortgage are greatest in the first month but gradually decrease over the life of the mortgage.

In 253 out of the study’s 278 cases analysed, the net cost of owning a home, which was calculated by taking the total cost of ownership and subtracting the savings through principal repayment, was lower than rent—the report referred to it as the “ownership advantage,” which was $769 less a month in Q2-2021 than renting. In the 9% of cases in which renting came out on top, albeit only by $245, the ownership homes were in the luxury segment.

“For many people, buying a home—especially the first—is a landmark event and one of the most challenging decisions we’ll make in our lives,” Dunning, president of Will Dunning Inc., said. “It is a decision that is usually based on a lot of hard work. This research tests a belief that is held by a lot of Canadians, that owning is better financially than renting. And, it finds that this belief is very often correct.”

The industrial vacancy rate in Vancouver has dropped to 0.6% and, unsurprisingly, it’s driving up prices.

One reason for such a low vacancy rate is the dearth of land on which to build, Jason Kiselbach, managing director and senior vice president of CBRE Vancouver, says.

“One of the fundamental issues we have in Vancouver is supply of available land for industrial—you have a mountain to the north, an ocean to the west, the U.S. border to the south, and an agricultural land reserve to the east,” Kiselbach said. “It may look like land is available for development but it’s restricted.”

Consequently, demand for industrial space has vastly outpaced demand, with most projects in development already pre-leased, Kiselbach added. In fact, as of September, the average asking lease price in Vancouver is $15.37 psf.

One of the complicating factors is, because demand for industrial space is driven by e-commerce, which requires proximity to population centres, it isn’t feasible to build facilities further away where there’s an abundance of land. However, Kiselbach says that Abbotsford and Chilliwack, which are roughly an hour outside of Vancouver, would be sufficient.

“Lease rates have escalated over the last three years and vacancy rates have compressed, but there have been a few things we’ve learned: for industrial, you need to be close to where the population is, so some companies just have to be in Vancouver to get same-day delivery to customers,” Kiselbach said. “Also for industrial, real estate accounts for 6% of companies’ expenditures. The cost of real estate isn’t as important as location, labour and transportation costs, so we haven’t hit a point where people say they can’t afford to be in Vancouver. But at the same time, some companies are lowering their footprints in Vancouver and doing more work from Calgary.”

In the next year, Vancouver will not have an industrial-use facility with more than 50,000 sq ft, highlighting both the critical shortage and the need to plan years in advance. Larger facilities take about three and a half years to complete and, Kiselbach says, approvals in certain jurisdictions aren’t cumbersome like they can be for residential developments.

Still, don’t expect prices to contract, especially considering there’s 6 million sq ft of construction occurring in the sector right now.

“But it can’t be delivered fast enough and it’s pre-sold before it’s delivered, and that’s how it will continue to operate,” he said. “Developers will continue looking further outside the core.”