COVID-19 & MORTGAGES

??Our Province is here for us in this time of need. With jobs on hold, our finances are suffering, but our mortgage lenders are on our side!

??CMCH has announced they are working with lenders to defer mortgage payments up to 6 months with 0% interest, fees or penalties during this stressful time

??There will be NO negative impact on your credit

??This will assist with any financial loss you will be/have been incurring during this pandemic.

??Please note this is not yet official. S&K Realty will be sure to keep our followers updated!

Greater Toronto Area REALTORS reported 4,581 home sales through TRREB’s MLS System in January 2020 – up by 15.4 per cent compared to January 2019. On a preliminary seasonally adjusted basis, sales were up by 4.8 per cent compared to December 2019. 

We started 2020 where 2019 left off, with very strong growth in the number of sales up against a continued dip in the number of new and available listings. Tighter market conditions compared to a year ago resulted in much stronger growth in average selling prices. Steady population growth, low unemployment and low borrowing costs continued to underpin substantial competition between buyers in all major market segments.

The MLS HPI Composite Benchmark price was up by 8.7 per cent compared to January 2019 – the highest annual rate of growth for the Benchmark since October 2017. The condominium apartment market segment continued to lead the way in terms of MLS HPI price growth, but all home types experienced price growth above seven per cent when considering the TRREB market area as a whole. The average selling price in January was up by 12.3 per cent, driven by the detached and condominium apartment segments in the City of Toronto.

A key difference in the price growth story in January 2020 compared to January 2019 was in the low-rise market segments, particularly with regard to detached houses. A year seems to have made a big difference. It is clear that many buyers who were on the sidelines due to the OSFI stress test are moving back into the market, driving very strong year-over-year sales growth in the detached segment. Strong sales up against a constrained supply continues to result in an accelerating rate of price growth.

Riverdale

Artsy character with Victorian and Edwardian style homes combined with mature tree-lined streets and easy access to downtown make Riverdale a highly sought after neighbourhood. To the north of this area is Danforth Ave famous for Taste of the Danforth and home to many delicious Greek eateries. To the south, also known as Riverside District, Queen St East is lined with bistros, coffee shops and peppered with independent art galleries. There are 3 major parks in Riverdale and according to the City of Toronto, they will be preserved as green space for many years to come.

2020 RESALE MARKET

1 For those in the industry, the focus is always on sales numbers. For 2019, we forecast 87,000 units when everyone else was much lower. We turned out to be correct with a year-end estimate of 89,000 units. Our estimate was based on sales per adult population. The long-term average for our current population is about 93,000 units. We think final sales will be 95,000 units reflecting pent up demand from 2018.

2 For the public, everyone wants to focus on prices and in particular price increases over 2019. Economists come up with a single figure for the GTA when in reality this market represents 20-25% of all sales in Canada. Hence, you need to look at a number of sub markets. We have provided these figures based on our analysis of the sales-to-new listings ratio in two time periods. See Figure 1.

3 Price increases for 2020 will range from 1% to 12+% depending on the property and its location. See Figure 2.

4 The possibility of a Real Estate Bubble in 2020. NONE. Price bubble theorists talk about the average real estate price versus the average income of the population. Tracking this figure over 20 years suggests that Toronto is in trouble. But there are three reasons why this figure is no longer meaningful. First, it was based on an economy where most people were employees. Today, we have a significant self-employed population whose income is difficult to measure. Secondly, the number of non-resident buyers with no income in Canada is significant (many also send money to family in Toronto to buy). Finally, we are seeing a generational wealth transfer from ‘baby boomers’ to their children to help them buy.

So, what is a real estate bubble and how does it burst (price crash)? At some point, demand decreases or stagnates at the same time supply increases, resulting in a sharp drop in prices—and the bubble bursts. Has demand for housing in Toronto dropped? No, we have about a 100,000 people a year moving to the GTA and that is not stopping in 2020. In fact, the Government wants even more immigration to Canada and most come to the GTA. Has supply increased, yes, but not enough. Read our section on the Pre-Construction market.

2020 RENTAL MARKET

1 About 33% of all condo completions enter the rental market. That’s about 6-8,000 units each year. Still the vacancy rate will remain at 1%. The Stress Test has forced more millennials into the rental market.

2 Rental prices currently start at just over $3 psf per month to $4 psf per month on average. For premium buildings and locations, it is over $5. For a 500 sf unit, that is a monthly rental of $2000 on average.

3 Rent increases were in the 10% range in 2018. For 2019, it moved down to about 5-7%. For 2020, we expect increases to slow further to 3%.

While the average real estate price to average income is not a good measure on the sales side. Average rent to average income is a good measure to project future rent increases. That’s because most renters have salaried jobs (that is the preferred tenant for investors) and annual wages are only increasing by 2-3%.

Sales Commentary

September was another solid month for sales, which clearly confirmed the upward market direction of this market. Sales were 22% higher than for September of last year. But this number is also slightly below the peak September years of 2016 and 2015. We continue to look at Listings as a future indicator. ‘New’ Listings for the month were 2% lower than last year and the current level of ‘Active’ Listings is 14% lower than a year ago. Again, supply is holding back this market. In terms of the condo market, sales in September were 16% higher than September of 2018 and listings were unchanged from a year ago as ‘new’ listings’ for the month were lower than the ‘active’ listings at month’s end which means supply continues to fall.

The end result is higher prices. For a sustainable market, we need prices to increase by approximately 4% per year to maintain a balance and ongoing affordability. Currently, we are running at 5% on average for the overall market. Yes, prices are lower in York Region from a year ago but that is the only area as prices are 7+% higher in Peel and Halton Regions.  

 

CITY OF TORONTO CONDOS AVERAGE PRICE

This graph plots the average price of Toronto Condos since 2013. We can see that the average annual increase is 9.7% each year.  This has resulted in a narrowing of price differences with the low-rise market and slower sales.


Source: Toronto Real Estate Board

Rental Commentary

The downtown condo market continues to lead all rental activity. The area bounded by Bloor St. to the north, and between the DVP and Dufferin to the west accounted for 43% of all condos rented on TREB in the Third Quarter of 2019. This figure was 22% higher than for the same period in 2018. This supports our view that most new condos downtown are being absorbed into the rental market.

Further proof can be found in the rental rates for various sizes of condos. Studio prices are now averaging $1950 per month (which is just under $5/ft per month). The one-bedroom market starting at $2300, without parking or a den, is over $4.50/ft per month.

The two-bedroom market ranges from a low of $3100 per month to almost $3600 when you include parking and a den. The three-bedroom market remains in the $4500 per month range.

For investors, expect rents to average $4.50/ft per month as the bottom ask for any purchase.

We are now in the Fall market when rents usually soften. But strong demand has resulted in rents remaining at summer levels. While the rental market does show a number of list price (rent) decreases, it is because investors, aware of rent controls, want to maximize the rent at the outset so don’t be fooled by this trend.

Sales Commentary

TREB sales for July at 8595 units were 24% higher than July of 2018, and 46% higher than in July of 2017. Sounds impressive but July sales in 2016 and 2015 were actually 15% higher than in 2019! The real takeaway is that the summer/seasonal drop in sales from June to July was only 3% in 2019. That is the lowest drop in the last five years and a strong indicator that the Toronto real estate market is on solid ground and tracking for a year-end sales total of 87,000 units or 11% higher than in 2018.

In trying to get a reading of the market, we like to look at listings and the rate of absorption. ‘New’ listings for the month were up only 4% from last year but ‘active’ listings at the end of July were 9% lower than for the end of July in 2018. This is a strong indicator that prices will continue to move higher. Year-over-year, with TREB’s Home Price Index, the top performing segment was Condos in Peel – up 12% (as we predicted at the start of the year). The only region with a drop was York where prices were 1% lower.

Turning to the condo market itself, sales for July were 14% higher than for July of 2018. For the first time this year downtown condo sales in July were greater than the same month last year. Sales were ahead by 10% and the reason was more listings. ‘New’ listings for July were 4% higher than for July of 2018. But by month’s end, ‘active’ listings were actually lower than the ‘new’ ones generated, meaning condo inventory for buyers was actually less. In the Humber Bay Shores market, sales were up by 18% while new and active listings were unchanged from July a year ago. While year over year price increases for condos downtown averages 8%, the current rate of appreciation has slowed to an annual rate closer to 5%.

Rental Commentary

We are now into the busiest rental period of the year. Not only are leases increasing in number but rents have increased by 5-10% for the bigger units in the last 30 days. Lease activity in the downtown market was over three times greater than sales in July.  It seems like investors would rather rent than sell.

The biggest market segment was for one-bedroom units -63%.  Currently, 50% of all units rent without parking. In the one-bedroom market, the number is 68% without parking!

In terms of rents, studios are averaging $1930 – a record. The entry point for a one bedroom without parking is now $2300 on average. The two-bedroom market starts at $3,000. To get a two-bedroom plus den and parking will now cost $3600. There is such a shortage of these units that they are leasing within ten days on market.

The problem is simple: rent controls! People in larger units are not moving. Yet people moving into the City continues for jobs and post-secondary education. There are now over 100,000 non-resident students in post-secondary schools in the GTA. When was the last time a school built a student residence?
 
Unfortunately, public transportation is not the answer. There are shut downs every weekend and system delays are all too frequent. Driving is also not an option. Construction everywhere has reduced most downtown roads to one lane. Walking, biking, and scooters seem the only option. People will pay whatever it takes to make commuting less than 30 minutes.

Sales Commentary

Sales for May on TREB reached 9,989 units (we predicted 10,000 earlier in May). That is 19% higher than May of 2018. But before anyone thinks we are back to a ‘boom’ market, realize that the average over the last ten years for sales in May was 10,300 units. Of more importance is to track the month over month growth in sales. For 2019, April to May was 11% and in 2018 it was 8%. Looking to June, we are expecting sales to level off. In 2018 they actually declined in June. Our 2019 Forecast made in January called for annual sales of 87,000 units. Everyone said we were too optimistic as they were forecasting the same as 2018 – about 78-80,000 units. Currently we are tracking for 89,000 units.

In terms of the overall condo market, sales increased 7% over May of 2018. Area 905 increased by 24% and 416 was unchanged from 2018. Looking at the Humber Bay condo market, sales were higher by 5% and in downtown, condo sales were 3% lower than May of 2018. Last year, downtown condos were the strongest market and experienced the biggest sales and price gains on TREB. This year more condo buyers have been forced into 905 because of price.

In May, new listings declined faster in both the Humber Bay and downtown condo markets from a year ago than the change in sales. This is a lead indicator that prices will continue to increase but at a slower rate. The sale-to-new listings ratio remained at 60% - a sellers’ market. While we continue to have some multiple offer scenarios, the sale-to-list price ratio remains at 100%.

Rental Commentary

The number of rentals in May at over 1300 units was 11% higher than in April. Rentals for May will be for occupancy in June and July. Rental rates overall were $25-50 per month higher than the previous month.

Studios increased to $1875 on average. The one-bedroom market without parking averaged $2150 and with parking it averaged $2300. The two-bedroom without parking was $2850 versus $3150 with parking. In May, we saw the three-bedroom market average $4440 per month. For investors, condos downtown have been renting for $4.30 to $4.50 psf per month.

For years economists have been focusing on the ratio of average price of real estate versus average income. While that may have been relevant when most people had salaried jobs, we would argue today that self-employed, immigrants, and generational wealth transfers, have made this calculation less relevant.

However, for the rental market, we would argue that the ratio of rents to average income is still very relevant. From experience, most investors want to rent to salaried tenants and not self-employed. Also, tenants tend to be younger with less access to additional funds. Hence in the longer term, rental increases will start to level off. Average salaries will only be going up by 2-3% per year and that is what investors should be planning for. Basically, we had a major spike in rents with the introduction of rent controls. Fewer tenants moved and hence we had a reduction in supply with a growing demand for rentals, caused in part by the Stress Test. Again, we had Government intervention causing less affordable housing, rather than more.