REDISCOVER REAL ESTATE

Major drivers of price growth in red-hot markets

Recent official statements and regulatory changes have placed the spotlight on the major role of overseas investors in driving up Canadian real estate prices, but Bank of Montreal senior economist Robert Kavcic thinks that factors closer to home are at play.
 
Kavcic noted that while it’s easy to blame overseas capital for the exorbitant housing prices in high-demand, high-volume markets like Toronto and Vancouver, it is a sorely misguided assumption.
 
“Sure, all anecdotes suggest they are playing a role in some neighbourhoods — we just don’t know exactly how big that role is. What we do know is that the fundamentals right here are strong enough on their own to drive big price gains,” Kavcic told HuffPost Business Canada.
 
Among these drivers are the country’s mortgage rates, which are now at an historic low despite some hikes in large banks in the past few months.
 
“A five-year fixed mortgage is barely above the expected long-run inflation rate,” Kavcic observed. “The longer this lasts, the hotter these markets will burn.”
 
Another aspect to consider is the increased upward pressure on the Toronto and Vancouver housing sectors, brought about by a significant shift: More and more new owners are now in the 30-39 age group, while first-time buyers in the 25-34 bracket are getting increasingly rarer. Kavcic warned that while the present period is a boon for sellers and brokers, this situation is essentially a demographic time bomb that is set to hit housing markets hard starting 2018.
 
Most importantly, Kavcic pointed at the growing scarcity of space for new homes. In particular, the prevailing philosophy of building upward (not outward) in Vancouver, and the death of single-family homes in high-density Toronto, are stimulating intense consumer competition and price spikes in these areas.

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.

Source: Canadian Real Estate Wealth

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New mortgage rules and higher rates to push Canadian home sales lower in 2016

New lending rules set to take effect next week coupled with mortgage rates that are creeping higher are expected to slow Canadian home sales in 2016, according to TD Economics.

The bank’s economic research arm is now forecasting existing home sales to amount to 488,600 units by the end of 2016, a 3.1 per cent drop from last year. In 2015 transactions numbered about 504,200, a 5.1 per cent increase compared to 2014.

Despite the Bank of Canada’s near historically low target for the key interest rate, TD notes that some banks have hiked the five-year special mortgage rate by as much as 30 basis points from December to January.

“History suggests that a 30 basis point rate increase translates into a 5 per cent to 10 per cent decline in existing home sales over a period of two quarters,” TD said, adding activity would still remain above “long-run averages.”

The key interest rate influences mortgage rates, but despite the Bank of Canada keeping it at a historically low level, rising operating costs for banks are pushing rates they offer to consumers higher.

In July this year, the Canada Mortgage and Housing Corporation is set to start charging higher rates to financial institutions for the loans it insures.

Meanwhile, down payments will be getting more expensive for some homebuyers as another rule the federal Liberal government put forward in December takes effect February 15th, further cool activity. For government insured mortgages, the minimum down payment is rising to to 10 per cent from 5 per cent, but only on the portion of the loan between $500,000 and $1 million.

“This marks the fifth time in almost seven years the government has tightened qualifying rules for insured mortgages,” TD Economics noted in the report.

“Following each of the past four rule changes, housing demand slumped for about four to six quarters,” the bank continued.

TD Economics have noted this rule change won’t have an impact of that scale, it will still downwardly affect sales, particularly in Toronto and Vancouver, where average home prices are well above $500,000.

“The lofty activity last year has likely left these two markets more vulnerable to even a gradual increase in interest rates and regulatory rule changes,” the bank explained.

TD Economics expects 93,400 existing homes to change hands in Toronto this year, an 8.3 per cent drop from 2015. During this period, TD predicts Vancouver activity to fall to 39,800 units, a 7.8 per cent year-over-year decline.

Activity in these cities influences national housing market numbers more so than other local markets because they typically have higher sales volumes.

“The new [mortgage rule] changes may also disproportionately impact Calgary, a market that has a higher proportion of first-time homebuyers than most,” TD added.

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MARKET UPDATE FOR THE WEEK ENDING FEBRUARY 5TH, 2016

Last week we waited in anticipation for an advanced weather prediction from nothing less than a couple of famous rodents. Ground Hog Day was a split decision but it made us wonder if we could use a similar technique for predicting the exact moment the spring market hits. Our suggestion is to put a green bin out on the sidewalk to see how the local racoons react. A knocked over bin indicates the spring market has started but if it’s frozen to the ground we have to wait another two weeks. Thoughts?

In the freehold resale market there is a strong indication that spring has sprung. Last week listings were up 54% from the previous week while sales climbed 40%. Typical of a sudden jump in new listings there is a lag of about a week before we see an uptick in sales. This is mainly due to the holdback period. While only 49% of existing homes sold at or above the list price we expect that percentage to improve significantly over the coming weeks. While the hottest area has been the east core, particularly in the mid-range price point, last week it was the west core that was the star with over 65% of properties sold at or above the list price.

The condominium sector may end up being the shining light of Toronto’s real estate market. Last week, new listings edged up 15% (almost entirely from the central core) while the number of sales improved by a remarkable 40%.  What is more interesting is that sales of suites at or above the list price rose from an already healthy 22.4% to a near all-time high of 28.9%. In both the east and west core of the city, there were almost as many sales as new listings. (35 to 37 units).

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MARKET UPDATE FOR THE WEEK ENDING JANUARY 29TH, 2016

It’s  hard to believe that we are already one month into 2016. This winter is already the second warmest on record thanks to our friend El Nino.

 

In real estate terms, mild winters are a blessing for those intrepid Realtors. It means no snow drifts to climb over, no hunting for parking spots while out showing and less layers to wear. Of course this would all be great if there were properties to show but our research indicates that listings in both the freehold and condo sector have backed off substantially from one year ago while demand has not wavered.

In the freehold sector, listings continue to be a source of concern. One year ago there were 221 new listings compared to just 120 this year. Sales on the other hand are brisk. Our records indicate 115 sales last week compared to a mere 74 for the same period last year. It is interesting to note that last year only about 53% of homes sold at or above asking while this year that percentage has climbed to 66.7. The hottest area was the east core where nearly 90% of homes sold at or over the asking price.

 

A similar market exists in the resale condominium sector. Listings are off about 20% while sales are up by 32% from one year ago. Last year sales at or over the list price were a very respectable 18.9% while this year we are reporting 22.4%. While the number of new listings has remained stable in the east and west, there is a noticeable drop in the central core, proving once again that demand still exists for central condos.

 

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Rising Home Sales, Prices Continue In January In Hot Toronto Market

A series of heat maps of Toronto based on Toronto Real Estate Board data provides a vivid picture of how the real estate market in this city has caught fire over the last decade.

In 2005, the map was mostly pale yellow, with splashes here and there of orange and red. In the extensive yellow areas, mainly Scarborough and North York and parts of the west end, a person selling his or her home would have had to wait more than thirty or even forty days for a buyer to come along. In a few central areas, mainly in hot neighbourhoods like the beach, Riverdale, Rosedale, the Annex and Bloor West Village, buyers showed up in less than twenty-two days after the listing appeared. In 2005, these orange and red areas stand out like patches of inflammation on a pale face.

Skip ahead to 2015. There are no more pale yellow areas on the map. The fire has spread to every district of the city, now coloured entirely in shades of orange and red, mostly red. From the centre of the city all the way east as far as the map goes, red dominates. In those areas, homes sold in under twenty-two days. Anyone with a home to sell, it seems, could sell it almost overnight. The city was on fire .>> full article

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