Resilient York Region Real Estate Market Defying Odds

As we wrap up week one of York Region heading into Phase 2 of the COVID-19 Return To Normal Procedures, we're starting to see the effects this has had on the Real Estate Market. 

Lots of rumours and predictions from "market experts" over the past few weeks. These economists have placed their odds on the market taking a double digit hit post covid-19.  Let's take a look at sales by week.  Sales are bouncing back due to pent up demand and buyer confidence returning.  

By breaking through the 300 sales per week mark for the second week in a row, we've hit level we have not seen since the pandemic shutdowns began.  Now, let's take a look at the key contributing factors.  Interest rates are lower now then they were pre-pandemic.  Some buyers are trying to beat the July 1st Deadline that CMHC has imposed on their rule changes.  Pent up demand has buyers flooding the market, looking to scoop their next home.  

How is Inventory holding up?  The largest contributor to bidding wars and higher than average appreciation is our lack of inventory.  

We are starting to see more listings hit the market, as per the above chart.  Here's the issue ... There are three types of markets:  1. A sellers' market (0-4 months of inventory). 2.  A balanced market (4-6 months of inventory)   3.  A buyers' market (over 6 months of inventory).  Looking what new listings vs sales, we are still in the 2-2.5 months of inventory range, which remains a strong sellers' market.  This will continue to put upwards pressure on price and bidding wars will continue.

 What happens to the Ask to Sell ratio in a market like this?  With more buyers coming out to purchase homes, and inventory as limited as it is, bidding wars will continue to be a key factor and drive pricing up.  Since the restrictions were eased for York Region, we have seen a return to homes selling for over asking becoming the norm.  

Unless we have an influx of inventory on the horizon, look for this trend to continue.  The problem with the economists that are forecasting huge price drops is that they don't understand the dynamics of the market.  By setting false expectations of a price drop, they are actually costing buyers much of their buying power.  

Let's look at average price and how that has faired for York Region over the last 12 weeks.  

The average price has remained strong through the pandemic restrictions and now we are seeing prices increase beyond where they were prior to the pandemic hitting.  This is going to continue through the next couple of months and we may see a softening if we get hit with a second wave.  However, the price growth in between then and now will be consistent and we will close off the year on a positive note.  

York Region Real Estate doesn't seem to care about what people think, it's marching to it's own beat and creating its own path. In short, York Region Real Estate is fighting mad and sending a clear message, it's back!  For an accurate read on what your area is doing, ask a Realtor.  For York Region South call 905-554-5522, York Region North call 905-478-1101.  We've got you covered.  

Is Toronto's Real Estate Market Set For A Free Fall? Buyer Beware!

Headlines from the National Bank and CMHC over the past two weeks scream massive depreciation for Toronto home prices.  Massive price drops are apparently on the horizon.  

CMHC has gone a step further to "protect" home buyers by tightening their lending criteria and diminishing buyer power for Canadians looking for their first home.  According to CMHC, prices will fall 9-18% this year, a bold prediction by the largest mortgage insurer in the country.  They also predict a 75% decline in housing starts and a 29% decline in units sold.  Basically, they are stating that the three key indicators for the housing market will all be negative and this will lead us into a "historic recession". 

Not to be outdone, National Bank cites previous recessions for their gloomy forecast.  They are predicting a national decline of 9.8% (consistent with CMHC's lower end of their prediction) and they expect Toronto to lead this decline with a 13% dip.  THIRTEEN PERCENT!!  The National Bank has backed up their bold prediction with historic figures from previous recessions.  They state that in 2008, prices dropped 6.3%.  In 1981's "largest price correction to date", prices dipped 9.2% according to the National Bank.  

It's pretty easy to manipulate numbers and spin a story to justify your claim that the Toronto market will dip.  So let's take a look at actual Toronto sales numbers from 1974 to date.  Let's drill down on what previous recessions have meant for Toronto's average price point.  

In 1980, Toronto's average price point was $75,694.  In 1981, the average price was $90,203.  This was an INCREASE of 19.17%.  By all means, this was NOT healthy appreciation.  When you see appreciation at this rate, you know there will be a correction coming.  Everyone predicted a correction in 1982.  What was that correction?  1982's average price was $95,496 in Toronto.  Yes, another increase - albeit a healthy one this time - of 5.87%.  

The article does not mention the 90's, where Toronto actually had significant dips during that recession.  However, as I stated earlier, increases of approximately 20% are not healthy.  In 1986, the market went up 27.34%, in 1987 the market appreciated 36.12%, in 1988 the market jumped another 21.43% and in 1989 the market went up 19.19%.  We were due for a correction.  Over the next four years, we saw prices dip between 3.95% and 8.25%.   Even with this, the market showed (approximately) a 100% increase from 1981 to 1996.    In a 15 year period that had TWO recessions built in, the Toronto Real Estate Market showed growth of approximately 100%!  

Since 2008 was mentioned in the report, let's take a look at those numbers too.  2007 was a great year, up 6.9% over 2006.  2008 saw us hit a road bump in early summer as the sub-prime market south other the border stopped the Toronto Real Estate Market in its tracks.  And a hard stop it sure was.  We didn't rebound until late fall, as all eyes were on what was happening down in the USA.  How did we do for average price in 2008?  It was an off year, however we were still up just shy of 1% over 2007.  And remember, 2007 was a stellar year.  Not bad for recession #3.  

Since 2009, our market was on fire.  Steady, yet healthy, increases in average price continued through to 2016.  In 2016, we started to run out of supply.  The economics kicked in and with demand remaining strong, we started to see multiple offers and bidding wars on pretty much each listing.  We saw a very unhealthy increase of 17.31%, followed by 2017's torrid start that saw prices continue to escalate.  The Ontario government stepped in to throttle demand instead of fix our supply problem.  By making it harder for Canadians to purchase homes in the Toronto area, they achieved their goal to stall the market and we saw a price decline of 4.21%.  We had still not addressed the supply issue.  As consumer confidence returned with a new government and renewed dreams of Home Ownership, we have seen healthy increases through 2019 and the early part of 2020.  As Covid-19 paused our market, price remains stable over the last three months.  The strength of the market pre-covid, has 2020's Average Price up 7.22% in Toronto.  Although we expect this to level off to around the 4-5% mark for the year, it will still be a decent year for price appreciation.  The decline in sales volume is a given since we have been locked down for a full quarter.  The main reason that prices continue to increase are supply related.  Demand remains strong in the Greater Toronto Area.  With fewer home starts (CMHC predicts 75% less home starts), the supply issue will become magnified.  Each home that is on the market will receive more attention from they buyers that are out there.  This applies upward pressure on price.  It's simple economics.  If demand continues to outweigh supply, there will be upwards pressure on price.  

The National Bank needs to take a deeper look at the Toronto Real Estate Market before making bold predictions of a double digit price drop in average price.  Looking back over 45 years, the Toronto market has not shown a double digit price drop.  As for CMHC?  Well, their predictions of a 9-18% price drop followed by their policy changes to make it harder for Canadians to choose home ownership make me question their intentions.  It seems they used their fear mongering report of the price decline to pave the way to justify their new policies.  

Both of the above mentioned reports will wreak havoc on home buyers.  Those that decide they want to hold off on purchasing a home could be priced out of the market.  If someone decides they will wait for a price drop that isn't coming, and prices increase 5% this year and 5% next year, that's a huge increase over current pricing.  This could result in people being forced to rent forever.  That is of course the worst case scenario.  The best case scenario for the buyers that hold off is that their buying power will be reduced significantly.  If the market increases by 5% this year and next, you just lost buying power, and if the home you are looking at right now is $650,000, you're throwing away $66,625.  

The important thing to note is that for accurate market information, you need to ask your Realtor.  Do not rely on irresponsible reports and forecasts from economists that aren't active in the market.  Falling for irresponsible predictions without taking actual statistics and market conditions into account will cost you money.  This isn't a few thousand dollars either.  If they re predicting a 9-18% drop, let's just go with 13% from the National Bank numbers, on a $650,000 home they are saying that the value will drop to $565,500.   In reality, the price will go up by the end of 2021 to $716,625.  That's a difference of $151,625 between the expectation they are setting and the realistic value of what the home will be worth by the end of 2021.  This is why reports like this will hurt buyers more than they will help them.  Irresponsible forecasting from one of the largest banks and the largest mortgage insurer.  Buyer Beware!

May 2019 Sales By Region

Federal Budget Unplugged

Listening to the Federal Budget being announced this week was disappointing to say the least.  There were so many changes that could have been made to right the wrongs that have negatively affected housing affordability.  As we heard the introduction of the measures the Federal Government feels will spur market activity, it became clear that they are disconnected with reality and the issues that have kept buyers on the sidelines.

The main issue concerning Housing Affordability is, and always has been, supply.  As demand increased over the past few years, supply issues came to the forefront and the solution would have been to find ways to increase supply.  As you recall, Ontario’s Liberal government addressed the supply issue back in 2017, or at least they thought they did.  What they actually did was throttle demand by introducing ways to make it tougher for buyers by decreasing purchasing power for Ontarians.  Then came the stress test, which added another hurdle that would see purchasing power deteriorate further. This created one of the hottest rental markets in decades and drove rental prices through the roof.  Now people were faced with rents that were out of control as well as stringent criteria that saw them being declined for a mortgage.  It became quite clear that home ownership was even further out of reach due to the measures the government introduced to bring it back.  The Housing Market - which is the engine that drives our economy - came to a halt.  The spin off revenue that is put back into the economy off each home sale is said to be approximately $60,000.  All of the sudden, this disappeared.  Municipalities started to lose money from the loss in Land Transfer Tax revenues.  This caused some municipalities to raise property taxes or cut services to cope with the decrease in annual revenues.  The increase in property taxes to existing home owners continued to erode purchasing power and kept current home owners in their existing home thereby decreasing supply even more.  

Fast forward to this week’s “pre-election” Federal Budget.  Expectations were for supply issues to be addressed with concrete solutions (no pun intended), as well as a major overhaul to the Stress Test.  What we received instead was a lot of sizzle but no steak.  Let’s take a look at the two big “solutions” that were announced: 

1. An increase to the RRSP amount that first time buyers can put towards their home ownership dream 

2. The Shared Equity Mortgage Program that will see buyers receive an “interest free” loan of 5% of the purchase price for resale properties, and 10% of the purchase price on new builds.  A few conditions apply though, you must have a household income of less than $120,000, you cannot borrow (Mortgage plus Incentive) more than four times your household income, and you must pay back the incentive when you sell your home (details on any percentage you will need to pay based on capital gain in the property over the years will be released later this year).  

Great news right?  Before you decide on that, let’s break these down.  

Let’s take a look at the RRSP withdrawal amount first.  After ten years at $25,000, the amount has been increased $10,000 to $35,000.  This brings the total a couple can withdraw from their RRSP’s for their first home to $70,000.  Previously this amount would have been $50,000, so the extra $20,000 will certainly help.  To help with this increase, the government should have increased the repayment time from the current 15 years to possibly 20 year, or even 25 years to match the amortization period of a mortgage.  For the couple that does manage to have $70,000 collectively in RRSPs, the pressure of having to pay back an extra $20,000 in the same time just adds to their debt level and adds stress.  The bigger question remains “How many young couples have $35,000 each in their RRSPs for this to even be a consideration?”.  The reality is that these buyers have been in the workforce for a relatively short period of time, and even at the max contribution level for their entry level salaries, they wouldn’t be able to hit the $35,000 max, let alone a $25,000 withdrawal.  What could have been done to enhance this program?  Allow all home buyers to utilize the RRSP withdrawal option and provide an extra five or ten years to repay the same.  Without that, all we really have a pretty weak incentive that maybe 5% of the buyers out there could be in a  position to take advantage of.   

Now we get to the Interest Free, Shared Equity Mortgage.  In order to take advantage of this, your household income cannot exceed $120,000.  You must go through CMHC and have a minimum downpayment of 5% and maximum of 20%.   Your total debt (insurable mortgage amount plus your shared equity “incentive”) cannot exceed four times your household income.  For a couple making the max $120,000, their total for mortgage and the incentive cannot be more than $480,000.  Once you add in their downpayment amount, you’re looking at $480,000 being between 95% (for those putting 5% down) of the purchase price to 80% (for those putting 20% down) of the purchase price.  Therefore, the couple that makes $120,000 could purchase a home between $505,263 to $600,000.  Let’s think about this for a minute.  We were so concerned about home buyers hitting historically high levels of debt recently, so what did the government do?  The government has just authorized an increase to household debt by allowing buyers to purchase a home that they normally would not have been able to afford under current criteria.  Sure, they say it is interest free, but it’s still an extra 5-10% debt that will have to be paid back. This debt may be subject to an additional percentage depending not the capital gain on the property when you go to sell your home.  Details are to follow, but what could this be?  Could it be 2% of the capital gain?  5%?  10%?  You may save $100-$200 on your monthly payments with this “interest free loan” program but at what cost in the long run?  It’s concerning that we do not know the details for repayment as yet.  I’m pretty sure if any lender had come up with this strategy, the government would have been quick to deem it illegal and shut it down.  What if a Realtor had said, “I won’t charge you a 2.5% commission when you purchase this home, but when I sell your home we will split the profit”?  Unethical?  Cash Grab?  Those would be some of the ways to describe this practice for sure.  The other concerning fact about this initiative is that it does not take effect until September 2019.  Traditionally, the busy time for buyers and sellers ends in August.  Inventory is usually at a low by September.  By providing buyer incentives at a time when inventory is lowest, the result will be multiple offers/bidding wars which will force buyers to pay 5-10% over asking on these properties.  Depending on the buyers’ income level, when you apply the “4x income calculation”, the bidding wars will jeopardize the buyers’ ability to purchase a home with this incentive.   Why would a resale buyer wait for this incentive to take effect anyway if they’d be paying 5-10% more to receive essentially a 5% “2nd mortgage” that would have to be paid back anyway?  The thought process behind this incentive is flawed.   From a local perspective, if you are looking at the GTA, there is not much that a buyer could purchase under this program in the $500,000 - $600,000 range.  Looking across the nation to Vancouver, this won’t help anyone there either.  There are two markets in Canada that the consumer complains about affordability in,   Toronto and Vancouver.  These changes will do absolutely nothing to help buyers in Canada’s hottest cities for Real Estate.  How does this increase affordability at all?  

It seems the government has taken a page out of the auto industry.  The car leasing phenomenon sees drivers go out and lease vehicles according to what they can afford in monthly payments.  By advertising that you can now own a home and lower your monthly payment for the time you are in this home, isn’t it the same type of mindset as car leasing?  When you sell, you pretty much have a “buy back”, which is the cost of the interest free loan (a.k.a. second mortgage plus any share of equity).  Household debt is being increased with little regard for equity, however the monthly payments fit.  Not sure if this is where we wanted to go when we asked for means to increase affordability and DECREASE household debt.  The government has just found ways to increase household debt and decrease affordability.  

What SHOULD have been done?  

Here’s what I believe should have been addressed in the budget.  

1. A solid plan to increase housing starts.   How about reducing red tape for builders to commence projects that have been stalled due to the layers and layers of bureaucracy?  I would have liked to see more concrete incentives for builders to provide homes/condos at a lower price per square foot.  Maybe a reduction in development charges if a certain percentage of the development was priced under the municipality’s average?  Tax incentives if they build within a certain timeline to allow for an increase to supply within the next twelve months? There was so much left to be desired.  

2. Major overhaul to the Stress Test that instantly reduced affordability by 16%?    The stress test was introduced when historically low interest rates were about to increase.  The rates have now increased and there are no plans to increase them another 2% in the near future, so why are we still trying to qualify purchasers at hypothetical rates that we will not see?  At the LEAST, we should have seen a 1% reduction to the Stress Test, and at best we should have seen it done away with.  We continue to throttle demand by making it pretty much impossible to purchase a home. We are driving people into an ultra hot rental market which is seeing double digit percentage increases in rents across the GTA.  

3. An increase to the repayment term for RRSP withdrawals AND allowing all purchasers the opportunity to utilize these funds when purchasing a home, instead of just for first time buyers.   As mentioned earlier, I believe the repayment term should have been changed to 25 years, and at the very least it should have been changed to 20 years.  Allowing ALL purchasers to use their RRSPs towards their downpayment would certainly stir up activity and provide an incentive for homeowners.  This would increase supply and introduce more properties to the market.  

4. A one to two year reduction in CMHC insurance premiums for purchasers putting less than 20% down would also help with affordability.  Maybe even changing high ratio mortgages to 15% or less.  

5. Reintroduce the 30 year amortization to allow for increased affordability.  This would have been the easiest change to make, and still maintained the integrity of the world’s soundest banking system.  

The above five changes would have done a lot more in bringing affordability back to the forefront.  As for what was tabled in the budget ….. it's a bit of a slap in the face for Canadians that were excited for true changes that would bring affordability back.  

Going Back ... To The Future

In 2007, the Real Estate Board was on fire. Over 93,000 sales took place that year. Confidence was at a high heading into 2008. In 2008, the market took a hit due to the global recession lead by the United States. All in all, it was a huge setback to the momentum that had carried over from 2007. The Toronto Real Estate Board ended 2008 with 74,552 sales that year, down about TWENTY PERCENT (20%) from 2008.  

Drawing parallels, we saw the Real Estate Board post phenomenal results in 2016 and 2017 as well. In 2018, we had to deal with the "recession" caused by the Ontario Government (yes, let's give credit to those that caused it). In 2018, we saw a decline of TWENTY PERCENT (20%)!! Sound familiar?  

Let's go back to 2009 now. There was so much pent up demand from those that didn't buy in 2008 while they waited for the market to bottom out. Heading into January of 2009, consumer confidence was at a high with the reality that the recession down south did not affect us much at all. Credit our conservative banking system for saving us from the global turmoil and pulling us through. In 2009, the market rebounded with over 87,000 sales!! This, despite inventory levels being down due to sellers holding on to their homes for the fear that they wouldn't realize as much return as they anticipated. 2009 units sold were up 17% over 2008, a solid rebound year for sure. People didnt want to wait till the spring to buy in 2009, they came flying out of the gates in late January and lit the market up. The confidence continued from 2009 right through to 2017, and we saw tremendous growth in GTA Real Estate over those years!! WIth inventory levels remaining at all time lows, we saw multiple offers on every hot property that was introduced to the market because supply could not keep up wth demand. Bidding wars were the new normal.  

Why does this mean anything to you? Who cares about what happened 10 years ago? I'll tell you why this is important to you and why you need to take notice. 

When we saw the results for 2018, we noticed we were down about 20%. What were we down for 2008? Yes, 20% as well. As we start off 2019, there is a lot of pent up demand from those that were waiting for the market to bottom out. Sound familiar?  ;) Consumer confidence is at an all time high. Inventory levels are much lower than through the last 18 months, yet demand is strong. Multiple offers are back as supply struggles to keep up with earlier than anticipated demand. This sounds like 2009 all over again right? It's like we just went BACK to our Future!! Buyers that sat on the fence last year: you best get into the game fast. Sellers that didnt want to let go: THIS is a good time to get on the market and maximize return on your greatest investment.  

And Realtors .... if you're waiting for spring to get going, you're going to miss the bus. Sure, 2018 was the new 2008 BUT 2019 is the new 2009 AND Winter is the new Spring. We're going back to our future baby!! Let's go!!

Has Toronto's Real Estate Bubble Finally Burst?

2018! What a roller coaster of a year that was for the Real Estate industry in the Greater Toronto Area!! 

First the Ontario Liberal Government decided they needed to "slow down the market" part way through 2017. The effects would carry over into the start of 2018. I still cringe whenever I recall Wynne's press conference announcing the changes that would cripple the Real Estate Market. Then came the Stress Test! People would need to qualify at a rate 2% higher than the posted rates at the banks. Then, of course, interest rate hike, after hike, after hike. All this together, contributed to one of the worst declines in annual units sold in recent history. 

However, the year was pretty much divided into two very different segments. The first five months of the year had big shoes to fill. January to May 2017 was one of the hottest periods EVER in GTA Real Estate History. January to May 2018 was behind the 8 ball before it even started. If you listen to ON THE MARKET - York Region's Exclusive Real Estate Radio Show - on 105.9 The Region, you would have heard us telling listeners that comparing the first five months of 2017 to the first five months of 2018 was like comparing Apples to Oranges. It just made no sense. That comparison made headlines, for all the wrong reasons. A false sense of optimism was conveyed to buyers. Prices were to fall, and affordability was on the horizon. This was just hot air, fueled by the obvious sales declines from 2017 which were bound to happen due to the government's poorly thought out plans. 

Now the final numbers for 2018 are out. A 16.1% sales decline for units sold and a 4.3% decline in annual average selling price. Scary numbers for sure, but to get the true picture of what's happening in the GTA Real Estate Market, we need to look at the year in two segments. Let's compare apples to apples.

I've said all along that the first five months was an apples to oranges comparison, and here is why:

1. The start to 2017 saw the GTA market struggling for inventory. 

2. Pretty much every home sold was in a bidding war. Sold prices were out of whack and did not represent true market value. 

3. The Government intervened at the end of April 2017 and rather than help affordability by increasing supply, they throttled demand making it harder for us to buy homes. This did nothing for affordability, it decreased buying power and just brought the market to a halt. 

With the aforementioned changes, it's extremely difficult, and not prudent, to judge two periods in which condtions were so drastically different. Let's look at the two years by splitting up the January to May period, from the June to December period.

January to May 2017 vs 2018

As expected, the sales volume for these two years during this time was very different. January to May 2017 saw 46,591 sales take place. This same period in 2018 had 31,785 sales. Different rules, different conditions, and as such very different results. We also didn't have the ultra hot, low inventory market that contributed to all the multiple offers in 2017. In the first five months of 2018 we had increases in active listings and new listings to give us about four months of inventory vs 2017 where we had less than one month of inventory. Obviously, the average price for these months in 2018 showed huge declines, not solely due to the higher inventory levels, but with the tightening of lending rules purchasing power was reduced by about 16%. Canadians could now afford less of a home, which saw a shift in the market from detached homes to less expensive homes. The condo market exploded as first time buyers flocked to it. The average price of a condo is about $500,000, so if we are seeing more sales here than in the detached home market which averages $1.200,000, then of course the average price will fall. The first five months looked like this:

January -4.2%

February -12.4%

March -14.3%

April -12.32%

May -6.8%

Now we get to June. The Ontario election would be the turning point. Gone were the Liberals that had tried to destroy the market. The new goverment understood that the housing market fuels the economy and there were a lot of positive vibes circulating that the market was set to rebound. The rules had now been in place for a full year and an apples to apples comparison was now possible. So how did June to December compare year over year? These numbers may surprise you. 

From June to December in 2017, the Toronto Real Estate Board saw 45,672 homes sold. From June to December 2018,we saw a decline, but by ONLY 31 units!! The last seven months of 2018 had 45,641 sales. Same rules, same conditions, same results! Now let's look at the average price change over this same period.

June +2.04% 

July +4.8%

August +4.7%

September +2.9%

October +3.5%

November +3.6%

December +2.1%

Average price has increased, year over year, for the past seven months. If you only compare the periods that had equal market conditions, (apples to apples), the units sold were approximately the same. Price showed an increase each month during the final seven months of the year. The mix continued to show that condo sales kept increasing and taking a bite out of detached sales. Thus, these percentage increases in average price could very well have been higher but the lower price points held them in check.

I hate to burst the bubble the previous goverment was living in, but you cannot manipulate a market that is dictated by supply and demand. You can stall it for a short period with external forces, but supply and demand will eventually dictate the economics in the long term. As we head into 2019 on a level playing field, what should we expect? A Key Performance Indicator would be inventory levels. Without any external/artificial forces affecting the market, supply and demand will dictate results. Coming off a year in which we saw one of the worst declines for units sold, there seems to be a lot of pent up demand. Couple that with a decline in active and new listings. With supply eroding and demand increasing, we are now seeing the return of bidding wars and multiple offers. For buyers looking for deals, the window of opportunity is closing fast. 

We don't anticipate a huge increase in units sold, but look for a 7-10% increase taking the annual units sold to approximately 82,000. We won't see the crazy price increases that we saw in the early part of 2017. Those days are long gone. Prices will continue to show healthy appreciation in the 3-5% range. 

If you're waiting for the "bubble to burst" or the much talked about "correction", you're going to be on the outside looking in. The best time to get into the market was yesterday, the second best time is today!