2018 was a year of moderation and recovery: many welcomed signs of a more balanced market, while some anxious and hopeful buyers continued to wait on the sidelines for a full-blown correction that has yet to materialize.

‘Soft landing’ seems apt. The year ended in Toronto with the average sale price down 4.3% over 2017, and transactions and new listings were down 16.1% and 12.7% respectively.

As we move into the new year, our outlook focuses on the changing landscape of the Toronto real estate market, while offering insight into what may be driving these changes. We’ll also highlight some trends we’re monitoring to help you optimize your real estate portfolio in the year ahead.

The Toronto Market, today:

Bank of Canada has decided to hold its benchmark rate steady at 1.75% as of January 9th – the highest rate since December 2008. As interest rates rise, families are forced to ease spending while they focus on paying down debts. Higher borrowing costs and stricter financing regulations are presenting the strongest headwinds for prospective purchasers as we move into the new year.

The average sale price across all property types has seen a 1.7% increase over last January – with the condo market pushing ahead, up 7.9% over 2018, while detached homes fell 2.8%: a likely result as buyers adjust to changes in affordability. 

The Toronto real estate market will be defined this year by its ability to recover and find its footing following two tumultuous years of fluctuation and volatility and the compounding effect of various initiatives aimed at cooling the market. A dialogue is already underway, to re-visit the ‘stress test’ and ‘loosen’ some of its rules. The amortization period for mortgages has been bumped up to 30 years, from 25. With wage growth and employment both strong, and immigration hitting a 15-year high, we expect demand to regain its momentum over the next 12 months. Families will continue to re-strategize and maturing millennials will position themselves to enter the market. Toronto seems to be holding onto its reputation as a desirable spot for investors and end-users alike. We’ll be monitoring developments in transit and infrastructure, along with new development and investment from tech and other industries – as they consider Toronto for their office spaces. For a savvy investor, a market dip is an opportunity, if you’re well-positioned to take advantage of it, here are some of our suggestions:

Find a “Trophy Asset”:

In some areas of Toronto, property valuations seem to be at their peak. Prudence and due diligence are required when considering an acquisition in this market. Finding a ‘good deal’ this year will be a challenge.

Some properties maintain their value better than others. Your success will come from your ability to quickly identify these unique opportunities, and act on them.

Create More Value in Your Existing Portfolio:

before and after shot of a renovation in a living room with bay window

If an acquisition isn’t appropriate for you at this time, it may be in your best interests to re-invest in upgrading your existing property to boost its cash-flow potential.

If an acquisition isn’t appropriate for you at this time, it may be in your best interests to re-invest in upgrading your existing property to boost its cash-flow potential.

Multi-residential properties are at their most appealing when all the boxes are ticked in terms of liability and code compliance.

Our project management team can help ensure you’re maximizing cash flow at your properties. If you’re interested in receiving an assessment on the cash-flow capabilities of your portfolio, contact us – we’ll get working on that for you.

Tenant Experience matters:

Over the next few years, new condo developments will be absorbed into the market, pulling focus from dated low-rise options. Consider investing in your mutli-residential property to upgrade the space with a focus on comfort and modernization. Tenants want to be able to control their environment with their mobile devices – consider things like lighting, HVAC, and entertainment. This will help you to stay competitive and hold on to strong, profitable tenancies.

The expectations of tenants are evolving and becoming more sophisticated. With advancements in smart technology in their professional and personal lives, the demand is growing for a heightened level of convenience and sophistication in their homes as well.

The Evolving Condo Conversation:

As we mentioned in our last update: we’re monitoring a few indicators in the condo segment. A huge volume of condo completions are slated to hit the market between 2019 and 2022. We’re watching to see how these will be absorbed and how they’ll affect supply.

If interest rates continue to increase, and an onslaught of available suites come online, we may see a moderation in lease rates. Data has revealed that a high percentage of units purchased as investments are seeing a negative cash-flow each month – if this is intensified by higher carrying costs and deflated lease rates, it’s not unreasonable to expect that many of these investors will consider liquidating the asset. How quickly the surplus in inventory is absorbed into the market will dictate its impact.

There are ways to insulate a condo investment from these types of corrections. Give us a call if you’re considering investing in this segment in 2019.

2019 and beyond:

Across the city, affordability woes are a common refrain. We anticipate a moderate recovery in 2019, with value appreciation hinged on continued job growth and the evolving climate surrounding international trade.

Price growth is expected to move more in-line with inflation over the next two years, with continued strength expected in the condo segment as affordability concerns push buyers further away from detached and semi-detached inventory.

With the high cost of home-ownership and the lack of significant increase in purpose-built rentals – we anticipate vacancy rates to remain low, and lease rates to hold firm. A possible impediment to growth in the condo segment is the influx of new inventory coming online over the next two years – we’ll be monitoring absorption rates and assessing the impacts.

We’re anticipating a moderate increase in property values this year of 1.8% – 2.3% across the GTA.

That being said: well positioned properties particularly in the low-rise segment are attracting multiple competing offers and achieving strong re-salve values.

Our team can help you strategize and invest while also helping you add value to the properties you already own. Give us a call – we’re here to help. 

Sources: TREB, CMHC, CREA Quarterly Forecasts, CIBC World Markets, The Globe And Mail, PwC Canada.