For many of you, summer is a time of well-earned relaxation, and weekend getaways. For the team here at Landlord it’s a busy time spent overseeing renovation projects, placing new tenancies, and helping to grow and manage the portfolios of our clients. With the first two quarters of 2016 behind us, we’d like to reflect on the last six months and highlight the trends, while making note of some projections for the remainder of the year, and beyond.
The first half of 2016 saw a sharp decline in the inventory of single-family homes being offered for sale. Simply put: the downtown core is running out of space to build new single-family homes and the demand is outpacing what’s available in terms of re-sale inventory, resulting in escalating sale prices.
With house prices rising faster than gains in personal disposable income, and coupled with increased population growth and financing costs, we’re seeing clear signs of overvaluation throughout the city and its suburbs.
It’s a more balanced market for those of you with condo apartments in the city, with a price growth trajectory of roughly half that of what we’re seeing in single-detached homes. Low vacancy rates will translate to continued investor interest and with historically low, new purpose-built rental options renters are being pushed into condo suites.
The sales-to-new-listings ratio is expected to move lower, closer to a balanced market as we move into 2017. With the true impact of the recent change to down-payment requirements coming into focus, many would-be buyers will hold off in an attempt to bolster their down-payments over the next few years. That being said, the re-sale market will eventually benefit from the millennial generation’s considerable gains in full-time employment in 2015 as they’ll likely be looking to enter the market in the next two years. Let’s also not forget about the estimated $750 billion that’s expected to transfer from Canadian baby boomers to their heirs – undoubtedly impacting key economic variables, which of course includes real estate investment.
As the low Canadian dollar fuels foreign investment, condo developments should continue to see healthy absorption rates. With the prohibitive cost of home ownership, strong demand for affordable rental accommodation will drive development and sustain condos as a relatively secure investment option. Out of the 22,000 to 24,000 units projected to be completed on average in 2016 and 2017, estimates suggest that about 40% will be purchased as investments and offered for lease.
The number of GTA resale transactions recorded through the MLS system is expected to reach between 99,500 and 106,000 in 2016 and 92,000 to 102,000 in 2017.
If you’ve put off investing in Toronto because of the speculation surrounding market volatility, it’s important to really examine where Toronto is heading, long-term. Since the passing of the ‘Places to Grow Act’ by the Ontario government in 2005, developers looking to build in the city have been forced to build up, instead of out. With the surge of high-rise development and the decline of low-rise single family dwelling starts, a premium has been placed on single-family homes. As the adage says: “Put your money in land because they aren’t making any more of it.”
Additionally, the slow expansion of rapid transit in comparison to population growth will continue to fuel interest in the downtown core. With walkability scores ranking at the top of many “must have” lists, buyers are willing to pay a premium to be where the action is.
Keep in mind – Vancouver has outpaced Toronto considerably in terms of over-valuation. While we have seen noteworthy value increases it’s not exactly setting the stage for a heavy correction – more like a soft landing. We’ll be watching the trends over the next six to eight months with the anticipation of a more balanced, sideways market in 2017. This will hopefully allow us to invest without having to compete with ten other interested buyers and maybe, just maybe snatch up that coveted investment property downtown, before Toronto property values soar above the million dollar mark for good.
Sources: CMHC: Housing Market Outlook, Greater Toronto Area, CREA Quarterly Forecasts, TD Economic Forecast. TREB.
*The information, analyses and opinions contained in this publication are based on various sources believed to be reliable, but their accuracy cannot be guaranteed. The information, analyses and opinions shall not be taken as representations for which Landlord Realty Inc., Brokerage, or Landlord Property & Rental Management Inc. or any of its employees shall incur responsibility*