Positive Trends For Buyers Continue

In a previous blog post, Tembo outlined current real estate trends which are benefitting buyers and shifting the market into a more balanced position. Whereas previously very high prices and price growth, massive demand, and low inventory assisted sellers, market trends are continuing to move in favour of buyers. According to recent data from the Canada Mortgage and Housing Corporation, the housing supply is increasing and will continue to increase because of large-scale construction projects which will come on the market shortly.

The latest Toronto Real Estate Board data shows that house sales in June plummeted by over 37%, the largest fall in sales since the 2009 recession. Sales of single-family homes fell 45%. Although sales have been falling for three straight months largely due to government regulatory and legislative changes, prices continue to rise with a 6.3% increase recorded since January 2015. New listings also increased supply, with the number up to 19,614 units. With the number of foreign buyers declining, supply continues to increase, and price growth cooling, market trends continue to favour buyers.

Projections should keep sellers optimistic

The Toronto Real Estate Board remains optimistic that prices will continue to increase over the long term, albeit not as dynamically as in previous months. Detached home prices increased 7.8% to 1.06 million in June, and composite prices are still increasing. TREB believes overall annual sales will hit 89-100,000 units in 2017, down from roughly 115,000 last, year. The Board is also projecting an increase in listings of roughly 23%.

Confluence of factors impacting the market

Troubles with large mortgage lenders, a new foreign buyer tax and increasing speculation that the Bank of Canada will soon increase interest rates are all forces which are cooling the market. Underlying market fundamentals remain strong, however, and even as supply and demand cool, prices continue to increase, especially for detached homes. Overall, the real estate market is responding to the needs of consumers and adjustments offer both positives and negatives to both buyers and sellers.

Canada’s real estate reliance

As our nation celebrates 150 years of straddling the world’s stage, Tembo has decided to prepare a blog outlining how important the real estate sector has become to our national economy and prosperity.

Historically, the bedrock of the Canadian economy has been primary resources. The cycle has been simple. A resource is discovered or harvesting begins, within a short period of time extraction then begins to boom. The boom provides wealth and opportunity and attracts migration, and then the process matures, the resource declines in value or is depleted or made obsolete by market changes: thus paving the way for a new staple to be collected. The first of these resources was Atlantic cod in the 15th century, then fur and pelts, then lumber, and eventually, minerals and oil by the end of the 19th and early 20th centuries.

By the end of the Second World War, the Canadian economy began to aggressively industrialize and the service sector began to grow expansively. Suburbia sprouted and real estate began to boom and grow as a major sector. From the late 1970s to the present, the post-war industrial components of the economy have gradually withered away. Manufacturing has especially declined in southern Ontario, due to higher costs, relentless foreign competition, and a decline of productivity and innovation.

High oil prices from 2003-2015 helped the economy boom, but as those prices collapsed real estate has taken oil and manufacturing’s place as the main economic engine for the country. Statistics show that most of the strong economic growth the country is currently experiencing comes from four major sources: finance/insurance, real estate/rental/leasing, construction, and professional/scientific, three of these four are real estate related. Manufacturing, farming, fishing, and forestry were sources of economic contraction. Without real estate, Canada would be in a recession.

Businesses are pouring money into real estate and new construction is soaring, while renovation activity is also growing strongly. Increases in housing wealth and home equity are also prompting consumers to borrow more money, spend more, and even leverage the purchase of vacation homes or homes for rental income and investing. Real estate has become so robust that recently, the national housing agency, the CMHC (Canada Mortgage and Housing Corporation) declared it would transfer a special $4 billion dividend to the Federal Government over two years. Soaring property transfer and land taxes are one of the main reasons the deficit prone Ontario Liberal government recently tabled a balance budget for the first time in over a decade.

Overall, the importance of construction, housing, and its financially related business has never been more fundamental to Canadian governments, consumers, and households.

Moving towards a buyer’s market?

As Tembo outlined in our previous blog post, several trends were beginning to emerge in the GTA real estate market which benefits buyers. The first was that prices were beginning to plateau, with increases not nearly as large as the preceding few months. Secondly, listings of new properties were rapidly increasing, quickly improving the historically low stock of housing. And third, sales were beginning to slow down, and in some cases, decline.

With early June data now available, many of these trends are continuing. In Oakville, for example, prices have dropped by 9% in the month of May with sales also dropping a whopping 43%. In the GTA, listings continue to increase even as sales are declining and prices are leveling out, also new data shows that housing stock is returning to historical averages after years of extremely tight supply.

The sales to new listings ratio, a measurement of the new number of overall sales compared to the number of new listings have also dropped below 40% for the first time in many years. This shows that supply is increasing and demand is falling. A 40% sales to listings ratio means that for every 100 new houses listed, 40 have sold. 40% is considered balanced and usually implies that prices will increase, but modestly in the single digits. With a drop below 40% appearing to now be the case, the market appears to have begun to shift steadily from a seller’s market to a buyer’s market.

These trends are likely to continue. Supply will continue to increase and will most likely exceed historical trends soon. The huge demand for housing has incentivized builders and governments to stimulate housing construction. The Canada Mortgage and Housing Corporation recently released data showing single family detached home completions in the city of Toronto increasing by almost 5,000 units. Many new condos and townhouses are also nearing completion or under construction. Supply will continue to increase.

The key question is what will happen to sales and demand. If sales trends continue, demand will begin to fall. The result of increased supply and cooling demand will be downward pressure on prices. In the end, the market could end up providing two factors buyers love; plenty of supply and lower prices.

A foreign-buyer tax for Toronto?

In August of last year, the Government of British Columbia implemented a 15% property transfer tax on foreign buyers solely in the Greater Vancouver area. The tax was implemented to cool the Vancouver housing market, reduce speculative buying, and to de-incentivize foreign buyers from purchasing homes for the sake of investing and leaving them vacant.

Housing prices in Vancouver had been rising quickly for years and increased media coverage of ‘empty mansions’ owned by foreigners for investment purposes led to the BC government deciding to act.

The effect of the tax was real and raw. Royal LePage, a major real estate brokerage, expects prices in Vancouver to fall by 8.5% in 2017 after overall home sales fell by 40% since the tax was implemented. In Victoria, where no foreign buyer tax was implemented, prices continue to rise and sales are staying strong.

On March 9th, Ontario Finance Minister Charles Sousa said that the provincial government was “open” to the idea of imposing a BC style tax in the Greater Toronto Area. Sousa voiced concern about ongoing bidding wars, high housing prices, and families being priced out of the market. In response, Toronto Mayor John Tory said he needed to see “more data” before committing support or opposition to the tax.

What the experts say

Many real estate groups are firmly opposed to the province taxing foreign buyers. The Ontario Real Estate Association and the Toronto Real Estate Board both say that the number of foreign buyers is a tiny sliver of less than 5% of the overall number of people trying to buy a house in Toronto, and that a tax would not cool high prices or do enough to decrease demand. The number of foreign buyers in the Vancouver market was at least 15% before the tax was implemented, with many realtors suggesting the actual number was much higher.

Some of the country’s biggest banks, however, are open to the tax. RBC CEO Dave McKay has said that “we may need actions that are similar to Vancouver.” Also, the National Bank of Canada has publicly stated that it believes a broad “re-think” is needed for the market and voiced support for looking into the tax.

Have you sold your home, and now can use an advance on your equity before closing day, perhaps you need money for renovations?  Tembo Financial can help!  Tembo offers this unique service to homeowners in Ontario and the GTA. You could receive your money in as little as 48 hours with no credit check and no appraisal* for expenses that matter to you.  Don’t wait, start today!

*Subject to qualification.

Home Buying Tips for First Timers

Bigger down payments are better: Aim for 20% of the value of the home, don’t forget that you can use any RRSP funds you have towards the purchase; usually up to $25,000. Bigger down payments result in lower monthly mortgage payment.

Be mindful of closing costs: First time buyers can fail to factor in the costs of home inspection, legal fees, transfer taxes, paying for appraisal, interest adjustments, and insurance costs. All together these costs can total 1-5% percent of the overall costs.

The government will help, a little: The Government of Ontario recently doubled the first-time homebuyer’ maximum land transfer tax refund to $4,000. The increased rebate went into effect on January 1 of this year. If you’re buying a condo or home that costs less than $368,000, you won’t pay land transfer taxes.

Create a moving budget: Moving isn’t cheap. If you hire a moving company and are travelling long distances, it’ll cost you. Appliances, new furniture, renovation’s and repairs, even insurance rate changes are some of the potentially hidden costs of moving you should keep in mind.

Start with a condo: If you are like most people, you’ll want a slice of paradise and a detached home. And, like a lot of people in todays market, this will be too expensive for your reach. Buying a condo is one way that will help you build equity  within a relatively short period of time to help enable you to upgrade and afford a small home. Progressively leapfrogging from one property to another is a great path to the home of your dreams.

Have you sold your home, and now can use an advance on your equity before closing day, perhaps you need money for renovations?  Tembo Financial can help!  Tembo offers this unique service to homeowners in Ontario and the GTA. You could receive your money in as little as 48 hours with no credit check and no appraisal* for expenses that matter to you.  Don’t wait, start today!

*Subject to qualification.