From the Desk of Faisal - Real Estate News for the Week of Nov 5th - Nov 11th

Welcome to Properties Ontario’s weekly update. Our team goes through numerous articles and summarize them for you! Please do not hesitate to contact me if there are any topics you would like to discuss further. If you have any questions about buying, selling, or leasing residential or commercial space, we’re the team for you. For current listings in the marketplace, check out our website www.propertiesontario.com 

Energy Efficiency Produces Margins

According to Corey McBurney, president of EnerQuality, updating your home can produce long term gains. EnerQuality partnered with Natural Resource Canada to develop the Energy Star Certification. The way homeowners or investors can come out on top is by receiving government rebates on the energy efficient renovations in the short term. For the long-term benefits, investors save on their utility costs which ultimately lowers their operating costs. Small fixes form lightbulbs to large fixes covering the full HVAC system all produce savings in the future. Lastly, the resale value does increase as buyers genuinely view the efficiencies as a value addition.

October 2018 GTA Real Estate Statistics

GTA October 2018 Statistics (October 2017 comparison in brackets)

• Benchmark Price: $766,300 (+2.64%)
• Median Price: $683,000 (+4.27%)
• Average Price: $807,340 (+3.45%)
• Number of Sales: 7,492 (+5.98%)
• New Listings: 14,431 (-2.73%)
• SNLR: 51.92 (balanced market)
• Active Listings: 18,926 (+0.35%)
• Months of Inventory: 2.53 months if no new listings came on the market

Toronto October 2018 Statistics (October 2017 comparison in brackets)

• Benchmark Price: $845,900 (+7.01%)
• Median Price: $699,000 (+7.53%)
• Average Price: $869,870 (+6.19%)
• Number of Sales: 3,031 (+5.86%)
• New Listings: 5,292 (+5.10%)
• SNLR: 57.28 (balanced market, more towards a seller market)
• Active Listings: 5,665 (-0.28%)
• Months of Inventory: 1.87 months if no new listings came on the market

A large part of price increases is due to condo and attached units (semi, townhomes) appreciating but the benchmark price is on a downtrend. It is still increasing but at a very slow pace. It is important to note this month’s sales are 5.29% lower than the 10-year October average. In a “bull case” scenario, sales continue to trend higher with prices continuing their gains. However, in a “bear case” scenario, the increase of inventory along with more expensive borrowing will cause a price slowdown. I believe we are in between these two scenarios as demand from population growth continues to push this economy forward. However, a few places around GTA are overlooking fundamentals and showcasing exuberance. These areas have a higher chance of experiencing a price slow down.  

Toronto’s Most Expensive Homes are Expensive…  

A well recognized firm by the name of Knight Frank LLP completed a Prime Global Cities Index. This report analyzes the top 5% most expensive properties around the world. After a review of numerous global cities, Toronto has ranked 7^th worldwide. This part of the market represented an 8.5% yearly increase during the third quarter of 2018. When just looking at North America, Toronto is ranked 2^nd, right after San Francisco which experienced a 9.5% annual growth. Robust activity in Rosedale and Yorkville areas were vital contributors in pushing this segment’s prices higher.

Effective Borrowing Rate Increasing

The effective borrowing rate is the weighted index of consumer and mortgage rates to come up with an average rate that is experienced across the economy. This measure considers the posted and discounted rates of lenders. On October 26^th, the effective borrowing rate reached 3.91%, increasing 2.62% from the week before. On an annual basis, the rate grew 14% from the same week last year. The movement upwards illustrates a 5.74% reduction in the maximum mortgage a borrower can attain, ultimately reducing buying power. Typically, interest rate decisions are felt up to 6 to 12 months down the road so expect the effective borrowing rate to continue its climb.

Building Permits Increase

Statistics Canada reported $4.9 billion worth of residential permits issued during the month of September. This is up 0.3% from August and represents the first increase in four months. This was largely due to increased multifamily buildings which grew 1.5% to $2.7 billion. On the other hand single-family detached building permits fell 1.2% to $2.2 billion. This is the fourth consecutive month of declines for this asset class. Non-residential permits nationwide were up 0.6% to $3.1 billion. Institutional buildings lead demand (up 16.4%) while commercial building permits were down 3.3%. Overall all building permits equalled $8.1 billion which is 0.4% higher in September from the previous month.

Ottawa Continuing its Hot Market

The Ottawa market continued its hot streak with its latest figures for the month of October. The number of days a property is on the market has fallen to 39 from 45 for year to date in October. October had 1,383 home sales, up 11.8% annually and above the five-year average of 1,223 sales. Condo sales jumped 24.1% while other residential homes gained 8.5%. Although the price increased across the board by 6% annually, Ottawa still has a relatively cheaper market than the GTA. Approximately 43% of homes sold ranged between the prices of $300,000 to $450,000.

CMHC Mortgage Rate Forecast

Canada Mortgage and Housing Corporation (CMHC) released a report forecasting mortgage rate projections. They used a 5 year fixed term with a 30 year amortization period for its projections. Analysts have a forecast for 5.6% in 2018, 6.2% in 2019, and 6.5% in 2020. Currently the 5 year Bank of Canada posted rate is 5.34%. As interest rates rise, more money is used for servicing it, reducing the principal amount or in other words less purchasing power. If rates hit their 2019 forecast, borrowers will lose 8.7% of their borrowing power and if rates hit their 2020 forecast, borrowers will lose 11.69% of their borrowing power. Cities like Vancouver and Toronto which have high prices will result in reduced liquidity. However, cities like Ottawa and Calgary where income is high but housing is relatively cheaper will be able to take these interest rises in stride.

Canada Housing Starts for October 2018

The 6-month moving trend for Canadian housing starts decreased for a fourth consecutive month in October. The seasonally adjusted trend of 206,171 was down from September’s 207,809. Despite the decline we are close to our long term averages as 2017 had higher than normal levels of housing starts because of demand and mortgage regulations taking place. Actual figures were 205,925, up from 189,730 in September. These are non-adjusted based on seasonality. Multiple urban starts increased 16.8% to 145,442 units while single-family detached urban starts decreased by 10.7% to 46,522 units. Rural starts are estimated at a seasonally adjusted rate of 13,961 units.