Toronto Real Estate Blog

By Virginia Galt – Globe and Mail

Confidence appears to be seeping back into the housing market, with young Canadians the most optimistic that now is a good time to buy, according to the Royal Bank of Canada’s annual homeownership survey.

Thirty-year-old David Morris, who owns a condominium in downtown Vancouver, is among those actively planning to purchase a home. He’s looking to sell his condo and trade up to a house in Vancouver’s trendy Kitsilano or North Shore districts – a move that would have been out of his reach in the overheated real estate market of recent years.

Falling prices, low interest rates – and the fact that he is getting married at the end of this year – have factored into Mr. Morris’ decision to buy.

“We have made the decision to move forward. It’s not a situation where we’re going to force it, but if we can find the right house for the right price, we have made the decision to get serious about it,” said Mr. Morris, a commercial real estate broker.

“From a buyer’s perspective, it’s encouraging …Now is a good time to come in and find a home that you love, that isn’t going to break the bank.”

In a survey of 2,026 Canadian consumers, conducted in the second week of January, the Royal Bank found that 65% of respondents believe it is a buyers’ market now.

Of those surveyed, 9% said it is “very likely” they will purchase a home or condominium in 2009 or 2010, and another 18% rated the prospect of purchasing a new home as “somewhat” likely.

“Additionally, almost half indicate it makes sense to buy a home now versus waiting until next year.”

Young adults and renters are most likely to spark an upsurge in home sales, Royal Bank said in releasing its survey results.

“In the under-35 group, 48% said they plan to buy, which is up sharply from 36% last year. Renters also appear to be saying they are tired of paying someone else’s mortgage payment, with 38% planning to become homeowners in the next two years.”

This optimism is reflected in the most recent sales statistics – the volume of sales in the Toronto area, for instance, was up in February as compare to January – Royal Bank predicts that lower prices will lure a growing percentage of Canadians back into the housing market in the next two years.

Toronto real estate agents noted that consumers do not always follow through on their intentions – although it is encouraging that more Canadians appear to be thinking about buying homes.

“Intention is the step prior to making an educated decision… and I’m sure a lot of those people with intentions will move forward with purchases, it’s just a matter of finding the right time,” Mr. van der Wyst said.

Karen Leggett, the Royal Bank’s head of home equity financing, said low mortgage rates “and favourable housing prices are influencing home purchase intentions this year and may be the reason why more Canadians are poised to purchase over the next two years.”

Ms. Leggett said the poll, conducted for the Royal Bank by Ipsos Reid, found that the vast majority of Canadians believe that the purchase of a home is a good investment. “The current economic environment does not appear to have dampened Canadians’ overall confidence in the housing market,” she said.

Mr. van der Wyst said there are good deals to be had, from the buyers’ standpoint.

However, he added, many prospective buyers – particularly first-time buyers – are still uncertain about the best time to plunge into the market.

“We tend to hand-hold these first time-buyers, nervous first-time buyers, especially around here where they know the prices are starting to dip – and who knows where they will continue to dip before the recovery starts?”

Mr. van der Wyst said that, especially in the current economic environment, he screens prospective buyers carefully before taking them to look at properties. He noted that the banks are also “pretty stringent” in qualifying consumers for mortgages.

“Mortgage rates are at historic lows and borrowing money is very, very affordable. If you have steady employment and you have some financial responsibility along with a good interest rate, now is a really, really good time to purchase a property,” said Mr. van der Wyst.

“At this time, employment stability is very important. It would be really unfortunate to see someone lose their job just as they were about to close on a property,” he said.

A number of leading Canadian economists have observed that Canada’s rising unemployment rate has eroded consumer confidence, and other recent housing forecasts have been less upbeat than the Royal Bank survey.

Canada Mortgage and Housing Corp. projects that, in spite of falling prices, the volume of existing home sales is expected to drop by 14.6% in 2009, and then rise by 9.3% in 2010.

Average home prices are forecast to fall 5.2% to $287,900 in 2009. Next year, prices are expected to remain flat, according to the federal housing agency’s forecast.

Comment: Remember that those numbers are national, for the entire country, not for the Toronto area. We have already seen sales volume and prices rise in February as compared to January. As the weather gets better and we head into the spring market, things are only going to get better.

Ms. Leggett said Royal Bank is not forecasting “a huge housing rebound, by any stretch,” but there are reasons for cautious optimism that the market will start to recover later this year and next year.

Following the overheated market and bidding wars of the past few years, housing is once again becoming more affordable and there are good buying opportunities for consumers “who have good solid certitude around their job prospects and have the financial picture to be able to get into the market,” Ms. Leggett said.

“Buying intentions are one thing. Whether they translate into actual purchases, obviously time will tell,” she said. “But, anecdotally, we are hearing that there is heightened activity …and interest in the marketplace overall.”

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By Kristine Owram, The Canadian Press

Lower home prices and shifting demographics mean first-time buyers could lead a rebound in Canada’s real estate market, experts said at a Toronto real estate conference.

Phil Soper, president and chief executive officer of Brookfield Real Estate Services, said rookies are the largest category of buyers in the Toronto real estate market, accounting for close to 70% of all transactions at the height of the housing boom.

However, they’ve been scared away in droves by the economic downturn, which was led in part by record foreclosure rates in the United States as homeowners defaulted on their mortgage debt.

Such a lack of first-time buyers can grind the real estate market to a halt, Mr. Soper told the Bank of Nova Scotia annual real estate outlook conference.

“When new buyers stop entering the market, it’s like sand in the gears,” he said.

Although Canada has managed to duck the severity of the housing crisis in the U.S., the 10-year boom that saw housing prices soar, particularly in the Western provinces, ended abruptly last year.

Canadian housing starts — the number of new residential construction projects — were down to 211,056 in 2008, about 8% lower than an average of almost 230,000 in the period from 2004 to 2007. Resale activity fell by 17% in 2008 but home prices only dipped by one per cent, according to Scotiabank.

But Adrienne Warren, a senior economist and real estate specialist at Scotiabank, said all of this news is working to create a buyers’ market. And although young buyers are likely keeping an eye on the job market before they rush into buying a home, conditions are improving, she said.

“Certainly the softening we’ve seen in prices, the increase in listings, is giving first-time buyers more choice,” Ms. Warren said.

“We have seen some deterioration in affordability in recent years as home prices continued to rise, and I think that began to pinch a lot of first-time buyers. Hopefully when we see some relief on prices, more choice, less bidding wars, we’ll see more interest coming back.”

Comment: While prices have only really dropped about 5% in Toronto over the past year (and February 2009 prices are up over January 2009), the main benefit to buyers is increased selection. And with some lenders offering 5-year fixed mortgages for less than 4%, this is the time to buy!

And even though most first-time buyers — generally in their late 20s or early 30s — tend to have much more debt than their parents did, Mr. Soper said they’re also much more “real-estate savvy” than the generations that came before them.

“If you think of the traditionalists, the older people who went through very different economic times, they’re very, very conservative about mortgages and debt as it relates to housing,” Mr. Soper said. “Today’s first-time buyers view this as just a natural way to get into the market.”

He added that young prospective buyers also tend to be much more confident about their future, less financially dependent on one job and one company, and less concerned about the recession than their parents.

This confidence has combined with lower housing prices, better government incentives and less risk to make the real estate market more appealing to condos-for-sale/firsttimebuyer.htm”target=”_blank”title=”first time buyers” >first-time buyers, Mr. Soper said.

Ms. Warren added that the demographic of first-time buyers is growing as the children of baby boomers reach the age where they begin to consider entering the housing market.

“The baby ‘echo’ boomers that are now just graduating university, going out on their own… will be an increasingly important demographic behind the pickup in some sales,” Ms. Warren said.

She added that new immigrants will also be an important driver of home sales in the coming years as Canada’s population growth becomes increasingly reliant on those born elsewhere.

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By Colin Perkel – The Canadian Press

Never before have so many Canadians owned homes. And never before have they owed so much for the privilege.

Interest rates at or near historical lows combined with low unemployment and recent changes that allow people to buy houses with less money down and pay off mortgages over longer periods resulted in 68.4% of Canadians in the housing market in 2006.

That’s up from 65.8% in 2001 and 60% in 1971, according to the latest Statistics Canada data.

The increase comes despite the fact that the cost of housing in many cities across the country has gone through the roof, outstripping inflation by far, while median incomes have essentially flatlined.

“Low mortgage rates have helped offset much, but not all, of the impact of rising house prices in recent years on mortgage debt-service costs,” said Bertrand Recher, a senior economist with Canada Housing and Mortgage Corp.

The overall result has been a small increase in the percentage of Canadian homeowners who spend more than 30% of their gross income on shelter costs, according to Statistics Canada census data.

But latest CMHC figures show a sharper spike in mortgage-carrying costs in terms of after-tax income.

In 2007, average household spending on monthly mortgage payments had reached 37% of after-tax income, up from 32% in 2006.

“That’s significant — mortgage carrying costs are increasing,” said Mr. Recher.

“This burden is heavier on the shoulders of first-time buyers because they don’t have the equity.”

Most analysts, however, see little comparison between the Canadian housing market and its American counterpart, where hundreds of thousands of homeowners suddenly found themselves in way over their heads, creating a financial meltdown.

Canadian financial institutions jealously guard the number of mortgage defaults they endure. But among the country’s big banks, only about 0.27% of homeowners were three months or more in arrears on their payments.

“Anecdotally, we are not seeing any rise in arrears or defaults across the country,” said Jim Murphy, president of the Canadian Association of Accredited Mortgage Professionals, an organization that speaks for mortgage lenders.

“Canadian underwriting standards by lenders and mortgage insurers are much more thorough than they are in the United States. Canadian lenders are much more conservative.”

One key factor in the rise of home ownership is the relatively new option of mortgages amortized over 40 years.

Paying off loans for homes over a longer period means much higher total interest costs, but lower ongoing monthly payments. The effect is increased affordability. Growth in such long-term mortgages has been nothing short of dramatic, figures show.

Between the fall of 2006 and fall 2007, 37% of all mortgages carried amortizations longer than 25 years, up from nine per cent in the preceding period.

“Clearly they’re very popular,” said Mr. Murphy, adding that not only first-time buyers are opting for the new choice.

One real estate investor-analyst who disagrees with the rosy assessment of the Canadian market is Liberal MP Garth Turner, who argues too many people, especially younger buyers, are taking on too much debt to buy into the housing game.

Low interest rates coupled with 40-year amortizations and negligible down payments might make it easier to buy higher priced homes, but it’s also leaving buyers vulnerable, Mr. Turner says.

“The inevitable conclusion is that the current Canadian real estate market is floating on a sea of unrepayable, and perhaps unserviceable, debt,” Mr. Turner maintains in his book, “Greater Fool.”

Collectively, it is a lot of debt.

In total, Canadians owe an amount fast approaching $850-billion on their homes, more than double what it was a decade ago, with percentage growth in double digits in recent years.

If trends continue as expected, the value of all outstanding mortgages will surpass the $1-trillion mark some time toward the end of next year.

The federal government is keeping a close eye on the developments, according to Finance Minister Jim Flaherty.

“We have been monitoring the mortgage market, as we do, and we’ve seen a trend toward longer amortizations and smaller down payments, and that is a matter of some concern,” Mr. Flaherty said recently.

“We’re continuing to watch that.”

Mortgage insurers, who take care of defaults, have also tightened their criteria.

Still, any concerns over the situation appear, at least for the moment, to be outweighed by more positive views.

Overall economic conditions remain healthy in Canada, with unemployment close to historical lows, Mr. Recher noted.

In addition, the forecast is for the rapid growth in house prices to moderate substantially while interest rates are expected to remain relatively stable, at least over the next year or two.

One group blissfully unconcerned about rising carrying costs are those aging baby boomers who have paid off their mortgages, a group that has grown in recent years.

Ten per cent of homeowners hold no mortgage at all, according to Statistics Canada.

Many long-time owners have taken their equity and downsized to condos, joining the flood of first-time buyers who have gained their first toe-hold in the world of home ownership by entering the relatively affordable condo market.

About 10 per cent of households are now in condos, a tripling in 25 years.

“There’s been quite an increase… in the percentage of owner-households that are in condos,” said Willa Rea, senior analyst with Statistics Canada.

“There’s a good deal of young people buying in and becoming homeowners. We’ve seen quite an increase there.”

While shelter costs for home owners have risen, they remain lower than those for renters, who typically pay a bigger share of income to keep a roof over their heads. For renters, the burden remains at roughly 40% of gross income.

“That hasn’t changed,” said Mr. Rea. “It’s pretty stable there.”

The analysis released Wednesday is based on census data collected more than two years ago. The next census will be taken in 2011.

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By Terrence Belford – Globe and Mail

Dig through the clutter of statistics – of sales declines, project launches, economic growth forecasts, volatile investment markets – and the future for Toronto condominium sales does not look bad at all.

In fact, according to a number of industry experts, we are probably heading into a buyers’ market.

“I think we are getting back to the days when sales people in new condo projects can’t just be order-takers,” says Barry Lyon of N. Barry Lyon Consulting Ltd.. “Buyers are no longer going to be numbers on a chart. Developers are going to have to be a lot more innovative and offer incentives to make sales.

“I can see the next six months as being a great opportunity for new condo buyers.”

What leads Mr. Lyon and others to that conclusion is a series of events that started this past summer as the international credit crunch began to take hold.

First, many developers decided they had better get projects to market before the situation got worse, so in some cases they brought forward launch plans. Then they found their lenders demanded higher pre-sales figures before they would consider advancing a dime to build new projects. If the requirement in the past was 60% of the units be pre-sold, now it is more likely to be 70%.

The pressure was on to do deals.

The result was a near-record number of projects launched this fall. George Carras, president of RealNet Canada Inc., says his company recorded 36 new condos.htm”target=”_blank”title=”toronto condo development” >condo developments launched between Aug. 25 and the end of October. Right now, there are more than 330 of them on the market across the Greater Toronto Area.

But at the same time, buyers stayed away in droves. Whereas last year sales campaigns geared to a project launch resulted in 47% of the suites being sold in a month, if not a week or two, this fall that figure dropped to just 27%, Mr. Carras says.

The slow uptake of new suites in what is traditionally the hottest period in the sales cycle came on the heels of September statistics that showed the market was down 28% from last year, and 3% lower than in 2006.

Now that may seem to spell doom and gloom to the layman, but veteran market watchers such as Jane Renwick, executive vice-president of Urbanation Inc., say that not too much should be read into that dip.

Last year, the condo market broke all records, she explains. It was an anomaly, the equivalent of the condo industry winning Lotto 6/49.

Comment: And that cannot be stressed enough. To keep things in perspective, we need to compare 2008 to 2006, which very few people are doing. 2007 was simply not normal and to use it as a basis for comparison is going to generate bad statistics.

“I think what we are looking at is just a return to more normal market conditions,” Ms. Renwick says.

That is a view shared by both Mr. Carras and Mr. Lyon. They see perhaps another six months of uncertainty. Some developers will delay plans to launch projects. Buyers, especially first-timers, will be more cautious when it comes to making a decision to invest in a new condo.

But that wait-and-see attitude will bring benefits as well. Mr. Carras and Mr. Lyon say they have already seen a drop in the price of land suitable for future projects. As fewer developers butt heads over who gets a specific chunk of land, demand drops and with it the owner’s asking price.

The same will likely be true for construction costs. Again, fewer projects means less competition for available labour and materials. Less competition means less upward pressure in price.

“I don’t see prices going down on new condos, but I can see any increases slowing,” says Ms. Renwick.

What gives the experts the most comfort are four key factors, Mr. Carras says. The first is the fact that the GTA continues to be the destination of choice for half of Canada’s net immigration – 100,000 people a year all looking for a place to live.

No. 2 is intensification. The province has mandated that Toronto grow up not out. That means condos, not single-family homes, are the way of the future.

The third factor is rental apartments. Few developers are building them any more. That means, in the future, those units will have to come from investors who buy condo suites and then rent them out.

Finally, while the experts predict the GTA will see about 18,890 condo suites coming on the market this year, that flood of new units is really just a drop in a very large ocean. RealNet says there are 1.9 million private dwellings in the GTA, so even though the numbers are impressive they reflect only a 1% increase in supply.

Comment: So many people say that all these news condos will flood the market and drive prices down. Nope, there just are not enough of them to do so. Real estate is big news, new condos are big news, so they get blown out of proportion and are made to seem bigger than they really are. And with demand for rental units increasing every year, all of these investment units being rented out will keep being rented. There is a demand and these condos are the supply.

So, back to Mr. Lyons and his contention that buyers will indeed benefit in the coming months.

“I think this is a great time for people to educate themselves about what is out there and to shop around,” he says.

“As developers jockey to make sales, I can even see them offering incentives such as help with down payment requirements. Over all, I think there is a great opportunity for buyers ahead.”

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Toronto condos have become an increasingly attractive home ownership option for many people. Whether you’re a young couple looking for affordable housing, or a retired couple wanting to downsize because their kids have moved out, there is likely a condo for sale to fit your needs. A condo is a viable option for anyone who wants to own a home without the worry of repairs, maintenance and dreaded chores like snow shoveling. Condos require little work, and are maintained by the association, so the condo owner does not have to be concerned with certain maintenance activities.

As well, many people are turning away from the single-family home market and becoming more interested in the condominium market. There are three main reasons why condos are gaining such popularity: they are economical, convenient, and easy to maintain.

1. Economical. In general, condos cost less than traditional single-family homes. Some experts estimate condos are as much as 20% cheaper than their single-family home counterparts. Within recent years, such value has given a real boost to condo sales.

Condos will increase your buying power. Condos usually sell for 20 to 30% less than similar detached homes, so it is an ideal option for a first time buyer with a limited budget. You will have all the luxury of owning your own home, but will be able to share the cost of upkeep on the building. For most buyers the choice is to buy a condo that meets their living needs or continue to rent.

Condos usually cost less to maintain than detached homes. The replacement cost of a high rise roof may be more in absolute terms than replacing the roof of a detached single-family home, but the cost per owner should be less. Depending on the cost of the repair, there should be enough money from the association fees that can cover the repair without any additional cost.

2. Convenience. Condo living can be extremely convenient. Typically, condos are strategically built near the heart of a city, where most business and entertainment establishments are located. People are choosing to forego the commute required by suburban living, opting instead to centre themselves in the city. By avoiding a long drive or train ride into work, condo owners enjoy more leisure time and a reduced-stress lifestyle.

Condos have amenities that some people could not otherwise afford, such as swimming pools or tennis courts, their own community centre with exercise rooms and much more.

3. Easy to maintain. Condos are also popular because they require little effort toward maintenance. Homeowners know that they are responsible for all of the upkeep and repairs that are associated with keeping a house in good shape. On the other hand, condo owners typically don’t have to worry so much about matters of upkeep or liability. Condos are typically managed by a board that makes decisions regarding repairs and other maintenance issues. With condos, taking care of your property is a very hands-off experience that usually involves the periodic paying of fees and the choice to participate, if desired, in regularly-scheduled, condominium board meetings.

Condos are ideal homes for first-time buyers, small families or people without children, retired couples and vacationers. While a condo can be the first step on the ownership ladder, it is often a good stand-alone investment in real estate. If the above qualities are appealing to you, you should learn more about the condominium market in your area.

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Contact the Jeffrey Team for more information – 416-388-1960