The Town of Milton offers many amenities and opportunities for residents that help make Milton, Ontario a safe, healthy and livable community. Milton has been dubbed as Canada's fastest-growing cities and has vast property investments available. The town has a large infrastructure plan in place in order to improve transportation services and employment. Overall, Milton is a blend of urban and rural, modern and historic, all set in the backdrop of the Niagara Escarpment.
The average price of a home: $736,000 *
Guelph has been deemed as one of the best cities to raise a family, due to the healthy local economy, education provisions, health care service and growing agriculture. Guelph has been highly rated for its safety due to the low crime rate. The University of Guelph, located in the center of this growing city, is one of the biggest employers in the city and has a large student population.
The average price of a home: $555,000 *
Brampton is one of the largest cities in Canada, with its large population, and employment opportunities. Brampton has major transportation facilities making commuting and traveling easy for its residents. The city of Brampton is home to many parks and recreational facilities. Brampton is home to one of the biggest shopping malls in Ontario and offers plenty of amenities to its residents.
The average price of a home: $715,000 *
Oshawa is acknowledged to be one of the best places to find work in Canada. Oshawa has had a large residential growth over recent years. Oshawa is home to The University of Ontario Institute of Technology, and now holds four post-secondary schools including Durham College. Oshawa is a youthful city and has plenty of amenities, bars, and restaurants.
The average Price of a home: $503,000 *
Barrie provides the charm and community feel with urban amenities of a city twice its size. Barrie caters to families as it holds a large selection of activities for families, such as unique festivals. There are many local businesses and farms, which are perfect for young families. The city has many opportunities for young couples, such as trendy boutique and culinary destinations. It is also home to the MacLaren Art Centre.
The average price of a home: $479,000 *
Both Toronto demonstrates the economic fundamentals in terms of location; with amenities, large shopping malls, and the busy city life.
Toronto is a youthful city, with a large growing population, and opportunity for investment and infrastructure. The cost of living is higher than average, due to it being a large city. The transportation service is second to none which makes it easy to commute, as well as traveling to nearby attractions.
The average price of a home: $880,000 *
Dubbed as ‘beautiful Oakville’, it is one of the most affluent areas to live in Ontario. Oakville is a suburban town situated on the north shore of Lake Ontario. Oakville is known to have a quaint village reputation, it is integrated with popular, and fashionable restaurants, lively bars, and historic shops. The area is well known for the art galleries which are housed in historic buildings.
The average price of a home: $1.0 M *
* as of June 2018
If you’re looking to sell your home, you may be considering renovating it beforehand. While you may be looking for a definitive answer to the question of whether you should renovate your home before a selling it, the answer isn’t too black and white.
What do houses in your area have?
Check out the houses on the real estate market in your local area. What do they have? Do they have features that your home does not? For example, if most the houses on the housing market in your area possess en-suite bathrooms, it may be worth seeing if you can get an en-suite installed in your house. It may not matter to some buyers, but it can be something that knocks your home off the radar for a lot of buyers in the area.
Who are you trying to sell to?
Your local area is likely to have a certain feel, aesthetic, or set of properties that appeal to certain buyers. For example, properties in well-developed urban areas are likely to be marketed towards professionals and younger people, whereas homes in quiet suburban districts are more likely to be marketed towards families and older people who want a bit of peace and quiet.
Conduct some research on the demographics that are buying properties in your local area, considering whether you need to renovate your home slightly in order to appeal to them. For example, if you’re trying to interest families, then a secure backyard fence is a great addition to your home. Similarly, elderly people might like an easy-to-maintain garden, whereas young professionals might enjoy having a bar in their kitchen which can be used to entertain guests.
Things to consider before renovating a property
If you do decide to renovate your property in order to enhance its market value and appeal, do consider how inconvenient the renovations will be for you, and whether they are things you can put up with. After all, you will inevitably be living in your property for a while before it sells, so you need to ensure that your changes are things you can live with, even if they are not how you would ideally like the house to look.
The bottom line
If you’re thinking about renovating a property before selling it, be sure to check things over with your local real estate agent. Renovating a property can certainly increase its market value, but you need to assess whether that will result in a net profit or net loss for you upon the sale of the home.
On October 17th, 2017, new rules regarding mortgages and how they can be lent out were introduced by the Office of the Superintendent of Financial Institutions (OSFI). These rules were to take effect starting from January 2018, and since 2018 has already started, it is very important for everyone who is concerned with mortgages to know these rules, how these rules are going to affect them, and what should and should not they do.
Office of the Superintendent of Financial Institutions (OSFI) has set up a qualifying rate that is supposed to function as a “stress test” for mortgages that are uninsured. Uninsured mortgages refer to those mortgages that have down payments that are 20% or greater than the price of the home.
The effect of this new change can be overwhelming or difficult for new homebuyers as they might have trouble affording that particular home. They will have to settle for less.
The requirements of these new rules include that the minimum qualifying rate that uninsured mortgages oftentimes have, needs to be greater than that of the five-year benchmark rate. This benchmark rate is actually published by the Bank of Canada. There is also another exception to this rule which basically means that the 200 basis points need to be above than the contractual rate of the mortgage holder.
The biggest impact, however, is the first time buyers. They will still have to pass the stress test. It doesn’t matter how much money they put down for their down payments, it is still a requirement for them to pass this stress test.
There are three options for a first-time homebuyer that is not able to pass this new stress test.
They have is that they can put down even more money than they already have on their down payment, this may or may not allow them to pass the stress test.
They can rethink if buying a home is the right option for them.
The third and final option is that they can find a person who can function as co-signer for the mortgage, the requirement, in this case, is that the person needs to have a stable form of income.
Another thing that should be noted is that if a person decides to stay with their existing lender, then they don’t have to pass this new stress test. But if they decide to suddenly go with another lender then they will have to pass the stress test all over again.
Now if you are looking to buy a new home for the very first time, then the smart move would be to try and wait a little longer so your income will be able to support the stress test. There is also an alternative to this, which is to look for a home that you can actually afford, it doesn’t have to be that particular home that you have always wanted. It can be something that you can compromise with.
Toronto’s detached real estate continues to explore where prices should be. Numbers from the Toronto Real Estate Board (TREB) show detached prices are starting to fall across Greater Toronto. The lower prices were accompanied by lower sales, and higher inventory. Sounds bad, but that means the market is now adopting healthy market mechanics. Healthy market mechanics is a good sign that the market will normalize.
Detached Prices Fall Below Inflation
The benchmark price, which is the typical price of detached home, is slightly higher. TREB reported a Greater Toronto benchmark of $907,100 in January, a 0.25% increase compared to last year. The benchmark in the City of Toronto is now $1,080,800, a 0.37% increase compared to the same time last year. Both of these numbers are up, but it’s also worth noting these are both well below inflation. Slowing or negative growth is needed to correct last year’s market frenzy.
Since there’s been a lot of discussion around a “lag” on benchmark prices, let’s also look at the median price. The median sale price for a detached home across TREB fell to $805,000 in January, a 7.46% decrease compared to last year. In the City of Toronto the median fell to $940,000, a 6.65% decrease compared to last year. As discussed earlier this month, a median price helps determine upgrade and dollar flow. Not sticker prices.
Average Sale Price Declined 9.1%
The average sale price for detached homes logged the fourth consecutive month of declines. Across all TREB regions, the average sale price fell to $970,823 in January, a 9.1% decline compared to last year. Breaking that down, the City of Toronto average was $1,283,981, a 3.9% decline. In the suburbs, aka the 905, the average fell to $879,048, a 12% decline. As you would expect, the average price for detached units in the city is holding up much better than the suburbs.
TREB numbers show that detached sales continue to decline. TREB regions combined saw 1,659 detached sales in January, a 26% decline compared to last year. Breaking that down, the 416 saw 376 sales, an 18.3% decline. The suburbs saw 1,283 sales, a 28% decline. Every month we remind you this, but: sales means nothing, unless compared to inventory.
Detached Listings Jump Over 195%
Speaking of inventory, detached listings continue to build. TREB numbers show 4,375 new detached listings in January, a 34.86% increase compared to last year. The City of Toronto saw 834 of those listing, a 15.99% increase. The modest increase of listings continued to add to already building inventory levels.
Active detached listings, which are total listings available on TREB, continued to climb. The total number of active detached listings across TREB hit 6,819, a 195.7% increase compared to last year. The City of Toronto saw 543 of those active listings, which is 134% higher than the same time last year. Last year we saw “record low” levels of inventory, so the increase had to happen. That doesn’t mean a whole lot though, since sales declining while inventory is rising.
Sales declining and inventory rising releases pricing pressure, which is what’s happening. From the sounds of it, this trend might just be getting warmed up. TREB recently released survey results, showing more homeowners are planning to cash in on recent gains by selling. 25% of these prospective sellers do not have immediate plans to buy again either. The same survey also showed less prospective buyers want to buy a home this year. If that was too opaque, it means more people are planning to sell, and less people are planning to buy than last year. It’s going to be hard to get prices to move higher with that happening.
Foreign investment made plenty of headlines in 2017, as record prices in the GTA market pushed the Ontario government to introduce a foreign buyer tax. But how are foreign buyers feeling about the Canadian real estate market in 2018? Pretty positive, according to one Chinese real estate website.
“We expect Chinese buying in  to be on par with levels of 2017, unless something significant happens to change the investment environment,” writes Juwai.com CEO Carrie Law, in a statement.
According to a recently conducted survey by Juwai.com, Canada is the third most popular investment location for Chinese travellers in 2018. Fourteen per cent of Chinese investors chose Canada as their top pick, behind the US (26 per cent) and Australia (19 per cent.)
“Chinese [investors] who are considering buying real estate or even emigrating to Canada often use their holidays to combine fun and research,” writes Law.
The survey found that 60 per cent of investors who travel during the year intend to purchase a property in their holiday destination, while 58 per cent are considering emigrating there.
Toronto was the number one city of interest to Chinese investors, followed by Montreal, Vancouver, Ottawa and Calgary.
While previously Vancouver had been the city of choice for foreign investment in real estate, the BC government introduced a foreign buyers tax on the city in 2016, cooling demand slightly.
Montreal, which does not have a foreign buyer tax, had a banner year in 2017, and its fundamentals remain strong. A low unemployment rate, increased migration numbers and extremely high consumer confidence levels have all contributed to increased sales in the area. And — especially attractive to foreign investors — the average price for a single family home sits at $310,000, well below other major Canadian cities.
“One reason Chinese investors seek out property in Canada is because of our cost of living…Greater China has three cities in the top 10 most expensive list, with Hong Kong in first, Shanghai seventh, and Beijing 10th,” writes Law. “No Canadian city appears on the list until Vancouver, which is 142nd.”
For all of the worry about foreign investors buying up real estate that then sits unoccupied, Law says that majority of Chinese buyers are looking to buy a home to live in.
“Over the past few years, we have seen changes in the primary motivations of new Chinese property buyers. ‘Own use’ surpassed ‘investment’ as a motivation in 2016 and hasn’t looked back,” writes Law. “Now, buying for one’s own use motivates more than 65 per cent of Chinese buyers. There is some overlap, because buyers can select more than one motivation. Investment only accounts for about 45 per cent of buyers.”
The new year is upon us, and with it, a whole new real estate reality. Tougher federal mortgage regulations took full effect on Jan. 1, slashing affordability for new borrowers and contributing to slower selling conditions than the record-breaking activity experienced throughout 2017 in Canada’s largest markets.
Dubbed Guideline B-20, this latest parcel of policy changes is also anticipated to be the most impactful, as all new mortgage applicants must undergo a stress test regardless of their down payment size. Under the rules, a buyer paying more than 20 per cent down on their home purchase must prove they can carry their monthly payments at either their contract rate plus two per cent, or at the Bank of Canada’s benchmark rate – whichever is higher.
As Canada’s “big six” lenders hike their five-year posted and prime rates, that criteria benchmark is slated to get steeper, increasing to 5.14 per cent from 4.99 upon news of the Bank of Canada’s January rate hike.
With such flux occurring in the market, many buyers are understandably perplexed, grappling to comprehend how these new rules will translate for their home buying budgets. While it’s always the role of the real estate agent to help clients navigate the market’s nuances, solid guidance is needed more than ever this home buying season.
Here are some of the ways the real estate landscape has changed because of Guideline B-20.
Pre-approvals are more important than ever:
Obtaining a pre-approval has always been a crucial first step before embarking on the home hunting process but receiving one post B-20 will provide much-needed clarity on how the new mortgage rules have impacted buyers’ budgets.
Another reason is that, in today’s rapidly heating interest rate environment, locking into a 60- or 90-day preapproval can offer some peace of mind for buyers while they peruse the perfect listing. To avoid disappointment, ensure your clients have undertaken this part of the process prior to viewing any listings or open houses. Reduced affordability, while challenging for first-timers, may prove to be more of a surprise for move-up clients who anticipated greater leverage on their home equity; should those clients break existing mortgages upon their move, they will also be subjected to stress testing.
There are fewer mortgage options for borrowers who need help:
The introduction of a stress test was only one portion of Guideline B-20; the regulations also ban the practice of “co-lending” or “bundled” mortgages, which combine multiple mortgage loan products to help a borrower satisfy their minimum loan-to-value requirements.
Mike Bricknell, a mortgage broker with CanWise Financial, says that limits options for borrowers who may not satisfy “A” lending requirements.
“For those who don’t fit within the ‘big bank’ criteria, it can be very difficult to obtain this kind of financing, and so bundled loans have been a great asset,” he says. “Restricting this type of loan will reduce these borrowers’ options, sending them instead to the dark ‘private’ loan market, where super-high rates and fees are the norm. In these situations, repayments tend to be interest-only, and can make it even more difficult for those in challenging financial situations to dig themselves back out.”
As well, the “bank of mom and dad”, which was speculated to be artificially propping up hot detached housing demand, could prove less effective than before. In October 2016, when the first round of B-20 implemented stress testing for high-ratio (those paying less than 20 per cent down) borrowers, those fortunate enough to receive down payment gifts from parents that bumped them into the low-ratio category were able to skirt the test altogether.
Under the latest rendition, however, those borrowers will still need to prove they have the income and credit criteria to carry that much house should interest rates rise; while a larger down payment will help their qualification, they may still be pre-approved for a smaller amount than under the old rules.
Buyers may have to downsize their expectations:
The harshest reality of B-20 is that, all things equal, home buyers will qualify for smaller mortgages than they would have last year. For example, they’ll be granted $100,000 less on a typical $500,000 mortgage. For many buyers, that could mean the difference between a one- or two-bedroom condo, forgoing a parking or storage space, or choosing a townhome rather than detached.
For this reason, it is anticipated that the most affordable home types – such as condos – will lead the 2018 market in terms of demand and price growth, as they did for the latter half of 2017, leading to further softening of the detached market. It may also fuel the exodus to suburban markets, as buyers seek greater square footage and land lots for less.
It’s easy to get caught up in home buying frenzy and just focus on finding that perfect home. During all that excitement, be sure to take some time to get acquainted with a few key terms. Here are the four types of insurance you’ll encounter.
HIGH-RATIO MORTGAGE INSURANCE
If your downpayment is between 5% and 20%, you are required to have “high-ratio mortgage insurance”. This insurance is there to protect the lender, and the premium is almost always added to your mortgage amount.
Example: Purchase price is $400,000 and you have 5% downpayment, for a total mortgage amount of $380,000. The mortgage insurance premium is 4% or $15,200, which is then added to your mortgage. The insurance premium declines at 10% and at 15% down. If you’ve saved up more than 20% of the purchase price, then you don’t need this insurance unless it’s required by the lender.
Having “title” means you have legal ownership of property. Title insurance protects owners and their lenders against losses related to the property’s title or ownership, such as: unknown title defects, liens against the property’s title, encroachment issues, title fraud, survey errors, and other title-related issues that can affect your ability to sell, mortgage or lease your property in the future. Premiums are collected upon purchase and based on the value of the property.
HOME & PROPERTY INSURANCE
This must-have insurance protects against risks to your property and contents in the event of fire, theft and some weather damage; it also includes liability insurance in the event that someone is hurt on the insured property. Most lenders require proof of home insurance, so be sure to have your policy in place after your offer is accepted and before your closing date.
MORTGAGE LIFE INSURANCE
In the event of death, this insurance will pay the insured balance of the mortgage, discharge fees and prepayment penalties to the lender, and leaves the property with little or no mortgage for the surviving family or estate. There are many reasons to strongly consider this coverage because anything can happen at any age and at any time. Premiums are calculated based on age and the original mortgage balance.
Toronto real estate’s wacky roller coaster is extending to the rental market, where the average lease rate is taking a breather after jumping double digits.
Toronto real estate rentals are soaring, but that may not be the end of the story. Numbers from theToronto Real Estate Board (TREB) show the average lease rates took a small downtick in the latest quarter. This minor decline was dwarfed by the huge annual increases in rent over the past year. The fact that there was a decline however, means rents may still be trying to figure out where they should be.
About The Rental Data
Rental data from TREB are listings available on the MLS, and do not include purpose built rentals. The first part is important, because it means these are typically agent listed rentals. The second part is of note, because purpose built rentals are often cheaper. It’s best not to view TREB’s rental data as a comprehensive look at the rental market. This information is best used by condo investors, looking to get an idea of what kind of rental yields they can get.
Average One Bedroom Now $1,970
The average lease rate of a rental had a very slight downtick from the previous quarter. The average lease rate across TREB reached $1,970, a 0.3% decline from the third quarter of 2017. The downtick isn’t all that big of deal, considering the 10.9% increase compared to last year. In the City of Toronto, the average lease rate was $2,036 in the fourth quarter. That’s a 0.19% decline from the previous quarter, but still up 11.92% from the previous year. The drop from the previous quarter seems minor, but it’s about five times as large as the decline last year.
Rental Supply Is Scarce, But It Might Be Coming
Any way you cut it, rental prices made a huge jump from last year. Jason Mercer, TREB’s director of market analysis, said “rental supply has not kept up with the increase in demand in recent years.” He added “the result has been low vacancy rates and intense competition between renters for available units.” Basically, people are bidding up prices against each other.
New rental supply may be coming however, due to the number of building completions and new AirBnB regulations. Greater Toronto is expected to see 57,000 new homes completed in 2018, a number that far exceeds the rate of household formation. Many of these units may have been bought for potential rental yield. If so, this would add a lot of units to the mix.
AirBnB’s new regulations in the City of Toronto, mean that many full-time properties would no longer be able to operate. This means they may become landlords to long-term tenants, or put their units up for sale. At the end of 2016, there were 4,817 AirBnB’s in just MLS C01, a.k.a. downtown Toronto. The large number of units, mean that there’s a good chance many of these may become rental units.
Canadian real estate buyers got hit with another quiet hurdle last week. The Bank of Canada (BoC) raised interest rates, and with it, up went the posted 5 year mortgage rate. Here’s how that’s going to impact your borrowing patterns, and how much more it’s going to cost you.
Bank Of Canada’s 5 Year Rate Rises To 5.14%
The increase of interest rates generally leads to a rise in the BoC’s posted mortgage rate, but the full increase isn’t always passed on. The overnight interest rate increased by 0.25 percentage points, but 5 year conventional was only hiked by 0.15 percentage points. This brings the 5 year conventional to 5.14%, which doesn’t seem that high. However, the hike does hit potential homebuyers in a couple of ways.
That Small Hike Reduces Borrowing Power By Over 1.6%
The small hike does translate to a significant reduction in borrowing power, sometimes called “affordability.” The hike from 4.99% to 5.14% reduces borrowing power by about 1.68%. For example, a household earning $100,000 at a rate of 4.99%, would have been able to borrow ~$534,594 for a mortgage. The new hike to 5.14% would mean that same household would only be able to borrow $525,577. The $9,017 decline is just one of the hurdles, that are going to get worse with higher rates.
How That Translates To Real Prices
The amount of interest paid is also increases significantly. The Canadian Real Estate Association (CREA) published a composite aggregate benchmark price of $600,300 in December. A composite aggregate benchmark is the price of a typical home across Canada, for those that don’t know. Let’s use that as an example of the extra expense incurred with the hike.
On a conventional mortgage, you would need to put 20% down. This brings the mortgage size on a typical home to $480,240. If you get a fixed rate mortgage just a couple of weeks ago at 4.99%, you will have paid $446,795 in interest over 30 years, on top of the purchase price. At 5.15%, the interest paid over 30 years would jump to $462,700. That’s $15,905 more expensive, for the same home. Now most of you would be paying lower than the BoC’s 5 year mortgage rate, but ideally it averages out around here, after rates are done climbing. Although it can get more or less expensive, depending on how rates change in the future.
Low interest rates are soon to be a thing of the past, which will have an interesting impact on the home buying market. Borrowers, who were already hit with a stress test this year, will have their borrowing power reduced. This could increase the number of people that would have been eliminated by the stress test. On the flip side, rising rates could inspire more home buyers to try and close a fixed rate as soon as possible.
The market is currently anticipating two more rate hikes this year, which means an even larger reduction to mortgage borrowing room, and even more spent on interest rates. How do you think this will shake out?
Toronto’s detached real estate is seeing prices drop for a 7th month in a row, as sales continue to decline, and inventory soars.
Toronto’s detached real estate was notoriously scarce this time last year. Numbers from the Toronto Real Estate Board (TREB) show that’s not the case anymore. Detached prices slid for a 7th month in a row, as sales continued to decline, and inventory soars.
Toronto Detached Real Estate Prices Are Just 2.33% Higher Than Last Year
First, let’s look at the benchmark detached, which is the price of a typical detached home. TREB reported a benchmark price of $909,300 for detached homes, a 2.33% increase compared to the same month last year. The benchmark in the City of Toronto proper is now $1,085,100, a 1.77% increase compared to last year. For a little context, the Consumer Price Index in the City of Toronto was most recently reported at 2.2%. This means detached homes are barely above the most common measure of inflation, and below in the City of Toronto. Long-term buyers would average this out with gains they’ve made, short-term flippers are screwed.
Average Sale Price Is Still Negative, But Less Negative…
The average sale price of detached homes fell across the board. TREB reported an average sale price of $989,870 across Toronto, a 2.5% decline compared to the same month last year. Breaking that down, the City of Toronto proper had an average sale price of $1,250,235, a 2.8% decline compared to last year. In the city’s suburbs, the average sale price reached $989,870, a 2.5% decline compared to last year. The average sale price is falling slightly faster in the city, than the burbs.
That sounds negative, but the decline in average sale price is softening compared to the month before. December’s monthly decline of -2.5%, is less than November’s 5.8% decline. They’re both nothing like last December’s 23.1% increase, but they’re not all that bad.
Detached Sales Decline Over 13%
Sales of detached homes fell across Greater Toronto. TREB reported 1,938 sales, a 13.6% decline compared to last year. The City of Toronto saw 454 of those detached sales, a 13.4% decline. The Greater Toronto suburbs saw the other 1,484 sales, a 13.7% decline. So that means prices down, and sales down.
One interesting thing to note is the price distribution of these sales. They fell in almost every category, but above a million seems to be where the biggest decline was located. The only segment that saw growth, were homes in the $700,000 to $799,000 range. If that’s your price point, it’ll probably be a little more difficult to get in.
Complicating the decline of sales is an increase in inventory. TREB reported 3,046 new detached listings in December, a 75% increase compared to last year. The City of Toronto did slightly better, with 670 new detached listings, a 61% increase. The substantial rise in detached listings, pushed total inventory higher.
Active listings, a.k.a. listings still available at month end, rose closer to historic levels. TREB reported 7,508 active detached listings, a 237% increase from last year. The City of Toronto had 1,467 of those detached listings, a 200% increase compared to last year. If you wanted to use Realtor terms, this would technically be a “buyers market.”
Although you should exercise caution on a market when prices are falling.
Lower sales and higher inventory, sent prices lower for another month, as sellers faced increased competition. One interesting point to consider is Toronto agents claimed that a rush buy before mortgage rules changed this year, increased sales. Even with the additional pressure to close, sales were significantly lower and there was little to no pricing pressure. Now that the mortgage rules have changed, we’ll likely see even less sales pressure.
Canadian real estate buyers are going to see a massive reduction in buying power, on top of stress tests. The Office of the Superintendent of Financial Institutions (OSFI) stress test came at a very peculiar time. Canadians are hearing the economy is booming, but are also being subjected to a stress test. The test prevents buyers from any potential interest rate shock, but this is an odd decision.
Rising interest rates have built-in protection. They already lower the amount households can borrow as the economy improves. To illustrate how the stress test complicates the housing market, we prepared some projection. If you thought the stress test was bad news for real estate, prepare for an even worse environment with rising interest rates.
Projecting Mortgage Rates Based On Bond Yields, About the Numbers
The Parliamentary Budget Officer (PBO) does a great job projecting interest rates, so today’s model is built on top of their numbers. Coincidentally, when I spoke with Luan Ngo, senior economist from the Financial Accountability Office of Ontario (FAO), he also had similar projections. Both of their projections err on the conservative side of positive. That is, they’re both optimistic on the economy, but they’ve been off by 3 to 6 months. That’s remarkably accurate, considering the number of moving parts in an economy. So today’s mortgage prime projections are based on these numbers.
There’s also a few other terms you’ll need to know if mortgage talk don’t typically get your motor running. For the mortgages, we’re going to be using 5 year fixed rates, with a 30 year amortization. This means two things, the rate the buyer enters with will be the same for 5 years. This is the most common term according to securitization pool analysis. A 30 year amortization means these borrowers will pay their mortgage off over 30 years. That’s longer than a typical conventional mortgage. The amount these households can borrow will be higher than real world conditions. We’re also going to assume great credit, because who doesn’t have that in Canada?
Bullish on the Economy, Means You’re Bearish on Housing
That said, if you’re bullish on the Canadian economy, you’re bearish on mortgage credit growth. As the economy strengthens, or is perceived to strengthen, interest rates climb as do mortgage lending rates. Currently the 5 year fixed rate, the most popular mortgage type, is at 4.99%. This number is projected to rise to 6.6% by the end of 2021. That seems like a small climb if you don’t deal with rates, but the 32.26% increase will have a huge impact on borrowing power.
The increase by itself reduces that amount that households can borrow. For example, a household making $100,000 at the end of 2017 could have borrowed a $534,000 with decent credit. By 2021, a household earning the same amount would see that number drop down to $448,000. The 16% reduction is based solely on the improvement of the economy, translating to higher interest rates. Then there’s the stress test that goes live this year.
Throwing a stress test on that reduces buying power significantly, on top of the rate climb. As of 2018, conventional mortgages are now stress tested 200 bps higher than the Bank of Canada’s 5 year fixed. Today’s qualifying rate of 6.99% would see that household’s $534,000 maximum mortgage drop to $431,299 – a 20% reduction. If the stress test is maintained through 2021, that $100,000 household can only borrow $369,395. The compounding of rising rates and the stress test would see a ~30% decrease in borrowing power. This makes it a lot harder to buy a home.
Incomes Rise, Median Household Still Loses Over 25% of Credit
Most households would ideally see their incomes rise, to mitigate some of this pressure. To demonstrate a more real world example, we can use median household income projections. At the end of 2017, it’s estimated that the median household across Canada could have borrowed $442,168. As their income rises, as well as interest rates, we project the median family would be able to borrow ~$399,627 by 2021. That’s “only” a reduction of ~9.62%, so the rise of income does help mitigate some of the lost borrowing power.
However, that was without a stress test, which it’s unclear if this is a temporary or permanent measure. If you add a stress test on top of that same household, that 2021 mortgage is now only ~$328,893. That’s ~25.61% lower than today’s borrowing room, after adjusting for incomes climbing. It would be a little surprising to see a stress test continue to this point, but it’s not great for prices if they do.
There’s limited use to applying projections to the median household across Canada. The only thing this really tells us is there will be a significantly smaller national buying pool. That’s on top of the reduction we’re already going to see from stress testing, without an increase to rates.
Talk about high-rise returns.
Despite what has been a truly tumultuous year for real estate in the Greater Toronto Area, condos have officially had a moment. As market sales and prices plunged, following the implementation of the Ontario Fair Housing Plan in April, high-rise owners were sitting pretty. In fact, they benefitted from the strongest price growth of all home types.
Condos drove the 2017 housing market
According to year-end numbers from the Toronto Real Estate Board, over the calendar year, condo prices in the GTA rose a robust 23 per cent to an average price of $512,478 — nearly double that of detached homes, which increased 12.8 per cent to $1,098,951.
Therein lies the issue: With the average house price still topping $1 million, home buyers are increasingly seeking cheaper options. Prices for middle-market home types, such as Toronto townhouses and semi-detached homes, rose 16.5 and 16.2 per cent to $643,330 and $782,756, respectively.
“It is interesting to note that home price growth in the second half of 2017 differed substantially, depending on market segment,” says Jason Mercer, TREB’s director of market analysis.
“The detached market segment — the most expensive on average — experienced the slowest pace of growth, as many buyers looked to less expensive options. Conversely, the condominium apartment segment experienced double-digit growth, as condos accounted for a growing share of transactions.”
While the entirety of the market slowed overall in the last three quarters of the year, condos were least impacted, with sales softening 9.6 per cent. Detached home activity suffered from a decrease of 23 per cent, semi-detached 20.5 per cent, and townhomes slowed six per cent.
What’s more, the new mortgage stress-test rules will reduce home buying budgets by as much as 20 per cent. So, the flock to the most affordable housing won’t end anytime soon.
Which Toronto condos saw the greatest price growth?
But not all condo inventory is created — or coveted — equally. So, which Toronto-area unit owners saw the greatest returns? According to a past sales analysis, condos south of Queen Street West enjoyed the greatest bang for their buck: nine out of 10 of those buildings, saw price-per-square-foot values surge more than 30 per cent.
Translation: If you purchased one of those units in 2016 for $400,000, you’re about $120,000 richer in equity today.
Check out the infographic below to see which Toronto condos increased most in value in 2017.
When Canadians make small talk, there are often two topics du jour: the weather and the real estate market. Impending blizzards aside, there’s nothing more Canuck than hashing out home prices. And there was plenty of fat to chew in 2017 …
What’s really driving the market? Will mortgage rates rise? Have new policies taken things too far?
As the saying goes, time will tell, as many of changes made last year will play out through 2018. Here are four trends buyers and sellers should keep in mind this year.
1. It’ll be tougher to be a borrower
This year won’t be an easy one for mortgage borrowers. A new crop of restrictions anticipated to slash affordability by 20 per cent, took effect on January 1. And it’s widely expected the Bank of Canada will hike mortgage rates over the course of the year.
Faced with steeper mortgage qualification and overall pricier debt, experts say home buyers who would have once turned to the “A” lending market, may seek mortgages elsewhere.
“Those currently within a mortgage term and coming up to a refinance or renewal will now have to tolerate a rate that’s two per cent higher,” says Mike Bricknell, a mortgage broker at CanWise Financial. “If those borrowers have made a down payment on the smaller side — as in, they’re very close to their 80-per-cent equity threshold — they may not be able to bear such a substantial rate hike,” he says. “This would also be problematic for young couples seeking their first homes, who traditionally make smaller down payments when breaking into the market.”
The latest changes target buyers with minimum 20-per-cent down payments, so the pain will be felt among move-up purchasers and first-time buyers, as all new mortgage applicants must undergo a stress-test to qualify.
The new rules also ban “co-lending” arrangements, which combine multiple loans to help a borrower get past qualification requirements. Bricknell says the applicants who rely on these loans are often among the most vulnerable, and they’ll be left with few reputable avenues.
“For those who don’t fit within the ‘big bank’ criteria, it can be very difficult to obtain this kind of financing,” explains Bricknell. “Restricting this type of loan will reduce these borrowers’ options, sending them instead to the dark, ‘private’ loan market, where super-high rates and fees are the norm. In these situations, repayments tend to be interest-only, and can make it even more difficult for those in challenging financial situations to dig themselves back out.”
Economists also heavily expect upward movement from the Bank of Canada, which reversed its low-rate trend this year, with hikes in July and September. Stronger economic fundamentals are paving the way for this tighter take on monetary policy, which the Bank heavily alluded to in its December-rate announcement.
“While higher interest rates will likely be required over time, Governing Council will continue to be cautious, guided by incoming data in assessing the economy’s sensitivity to interest rates, the evolution of economic capacity and the dynamics of both wage growth and inflation,” the Bank stated.
2. Condos will fuel the market
It has been a roller coaster for home sale trends in Canada’s largest urban centres. But one housing type was consistently in demand throughout the year – condos. Multi-family housing has been on a tear, outpacing all other segments, in terms of price growth in both the Toronto and Vancouver markets.
Why are buyers increasingly choosing condo living, rather than buying detached? Affordability is the main reason, as traditional houses simply remain too expensive for the average buyer.
So first-time buyers and baby boomers alike have piled into the high-rise market, leading to steady price growth, while the detached segment stagnated. In Toronto, November saw the cost of the average condo soar 17 per cent, compared to a 5.1-per-cent drop in house values.
However, the price gap between the housing types remains too wide for houses to become a bargain anytime soon. According to TREB’s November numbers, the average detached home price stood at $1,276,184, compared to $555,396 for the average condo – a difference of $720,788.
(The difference is even more astronomical in Vancouver, where detached homes cost $1,608,000 and condos $648,200 – a difference of nearly a million dollars.)
This casts more urgency on the need for “missing middle” housing – such as low-rise walk-ups and townhomes in urban markets. While Vancouver and Toronto townhouses both experience steady price appreciation, sales remain low due to lack of supply.
3. Developers will take a family focus
It’s for this reason that families — especially those who wish to live in downtown cores — are increasingly taking to high-rise living, a shift that has not gone unnoticed by developers. In a reversal from the “micro-condo” trend popular with single professionals and investors, more developers are creating larger units with the end-user in mind. This results in the creation of more units with three or more bedrooms.
In addition to the typical adults-only party rooms and hot tubs, kid-friendly amenities, such as youth fitness, playroom, and daycare spaces are also becoming the norm in new developments.
In Toronto, new guidelines were unveiled this year as part of the city’s study, Growing Up: Planning for Children in Vertical Communities — which calls for family-oriented features such as lobby stroller space, on-site playgrounds, and even extra-wide hallways.
4. The focus will shift from foreigners to flippers
The mysterious out-of-country buyer has long been reviled as the catalyst behind rising home prices. These buyers are accused of parking their cash in the Canadian real estate market to appreciate tax-free, while leaving homes standing empty. This effectively prices locals out of their own neighbourhoods.
The perception that foreign buyer activity was heating prices in the Vancouver and Toronto real estate markets prompted the respective provincial governments to take action. To that end, a 15-per-cent foreign buyer tax was introduced in Metro Vancouver in August 2016, while Ontario rolled out a Greater Golden Horseshoe version, as part of the April Fair Housing Plan.
But there are problems: there was no hard data to back these measures and they don’t appear to have worked.
While both markets took a tumble in the months following, they’ve since rebounded. Recovery has been especially voracious in Vancouver, with sales soaring 26 per cent in November and the average price spiking to $1,046,900 — a new high. While Ontario activity has been more tepid, a warmer-than-usual autumn market prompted the Toronto Real Estate Board to say the “psychological impact” of the tax was starting to “unwind.”
To cap it off, the first official numbers compiled by Statistics Canada and the Canada Mortgage and Housing Corporation reveal foreign buyer levels are relatively low. They account for just 4.9 per cent of activity in Toronto and 4.8 per cent in Vancouver.
So if foreign buyers aren’t the impetus behind price growth, who is? Recent reports reveal the culprit is likely much closer to home. It appears domestic investors and “paper flippers” snap up new inventory and sell them anew — sometimes multiple times — before the first sale closes, for a higher price. It’s a practice that Ontario Finance Minister Charles Sousa has derided as “property scalping.”
Because flipping occurs before the initial sale closes, there is no data on its prevalence. However, the Canada Revenue Agency aims to find out. Since foreign buyer and capital gains taxes apply only when a real estate title is registered, the CRA is cracking down on any potential tax evasion. The Agency is demanding the sales records from 2,800 Toronto-based developers, with plans to do so in Vancouver as well.
More new mortgage rules come into effect January 1, which will make it trickier to negotiate a mortgage for many Canadians. But with a little expert advice, I can help ensure you have a happy new year that keeps you on the path to prosperity for the coming year and beyond.
- That “best” 5-year rate? It probably isn’t. Fact is, a “best rate quote” is now meaningless, because mortgage pricing is now based on multiple factors. Everything depends on your personal situation. That’s why I start with an in-depth assessment, and then review a broad range of lenders and products for the best fit for you.
- Going variable and long may pay off. If you have over 20% equity, you may want to consider a 30-year amortization mortgage. Benefits can be significant and outweigh any rate premium – more purchasing power, easier mortgage qualifying, and lower payments to boost cash flow or to allow you to divert cash to build a savings buffer or use for investing. Taking a variable-rate mortgage could also improve your mortgage qualifying, then you can lock in later. Let’s discuss if these strategies might work for you.
- The devil is in the details. You can save thousands by making sure you get a mortgage that has a fair prepayment penalty and will also treat you fairly at renewal. Don’t end up paying exorbitant fees or be forced to take a high rate at renewal. Look deeper than rate.
- High-ratio insurance costs more, except when it doesn’t. While counter intuitive, lenders offer the best rates to borrowers who need mortgage insurance because they have less than 20% down. So even if you have more than 20% down and don’t need mortgage insurance, it may actually be worth purchasing. You’ll get a lower rate and better options at renewal. I can run the numbers and see if it makes sense for you.
- At renewal, insured mortgages are gold. Lenders love insured mortgages. If you have one, be sure to check out the competitive landscape at renewal. If you aren’t sure if your mortgage is insured or not, I can find out.
- No company paycheque? Start building your case. If you are self-employed, get in touch now for advice on mortgage planning for the future. I will advise you on what documentation and information you’ll need so that I can build a strong case on your behalf for lenders.
- Does a collateral mortgage make sense? A bank collateral mortgage is registered for more than the value of the home at closing. It can be difficult to transfer and you may find yourself locked in with that bank. Always get a second opinion!
- Let renters help pay your mortgage. A home with a rental suite could help you become a homeowner in that neighbourhood you love, or help you offset mortgage payments in the house you’re in.
- Keep good credit habits. The best rates go to borrowers with the best credit scores. Keep up good credit habits: pay your bills on time, never let your debt exceed more than 30% of your limit, and don’t be tempted to apply for store cards “to save on your purchase today”.
- Let’s keep a dialogue going. Wherever you are in your homeownership journey, a great conversation at any time can identify all the ways you can save thousands of dollars in interest and fees during your mortgage years.