Monthly Archives: August 2015

Housing Affordability in Toronto

Housing Affordability in Toronto

Demand for homes in Toronto continues to consistently increase, despite escalating prices. The question being raised by many analysts and observers is whether or not the real estate market in the city is reaching “risky” levels. What are the risks that they speak of? And what are the possible consequences of the current trajectory of home sales in the nation’s hottest market?

As Realty Today  reports, the Toronto real estate market has “exuded a low interest count over this second quarter,” in comparison to other major Canadian markets like Vancouver. The article also anticipates that the price of detached homes will undoubtedly rise, considering the supply for such a home dwindles every month.

According to CBC, it is housing affordability in Toronto that is becoming too risky. Realty Today believes this has everything to do with the declining price of the Canadian dollar, which is luring foreign investors into the city, making it much harder for locals to purchase homes.

“With a strong labor market, a stagnant inflow of migrants and low interest rates affordable to home buyers in the region, it might not take too long before the affordability of the Toronto real estate overturn and affect the steadiness of the market because the prices are 35% overvalued.”

Amy Grief of BlogTO, talks about a housing affordability report recently published by RBC, which illustrates quarterly housing trends. To RBC, affordability is measured by the amount of median pre-tax household income needed to cover mortgage payments, properties taxes and utilities at current market prices. To give an example, in order to afford a detached bungalow in Toronto, approximately 60% of a person’s income is required to be able to afford paying for the home. For a two-storey detached house, this number is closer to 67.5%, with condos being, understandably, the most affordable housing option at around 30% (condo supply is very healthy is Toronto, as many know). Here’s a quote from the report:

“In fact, affordability in Toronto is moving ever closer to the historically poor levels that prevailed in 1990, which may signal that risks are mounting because those were associated with a housing bubble at the time.”

Toronto’s condo boom, at one point earlier this year, was deemed to be a detriment to the housing market. But condo sales have been relatively steady this year, creating what some analysts, particularly from BMO, are calling an equilibrium, where the additional units are needed to compensate for the lack of single-detached homes. As Susan Pigg of The Toronto Star explains, evidence of this equilibrium is evidenced by the fact that, despite the moderate rise in condo prices, sales of resale condos hit a new record in the second quarter of this year. According to BMO’s senior economist Sal Guatieri, the biggest risk to the housing market is not affordability, but a “sharp increase in unemployment or interest rates that erodes demand.”

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The Ontario Real Estate Market Can Sometimes be the Wild West

It was back in early July when we first wrote about the problem of “phantom bidding,” an issue that Garry Marr of The Financial Post, described as a scam involving sales agents hinting to prospective buyers there are other bids, as a way to coax them to bid higher. Starting on July 1, the Real Estate Council of Ontario stated that they will be enforcing new rules in order to address the problem. The new rules will make it so that brokerages keep an offer, or an equivalent summary, on record for one year. A brokerage cannot suggest or imply that the home sellers have an offer unless it can be shown in writing.

As it turns out, phantom bidding is not the only suspicious activity currently being investigated in the Ontario real estate market. Jamie Sturgeon, Consumer Affairs Reporter at Global News, sheds light on an issue involving mortgage brokers and the issuing of fraudulent home loans. Gerald Soloway, chief executive of Home Capital (the largest non-bank mortgage lender in the country), said on a conference call Thursday, that after an internal review showed that several dozen independent brokers it did business with lied about customers’ income levels to get home loans approved, that they immediately alerted authorities. The brokers in question originated roughly $1 billion in home loans primarily in Ontario before being cut off by the lender between September and March of this year.

Most recently, the provincial government has been considering revising the laws that govern condominium living in Ontario. The province has over 1.3 million residents living in condos, and it wants to try and balance the scales so that condo owners have more rights to battle condominium boards and property management. According to Tamsin McMahon of The Globe and Mail, the plan is to compel condo boards to be more transparent about their finances to owners and prospective buyers, require mandatory education for condo directors and create two new condo authorities, one that will license and regulate the province’s 2,500 property managers, along with a tribunal that will resolve disputes between condo boards and owners.

And finally, CBC News recently reported a cautionary tale, involving Tom Mason from Orangeville, Ontario. Having very little luck, even in the rental market, Mason decided to post an ad on Kijiji, to which he received a quick reply from a rental property owner named Richard.  Richard’s offer was for $1,000 a month to rent a home that he had initially listed for sale after relocating to Iowa. He now wanted to rent it because, he said, the home had failed to attract a buyer after several months on the market. Mason admitted later that he thought the offer was too good to be true, and suspicion arose when Richard asked for a wire money transfer soon after, which raised red flags. Mason contacted the real estate agent who had the listing, only to discover that Richard was not the true owner. Shawn McIntyre, a community relations manager at Kijiji, stated that this is an example of how buyers should meet with a seller in person before making a deal.

Toronto Skyline

Toronto On Pace For Record Setting Year in Home Sales

The Toronto Real Estate Board is predicting, based on the record number of house and condo sales made in July, that the GTA might be on pace for a record-setting 2015. Sales of homes and condos in the City of Toronto and 905 regions have not been this high since 2007, forcing an ever growing number of critics to concede to the idea that Torontonians are in for a major housing price correction. The proverbial bubble might just be ready to burst.

CBC News, discloses what the TREB market analysis for July revealed:

  • 9,900 homes were sold in the GTA, up 8% from the same time last year.
  • Condo sales increased even more so, up 14.4% year-over-year, with 2,429 condo suites sold in July
  • The average selling price for houses in the GTA was $609,236 in July — up 10.6% year-over-year. The MLS Home Price Index for the Toronto area rose 9.4%.
  • Average condo prices in the GTA rose by 4.1% to $394,504. Prices in the 905 region went up 5%, to $317,564.
  • In the city of Toronto, the average selling price of a detached home slipped below $1 million for the first time since February, to $996,770, representing a 7.1% increase from the average a year ago. This is in spite of the fact that sales of detached homes decreased by 0.7% in the City of Toronto.
  • The average selling price of detached homes went up 13.3% in the City of Toronto, to an average of $996,770 and up 14.2% in the 905 regions and an average sale price in July of $729,261.
  • Semi-detached sales were up 6% across the GTA, with the average sale price of a semi in the 416 region being $716,160 (up 12.7%), and $499,821 in 905 regions (up 10.4%).
  • Townhouse sales were up 3.4 per cent across the GTA. The average sale price in the City of Toronto was $536,212, up 8.3% year over year, compared to $448,785 in the 905 regions, up 11.5%.

As mentioned earlier, the previous sales record (for the entire year of sales in the GTA) was set back in 2007, when 93,193 homes changed hands. However, the average selling price back then was only $376,236. A far cry from where it currently sits.

Susan Pigg of The Toronto Star, suggests that the increase in condo sales came at the expense of low-rise homes, particularly detached homes, the price of which has “skyrocketed.” In addition, Pigg argues that a “balanced market” (one where buyers and sellers have “equal footing”), must have six months worth of housing inventory available for purchase, which Toronto hasn’t seen for years as demand consistently outweighs supply.

Jason Mercer, the Toronto Real Estate Board’s director of market analysis, had this to say in a statement:

“With the level of inventory in the GTA trending below two months, many listings continued to generate a lot of interest from buyers. Not surprisingly, this supported further price increases well above the rate of inflation.”

Mark McLean, president of the board, also made a statement:

“As we move towards a new record for home sales this year, it is important to point out that home ownership demand has been driven not only by low borrowing costs, but also by the fact that the greater Toronto area economy has been performing quite well, with the unemployment rate lower compared to last year.”

Toronto Real Estate Market Update – New Record For July Home Sales

The month of July brought a reported 9,880 homes sold in the Greater Toronto Area representing an eight per cent increase from July 2014 – a record for home sales in the month of July announced by Toronto Real Estate Board President Mark McLean.  All major home types were up in number of transactions, including a double-digit year-over-year increase in condominium apartment sales.
“As we move towards a new record for home sales this year, it is important to point out that home ownership demand has been driven not only by low borrowing costs, but also by the fact that the GTA economy has been performing quite well, with the unemployment rate lower compared to last year. Home buyers remain confident in the long-term benefits of owning a home,” said Mr. McLean.
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Detached homes continued to lead the way in terms of price increases, with annual growth in the average selling price outstripping growth in the MLS® House Price Index detached benchmark. This suggests that there continued to be a greater share of high-end homes sold this year compared to last.
“With the level of inventory in the GTA trending below two months, many listings continued to generate a lot of interest from buyers. Not surprisingly, this supported further price increases well-above the rate of inflation. Assuming similar interest rate and economic environments over the next five months, strong price growth will remain the norm for the rest of 2015,” said Jason Mercer, TREB’s Director of Market Analysis.