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Toronto housing affordability hits worst level ever measured in city, RBC report says

Posted on 06 October 2017 by admin

Across Canada, RBC’s housing affordability measure hit 46.7 per cent in the latest quarter, a level not seen since 1990.

Housing affordability in Canada hit the worst level in 27 years in the second quarter of this year, according to a Royal Bank of Canada report.

RBC Economics said in a report Friday that its housing affordability measure for Canada deteriorated for the eighth consecutive quarter. The Toronto area was the hardest hit, where RBC says affordability declined the most compared to the previous year and hit the worst level ever measured in the city.

The Ontario government’s actions in April to cool down the housing market, including a foreign buyer’s tax, did not have an immediate impact on provincial housing prices in the second quarter, RBC said.

 “Clearly, home ownership remains out of reach for many would-be buyers in the area,” RBC Economics said in the report.

 “The good news is that some relief is on the way. Recent downward pressure on prices is poised to lower ownership costs in the period ahead. The bad news, unfortunately, is that rising interest rates will take some of that relief away.”

Still, the least-affordable place to purchase a home remains the Vancouver area, where affordability worsened after two consecutive quarters of improvement but remains better than a year ago. Outside of British Columbia and Ontario, affordability remains mostly stable, RBC said.

RBC’s housing affordability measure shows the proportion of median pre-tax household income required to service the costs of owning the average home — factoring in both condos and single-family detached homes — including mortgage payments, property taxes and utilities.

The Vancouver area was the least affordable in the latest quarter ended June 30, 2017 at 80.7 per cent, down 2.4 per cent year-on-year. The Toronto area was second-highest at 75.4 per cent, marking an increase of 12.7 per cent.

Victoria came in third at 58.6 per cent, with a year-on-year increase of 7.3 per cent. Across Canada, RBC’s housing affordability measure hit 46.7 per cent in the latest quarter, a level not seen since the end of 1990 and an increase of 3.7 per cent from a year earlier.

Many Prairie markets got some relief, with year-on-year decreases in Regina and Saskatoon to 28.7 per cent and 32.1 per cent, respectively, RBC said. Affordability deteriorated marginally in most of Quebec and the Atlantic region. In Quebec City, RBC’s metric improved slightly to 34 per cent. In the Montreal area, it worsened by 0.8 points to 41.5 per cent. In Saint John, N.B., and Halifax, RBC’s affordability measure worsened to 24.5 per cent and 32.1 per cent, respectively, while it improved slightly to 27.7 in St. John’s, N.L.

Affordability in Edmonton worsened slightly year-on-year to hit 30.3 per cent. In Calgary, however, affordability deteriorated by 1.5 per cent year-on-year to 39.2 per cent.

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‘Correction’ to soften Toronto home prices: Report

Posted on 22 July 2017 by admin

Royal LePage predicts a soft market for the balance of 2017 to balance the strong performance in the first half.

One of the country’s biggest real estate companies is predicting an 18.5 per cent year-end price increase in the Toronto housing market this year, compared to a 13.8 per cent national year-over-year rise.

Given the significant gains of the first half of 2017, the company expects a year-end home price average of $862,264, up from $837,232 at the end of the second quarter.

Wednesday’s quarter-point interest rate hike by the Bank of Canada doesn’t alter Royal LePage’s mid-year forecast.

Despite double-digit year-over-year increases in the second quarter, the company’s mid-year report notes that buyers have been standoffish since the province introduced its fair housing tax on April 20.

CEO Phil Soper said he expects home prices will be soft for the balance of 2017.

“We are experiencing a housing correction in the GTA, no doubt about it,” he said.

But that is different from the price correction that occurred in Vancouver when a similar tax was launched there last summer.

The 9 per cent of foreign buyer activity in Richmond Hill, compares to about 18 per cent in Richmond, B.C. The B.C. city is a smaller market and prices were about 50 per cent higher, he said.

“Almost half of the (Vancouver) market disappeared overnight,” said Soper. “I believe what we’ll see (in Toronto) is modest price increases but fewer homes being sold — not as a violent as the Vancouver correction where we saw 40 to 50 per cent of the transactions disappear.”

The Royal LePage forecast is slightly more optimistic than the Toronto Real Estate Board’s (TREB) revised expectation of a year-end 13- to 18-per-cent increase.

The report predicts that consumers, who have been waiting to see if sellers drop their prices substantially, will re-enter the market once they recognize that isn’t going to happen.

Second quarter home prices rose 22.8 per cent year-over-year in the city of Toronto with Scarborough showing a 21.1 per cent increase as millennials moved east in search of affordability.

For that reason, that part of the city is not expected to slow as much as other areas in the coming months, said Royal Lepage.

Vaughan saw the highest price gains in Canada during the quarter with a 27.5 per cent year-over-year increase and an average $1.1 million home price.

Richmond Hill, which also grew by 26.6 per cent year-over-year to an average $1.34 million has been hard hit by the foreign buyers tax, notes the report.

Given that Toronto and Vancouver are both growing with strong economies, it’s not clear how long the foreign buyers tax and other measures will quell demand for housing, said Soper.

“Like public transit, housing policy is something which needs a persistent, long-term focus,” he said.

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More first-time home buyers putting purchases on hold after Ontario introduces new measures

Posted on 29 June 2017 by admin

 

Ipsos research for the Toronto Real Estate Board showed that in May, first time purchasers comprised only 40 per cent of those who plan to buy a home this year. That is down from 53 per cent in a November survey.

First-time home buyers appear to be delaying their purchases in the wake of the province’s new policies intended to cool the housing market.

At the same time, consumers buying new construction homes are overwhelmingly opting for lower-priced condo apartments and stacked townhouses.

Two reports released separately Friday by the Toronto Real Estate Board (TREB) and the Building and Land Development Association (BILD) suggest that first-time buyers are sitting back and waiting to see what happens in the cooling re-sale housing market.

But among those purchasing new construction, condos are the starter homes of choice.

High-rise and mid-rise apartments and stacked townhouses represented 86 per cent of new-construction home sales in the region in May, as the cost of a new townhouse crossed the $1 million mark for the first time, according to BILD.

Condos comprised 75 per cent of new-construction home sales this year to date.

Unlike the re-sale market, which has seen an influx of listings over the last two months, the supply of newly built homes remains constricted, especially in the single-family home category, said BILD CEO Bryan Tuckey in a press release.

“The price acceleration in the condo portion of the market is especially worrisome since it not only represents the lion’s share of new housing in the GTA, it’s also making it difficult for condos to remain the affordable option,” he said.

The average price of a new single-family home rose about $10,000 to $1.2 million in May from April — a 40 per cent gain over last year. Condos averaged $604,683 last month, a $30,000 increase over April and a 33 per cent rise compared to the same period last year.

Ipsos research for TREB, conducted in May, showed that first-time buyers comprised only 40 per cent of those who plan to buy a home this year — down from 53 per cent in a November survey.

The findings come as TREB prepares to update its 2017 market forecast on July 6.

TREB had been predicting that this year, a seller’s market would continue in the re-sale home sector, with prices rising between 10 and 16 per cent over last year.

But double-digit price growth in the first four months of the year — March prices rose 33 per cent year over year — has been cooling since just before the government’s Fair Housing Policy announcement on April 20.

With a 15 per cent foreign buyers’ tax as its centre, the policy was aimed at non-resident speculators.

While it’s unclear whether those buyers have been discouraged, TREB says the new policy had contributed to the decision of 10 per cent of buyers who say they won’t purchase this year.

“It makes sense that some first-time buyers have decided to at least temporarily put their decision to purchase on hold. First-time buyers are more flexible, and can take a wait-and-see approach. They could also re-enter the market quickly once they make the decision to purchase,” said TREB director of market analysis Jason Mercer in a press release.

Home prices were still about 6 per cent higher in the first half of June over the same period last year, according to TREB’s mid-month sales update. But realtors expect that the board’s official month-end report will show a second consecutive month-to-month price drop.

TREB’s newest consumer survey on May 23 to 29 showed 30 per cent of Toronto-area households are at least somewhat likely to list their house in the next year.

Fifteen per cent cited the Fair Housing plan as the primary reason they would put their home on the market.

Of those who said they would be selling, 80 per cent expected to buy another home.

“That means that these households are not exiting the home ownership market, but instead, changing the type or location of the home they will own,” said Mercer.

The 35 per cent of households that indicated they were likely or very likely to buy a home in the coming year was similar to the fall survey findings, said TREB.

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Housing prices dip slightly but tight supply keeps costs up

Posted on 08 June 2017 by admin

The average home price last month was $863,910 — $111,810 more than last May when houses and condos averaged $752,100 — according to month-end statistics from the Toronto Real Estate Board (TREB) being released Monday.

Toronto region home prices dipped slightly from April to May — down $55,604 on average — but were still 15 per cent higher than May 2016, as the supply of resale house and condo listings rose 43 per cent year over year.

The average home price last month was $863,910 — $111,810 more than last May when houses and condos averaged $752,100 — according to month-end statistics from the Toronto Real Estate Board (TREB) being released Monday.

That is a 29-per-cent gain on the board’s benchmark price index.

The benchmark figure takes into account homes of similar characteristics such as size, location and the age of the property. The real estate industry considers it a more accurate gauge because it isn’t skewed by a particular housing category or price range.

Consumers may feel spoiled for choice given the increase over the historic low number of listings lately, but prices remain strong because supply is still relatively tight, said real estate board president Larry Cerqua.

“Homebuyers definitely benefited from a better-supplied market in May, both in comparison to the same time last year and to the first four months of 2017,” he said.

“However, even with the robust increase in active listings, inventory levels remain low. At the end of May, we had less than two months of inventory. This is why we continued to see very strong annual rates of price growth, albeit lower than the peak growth rates earlier this year,” Cerqua said in a press release.

There were 18,477 listings in May compared with 12,931 in the comparable month last year. In Toronto alone, there were 1,611 more homes on the market than in April, although both months are typically considered among the busiest for listings.

It is the third consecutive month that listings have increased, although May saw a significantly higher number of homes hitting the market.

It’s not clear how much of the change is the result of the province’s housing policy announcement on April 20 designed to cool the Toronto area’s overactive home prices, TREB officials said.

“The actual or normalized effect of the Ontario Fair Housing Plan remains to be seen. In the past, some housing policy changes have initially led to an overreaction on the part of homeowners and buyers, which balanced out later,” said Jason Mercer, TREB’s director of market analysis.

In Vancouver, where market cooling measures were introduced last summer, housing sales returned to near-record levels in May after several chilly months. Home sales rose 22.8 per cent compared with the previous month and 23.7 per cent above the 10-year average for May. The benchmark price there was up nearly 9 per cent from May 2016.

Before the release of the TREB data, Royal LePage Signature Realty agent Tom Storey said he was expecting to see a drop in sales in the Toronto area in May, but the increase in inventory is exactly what realtors have been wishing for.

“We saw growth in the first four months (of 2017) that would typically take a full year,” he said.

Historically, sellers would look at spring as a great opportunity to sell and the province’s April announcement was well timed and probably goosed some sellers into listing, he said.

The province’s cooling plan, including a foreign buyer tax and expanded rent controls, started a discussion, Storey said.

“Whether or not something’s actually changing, you end up with people talking about it and things are going to change,” he said.

But Storey said he attended two pre-construction condo sales in recent weeks. That sector would, in theory, be most affected by the government announcement, he said, and both developments sold out in two or three hours.

He thinks buyers are recognizing that there are more homes on the market and they don’t have to make a decision to buy in a few minutes or submit unconditional bully offers.

TREB numbers showed the boost in home choices didn’t increase the number of transactions in the Toronto region in May. Sales of detached houses were down about 26 per cent in the city and across the region. Condo sales also dropped 6.4 per cent year over year in May.

With files from The Canadian Press

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Can Government Intervention Cool The Housing Market?

Posted on 29 June 2016 by admin

Ben Myers

Senior Vice President, Market Research and Analytics, Fortress Real Developments.

Housing markets in Toronto and Vancouver are extremely hot, and average prices are skyrocketing. Every new data release, real estate report, and housing related comment is scrutinized, debated and analyzed in painstaking detail. A red flag is raised, an alarm bell is sounded, a stern warning is issued or extreme caution is urged by both domestic and international housing analysts and economists almost daily.

According to the Teranet-National Bank House Price Index, Vancouver has seen resale prices increase by 21.7% year-over-year in May. In Greater Toronto (GTA), existing home prices were up 10.6% annually.

With rapidly increasing house prices, prospective homebuyers get priced out of the market or overextend themselves financially. Another major concern involves the arrival of short-term speculative buyers looking to flip homes, many of which are highly leveraged. These two groups are the most vulnerable to losses when a housing market contracts.

With the recent collapse of the American housing market fresh in people’s minds, the Canadian government is watching and examining the national and metro level residential markets, contemplating steps to prevent a crash here. There are several theories as to why prices are rising so quickly in Toronto and Vancouver, two of the most common are: Canadians are taking on too much debt, and foreign buyers are driving up house prices.

A common suggestion is that homebuyers should be required to make a minimum 10% down payment to prevent them from over-leveraging themselves and taking on too much debt. In theory, the idea seems reasonable, but in practice it would have devastating and unintended consequences.

First time buyer affordability would worsen and more prospective purchasers would be priced out of the market. In my opinion, it’s not the young couple putting $15,000 down on a $300,000 condominium that is driving up the market, it’s the house-poor young family set on buying a single-detached home in their desired neighbourhood and putting $150,000 down on a $950,000 home. It’s the more established family putting $400,000 down on a $1.5 million dollar property that are skewing prices.

In the GTA, there was a 30% decline in resale transactions annually for homes priced between $300,000 and $600,000, while the number homes sold above $1.5 million increased by 83% (May 2016 versus May 2015 per TREB).

Higher down payment requirements would result in less housing demand, and that has economic ramifications. With every resale transaction that doesn’t happen, someone is missing out on earning an income: one less marketing flyer, no commissions are paid to mortgage brokers and realtors, the moving company misses out on a job, the home inspector has less work, as does a lawyer, a banker and a locksmith.

The decrease in new housing demand also impacts architects, urban planners, city employees, asphalt pavers, electricians, framers, hardwood manufacturers, landscapers, local furniture store owners, and even the mail man. This list is just the tip of the ice berg, thousands of other people would also be affected.

The second concern is that foreign buyers are purchasing units, and this extra demand is resulting in higher home prices. There have been complex tax plans proposed to add fees on foreign buyers, the problem being many are not price sensitive, and would keep buying despite a tax.

If the tax becomes too large, foreigners would resort to purchasing under the guise of a Canadian owned corporation or a current local resident; an outright ban on non-domestic purchasers would likely see a similar result. Foreign capital, not foreign buyers is the issue; home purchases by locals are being funded by affluent relatives living in other countries.

The Canadian government is in the difficult situation of trying to find a solution that will bring annual house price increases down, while preventing a drop in house transactions. They need to ensure both home ownership and rental housing is affordable, but they can’t erode the housing equity created in existing homes that could result in underwater mortgages.

A major recession or a rapid rise in interest rates could cool the market, but until that happens I’m not sure what preventative action the government could take that wouldn’t have negative consequences for consumers. At the end of the day, the government may be not be able to prevent a housing market slump despite a well-planned intervention.

So what do you think: Should we let the market decide who wins and losses, or should the government act knowing they might make the situation worse?

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