Welcome to 2018!
The only safe prediction for the real estate market for this year is that it will be unpredictable.
by Gale Beeby
As we head into the Year of the Dog, the only thing I can predict with absolute certainty is that are as many diverse opinions about the state of the real market in the GTA as there are breeds listed by the Canadian Kennel Club.
According to the Chinese zodiac, the dog — full of energy, faithful and intelligent — has a long-held position as the protector of the home and as man’s best friend. So, regardless of what the economists say will happen, perhaps it is an auspicious year for the homebuyers.
MY TOP FIVE PREDICTIONS
Rough Time For First-Time Buyers
This is the sector of the market that is being hit hardest by new government policies, especially the new mortgage qualification stress test imposed by the Office of the Superintendent of Financial Institutions (OFSI). The rule requires anybody buying a property with less than a 20 per cent down payment of their own money (not mom and dad’s) be qualified for their mortgage at either the Bank of Canada’s rate of 4.99 per cent or with an extra 2 per cent added to their approved mortgage rate. Experts think this might eliminate about 10 per cent of buyers out of the market. Many will put off buying a new home until they can save enough money for a down payment under the new rules.
Interest Rates Will Rise
I know, we’ve been hearing that interest rates will increase the last few years, but the Bank of Canada raised the rate in July and September to its current rate of 1 per cent, up from a record low of 0.5 per cent. Experts differ on when — and how much — the Bank of Canada will raise rates, but they do all agree that rates are going up. I’m betting they are and I’m locking in my mortgage in the first quarter of 2018.
Condos Will Be The New Norm in Family Housing
As prices of ground-related housing (detached, semi-detached and townhomes) has escalated to point where most buyers can no longer consider anything but a condo unit in a midrise or highrise building, buyers are looking at multi-residential buildings, not just as an entry into the market, but also as their permanent home.
According to Altus Group, the average price of a condo apartment in the GTA in November was $702,992, while new single-family homes grew to $1,223,610. Builders are responding by designing larger condo units suitable for family living and Toronto is responding by building more schools and community centres around areas of intensification. Growing up in condo will become the new normal for many families in the GTA.
Detached Home Prices Will Continue to Escalate
Supply cannot match demand resulting in a squeeze for anybody with the dream of a owning a detached home anywhere in the GTA. In November, the average price of a new single-detached home was over $1.2 million, 25.1 per cent above November 2016’s benchmark of $977,890, according to Altus Group, adding that single-family home sales represented only 17.3 per cent of the new homes sold in the GTA in November 2017.
But the lower sales do not represent a decline in interest, warns the Building Industry and Land Development Association (BILD). “Single-family housing is still the first choice for many people, especially for those with families,” said BILD CEO and president Bryan Tuckey.
The reasons for the lack of land supply is complicated — Places to Grown policy, Greenbelt restrictions, lack of serviceable land to name a few — but the fact is there are fewer detached homes being built.
Buyers will be moving out of the GTA in order to afford a new house. Hotspots will include the Kitchener-Waterloo area, Burlington, Hamilton, the Niagara Region and Bowmanville.
New Appeals Process Will Continue to Slow Development
In December, the province passed legislation to eliminate the Ontario Municipal Board (OMB) and replace it with the Local Planning Appeal Tribunal (LPAT). Over the years, the OMB suffered from a reputation that was less than stellar, with many believing that the board sided with the developers in most appeals, which is, in fact, not the case. And, of course, an OMB appeal caused a lengthy delay, costing the builder/developer money, which is passed on to the homebuyer.
The government says that LPATs, on the other hand, will be an independent tribunal with the hopes of making the land-use planning appeal process faster, fairer and more affordable, and allowing community members have a say in how their neighbours are shaped. That’s a good thing, really, as community involvement should always be welcomed by developers.
However, I don’t believe that the LPATs will take any less time to resolve an appeal than the OMB. These things take time, and with more people involved, and more depositions to hear, LPATs could actually take longer. And when the tribunal is no longer made up of independent members who decide on a development using fact-based planning principles, then decisions are bound to be based on the dreaded NIMBY code rather than on whether the proposal has merit in and of itself.
Just remember, the Distillery District would not have come into existence if it were up to the City of Toronto — the OMB gave it the green light. And that’s just one example of a good planning decision made by the OMB.
WHAT THE EXPERTS SAY
The Conference Board of Canada expects an overall modest increase for single-family homes in 2018 and predicts the economy to grow by only 2 per cent in 2018, which will inhibit Canadians’ ability to buy new homes. The building industry has responded by making the shift toward multi-residential buildings, with two out of three new homes built today multi-family. However, Toronto’s real gross domestic product (GDP) is expected to grow 2.5 per cent in 2018, showing few signs of problems on the horizon for the region. The real estate sector will continue to benefit from this robust economic performance. People still crave the live-work-play lifestyle in the core and companies, eager to be close to talent, are moving into new office spaces nearby to fill the new tech and research jobs they’re creating. Urban intensification will continue, especially in Toronto, where the GTA will see significant densification efforts.
PWC reports that the condominium market will perform steadily in the near term, with demand steady in most markets. Downtown cores remain most attractive to young professionals, retiring boomers and young families. The size of condo units has been slowly increasing, the Building Industry and Land Development Association (BILD) reports, in answer to the demand of family-sized units.
According to research by the Bank of Canada and reported by the Canadian Real Estate Association, which oversees the resale housing market in Canada, tightened mortgage rules will reduce sales activity across Canada in the first half of 2018, particularly in and around Toronto and Vancouver. Some homebuyers will stay out of the market as they save for a larger down payment. Taking these factors into account has led CREA to revise its sales forecast for 2018. CREA also anticipates that tighter mortgage regulations will lead some buyers to opt for a smaller, lower priced home.
Re/Max predicts national home prices will increase by 2.5 per cent in 2018, with the GTA facing a flat year except in downtown Toronto and some suburban areas west of Toronto, including Oakville and Brampton.
Royal LePage predicts a 4.9 per cent price increase nationally and a price increase of 6.8 per cent in the GTA.