MARKET UPDATE FOR THE WEEK ENDING SEPTEMBER 30th 2022

Developers are waiting longer for approvals and consumers are paying more.

Toronto area municipalities are taking 40 per cent longer on average to approve housing development applications than they did two years ago, and the cost of processing those permits has soared more than 30 per cent.

The fees and cost of delays are among the highest in the country and are being passed directly on to GTA homebuyers while extending the time it takes to bring new homes to market, says the latest benchmarking report released by the region’s homebuilders on Tuesday.

Two years ago, municipal fees, including development charges, parkland, planning and permitting costs, added about $90,000 or $40 per sq. ft. to the cost of a single-family home in the GTA. This year, those costs averaged $116,900 or $53 per sq. ft.

For high rise condos, those costs amounted to about $59,000 or $72 per sq. ft. This year, the study found they added up to $80,621 per unit or $99 per sq. ft.

In the City of Toronto, development charges added were $189,325 or $85 per sq. ft. per house and $99,894 or $125 per sq. ft. for condos. Every month of delay for a condo or apartment, adds about $2,600 to the cost.

Municipalities say limited staff and the turnaround time for applications to be resubmitted are among the reasons for the delays, according to the report. Despite years of talk about cutting red tape and
a growing consensus that a housing shortage is a leading cause of the region’s affordability crisis, the development process has become slower and more costly, said David Wilkes, CEO of the Building Industry and Land Development Association (BILD).

Among 16 Toronto region municipalities, approval times for most types of development applications
— including rezoning, site plans and plans of subdivision — averaged 20 to 24 months. But they ranged from 10 to 34 months depending on the municipality.

Milton had the fastest approvals averaging 10 months. Caledon had the slowest at 34 months. Toronto, which has some of the most complex planning applications, averaged about 32 months. Two years ago, Toronto had a 21-month average wait time.

The report acknowledges that some of the increase in wait times across the Toronto region could
be due to the two-to three-month period starting in March and April 2020 where municipal council meetings were postponed or cancelled. Municipal officials have also argued that time spent working with applications results in better development.

MARKET UPDATE FOR THE WEEK ENDING SEPTEMBER 23rd 2022

Canada’s Renter Population is Growing at More Than Twice the Rate of Homeowners

There’s a significant shift happening in Canada — and it’s between the renter population and the homeowner population. While the number of homeowners in Canada is growing at 8.4%, the renter population is growing at 21.5%, more than double the rate, according to Statistics Canada data that was published this week.

After hitting a peak of 69.0% in 2011, the overall proportion of Canadians who own a home was 66.5% in 2021. For comparison, the rate of homeownership was 65.5% in the United States, 67.3% in the United Kingdom, and 69.6% in Mexico.

The provinces that saw the biggest declines in homeownership from 2011 and 2021 were Nova Scotia (from 70.8% to 66.8%) and Prince Edward Island (from 73.4% to 68.8%). Homeownership rates declined in some of Canada’s most populous provinces as well, with British Columbia seeing the third-largest decline (from 70.0% to 66.8%) and Ontario seeing the fourth-largest decline (from 71.4% to 68.4%).

While the population of homeowners increased by 8.4% between 2011 and 2021 that same number increased by 23.7% from 1996 to 2006, indicating that while we’re still seeing increased amounts
of homeowners, the momentum is now going the other way. And, as is usually the case, when homeownership goes down, rental rates go up, and the Statistics Canada data shows that is exactly what is happening.

Approximately 33.1% of Canadians, or 5 million people were renters in 2021, but what’s particularly noteworthy is both of these numbers — a 33.1% rental rate and 66.5% homeownership rate — are trending in opposite directions, regardless of where in Canada you look.

“The growth in renter households outpaced the growth in homeowner households from 2011 to 2021 in each of Canada’s 41 large urban centres,” Statistics Canada says. “In 30 CMAs [Census Metropolitan Area], the growth of renter households was more than double the growth of owner households over this period.”

The five CMAs in the Canada that saw the highest renter population growth rate between 2011
and 2021 came exclusively from two provinces: British Columbia and Ontario. Those CMA’s were Kelowna (+54.1%) and Nanaimo (+40.0%) in BC and Barrie (+47.7%), Oshawa (+41.1%), and Kitchener– Cambridge–Waterloo (+40.9%) in Ontario.

MARKET UPDATE FOR THE WEEK ENDING SEPTEMBER 16th, 2022

Pandemic Home Buyers Did Not Panic Buy, Canadian Survey Finds

Most people have probably come away from COVID-19 with a few purchases they now question, but for Canadian homebuyers who purchased a home during the pandemic, that home wasn’t one of them, at least that’s according to a new survey that found 63% of home buyers have no regrets. When surveyed about the reasons behind their decision to purchase, the most-selected response was 53% needed more space. Second was being tired of renting (43%), followed by the investment opportunity (28%), and a lifestyle change (26%).

Approximately 79% of respondents used a real estate agent to buy their homes, with 43% also using a mortgage broker. A surprisingly high 40% of Canadian homebuyers saw the property they would end up purchasing in-person just once before they bought it, while 39% saw the property more than one time, 27% attended an open house, and 8% purchased the home without seeing it at all. However, 79% of those who purchased their home without seeing it in-person have no regrets about their purchase.

Due to the competitiveness of the market during the COVID-19 pandemic, 21% of buyers participated in a bidding war for the property, 28% ended up paying more than the asking price, but, again, 84% of those included in those statistics have no regrets.

According to the survey, 17% of buyers waived inspection clauses, while 11% waived financing clauses, but, once more, 58% of those who waived either of those conditions remain happy with their purchases. Perhaps, most interesting, however, is that 63% of homebuyers who purchased during the pandemic said that they would remain happy with their purchase even if the real estate market took a dive.

In 40 out of the 53 real estate boards across Canada, prices fell this quarter. Inflation is still high, interest rates continue to rise to counteract said inflation, and the real estate market will likely ebb and flow along with those things. The survey found that 77% of pandemic homebuyers recognize that a recession would affect whether or not they could afford their mortgages.

A different survey published in August found that Canadians recognize the importance of homeownership — and not just income — as it relates to one’s wealth. Accordingly, 46% of respondents who participated in the survey published this week said that buying a home has helped them achieve their financial goals.

All in all, regardless of how you look at it, it’s clear that Canadians who purchased their homes during the pandemic are happy with their decisions, proving that homes are often times more than just an asset.

MARKET UPDATE FOR THE WEEK ENDING SEPTEMBER 9, 2022

Canada’s housing market isn’t melting down as you’ve been led to think.

Housing markets are unique for their location, type, quality and size, so a decline in the average housing price is not the same as a decline in the price of an average house, which sometimes makes
it difficult to decide whether it’s the right time to buy or sell. Adding to the confusion is that some metrics suggest prices are falling and others show an increase, though, overall, housing sales are down significantly compared to the peak activity in February, while average prices are down to a lesser extent.

Let’s have a look at the numbers in the Greater Toronto Area (GTA) as an example to clarify how markets are moving. Sales in the GTA were down to 5,627 units in August, a year-over-year decline of 34.2 per cent, while the average house price rose by a tiny 0.9 per cent, according to the Toronto Regional Real Estate Board (TRREB) data.

But TRREB’s quality-and size-adjusted Home Price Index (HPI) is a better indicator of price movements, because smaller and lower-priced homes might sell more frequently during slowdowns, which can lower the average price.

Compared to August last year, the HPI was up 8.9 per cent, which seems a lot different from the dismal- sounding newspaper headlines and economist forecasts. What gives? It appears a lot depends upon how the metrics are generated. For example, instead of comparing current sales and prices with those from the same period a year ago, you could make the peak housing sales activity in March 2022 the benchmark. Any comparison with March will exaggerate the declines.

Sales in the GTA in August were down 48.3 per cent from the peak sales observed in March, a much more significant decline than the 34.2 per cent drop from August last year. Similarly, average prices in August, not adjusted for quality or size, were down 18 per cent from the peak prices observed in February.

So, are housing prices declining or climbing then? The answer depends upon perspective. If, say, someone bought a house at the peak of the housing market in February and is trying to sell the same property today, they are likely to experience a noticeable loss. However, most homebuyers stay at the same place for longer than just a few months.

Even the significant decline in housing sales relative to the peak in February hides the fact that sales activity in lower-priced homes has picked up since then. The number of homes sold for less than $600,000 in the GTA has increased by almost 70 per cent since February, while sales for homes sold for more than $1.5 million declined by 71 per cent.

Total sales volume in 2022 will clearly be considerably less than observed last year. Housing experts attribute the decline to the increase in the cost of borrowing resulting from the steep rise in mortgage rates. But what is ignored in such pronouncements is a phenomenon known as the “forward buy,” where consumers move up their purchases to benefit from something. Last year’s ultra-low mortgage rates were partly responsible for the extraordinary sales volume because many households likely advanced their home purchase from 2022 to 2021, thereby boosting sales.

Housing sales in the GTA jumped by 28 per cent in 2021 from the year before, reaching an all-time high of 121,642. Overall, over 100,000 more sales were recorded in 2021 by the Multiple Listing Service in Canada than the long-term annual average. The decline in sales in 2022 is partly because some of this year’s sales were lost to last year.

These more nuanced statistics should help us realize that Canada is not experiencing a meltdown in housing markets. The magnitude of sale and price movements is in the expected range. And since
the average number of days a property is on the market increased to 22 in August from 8 in February, buyers in the GTA can now take their time deciding. The days of multiple offers and rapid sales are over, at least for now, which should be good news for homebuyers.

MARKET UPDATE FOR THE WEEK ENDING AUGUST 26TH 2022

Housing market crash unlikely ... Immigration and smaller household sizes are expected to help drive prices upward.

New data released Monday by Statistics Canada found home prices increased by a mere 0.1 per in July compared with June — the smallest increase in more than two years and well below the average annual inflation rate of 7.6 per cent for that month.

But while experts are predicting the housing downturn could be the largest in four decades, they
say two factors will protect the market from a full-blown crash: immigration and additional households as a result of Canadians choosing to live alone or in smaller groups.

If the rate of immigration and current changes in household formation behaviour persists, we would likely not have a housing crash over the mid-to long-term,” said Kate Choi, an associate professor of sociology at Western University.

A crash refers to a scenario where prices fall by about 30 per cent and housing demand completely erodes, said Carrie Freestone, an economist at RBC and the report co- author. The bank forecasts benchmark prices to fall by 13 per cent during this correction period — significantly less than the 30 percent threshold for a crash.

Between 2016 and 2021, the average Canadian household size declined by 0.02 people, according to a new report released Aug. 17. There were about 140,000 new households nationwide between 2016 and 2021 as a result of Canadians, especially young adults, starting out new, and that households have become smaller as more people are choosing to live alone and parents are having fewer children.

This trend will be responsible for just under 90,000 of the 555,000 new households created by 2024 and will provide a significant boost in housing demand.

“A greater number of households overall means that those households will need more housing,” said Choi. “So that, in turn, will exert an upward pressure on housing prices.”

That, paired with the federal government’s targets to bring in a record 1.3 million new permanent residents by 2024 — adding about 555,000 new households — will help drive housing demand and “contain a housing spiral.”

Between 2017 and 2019, there was a “pretty significant” housing correction because of Ontario’s Fair Housing Plan and the new federal mortgage stress test. That led to the first wave of demand, which was unleashed during the pandemic amid low-interest rates and households sitting on a significant amount of money.

However, when this housing correction period began in February, largely due to rising interest rates, the market never got a chance to fully catch up or satisfy all the organic demand that was coming through from that first correction. A caveat to the report’s findings, Choi noted, was demand and housing prices could dampen further if household size trends reverse and more young adults choose to live with

their parents longer due to the rising cost of living, thus leading to fewer new households. Despite this housing correction, there is still a severe lack of housing supply to meet the demands of the market when this correction is over.

MARKET UPDATE FOR THE WEEK ENDING AUGUST 19TH 2022

Toronto new condo sales decline 19%, but prices rise: Urbanation

Sales of new condominiums in the greater Toronto area have declined by 19 per cent in
the second quarter of this year, while the average price per square foot reached a record high of $1,453, according to the latest report from real estate consulting firm Urbanation Inc.

A total of 6,792 new condo units sold in Q2 of 2022, plummeting 24 per cent compared to a year ago. Sales did however remain above the 10-year average. The drop in buying activity caused 11,703 new condo units to remain unsold. While new condo purchases slowed, the cost per square foot of these units surged by 20 per cent on an annual basis, reaching an all-time high.

Several driving factors were behind the price spike, including soaring construction costs, labour shortages and higher-priced projects, according to the report. Looking ahead, rising interest rates and delayed approval timelines for projects will likely keep the cost of new condos elevated.

“Prices are expected to hold firm amid low inventory and high development costs,” Shaun Hildebrand, president of Urbanation said in a press release on Tuesday. “The strength in the rental market and shift in demand towards more affordable ownership options should provide support for condominium activity as the market works through the effects of higher interest rates.”

The supply of presale condo units reached the third highest volume on record with 9,924 units to hit the market in Q2. The recent pullback in buying activity however has caused many projects to cancel or delay future launch plans.

The data shows there were 35,000 new condo units anticipated to come to market for the region in 2022. In the first half of this year, roughly 16,000 units have launched and 10,000 more are expected, leaving 10,000 units on hold. This is a sign that the broader real estate slowdown has spread to the pre-construction market, where purchases are seen as bets on future housing because buyers wait years for their properties to be built.

Pre-construction buyers, the majority of whom are investors, have been spooked by the jump in interest rates even though they do not immediately need mortgages when they buy pre-construction condos. Typically, a 20-per-cent down payment is required to secure a pre-construction unit. The buyer pays the remainder after the condo is
built.

Urbanation estimates that, in the second half of this year, buyers of newly completed
condos trying to recoup their expenses through rental income will face an average monthly shortfall of $1.06 per square foot, or the equivalent of nearly $700 per month on a 650-square-foot unit. By 2026, Urbanation predicts, that shortfall, or negative cash flow, will amount to $1.87 per square foot.

“The expectation of future rate increases and their impact on prices has a profound effect on presale buyer confidence,” Urbanation said in a report.

MARKET UPDATE FOR THE WEEK ENDING JULY 29TH 2022

Here we go again... another prediction for the real estate market.

Canada’s housing market could be facing its biggest downturn in recent history, according to a new report from RBC.

After the price of residential properties soared during the pandemic — with some of the most expensive regions experiencing increases of 50 per cent or more — Canada’s largest bank is predicting that national home prices could deflate by more than 12 per cent early next year.

That decline would be larger than any of the four corrections the Canadian housing market has experienced in the past 40 years, said Royal Bank of Canada economist Robert Hogue.

Home sales are expected to slump 23 per cent this year and 15 per cent next year, RBC said in its Friday report. That total decline — a drop of 42 per cent since early 2021 — would be higher than the 38 per cent decline the market faced in 2008 and 2009.

While economists have predicted a cool-down in the housing market for months, RBC’s forecast is among the most gloomy to come from one of the big Canadian banks.

Again, these are just predictions. Who are we supposed to believe?

Toronto is a cosmopolitan city ranked up there as a very desirable city to live in. Prices can only go so low in a market like Toronto, where demand remains high. Interest rates are still relatively low compared to historical standards. Prices have dropped rapidly from where they were in February/March. But they’re stabilizing at a lower level because the demand is still there, and inventory levels haven’t popped.

The big change for many sellers will be letting go of the price they were hoping to sell at. If you really need to sell, then waiting isn’t the best approach. Set aside your disappointment, make your home stand out, and get the best price you can. Besides, prices are still up year- over-year, so unless you bought your home at the very top of the market, it’s guaranteed to have appreciated over the last few years, and you’re still making money. The advice remains the same: if it’s the right time for you, then go ahead and sell. There are still buyers out there looking for their dream home.

The RBC report does end on a high, noting that this forecast is for a correction not a collapse. The unfolding downturn should be seen as a welcome cool down following a two year-long frenzy that put a huge financial burden on many new homeowners and made ownership dreams harder to achieve. RBC predicts that the correction should be over sometime in the first half of 2023.