Many forecasters or pundits get bogged down in irrelevant statistics. Past experience has shown that the view from ‘the street’ has been more accurate than the ‘view from the executive floor’. In real estate, lower sales do not automatically translate into lower prices. And the average price to average income ratio for valuing property prices over a number of years is also of little value when you consider the impact of immigrants, non-residents, and self- employed buyers in today’s market. If you want further proof, just read our2016 Forecast versus what actually happened in 2016 on our website.
GTA Year Over Year Summary
1While City of Toronto sales increased by 21% in 2016, new listings declined by 36%.
2Immigration levels to Canada are expected to increase from 250,000 to 400,000 people per year. Most will end up in Toronto. We need about 40,000 + new units each year just to keep up with the current population growth in the GTA and to keep markets in balance. With higher immigration levels, that will be impossible to maintain. There are also fewer building sites for condos downtown and what can be found will be more expensive.
3The Federal Government has now forced Buyers to qualify at the ‘posted’ as opposed to the actual mortgage rate for ‘insured’ mortgages. Also, changes made to what mortgages can be ‘insured’ mean that more borrowers will be forced to the banks or alternative lenders. That translates to higher mortgage rates which will be insulated from the overall Canadian interest rate market.
4Toronto is still a place where people want to live. We are the number one multi-cultural city in the World and just like the centre of gravity has shifted from Silicon Valley to San Francisco, so has the shift been to Downtown Toronto.
5Millennials will become the dominant market segment (replacing baby boomers). In the next two decades over one trillion dollars will be passed by way of inheritance to this group. The ‘bank of mom and dad’ has already opened for many in this cohort..
OUR FORECAST FOR 2017
1Sales on TREB will drop from 113,000 units in 2016 to 105,000 in 2017. Why? First, there is a lack of listing product, as more and more people decide it is cheaper to stay put and renovate rather than move. Also, investors who normally sell their units every 3-4 years will hold on longer (best guess 6-7 years) rather than sell. See point 6 on the Rental Market. Secondly, more ‘first time’ buyers will not qualify for mortgages needed to afford current prices and this reduced buyer pool will have a drag on the ‘move up’ buyer segment when it takes longer to sell their property.. We have not felt this effect yet, but it will be more evident by the summer.
2 A lack of product in the resale market will force more end users as well as investors into the new home market –both low rise and condos. Expect prices to increase faster in this market.
3 Mortgage rates have already increased by 1/2% and will probably increase by another 1/2%. A major reason is that the banks will be the only option for many borrowers (who can only qualify for uninsured mortgages). Note increases in the U.S. Fed bank rate will not impact our Bank of Canada rates, however, one should plan on a 70 cent Canadian dollar.
4 Resale prices will continue to rise but at lower rates than in 2016. We see prices in the low rise market going up 10% and for condos by 5%.
5 The concentration of people who want to live in downtown Toronto will only intensify. Millennials want to live and work downtown. Between road tolls and public transit which will not be fixed for years, the only answer will be walking and biking.
6 Rentals or Leasing will become a twelve month a year market and not just eight months a year. Rents will increase by 10% (note: only rental units built prior to 1991 are under rent controls) and the condo vacancy rate will hover at 1%.
7Resale condo prices are now in the $600-700 psf range Downtown. Bay Street and upscale buildings are $700-800 psf. Pre-construction condo prices are normally at or slightly higher than the resale market. Look for developers to try to sell new units at $100 psf premium over resale in 2017. That is a danger point for investors.
WHAT TO DO IN 2017
There is no need to sell if you don’t have to. If you have the opportunity to buy something at today’s prices then you should. Over the next 5-10 years prices will be 35 -50% higher. That’s not a bad return.