“Unprecedented” construction costs jeopardize projects

Peter Mitham
Western Investor

Some Metro Vancouver developers are taking their cash elsewhere as margins disappear

 Construction costs can hit $500 per square foot or more in Metro Vancouver. | Western Investor flle photo

Construction cost increases have become so dramatic in Metro Vancouver that they’ve outstripped land prices as the single biggest unknown in proformas for developers.

That’s the message Greg Zayadi, president of the Rennie Group, delivered to a breakfast meeting of the Independent Contractors and Businesses Association this week.

“When developers are working on proformas today, the biggest impact on the end number to the consumer is the construction pricing,” Zayadi told Western Investor following the breakfast. “The land you purchase, the cost to hold, the soft costs – all of these things are much less significant than managing the construction costs.”

Time was that land prices and construction costs were both in the $250 to $300 a square foot range. Today, construction costs are often closer to $500 a square foot.

“We’ve seen a 30 per cent increase over the past 14 to 16 months, and in the last four months we’ve estimated that it’s 5 per cent to 7 per cent a month,” Beau Jarvis, president of Wesgroup Properties said. “It’s making it extremely challenging to understand the dynamics of a viable construction project. It’s so difficult to understand what’s going on.”

Wesgroup is planning a project in East Vancouver that started out at $430 a square foot in hard costs, but when the project went to tender it came in at $525 a square foot.

“In order to make that project viable we had to raise the revenue assumptions in the project,” Jarvis said. “We haven’t launched that project yet, so we don’t know if those new revenue assumptions are even viable in the marketplace. And so that’s a project that could be paused.”

Zayadi isn’t aware of any projects that have been shelved to date by construction cost increases. But he notes the situation is hitting woodframe construction particularly hard, impacting affordability for first-time buyers.

“This is townhomes, this is six-storey woodframe, this is in-fill. This is not investor-type product,” he said. “When all of a sudden every woodframe project from Pemberton to Abbotsford is needing $750 to $800 a square foot, that is really putting pressure on that first-time homebuyer.”

Altus Group estimates that multifamily construction costs in Vancouver increased 5 to 7 per cent last year, and senior director Dave Schoonjans expects a similar increase this year.

“It doesn’t sound bad, but you’ve got developments that only have a 10 percent margin,” he said. “Say you’ve got permitting issues or some other delay, and in 12 months your profit is gone.”

But he says the situation in Vancouver is less dire than elsewhere in the country. Toronto, Montreal and to some extent Ottawa are under greater pressure because the markets there were going full-tilt when the pandemic hit. The labour constraints and supply chain disruptions made a bad situation worse, and the surge in presales over the past year has compounded the woes.

“The Vancouver market slowed down just in time for a lot of these cost increases and disruptions,” he said. “It’s not to say things are great in Vancouver and Alberta, but they’re the least bad.”

But the pressure isn’t about to let up.

Taxes and fees aren’t about to drop, and municipal approval processes have yet to catch up with demand. Census data indicate that per-capita housing in Metro Vancouver was unchanged in 2021 versus 2016, meaning the housing shortage continues.

“The most recent census is a clear indication that we have yet to make progress in meeting the housing needs of Canadians,” Scotiabank stated regarding the data.

Meanwhile, government-funded projects continue to tap into a tight labour pool, increasing cost pressures and eroding the premium that makes developers want to take risks in the market.

“There’s just not enough trades in the trade pool, and then we have commodity prices, and all of this is culminating into one point in time that is significantly impacting our costs,” Jarvis said. “It’s getting harder to pull the trigger on some of these projects. … We are already starting to see a flight of capital to where it’s easier to work and the risk premium is there.”

Recent data on new housing starts indicates this trend. In February 2022, total Metro Vancouver housing starts had plunged 38 per cent from the same month last year, to 1,365 units. Starts of new townhouses had fallen from 275 in February 2021 to just 173 in February 2022. 

 

© 2022 Western Investor

Thompson sold city lots from $2.25 per square foot

Ian Graham
Western Investor

Price was more than twice what the buyer had offered for the vacant sites

 One of the largest one-day sales of city-owned land in Thompson, Manitoba, reveals the price gulf that exists between urban real estate values in northern Manitoba and most of the the southern Prairies.

Thompson council approved resolutions concerning the sale of four city-owned lots at its March 14 meeting, a move that promises to bring new housing to the northern Manitoba city. 

The first two resolutions concerned agreements with Meetah Building Supplies Corp./NCN Builders on prices for 99 Juniper Dr. and 20 Pelican Cres.

Council approved their sale at a price of $2.25 per square foot each, as offered by Meetah Building Supplies. Meetah intends to build housing on the sites, one of which is zoned for multiplex housing of up to four units.

Meetah had originally proposed a price of $1 per square foot. for each of the properties and the city countered with a price of $2.53 per square foot for the Juniper Drive lot and $2.82 a square foot for the Pelican Crescent property.

Both lots have been empty for years. An option to purchase 20 Pelican Cres. was provided as an in-kind contribution to Thompson Neighbourhood Renewal Corporation for their Our Home Kikinaw housing development project in 2012. It was intended to be the site of the third house built by the organization modelled on Habitat for Humanity but that plan never proceeded as the second OHK home at 335 Juniper Drive, construction of which began in 2011, has never been occupied because the family that was intended to live there withdrew due to long construction delays.

Council also approved options to purchase two Moak Crescent lots, one of which currently lacks road access.

The buyer, 11500201 Canada Ltd., applied for options to purchase valued at $10,317.51 and $16,075.50, which gives them the right to purchase the property for one year with an additional one-year extension if required. Money for the second option was already paid to the city for an option to purchase one of the lots that was approved by council in July 2020. Options are sold at a cost of 10 per cent of the purchase price for the lot plus the federal GST.

The buyer intends to build a dental clinic on one of the lots and a commercial complex with apartments above on the other, provided zoning changes to allow residential development in that area are made. An easement will be established on one of the lots to provide road access to the other.

Council was pleased to see the land sales moving forward, with Coun. Kathy Valentino saying she couldn’t recall ever passing four property purchase resolutions in one council meeting before.

“Moving forward, I think we try to encourage more people to invest in those city-owned lands so we can develop better housing and stuff like that in Thompson,” said Coun. Duncan Wong.

Coun. Les Ellsworth’s only gripe about the deals was how long they took to come together.

“We’ve got to be the slowest level of government in history,” he said. “We need to move these faster. Some of these have been discussed for some time.”

Ellsworth’s charge is one often heard in larger cities. It underscores challenges facing housing developers across Canada, even in smaller centres.

According to initial data from the 2021 federal census, Thompson lost 40 units of housing between 2016 and 2021. However, a 4.7 per cent drop in population meant housing units per capita increased marginally over the period.

 

© 2022 Western Investor

Langley six-lot land assembly sells for $9.1 million

Regent Park Realty Inc.
Western Investor

The 0.90-acre parcel is currently zoned for a maximum multi-family density of FSR2.1, equating to a sale price of $110 per-square-foot buildable.

Property type: Land assembly

Location: 20121, 20131, 20141, 20151, 20161 & 20171 53 Avenue, Langley B.C.

Number of lots: 6

Land size: 39,325 square feet (total)

Land size, in acres: 0.90 acres

Zoning: OCP designates floor-space-ratio (FSR) maximum of 2.10

Sale price: $9.12 million

Brokerage: Regent Park Realty Inc., Vancouver, B.C.

Broker: Suraj Rai

© 2022 Western Investor

 

Greater Toronto Area market activity: what’s the latest?

Ephraim Vecina
other

The condo segment continues to drive much of the market’s new home sales

 The new home market in the Greater Toronto Area saw another highly active month in February, according to new data from Altus Group and the Building Industry and Land Development Association.

A total of 3,630 new home sales took place in the region in February, a level that was 17% above the 10-year average for that month.

The new condominium apartment segment accounted for the majority of these transactions, with 3,048 sales that were 78% higher on an annual basis and 67% above the 10-year average for February.

Meanwhile, new single-family homes – including detached, linked, and semi-detached houses and townhouses (excluding stacked townhouses) – totalled 582 sales in February, 54% below the 10-year average.

The number of available homes for sale stood at 9,165 units, representing only around three months of total inventory based on average sales activity over the past 12 months. Single-family inventory reached a record low of 546 units in February.

Read more: Toronto surpasses Vancouver as Canada’s priciest market

The GTA’s new condo apartments saw a 13% annual increase in their benchmark price, reaching nearly $1.178 million. Meanwhile, the benchmark for new single-family homes was nearly $1.859 million, having grown by 35.3% year over year.

“The steep increases in benchmark prices that we have seen over the last few years reflect our region’s critically low supply of new homes,” said Dave Wilkes, president and CEO of BILD. “If this trend continues unchecked, we are all going to feel the effects, as more and more families make the difficult choice to leave the GTA in search of housing and our region loses out on economic growth, jobs and tax revenues.”

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Daycare vital to first phase of Calgary office project

Frank O’Brien
Western Investor

The 10,000-square-foot space close to major employers could generate more than $300,000 per month and help retain and recruit office tenants and employees

Uxborough by Western Securities will eventually cover one million square feet in Calgary. | Western Securities

When Western Securities of Calgary broke ground last September on the first phase of its projected 1-million-square-foot Uxborough mixed-use development, the addition of a 10,000-square-foot daycare was not an incidental amenity.

The 6.5-acre development, rising from the site of the former Stadium Shopping Centre, is close to Calgary’s Foothills Hospital, with 12,000 daytime employees, and the University of Calgary, also a major employer.

There are over 60,000 daytime employees in the surrounding area, 50,000 vehicles passing the site daily, and high volumes of pedestrians accessing the hospital and university, according to Western Securities.

Based on Alberta daycare space requirements averaging 35 square foot per child, and an average of $1,150 per month in day care fees in Calgary, the Uxborough’s ground floor daycare could generate more than $300,000 per month at full capacity.

There are other benefits to including daycare in workspaces, such as office towers, according to a U.S. study from Jones Lang Lasalle, (JLL), a major commercial real estate brokerage, including the retention and recruitment of work-from-homers back to the office, post pandemic.

Recent JLL research found that 84 per cent of employees with access to “on-site spaces for small children” felt engaged at work, well exceeding the average engagement rate of 65 pe rcent.

“On-site childcare can have a big impact on retention of new parents, particularly women, too. As women continue to claim more leadership positions across industries and are more likely to be their family’s primary breadwinner than ever before, their specific workplace needs can no longer be ignored,” noted a report on commercial daycare space by the Building Owners and Managers’ Association.

Uxborough future phases will include a hotel, a second office tower and another residential building, both with retail on the ground floor. The 11-storey hotel will include 189 rooms and a conference centre, the 10-storey office building will be about 225,00 square feet and the four-storey residential building will have about 75 units with a grocery-store anchor at grade, Western Securities stated.

 

© 2022 Western Investor

Metro Vancouvers first-time homebuyers’ guide

The Vancouver Sun Staff
The Vancouver Sun

Looking to purchase your first home but don’t know where to start? We curated a first-time homebuyer’s guide just for you

 Real-estate prices continue to soar across much of B.C., and home ownership is out of reach for far too many people. It can take years of sacrifice to scrape together enough money for a down payment on a modest first home. Then what?

Anyone poised to plunge into the most expensive housing market in Canada faces myriad questions and choices, such as:

• What real-estate lingo do I need to know?
• How do I find my first realtor?
• How do I win a bidding war?
• Should I buy a new condo or older condo?
• What red flags should I look out for in a condo building?
• What extra costs will I have to pay when I buy a home?
• Do I qualify for financial help to buy my first home?

Postmedia reporters and editors in Metro Vancouver and cities across the country have created a First-Time Homebuyer’s Guide to assist with these and many other questions. In addition to local journalism, you’ll find explanatory stories about the housing market and home-buying process from reporters at the National Post and Financial Post.

This comprehensive collection of stories and videos is intended for those contemplating the most expensive purchase of their life.

 Barry Choi: Thinking about buying a home? These are the steps to take

Buying a home is something many Canadians strive for, but it doesn’t happen overnight. There are a few things you will need to do and keep in mind to achieve the dream of owning your own place.

10 terms first-time B.C. homebuyers need to know 

Mariko Baerg helps clarify deposits from down payments, and completion dates from possession dates. Photo by Francis Georgian /PNG

From selecting a realtor and scrolling through the MLS to checking your bank account, buying a home for the first time can be an intimidating prospect. Then there’s all the lingo to learn, such as amortization and variable mortgage rate.

Here is a list of 10 terms that first-time homebuyers should know before wading into the Lower Mainland real estate market.

We asked Bridgewell Real Estate Group’s Mariko Baerg to help us separate our deposits from our down payments, and our completion dates from our possession dates.

How to find your first realtor: 3 things to look for 

Realtor Mary Cleaver says it’s a very intense relationship for the time you’re working with a real-estate agent, so getting the right fit is important. Photo by NICK PROCAYLO /PNG

Buying a home for the first time can be an overwhelming experience. Choosing a realtor is one of the first steps to make it less scary. With more than 14,000 real estate agents to choose from in the Lower Mainland, how do you find the right one?

“It’s a very intense relationship for the time you’re working together,” said Mary Cleaver, a realtor since 2011. “There’s a lot at stake.”

The process can take weeks or months as the buyer and the realtor meet for an introductory session, visit open houses, review and discuss documents, and write offers. Rapport is crucial.

“It doesn’t matter if it’s your first or 10th time buying, the things you’re looking for are the same,” Cleaver said. “Competence, as in can they do the job; capacity, can they take you on; and connection.”

Old, newer or newest? The pros and cons of purchasing an older vs newer condo 

Realtor Matt Scalena says Olympic Village in Vancouver is an example of how communities move from new and sterile to desirable quite quickly. Photo by Arlen Redekop /PNG

For some homebuyers, it’s all about the laundry.

“In-suite laundry can be a deal-breaker for some people,” Stillhaven Real Estate Services’ Kristi Holz said.

If a buyer is thinking about a condo in a newer building it’s no problem. But older buildings likely have shared laundry — one of the things to be aware of when considering whether to buy old, newer, or newest.

From amenities to location, here are some things to consider when deciding between buying a condo in a new building versus an old building.

5 tips if you end up in a bidding war

 Realtor Amy Trebelco says it’s important to keep your cool in Vancouver’s housing market. Photo by NICK PROCAYLO /PNG

You’ve finally found the home of your dreams. So have 15 other people.

Competing offers are the buyer’s bane in a market where demand far outstrips supply. The Lower Mainland has had more than its fair share of bidding wars as emotions run high and home-hungry buyers get caught up in the thrill of the hunt. As they say, it’s a jungle out there.

That’s why in Vancouver’s housing market it’s important to keep your cool. There are a few things you can do to try to lessen the stress of buying when you’re not the only one who thinks they’ve found their dream home. Local realtor Amy Trebelco provided us with some tips on surviving the Greater Vancouver bidding wars.

Buying a condo? Watch for these red flags in the strata minutes

 Realtor Nicola Campbell says she looks for issues that come up repeatedly in strata minutes. Photo by Francis Georgian /PNG

When it comes to buying a home in a strata property, some detective work is in order.

With more than 1.5 million British Columbians living in strata housing, it’s important for homebuyers to know what they’re getting into. Parsing building reports and strata minutes can help avoid future pitfalls, such as special assessments and levies, or worse.

Here are some tips on reading strata minutes, what documents to look for, and how to spot red flags.

Q&A: First-time homebuyers face sticker shock from hidden costs

 Along with the minimum deposit, there are fees on top of fees for a home purchase. Realtor Michelle Comens offers some tips about these hidden costs. Photo by Arlen Redekop /PNG

First-time homebuyers are often surprised at all the extra costs involved in purchasing a home. Along with the minimum deposit, there are fees on top of fees — before, during and after the actual purchase.

We talked to Michelle Comens, who left the city’s VFX industry for the Lower Mainland real estate world 12 years ago, about these hidden costs.

How to get financial help to buy your first home in B.C.

 Sutton Premier Realty’s Abdul Safi (second from left, with Omar Samadi, Farid Kaywan and Dylan Huang) details what incentives are in place first-time homebuyers in B.C. Photo by Mike Bell /PNG

At first glance, it seems that first-time homebuyers have options when it comes to financial help and government incentives. But dig a little deeper and what looks like a good deal for cash-strapped buyers is either not much of one or based on unrealistic conditions.

To break it down, we talked to Abdul Safi, a mortgage specialist who works for TD in Guildford.

Other resources for first-time homebuyers

• CMHC calculators: Mortgage | Affordability | Debt Service
• B.C. property transfer tax exemption for first-time home buyers
• CMHC’s first-time home buyer incentive
• CMHC’s condo buyer’s guide
• Condominium Home Owners Association of B.C.

More real-estate coverage from our newsroom

• The latest in local Real Estate news
• More on Mortgages
• Buying & Selling around Metro Vancouver
• All about Condos
• Decorating & Renovating
• The current issue of Westcoast Homes and Design

Take our two-week newsletter course

Buying a home can be overwhelming — so we’ve created a two-week newsletter course that you through the many steps and decisions. The course is crafted by National Post columnist Tristin Hopper, who had the dubious fortune to be raised by real estate professionals and has also owned (and renovated) a few homes of his own. But he’ll be sourcing a whole galaxy of experts and statistics for the course so you don’t have to worry about taking his word for things. Sign up now, it’s free!

Your Big Questions Answered

Many questions about entering the housing market — like how to prepare for rising interest rates or how to access your RRSP to make a down payment — are asked across Canada and we have the answers. Postmedia’s in-depth journalism is possible thanks to the support of our subscribers. Subscribing to The Vancouver Sun and Financial Post gives you unlimited online access not only to the stories in your backyard, but also to the National Post and other major Canadian news sites across the Postmedia network.

16 things to know before buying your first home 

We’ll be blunt; Canada is not an easy place to buy a home. Decades of underbuilding have resulted in Canada having one of the most acute housing shortages in the G7. With fewer homes to go around, real estate in many of Canada’s major cities has been bid up to levels that now rank as some of the most unaffordable on earth.

But it’s not impossible, even for those Canadians who may not have the good fortune of an eight-figure inheritance to play with. Nearly 70 per cent of Canadians own their own home, and that figure is rising each year. Read more for tips on how to join them.

How this young B.C. couple bought their first home — a two-bedroom condo — for $620,000

Ziggy and Katie got married seven years ago at the age of 20 and 21 respectively. Since then, they have been saving up to buy a place of their own. Ziggy said owning a home was on his bucket list.

They were open to living anywhere in B.C., but knew cities like Vancouver and Burnaby were out of the question. Ideally, they wanted something new and within their budget.

And unlike some others, they weren’t able to get help from family or relatives to get their foot in the market. It was up to them to come up with the money for the down payment. To make that a reality, they worked nonstop and followed a strict budget.

How this 22-year-old bought a $1.3 million pre-construction home in Brampton, Ont.

Sumi Ragu bought his first home at 22-years-old, a near-impossible feat for the average millennial these days.

But the accomplishment came at no small cost, he acknowledged. “I didn’t have a work-life balance. I was doing a lot of work and minimal sleep,” he said. “I lost half my hair, like, trying to get a mortgage for this.”

The rate hikes cometh: How to get your mortgage before a rising rate environment

The era of ultra-low borrowing costs is over.

When the Bank of Canada raised its benchmark interest a quarter point to 0.5 per cent in early March, it made clear that more rises were on the way.

What first-time homebuyers need to know about using RRSPs to fund a down payment

The biggest obstacle to home ownership for many is the down payment, especially these days, with home prices in Canada’s hottest markets running rampant.

One way many first-time buyers get over that barrier is with a boost from their registered retirement savings plans (RRSPs) through the Home Buyers Plan. Before depleting this tax-sheltered savings account, there are a few things to consider.

 

Rent or buy? Here’s how to decide what’s best for you

Buy or rent? Simple question, difficult answer.

Renters boast about the flexibility that comes from being unanchored by a mortgage, nor is it their problem when something breaks around the house.

The Financial Post’s Down to Business podcast tells you what you need to know about Canadian business each week in under 30 minutes. That team also took time to explore key questions when it comes to buying a home. Download the first episode here.

 

Looking to buy property out of province?

Check out our other first-time homebuyer guides:

• First-time Homebuyers’ Guide for Toronto
• First-Time Homebuyers’ Guide for London
• First-Time Homebuyers’ Guide for Ottawa
• First-Time Homebuyers’ Guide for Windsor
• First-Time Homebuyers’ Guide for Saskatoon
• First-Time Homebuyers’ Guide for Regina
• First-Time Homebuyers’ Guide for Calgary
• First-Time Homebuyers’ Guide for Edmonton
• First-Time Homebuyers’ Guide for Montreal
• First-Time Homebuyers’ Guide for Winnipeg

 

More news, fewer ads, faster load time: Get unlimited, ad-lite access to The Vancouver Sun, The Province, National Post and 13 other Canadian news sites for just $14/month or $140/year. Subscribe now through The Vancouver Sun or The Province.

© 2022 Vancouver Sun,

Trudeau deal targets housing costs and bank profits

Randy Thanthong-Knight
other

It may also target real estate investment trusts

 Prime Minister Justin Trudeau’s power-sharing deal with an opposition party promises to tackle the soaring cost of housing in Canada and may target real estate investment trusts that own homes.

The agreement between Trudeau’s governing Liberals and the New Democratic Party says the government will act on the “financialization of the housing market by the end of 2023.” No details were given, but in last year’s election the Liberal platform pledged to review the tax treatment of large corporate owners of residential properties such as real estate investment trusts to “curb excessive profits.”

Prime Minister Justin Trudeau won a third term in Canada’s snap election but fell short of regaining the majority he was seeking, with a persistently divided electorate returning another fragmented parliament.

Such a move, if implemented, has the potential to impact publicly-listed real estate firms including Canadian Apartment Properties REIT, Minto Apartment REIT, InterRent REIT and Boardwalk REIT. 

The Liberal-NDP deal also promises to move ahead with a Homebuyer’s Bill of Rights that bans blind bidding for homes, establishes a legal right to a home inspection and requires real estate agents to disclose if they’re involved on both sides of a transaction.

Other measures include a Housing Accelerator Fund to increase the housing supply and extending by an additional year a program for new homes for vulnerable groups.

The agreement also makes it nearly certain the Liberals will raise corporate income taxes on banks and insurance companies that earn more than CA$1 billion per year. The surtax, another Trudeau election promise, is supported by NDP Leader Jagmeet Singh and the prime minister said Tuesday it’s a priority for the government.

In exchange for its support, the NDP gains greater legislative traction for its own priorities, including national dental care and prescription drug programs.

The parties said in a joint statement the deal will also advance efforts to create a previously-announced affordable childcare program, boost green jobs that can help confront the climate crisis and introduce anti-scab legislation for federally regulated industries.

 

Copyright © 1996-2022 Key Media, Inc.

Toronto real estate appreciation rate and what to expect in 2022

Corben Grant
The Vancouver Sun

One of the significant benefits of investing in real estate is the opportunity for rapid and consistent appreciation in price. However, appreciation, like any investment growth, is never guaranteed. The values of homes and how rapidly they grow or fall can change a lot from year to year. 

Among cities in Canada, the Toronto housing market is undoubtedly one of the most popular for investors and price appreciation is a big part of that popularity. Though Toronto Toronto’s prices are very high, there is also a lot of potential for appreciation and this growth has been consistent for many years.

With prices in Toronto going up for so long, this can also make investors somewhat anxious. How can you know prices won’t fall tomorrow if you buy now? If you choose to wait, could you miss out on possible huge gains? Is it a good idea to wait for the market to be more affordable?

This article will look at how real estate prices have changed in Toronto over time. We will look at prices over the long term and more recent trends. We will also cover what potential growth will look like for the future and how investors should use these predictions to influence their investment decisions.

What is the current value of homes in Toronto?

To appreciate the increasing prices of homes in Toronto, you should first understand where the current average values are. According to the Toronto Regional Real Estate Board (TRREB), the average price for a detached home in February 2022 was $2,073,989 in Toronto and $1,727,963 in the GTA regions outside of Toronto. Semi-detached home prices were $1,499,489 and $1,282,386 in the two regions, and condos went for $822,090 in Toronto and $756,146 outside of Toronto.

Over the last year, detached homes in Toronto saw an average increase of about 23%. Townhomes and condos saw slightly lower increases at 22.8% and 21.5% respectively, and semi-detached dwellings saw the lowest growth in the city at just 14%. In the areas outside of Toronto, prices grew even faster over the last year with detached homes seeing an almost 33% increase, townhouses grew by 32.3%, and condos increased up to 34.2%. As opposed to the low growth in Toronto, semi-detached homes outside of Toronto grew by 37.5% year over year.

How has the average price grown in the past? 

The long term view

The last time Toronto house prices saw a significant downturn was around 1989-1996. In 1989, the average house price in Toronto cost $273,698. Over the next seven years, prices fell to $198,150, returning to housing prices of about a decade earlier. Home prices continued to rise from there, though they did not reach their previous peak until about 13 years after the crash in 2002. The causes of this downturn are multitude, but it seems to have been caused by a combination of a general economic recession, speculative investing, and excess supply, particularly in the condo market.

 

Again, there was a slight downturn in 2017 due to factors like the newly instated foreign buyer’s tax and mortgage stress test, though prices quickly recovered and have grown ever since.

The recent past

It’s easy enough to say that the average home price in Toronto has continued up for about the last 20 years and that the last few years are simply part of that trend. However, it’s notable that in the previous few years, the prices of homes in Toronto have been increasing even faster.

From the years 1998-2021, homes grew in price from around $200,000 to over $1 million, with an average pace of about 17% per year. However, when we look at growth in the short term, we find that much of that average is skewed towards recent times. From 1998-2010, the average was closer to 8%. From 2011-2021, the average was around 13% per year, and in the last two years alone, home prices have grown by over 20% a year.

The question now is: Is this growth sustainable and here to stay, or is another correction in-store to cool off the market?

What drives price growth in the Toronto housing market?

Price growth in Toronto is not very surprising when you consider the popularity of the city. Not only is it Canada’s largest city, but it is also the capital of the most populous province and the province with the highest GDP. This means that on top of many people looking to live in the city and the surrounding areas, it’s also a critical area for commerce and business. In addition, Toronto and the GTA are also some of the most popular destinations for immigration into the country, adding to the already significant amount of population growth coming from new births and migration from within the country.

Furthermore, due to its well-established economy, the City of Toronto is considered a pretty safe bet for investors. As the brief look at pricing history above can demonstrate, housing prices have seen pretty consistent performance in the city. When it did falter, the crashes were not so catastrophic and the recovery was quick to come. This makes real estate assets in Toronto an appealing product. Yes, prices are high, but the returns are too.

Adding to this, the city also draws many people for jobs, education and quality of life who may not be able to afford the high asking prices for real estate. This makes rental demand pretty consistent in the city and rents are some of the highest in the country.

While desirability drives demand, it’s not the only component of rising prices. The other factor to consider is supply. The City of Toronto has essentially grown as far as it can, meaning there is a set amount of real estate in the city. Though developers are building up, they need to justify the cost of development on expensive land and similarly charge high prices. 

Though the GTA has more room to grow, they are experiencing supply issues. With many unable to buy in Toronto plus new population growth and pressure from investors, the demand for houses is too high for builders to keep up. Looking at the housing downturns in the past, a significant component was a rise in homes on the market, allowing prices to fall. Without a large amount of housing supply increase, the market will remain tight and prices will continue to stay strong.

In the last two years especially, the real estate market has exploded due to a combination of low borrowing rates, increased disposable income, continued low supply, among other factors.

Where are prices going to go in the future?

This is the big question that all investors and real estate professionals want to know, and unfortunately, we can not give you a definite answer.

On the other hand, the fundamentals of the market are strong. The city continues to see GDP and job growth and the demand for housing keeps growing as well. For such a large and important city in Canada, it’s safe to say that Toronto will not suddenly crash entirely.

Concerns have been raised, however, as people see the rapid growth in the past two years as not sustainable and worries about another downturn are growing. Most analysts looking at the potential future would agree that continued growth at the pace we have seen is not going to last forever. There are different views on to what degree the market will shift. 

On one side are predictions for a continued but slow increase in prices. In this scenario, home prices would continue to rise. A recent report from RE/MAX predicts growth of up to 10% in Toronto for 2022. Similarly, the Canadian Real Estate Association (CREA) forecasts a 14.3% price increase in home values nationally in 2022.

 

On the other side, some are predicting a downturn in prices. This includes a prediction from Oxford Economics which, in a recent forecast, predicted home prices in Canada to fall 24% to 40% over the next two years. Note that the market across Canada does not always align with conditions in Toronto as a city. However, as one of Canada’s largest real estate markets, it would surely see some of the impacts in this scenario. Also, keep in mind that a 40% drop in prices would still only leave us with home values seen around 2020, so it wouldn’t be an all-out collapse. This  would not be great for investors, especially those who bought recently.

In the middle of the road, you have predictions for a price stagnation, which is neither great for investors nor necessarily for those hoping to get into the market.

Is now a good time to invest?

In choosing to invest in real estate now, you should think about what you want your strategy to be. If you plan to profit on a home’s equity in the short term, you should be prepared for returns lower than seen in recent years with the potential for negative returns in the coming five years or so.

On the other hand, if you plan to buy a rental, now may be as good a time as any to consider. Rental demand is still steady in the city as life returns to pre-pandemic conditions, which will mean only more demand in the market. For the time being, mortgage rates are still near historically low, though they are set to rise soon.

Overall, Toronto is generally seen as a good investment if you can afford it, however, you should be aware of the potential instability in the short term. As usual, it will come down to the individual investor to evaluate their own risk and returns preferences in deciding where they want to put their money.

 

© 2022 Canadian Real Estate Wealth

Hot housing market plays key role in 2022 B.C. budget

Ryan Garner
Livabl

 British Columbia’s housing market hits record highs in sales and prices during 2021, while the resulting property transfer taxes helped bolster the province’s bottom line.

Home sales increased by 32.8 per cent in 2021 compared to the previous year, while the average price of a home in the province rose 18.7 per cent. Housing starts also jumped 25.6 per cent in 2021 to a record 47,607 units.

Those figures helped boost the B.C. economy and put money in provincial coffers, with property transfer taxes adding $2.1 billion in revenue last year and an anticipated $2.5 billion in the year ahead.

Detailing the 2022 provincial budget on Tuesday, B.C. finance minister Sheila Robinson outlined investments in a number of housing initiatives, including $633 million geared toward programs aimed at preventing homelessness, including supportive housing programs and rent supplements to help people afford adequate shelter.

“A new comprehensive approach is needed to shift from reactive to proactive solutions for homelessness,” Robinson said during her budget speech.

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The budget also included $166 million devoted to a 10-year housing plan with a goal of building 114,000 affordable homes across the province, as well as $100 million to non-profit housing providers to expedite construction of mixed-income housing through the Community Housing Fund.

An additional $11 million in funding was earmarked to help fund the province’s Better Homes New Construction Program, which provides up to $15,000 in rebates for the construction of high-performance electric homes.

The Canadian Home Builders’ Association of British Columbia (CHBA BC) welcomed the news, while noting the Better Homes investment fell short of the previous year’s budget and renewed its call to expand the program.

“Housing is essential to achieving this government’s goals for an inclusive and sustainable economy,” said CHBA BC CEO Neil Moody in a release. “Budget 2022-2023 recognizes the importance of the residential construction industry, which has upheld the province’s economy during these challenging times.”

CHBA BC has continuously lobbied the province to streamline the development approval review process to help increase housing supply, and government officials could be taking decisive action this fall.

Earlier this week, B.C. housing minister David Eby said the provincial government is considering legislation and regulatory changes that would exclude local governments from making the final decision on housing permit approvals.

The move would be a welcome change for developers forced to endure an arduous approval process at the municipal level, with projects undergoing heavy scrutiny to ensure they align with community regulations.

“The bottom line is that municipalities are not approving enough housing for our population growth,” Eby said in a statement. “I think it’s quite possible that we’re going to need to be more prescriptive. One thing is clear is that the status quo is not acceptable.”

 

© 2020 BuzzBuzzHome Corp.

First-time buyer crisis: Is it time for longer amortizations?

Fergal McAlinden
other

The idea has been frequently touted by industry members as a possible solution to affordability challenges

 As struggles for first-time home buyers continue in Canada’s housing market, the idea of longer amortizations for new entrants to the market is one that continues to be a popular one among mortgage professionals across the country.

The proposal looks set to feature prominently in Hill Week, a lobbying effort in Ottawa by Mortgage Professionals Canada (MPC); the association has recommended that the federal government introduces amortization periods of up to 30 years for insured mortgages among new buyers.

It’s also one that’s found favour among many agents and brokers, with a prominent member of Canada’s mortgage broker community telling Canadian Mortgage Professional that it would offer an effective way of helping ease the increasing affordability concerns facing prospective first-time buyers.

Sadiq Boodoo (pictured top), principal broker at the Whitby, Ontario-based Approved Financial Services, said that a longer amortization period for new buyers could be up to 40 years, a change that would reflect the new realities of purchasing and owning a home.

“Thirty years ago, 40 years ago, you bought the home and [would] live in that same home for your entire life. That’s no longer the norm,” he said. “People buy a home, they move up into a bigger home or they move down into a smaller home.

“It’s not uncommon now where a person might live in six different houses throughout their lifetime or more. Knowing the vast majority of people will not live in the same house their entire lifetime, so therefore they’re not spending that full 40-year [period] in there – why not give them a 40-year amortization just to help them get into the market?”

Read next: What will influence the Canadian housing market’s 2022 activity?

Such a policy could be tracked the same way it’s currently done with the land transfer tax credit, Boodoo said, with lawyers determining and confirming eligibility for the program.

The maximum amortization on all homes insured by the Canada Mortgage and Housing Corporation (CMHC) is currently 25 years, having reduced from 35 years in 2011, and then 30 years the following year.

In its recommendations to federal lawmakers for Hill Week, MPC is making the case that it’s become increasingly difficult for would-be buyers to afford the down payment, and that Canada is currently home to “some of the world’s most stringent qualification criteria.”

Recommending a 30-year insured amortization tailored specifically for first-time buyers, the association said that “will permit them to enter their first home with a lower and more manageable payment in their first years of ownership.

“This creates an opportunity for equity growth over time and increases Canada’s financial strength,” it added.

Problems facing new buyers have remained acute in the opening months of the year, Boodoo said. For many of those who are attempting to qualify for a mortgage as sole applicants, affordability is effectively non-existent.

“At the beginning of the year, we always have people that make that attempt to see if they can buy a home. A lot of them honestly can’t and won’t be able to without a lot more work,” he said.

Read next: Hill Week kicks off in Ottawa

“It is a struggle because the ones that are trying to do it on their own first aren’t coming close to the price points. We see [applicants] coming into the $600,000, $700,000 [range] – but when a townhouse is selling for $900,000, what are they going to buy?”

The federal government introduced the First-Time Home Buyers’ Incentive in 2019 in an effort to address the escalating problems faced by new entrants to the market.

That program offers a shared-equity approach aimed at reducing monthly housing and mortgage costs for new buyers, with the Liberal Party pledging during last year’s federal election campaign to amend the policy by offering a choice between the current equity-sharing model and a loan repayable at time of sale.

Still, it hasn’t seen significant uptake among clients, Boodoo said – mainly because affordability continues to be the biggest challenge.

“Since that program launched, we had two inquiries, and after running the numbers and showing clients what the true impact to them was, they realized it wasn’t really beneficial,” he said. “That program hasn’t really impacted purchasers in the way they intended.

“We haven’t seen people’s affordability increase because of it. Yes, it’s helping with the down payment – but the reality is that the income to qualify restricts them into a price point when the market has exceeded that price point.”  

 

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