Largest year-over-year decline in the City of Toronto

Greater Toronto REALTORS® reported 9,422 home sales through the TorontoMLS system in June 2012. The number of transactions was down by 5.4% in comparison to June 2011. The year-over-year decline was largest in the City of Toronto, where sales were down by 13% compared to June 2011. Sales in the rest of the Toronto Real Estate Board (TREB) market area were comparable to a year ago.

The average selling price in June was $508,622 – up by 7.3% compared to June 2011.

Read full report

Now this is the month before new CMHC rules take effect and one would think that buyers would hurry up to buy before restrictions come into play. But sales are down and significantly down. To me this means that majority reached their maximum capacity. About 35% of buyers in GTA are affected by new rules. Prices are going up 8-10% every year, but not the salaries. Latest reports showed 4% income increase, mostly through more overtime, but even this is not enough to cover increasing housing costs.

Also there is a factor of a half-a-million-dollar price. About a year ago we looked at Support, Resistance and Rounded numbers on the market. Half-a-million seems to be breaking point - price would either skyrocket or will take a turn. Average price in GTA is just over that mark and looks like buyers are resisting further increase.

However price still go up. Why is that? Examine the details of sales:

First of all entire 416-zone dropped in number of sales, but not the 905. People prefer less expensive outskirts.  Largest price increase is in the most expensive sector - detached houses of 416. Because 1% increase on such house represents higher dollar value than, say 1% price increase on a townhouse, it drags average price up easier. There are still buyers for luxury homes. You can almost say that rich are getting richer (and expensive houses will still go up in price) and poor are not going anywhere.

Next 6 months will show where the market is going. It still can take a turn both ways, but it looks like at least condo market is taking a dive. Significant sales drop - 18%, accompanied by slowest price increase - 2%, demonstrates that golden days of this sector are over.

Changes to immigration programs and effect on Real Estate

Not a lot of Real Estate investors keeps track of Canadian immigration program, but they should. In the past Canada welcomed 200 000-250 000 people each year from all over the world. At least half of them (some sources claim up to 90%) called Ontario their new home. New immigrants were one of the top factors driving Real Estate up.

A typical immigrant rents for at least the first year, helping rental market to grow. As soon as immigrants are on the feet they prefer to buy own home, so we have more buyers on the market. But regardless if immigrant decides to rent or buy they increase demand for housing, driving Real Estate up.

If you noticed in the Spring Rental Report by CMHC net immigration into Ontario has “slowed sharply since 2010”. This is because government of Canada done quite a few changes to almost every immigration program, reducing number of qualifying immigrants. This is done to help bring people who have better chance of finding job in Canada. Federal Skilled Worker Program took the most hit in the last couple of years. Other programs that were changed reducing immigrant’s flow were investors and family class.

Many potential applicants were hopping for new rules and quotas as of July 1^st, 2012 but instead government of Canada announced that for now they are closing Federal Skilled Worker Program (main source of immigrants) until better selection criteria are developed.

For the Real Estate investor this is very significant because we are losing about 100 000 new renters in south Ontario. Combine this with less demand due to new CMHC rules, rising prices etc. and you might have a perfect storm for prices to take a turn. What is even more important is the fact that this is a long lasting effect. Even if new program is introduced 6 months down the road, it will take over a year for new immigrants to arrive, start renting and a few years before they start buying.

Another point to remember is why Canada had immigration program in the first place. Baby boomers are not getting any younger. More and more of them are retiring and there are less and less workers left to take their place. Immigrants were a source of work ready, grown up and trained professionals. Less workers means less taxes paid and we all know how this could end.

Of course I might be wrong (wouldn’t it be great if I am?), what do you think? Share your thoughts what impact new immigration rules will have in the Real Estate.

Rental Market Report Ontario Highlights - Spring 2012

According to Canada Mortgage and Housing Corporation’s (CMHC) Spring 2012 Rental Market Survey Ontario vacancy rates decreased to 2.3% in April 2012, down from 2.5% in the spring of 2011. 


Most urban centres registered lower vacancy rates. The lowest vacancy rates were in southern Ontario while the highest vacancy rates were in south western Ontario major centres. Rental vacancy rates remained stable in the GTA and in eastern Ontario urban centres.

Factors exerting downward pressure on vacancy rates
A number of factors exerted downward pressure on vacancy rates. A gradual US economic recovery coupled with continued concerns about the debt crisis in Europe generated uncertainty in financial markets. Renter households tend to be more sensitive to uncertainty in the marketplace. Consequently, renter households considering the jump to more expensive ownership housing may have postponed this decision.


A second factor supporting rental demand was the rising cost of ownership housing. First time buyers are most sensitive to the changing costs of home ownership. Many prospective renter households took advantage of lower prices and low interest rates during the early part the recovery and bought for the first time in an attempt to beat rising mortgage carrying costs. Stronger growth in home prices since last spring increased the relative cost of owning versus renting. More sales at higher price ranges in some major Ontario centres was evidence that the market was driven by repeat buyers. 


A third factor exerting upward pressure on rental demand was employment trends for young residents aged 25-34. This group comprises the echo boom cohort or the children of the young baby boomers born in the early 1960s. The echo boom was the last spike in birth rates (1980 – 1995) following the baby boom era. For most of the past decade, young adults have been living home longer. Few job opportunities delayed household formation and their departure from the family home. Economic circumstances have improved for this group in recent years. Not only are there more of these households but also a growing pool of echo boomers were able to land more jobs and were more likely to move into rental accommodation – exerting downward pressure on vacancy rates. 


Factors exerting upward pressure on vacancy rates
Other factors were less supportive of rental demand. Recent Ontario migratory patterns is one good example. Net migration into Ontario has slowed sharply since 2010. This was largely due to lower international immigration and, to a lesser extent, to migratory outflows to other provinces. Ontario continues to lose migrants to other provinces as Ontario`s job prospects have not kept pace with job openings in the rest of Canada. Most immigrants tend to rent upon immediate arrival into Ontario.


On the supply side, higher condominium and conventional rental completions created competition for existing rental accommodation. Some projects not geared to end users have been reaching the completion stage over the past year. In addition, more conventional rental completions, particularly in markets such as Windsor, London and Greater Sudbury meant more competition to retain and attract tenants - exerting upward pressure on vacancies. 


On net, demand pressures were strong enough since April 2011 to offset increasing headwinds from new supply – resulting in lower vacancy rates across most major Ontario markets.



Apartment rents for 2-bedroom units that were common to both 2011 and 2012 spring surveys rose by 2.1% This rate of increase in rents was slightly higher than the increase registered in the spring of 2011 but in 
line with the general rate of inflation. 

Units that experience turnover in Ontario are not subject to rent controls. Lower Ontario vacancy rates over the past year alongside more units turning over supported stronger rent increases in the spring of 2012.