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Upward Pressure on Price Due to Declining Inventory: TREB

 

September’s Toronto and GTA real estate market continued upward trends both in price and number of sales, with double-digit gains happening on price and sales in nearly every category.

Also on-trend were the categories where significant gains were not realized. Detached and semi-detached home sales in Toronto posted a 4.7% increase and a -3.5% decrease respectively. The Toronto Real Estate Board said that this was due to a lack of inventory in these areas.

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TREB President Larry Cerqua said “We continued to see strong demand for ownership housing up against a short supply of listings in the Greater Toronto Area in September. The sustained lack of inventory in many neighbourhoods across the GTA continued to underpin high rates of price growth for all home types.”

Keeping an eye on new mortgage rules, but inventory is the issue

Average selling price across the board was up by 20.4% year over year – the average price of any type of property is now $755,755. Recently announced rules for mortgages were announced go into effect October 2016, and while the TREB is keeping a watchful eye, it maintains that a lack of inventory is the key driver in the upward pressure on home prices.

The new mortgage rules impose a “stress test”, which measures a mortgage applicant’s financial qualifications not against current market rates, but against a higher five-year rate. While these rules were already in place with applicants with a smaller down payment, the federal Government imposed these rules on all new applicants in an attempt to cool the red-hot housing market and insulate the market – and homebuyers – against potential interest rate hikes.

Where new mortgage rules may impact

The new rules may not reduce the demand for pricier detached and semi-detached homes in properties in the 416 area code due to the need for a significant salary and down payment to gain entry to one of these properties. However, it is hard to believe that the new rules won’t put pressure on the lower end of the market, specifically any townhomes and condo properties across the region, and some semi-detached homes in the 905. Younger families may have to start out in a condo or townhouse rather than starting off in a family-sized home. Young professionals may have to rent a little longer, or draw on the bank of Mom & Dad to either purchase a property or live at home for longer than usual.

While it is true that these new rules were introduced to safeguard the future financial wellbeing of those on the lower rungs of the property ladder, it will mean that some may not even be able to climb up on the first rung – which is frustrating both for potential first-time homebuyers and the real estate market. It may force downward pressure on prices at the lower end of the market so sellers can meet the needs of the demographic they were hoping to sell to, but only time will tell.

You can download the September TREB Market Watch here.

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Funding Your Retirement through Real Estate Investment

Are you Retirement Ready? Find Security with Toronto Real Estate Investment

retiring in Toronto? How real estate investment can provide passive income

When you think about your retirement, what are your primary considerations? We all want to live our golden years in comfort, so many would immediately think about money. Now think further into your retirement—after 10 or 15 years of your pension or RIF cheque finding itself in your account like clockwork, what will you be doing? For many mature residents, Toronto real estate offers the best avenue for secure retirement income. With the average detached home in Toronto exceeding the $1 million mark in early 2015, even those with a modest sized home would agree that investing in property can be lucrative.

Cashing in on real estate income during your retirement requires planning and isn’t just about continued appreciation. Although there seems to be no sign of cooling, our market isn’t guaranteed to see continually robust years like 2015. Seasoned investors have the ability to make your income properties work for you, and not only in Toronto. In fact, several GTA properties in nearby suburbs show considerable promise of returns, without the hefty price tag of a Toronto home. The key is to work with a professional that can pick the market and set realistic goals.

For middle-aged investors interested in securing retirement income, purchasing a condominium or house as a rental property can pay off when it’s time to retire. It would take around 15-18 years to pay off a typical mortgage strictly with rental income. Once your property is paid off, it will be a source of passive rental income for the rest of your life.

While it may have been tempting in previous years, buying a rental home in a tourist or resort town isn’t the wisest idea. Focus on local economies that are rapidly growing—just north of the city, commercial and institutional construction has increased, which indicates population growth. For the well-financed investor, buying a house in Markham, Newmarket, Aurora and Woodbridge are top choices. Some more affordable municipalities to consider are Whitby and Ajax where rents might not be as high as they are in Toronto, but are substantial enough to carry your mortgage.

For those who are closer to retirement or have already retired, the responsibility of owning a rental property might not be as appealing. If you fall into this category, consulting with a Toronto Real Estate Investment Professional can help you find a more viable option.

With anything in life, planning is the key to a successful retirement; treat these years as a project by setting clear lifestyle goals, reviewing your plan annually, and ensuring you have rainy day funds tucked away, should unexpected expenses arise. If you are planning your retirement, talk to your loved ones, and schedule a meeting with your investment advisor, who will be able to steer you toward the path of a comfortable and happy retirement.

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CMHC Improvements Program — Building Equity While Renovating Your Dream Home

The CMHC Improvements Program — Making Toronto Real Estate More Affordable for Home Buyers

CMHC-improvements-program

CMHC Helps Buyers Transform Fixer-Uppers into the Homes of their Dreams.


It wasn’t long ago when a home that “may need a little TLC” was enough to make a homebuyer turn the other way. Now, in Toronto’s tight market, where affordability is a growing concern for home buyers, even homes in dire need of repair and renovation are stirring up bidding wars.

CMHC’s Improvements Program, (formerly known as the Purchase Plus Improvements Program) is a little-known option that qualified buyers can take advantage to improve their odds of affording a fixer-upper. How does it work? The program allows you to tack the cost of renovations to the overall purchase of the home and include it in their mortgage loan amount. Qualified buyers have that ability to borrow up to 10 per cent of the estimated value of the home after renovations.

To give you a better idea of how the program works, let’s say you’re interested in purchasing a home listed at $650,000. The home has great bones, however, would require renovations to the kitchen and washrooms. It’s estimated that this home’s value, once improved would have a market value of $700,000. As a result of the estimated increase, you can borrow up to 10 per cent, or $70,000 of the new value. This is a great program for first-time buyers who would otherwise be unable to afford renovations because the majority of their money was used toward a down payment.

To qualify for the program, borrowers must provide a quote from a contractor and submit it to the CMHC and their mortgage lender before closing on the house. In order for the CMHC and lender to approve the amount, your Agreement to Purchase must include the condition that states you would like a contractor to perform an inspection of the home. Once approved, the amount will be added to the mortgage loan. Upon closing, the improvement amount is forwarded to your lawyer who is authorized to release the funds when the proposed renovations are complete. Because buyers do not have immediate access to the funds, it is recommended they open an unsecured line of credit in the interim.

There are a few provisos that buyers need to keep in mind—things that are not permanently affixed to the structure of the home, such as appliances are not covered under the program. Additionally, the CMHC would not approve a renovation that would convert a section of the home into a separate apartment.

For new homebuyers, the Improvements Program is a fantastic opportunity to build up thousands in equity instead of purchasing a more costly renovated home—and transform that fixer-upper into a dream home.

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Toronto Real Estate Market Watch — November 2015

In an announcement made by Toronto Real Estate Board President Mark McLean last week, GTA REALTORS® reported 7,385 home sales through TREB’s MLS® System in November 2015 – a 14 per cent increase compared to November 2014 and a record number for November sales to date.

Toronto’s real estate market saw 96,401 sales for the first eleven months of this year. There is no doubt that 2015 will go down in history as a year Toronto real estate made the record books. High housing prices, the number of homes sold, and benchmark indexes as well as a low number of active listings, average days on market and the amount of square footage you get for a dollar–not to mention the value of the Canadian Dollar itself. However, as the year winds down, people are turning their focus away from the red-hot real estate market and putting themselves in gear for the holiday season.

record highs for GTA housing market

Credit: Toronto Real Estate Board

December is often an interesting month in for the Toronto real estate market–sometimes, buyers bid to get into the market right before the new year while other years they wait for the fresh listings that often arrive in January. Mr. McLean remains optimistic for December, as well as the upcoming year. With one more month to go until 2016, we’ve still managed to set a record in for home sales in the TREB market area for an entire calendar year (the previous record set in 2007 and reflected all 12 calendar months).

McLean believes the widespread demand for homeownership is a priority for families in the GTA and attributes it to real estate being the best long-term investment. Despite rumours of a housing crash, Toronto continues to prosper and doesn’t seem to show signs of stopping. The other question remains–if there is no crash, will there be a correction? Will the market get out of control?

The federal Department of Finance wants to step in and increase the minimum down payment for a home from 5 per cent to 10 per cent. With stiffer borrowing rules, the market has a better chance of cooling without a drastic crash. An increase will also alleviate the taxpayers exposure to insured default losses and possibly boost sales in the condo market. First time home buyers who are only prepared to put a 5 per cent down payment must either wait until they have twice the amount of money they initially had or settle for a condo. While all these pros sound fantastic for markets like Toronto and Vancouver, other markets in the Country, especially cities that have already experienced losses in the housing market, will suffer. When will these proposed changed come into effect? We can expect the Federal Department of Finance to present the motion for additional 5 per cent on down payments to the Minister of Finance as early as January 2016.

With what seems to be a very small window to decide whether to toss the whole idea of buying a home, borrowers looking to put a smaller down payment on a home should seek the advice of a mortgage professional and reassess their budgets realistically. Increase or not, the New Year is the perfect time for families to analyze their finances to ensure sound decisions in the future.

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Toronto Millennials — A Landlord’s Dream

Toronto Millennials are poised to take over the rental market. Are you ready for them?

Millennials: We’ve heard this term thrown around a lot lately, but who exactly are they and what role does Generation Y play in the real estate market?

You don’t need to have an inside scoop to know that Toronto and Vancouver’s housing markets are on fire. As a matter of fact, not a day goes by without an argument of a housing bubble (or lack thereof), or a major media company discussing foreign investment and housing affordability becoming increasingly out of reach.

Toronto Millennials feel the effects of the latter, as the likelihood of having $1 million on hand for a house is slim to none. The first wave of this generation makes up a group of young single professionals. Unlike their predecessors, it’s more common to see millennials in their late twenties and early thirties focusing on advancing their careers. If we look at Baby Boomers and Generation X, we would see people graduating, finding work, settling into an area, getting married and purchasing their first home all before the age of 30. The thought of doing any of that for someone from Gen Y would be overwhelming to say the least.

As for the younger Millennials, the right of passage to adulthood includes transitioning from post-secondary institutions and living with mom and dad to living in the real world. Property managers see an increase in this demographic coming to them for rental properties. Gone are the days where young adults dreams include white picket fences and 2.5 children. Millennials are less interested raising families and climbing the corporate ladder and more interested in seeing the world and being their own boss. If you get the chance to chat with someone between the age of 23 to 28, ask them what their one wish in life would be. Nine times out of 10 it would be to travel or sell hats on the beach.

To the average Millennial, renting vs. buying is the best way to save money in today’s real estate market. As many do not have existing capital or sizable assets, renting puts them at a much lower risk of losing money, should there be a shift in the market. Between a down payment and a mortgage, and first and last rent, losing a deposit isn’t as big of a deal as foreclosure is.

So far this post has taught us that the majority of Millennials will not be buying your property–got it. What we haven’t covered is a way to capitalize on this market. Essentially, Millennials are a landlord’s and property manager’s dream. They make up a market of people in seek of quality rental housing without a major time commitment or financial investment. These people are loyal to premium brands (i.e. Apple or Samsung, iPhone or Android), and if treated right, will make wonderful long-term tenants. They also like to share their positive experiences with their friends via social media and other short forms of communication that don’t require face-to-face meetings, which means more business for you in the form of referrals.

If you are a property owner, leave Marketing to the Millennials to the pros. As seasoned Toronto property managers, we have all the tools to stage your property to make it appeal to quality tenants, and ensure that your investment is in good hands. For more information on our Property Managment services in Toronto, or how we can help source quality tenants for your rental property, contact us today.

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TREB Market Watch, October 2015 — Are Mortgage Rates on the Rise?

Are Mortgage Rates in Canada on the Rise?

In an announcement made last week by Toronto Real Estate Board President Mark McClean, GTA home sales showed the best results on record to date. With 8,804 home sales reported through TREB’s MLS® system, October was a favourable month for Greater Toronto Area REALTORS®.

toronto-condo-market-october-2015

Additionally, The MLS® Home Price Index (HPI) Composite Benchmark was up by 10.3 per cent year over year in October. Over the same period, the average selling price for all home types combined was up by 7.3 per cent to $630,876. Price growth continued to be driven by the low-rise market segments.

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Source: Toronto Real Estate Board

Although sales are robust and predicted to climb in the upcoming year, some believe that the province-wide municipal land transfer tax that the Wynne government plans to introduce could affect the market. When asked their opinions on the new tax, the vast majority of Ontario residents surveyed opposed it.

In mortgage-related news, Stats Canada released new data on the labour force, which showed improvement during the month of October. A total of 44,000 new jobs were created, the majority of which, however, were part-time. There was also a substantial increase in employment in the manufacturing sector, which shows hope for the state of our Loonie. If this trend continues, we could head toward a more sustainable economy. How does this all affect mortgage rates? It is predicted it is less likely that we will experience another cut in the Bank of Canada’s lending rate, and mortgage rates will eventually rise. Last week, five-year fixed mortgage rates increased across the board and range between 2.54% to 2.69%. There is no need to worry, as there is no sign of a significant spike, just a more optimistic outlook for our economy. Another contributing factor to a change in rates is what our neighbours to the south are planning—it’s a matter of time before their rates go up, and inevitably, we must follow suit.

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Liberal Party Policy Change–Additional Land Transfer Tax for Buyers in Ontario

The Municipal Land Transfer Tax is coming to a town near you, and most likely, your town as well.

Real Estate Professionals in Ontario up in arms about new land transfer tax

The dreaded Municipal Land Transfer Tax (MLTT) might be spreading across Ontario as an additional taxation measure backed by the Liberal Government. This tax will be on top of the existing Provincial Land Transfer Tax (PLTT) levied upon closing a land or property transaction in Ontario. As a buyer, the amount you paid for the land as well as your mortgage or remaining debt related to the purchase of the property are factors that determine the tax payable.

In 2007, Toronto City Council approved the Municipal Land Transfer Tax to the dismay of Realtors® and hopeful residents alike. Currently, Toronto is the only city in the province that levies an additional tax on top of the Provincial Land Transfer Tax. Although the MLTT has caused some homebuyers to consider, properties outside of the city, buyers in Toronto seem to be more accepting of the tax as of late. In a competitive market where the cost of an average detached home is over $1 million, what’s another $15,000 in municipal taxes?

Several Realtors® are up in arms about the possibility of the Liberals moving forward with this decision, as it may have a significant impact on the housing marketing in cities outside of Toronto. Although Toronto’s housing market is robust, during its first five years, the MLTT is said to be responsible for a severe decline in home sales. The Ontario Real Estate Association (OREA) is requesting that the Liberals reconsider giving municipalities the power to levy this tax. Homebuyers in Ontario can expect this new tax to implement as early as next year, and if the Liberals do follow through with the policy change, Ontario will become North America’s most taxed jurisdiction.

As investors, what can we do to prepare for this? Not much, however, we can expect increased competition in housing markets in the surrounding GTA, especially luxury homes in York Region. With the policy change looming near, there is even more incentive to invest in property on the outskirts of Toronto. Do the suburbs suddenly sound more appealing? We think so too.

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The Market for Toronto Condos is in Exceptionally Good Shape

Toronto Condo Inventory Pileup? Not quite

What do cooler nights, Canada’s largest annual community event, The Canadian National exhibition and slowing housing sales all have in common? They are friendly reminders that summer is coming to an end. Maybe not the last one — not in the GTA at least.

Although the short season is winding down, the Toronto real estate market remains hot and it is expected that housing prices in one of Canada’s strongest markets will continue to increase for the rest of year. Supply for homes, particularly low-rise residential units is scarce in the city, unable to meet demand. This stark imbalance has caused the prices of homes to skyrocket to record numbers over the past year, making affordability for the average Torontonian further out of reach.

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The condo market, however, is benefiting from low-rise scarcity as well as low-interest rates. Despite data released by the CMHC in the first quarter, stating the number of unsold Toronto condos was at a 21-year high, sales of high-rise units have actually increased significantly and as a whole in Toronto, have been very strong this year. The “pileup” of unsold inventory, which is a key factor in determining the health of the condo market, dropped 13 per cent in Q2 of 2015, in a year-over-year comparison according to a survey released last week by Urbanation, a condo research and development firm.

If you’re considering purchasing a condo, now’s the time to do it. Between baby boomers looking to downsize, and young professionals purchasing a less costly alternative to a house, Toronto condos are being snatched up – and quickly. Although the prices of condominiums have not faced the drastic spike in price as detached homes have, they will inevitably increase — as will mortgage rates. In Urbanation’s survey, it was also reported that prices for resale condos were up 6.8 per cent across the GTA in the second quarter, to an average of $453 per square foot, as sales spiked 21 per cent. Bidding wars have even started to affect condos, as larger units are becoming highly coveted among families and those interested in long-term ownership. The better supplied new condo sector, however, saw more moderate price increases of 2 per cent during the quarter, pushing the average price to $566 per square foot.

Owning real estate will remain one of the best investments you can make. Whether it’s a low-rise nest-egg or high-rise real estate investment unit with continual positive cash flow, the sooner you enter the marketplace, the sooner you benefit from the low mortgage rates, as well as the inevitable rise in housing prices.

Opinions will vary, and each individual is entitled to his or her own, however, when it comes to housing one has to consider the following: The health of a real estate market is closely related to local demographic and immigration needs.

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6 Facts About the Toronto Real Estate Market

Photo Credit:  Kevin Van Paassen

Photo Credit: Kevin Van Paassen

  1. 56,000 condos
    At the end of 2014, there were more than 56,000 condos under construction in Toronto. That’s far more than what’s being built in other cities with a greater population like Chicago, Los Angeles, or New York. As a comparison, during most of the 1990s the city hovered around 10,000 condo starts.
  2. Almost 3,000 unsold condo units
    In May, CMHC reported 2,837 unsold condo units. An all-time high, the closest we’ve come to that number was in the early 90’s when the condo market was out of control. Despite the high number of unsold units, sales for the fancy high-rise units continue to increase. Condo sales also help stabilize the market by offering an affordable entry point for first-time buyers.
  3. $1 million average price
    In February Toronto reached a milestone that had previously only been reserved for some of the most expensive cities on the planet. The average price for a detached home in the city limits surpassed $1 million. In June, that number increased to $1.052 million. The increase in demand for luxury homes, namely houses sold at $3 million or more has contributed to this number. Buyers have not been discouraged by this, as bidding wars are still very common.
  4. 50% in five years
    In 2010 the average price for a Toronto property (including condos) was hovering around $430,000. In just five years, that average has rocketed up more than 50%, recently almost hitting $650,000.The last time the market moved that quickly was back in the late 1980s, with the average price hitting a peak of $273,000 in 1989. The average value didn’t top $270,000 again until 2004.
  5. 39,000
    The number of sales in the Toronto market has more than tripled since hitting a low of 26,700 transactions in 1990, right after the 1989 bubble popped.That’s created a lot of jobs selling houses. According to the Toronto Real Estate Board, there are currently more than 39,000 realtors currently working in the city. That’s one realtor for every 140 residents.
  6. 8.9 times
    According to Statistics Canada, the average Toronto family earned $72,830 in 2013, the most recent year for which statistics are available. During May 2015, the average price of real estate in the city was $649,599. That puts the price-to-income ratio at an eye-popping 8.9 times, which is a record high.

Sources:

Canadian Mortgage and Housing Corporation http://www.cmhc-schl.gc.ca/
Canadian Newswire: http://www.newswire.ca
The Motley Fool: http://www.fool.ca
Toronto Real Estate Board: http://www.treb.net

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HighGate Property Investments Inc: Your Source for Professional GTA Real Estate Services