From the Desk of Tina O'Brien
What a great turnout for our Urbanation presentation today. We discussed a wealth of statistics and data that helped us understand rates, structural supply shortages, 416/905 potential demand shifts, builder perspectives, building costs, condo, and rental trends.
A few key notes from the discussion:
October was our weakest in 10 years, and the sales-to-listing ratio was the lowest since 1996. TRREB reported sales were down 5.7 % but this analysis helps explain why this feels worse than the report.
The good news: Banks may be more aggressive in the Spring and move down on fixed and variable rates. The target rate will probably land at 4%; down 200 BPs by the middle of next year.
We have a 4 month supply inventory which would indicate a buyer's market; however, sales are still 99% of asking so we are not seeing sellers come off their asking. We do expect some deflation in prices.
35% of Canadians have mortgages and 75% of those are fixed. This stat helps us to gauge the impact of the mortgage renewal wave. It's not the majority of the country but it will have an impact.
The new tax in Toronto on properties over $3,000,000 may result in a shift in demand for higher-priced homes in 905. This is probably a short-sighted tax policy! Likely good news for the higher-end homes in Lorne Park, Mineola, Oakville, and Burlington.
40% of condos are owned by investors. This is not good news for the condo market as even the higher rental rates don't offset the carrying costs. In the long term, we are going to see fewer builds with 14,000 condo units currently on hold. The rental vacancy rate is 1.8% which is low. Another data point that will cause further inventory issues down the road and structural demand shortages. Again, 905 seems to be the sweet spot for investors as the condos yield the same rental but are less expensive. Note to investor clients, buying with 20% down will not work; 35% is the minimum. However, the delta makes little sense when the return on a condo is 2% higher than the current risk-free GIC. Rents are definitely going up but positive cash flow is likely a thing of the past.
There will also be a wave of new immigrant purchases. Most rent for 4 years on average and then 70% will buy. At roughly 45,000 new units a year, structural problems will persist. We need at least 75,000 in new builds to keep
up with current demand levels. This deficit in supply has been chronic over the past 20 years.
We are in a valley for sales but things are looking up for the Spring market.
If you weren't able to make it to the event, check out what Shaun Hildebrand from Urbanation had to say bout the upcoming market.
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