Real Estate 2017 – what to expect – PODCAST

Real Estate 2017

This article contains a podcast which takes a look at real estate 2017 in Mississauga and surroundings. There is a  review of sales activity and prices in 2016, plus a look forward to what to expect in 2017.

Update: the Toronto Real Estate Board reported 5,188 residential transactions through the MLS system in January 2017. This  was an increase of 11.8% per cent compared to the 4,640 sales that were reported in January 2016. Condos showed a higher sales growth than low-rise homes.

January 2017 was basically an extension of 2016. Sales increased on a year-over-year basis while new listings was down dramatically for most major home types.

It’s pretty clear that owning a home continues to be a great investment and remains very important to many households in Canada. As we move forward through 2017, we expect the demand for ownership housing to remain strong, including demand from first-time buyers who, according to recent surveys, could account for more than half of transactions this year. Many of these potential buyers will have problems finding a home that meets their needs in a market with an extreme shortage of inventory for sale. Prices are at record highs. In the last twelve months, the average selling price of all housing types was up by 22.3 per cent to $770,745, with dramatic increases in the average prices for all major home types.

Biggest problem for the industry – the number of active listings on the MLS system at the end of January was essentially half of what was reported as available at the same time last year. That statistic, on its own, tells us that there is a serious demand and supply imbalance in the Greater Toronto area: a problem that we expect will continue throughout in 2017. The end result will be strong price increases for all home types again this year.

So can we expect the great boom in Canadian real estate to continue? Find out here:

Questions: with prices up a staggering 22.3% per cent in 2016, can the bull market continue? How much higher can house prices go in Toronto, where the average price for a detached home is now over $1 million dollars? Will interest rates rise? What about world politics – will they affect the local Canadian market? What about condos? Just a few questions to consider.

portions of this report first appeared in the Toronto Real Estate Board  Market Watch publication

Mortgage Rule Changes Canada

MORTGAGE RULE CHANGES for CANADA

new mortgage rule changes 2016

Important mortgage rule changes for Canada took effect on October 17, 2016. These government mandated changes make it harder for buyers who have less than 20% down payment to qualify. Some of the changes include:

  • only apply to buyers with less than 20% per cent down
  • only applies to purchases (not re-financing)
  • must now qualify at the Bank of Canada rate – currently 4.64%, which is significantly higher than the posted, or contract rates
  • Canadian government is branding this as a “Mortgage Rate Stress Test”
  • existing mortgage commitments are grandfathered into the previous scheme, although closings must take place before March 1, 2017
  • applies for all three Canadian mortgage insurers – CMHC, Genworth Financial, Canada Guaranty Mortgage Insurance
  • additional changes include certain low ratio mortgages with 20% down payment will still require mortgage insurance, and will now need to qualify at the higher rates
  • Canadian citizens will now be required to disclose the sale of their “primary” residence on the income tax forms. Even though now tax may be payable, the sale must still be disclosed
  • no changes yet for foreign resident buyers, although there is a distinct possibility that there may be substantial changes here as well

Effect on Real Estate

There has been a lot of discussion on the internet regarding these mortgage rule changes. Here is one video which goes into some detail regarding the October 17 changes:

There is a complete transcript of the video which provides a pretty good summary of the changes.

Slowing Down the Market

So you can see, the Government of Canada is making some radical moves to slow the real estate market in this country. Short of raising interest rates, they are doing everything they can to slow the market, with intent to dampen the price rises in primary cities such as Toronto and Vancouver. It remains to be seen how effective these strategies will be, but we watch them with interest going forward.

 

Home Construction in Canada Booms

Canadian New Home Construction August 2016

New home construction activity in Canada continues to be one of the healthiest components of the national economy. Housing starts have defied predictions of a soft landing, and national housing starts throughout the first seven months of the year have trended around 200,000 annual units (chart 1).Canada National Housing Starts

The trend in building permits is only modestly lower at 190,000 units, pointing to continued strong activity over the remainder of the year. Housing starts are now expected to total approximately 195,000 units this year, very similar numbers to 2015.

British Columbia Leads

As with virtually all national economic indicators, there is a big and obvious regional divide in residential construction. British Columbia is the strongest province, with housing starts averaging a record-setting 44,000 annualized units this year, a 40% jump over 2015. While led by multi-unit construction (both condos and purpose-built rentals), single-family home construction also has picked up. B.C.’s residential construction boom extends beyond Vancouver and the Lower Mainland into other parts of the province, including Kelowna and Victoria. As of the date of this article, full impact of the new offshore resident tax, which was announced on July 25, has not yet been assessed.

Continued Strength in Ontario

Multi- and single-family construction also has picked up pace in Ontario this year. However, at an annualized 76,000 units year-to-date, the overall level of housing starts remains shy of a record. Activity remains extremely strong in Toronto, but a considerable amount of momentum has shifted to lower priced localities, including Hamilton, St. Catharines, Kitchener, Guelph, and London.

Alberta Home Construction Stabilizing

Construction activity in Alberta is showing early signs of stabilizing, although at levels well below historic averages. Provincial starts have totaled just 24,000 annualized units year-to-date, their lowest level since 2009, with notable pullbacks in both Calgary and Edmonton.

Activity in most other parts of the country remains relatively steady. There are signs of overbuilding in a few provincial markets, notably in Alberta, Saskatchewan and Newfoundland where home sales have slowed. For the most part, however, there is little evidence of any serious inventory problems.

Despite ongoing high levels of home construction activity, unsold housing inventory as a share of the adult population remains consistent with historical averages (chart 2).unsold Canada home constructionAbsorption rates of recently completed units remain healthy and stable. The continued strength in new and resale home prices is also indicating a lack of any glut in supply. Historic low borrowing costs, relatively healthy job market conditions and solid population gains
should continue to support housing demand and residential construction in B.C. and Ontario.

Builder Confidence

Builder confidence is being bolstered by strong resale and new home sales, tight supply and rising home prices. The average price of new single- and semi-detached homes has jumped 15% in Vancouver, and 8% in Toronto, over the past year. To the extent that tight supply is contributing to surging home prices in these two high-priced markets, the increase in new home construction is a welcome development. At the same time, rising unemployment,
inter-provincial population outflows, increased housing supply and a soft pricing environment weigh against a near-term recovery in Alberta, notwithstanding rebuilding activity related to the devastating May wildfires in the Fort McMurray area.

Canadian Housing Starts 2016

housing starts Canada 2016

with files from Scotiabank & CMHC

Canada & Global Real Estate Trends

Global Real Estate Housing Markets Remain Strong

Continued low interest rates are driving the key global housing markets, in spite of relatively sluggish economic growth and heightened financial market volatility. The IMF has estimated that roughly three-quarters of global real estate markets are experiencing rising house prices. Strength in general has been predominantly in first world countries compared with emerging markets, though gains are being seen across all regions. Two notable exceptions are Brazil and Russia, where deep local recessions, rising unemployment and high interest rates continue to put significant downward pressure on housing demand and prices. Canada, Australia, Sweden and the U.K. are among the top performing residential markets internationally.

Canadian Residential Markets Graph June 2016

Tightened Lending Rules

The continued and ongoing rapid pace of house price appreciation has prompted authorities to further tighten mortgage lending rules. This includes increased down payment requirements (Canada), higher investor lending rates (Australia), stricter mortgage standards (Sweden) and new taxes on second homes and rental properties (U.K.). U.S. house prices continue to trend up amid strengthening sales and tight inventory. Solid fundamentals — pent up demand, a robust job market and rising household formation — should extend the recovery even in the face of moderately higher borrowing costs.

graph Canada real estate trend

Affordability

Affordability is still acceptable in most countries surveyed, with average prices still about 20% below the 2008 pre-crisis peak adjusted for inflation, and the U.S. Federal Reserve engineering only a gradual firming in policy. Housing markets also are gradually firming in the euro zone. Average inflation-adjusted house prices across the region edged up 2% over the past year, a modest but defining turning point after several years of decline. However, conditions remain uneven, with strengthening labor markets supporting solid price gains in some member countries, notably Ireland, Spain and Germany, while other markets, including France and Italy, continue to languish alongside a weaker economic recovery.

world house prices June 2016

Latin America and Asia

The majority of property markets in Latin America and Asia are showing moderate activity and price growth. China’s housing recovery is broadening, with roughly two-thirds of major centers reporting annual price growth through April. However, authorities face a tough policy balancing act in their attempt to cool skyrocketing prices in top-tier cities while at the same time support the nascent recovery in oversupplied smaller centers. Foreign capital inflows also are contributing to the recovery in global property markets, as investors search for geographical and asset diversification, and higher potential returns. This extends not just into residential real estate, but commercial properties and agricultural lands as well. A large share of these flows has been destined to the luxury property market in top-tier cities. Global real estate market sentiment remains vulnerable to shifts in the economic and financial climate. Sales of high-end luxury properties have cooled in a number of large markets over the past year, including New York, Hong Kong and London. The softening in demand mirrors the economic slowdowns in China and the Middle East, and deep recessions in Russia and Brazil, all key source markets of luxury foreign buyers. Affordability also is taking on added importance, with relatively lower prices and favorable exchange rate conversions benefiting some second-tier cities, including in Canada, Australia and the euro zone.

home sales Canada June 2016

with files from Scotiabank Canada