AUGUST MARKET STATS 2017
I was away in Europe for a few weeks enjoying a little RnR. As glorious as Europe and the Mediterranean can be nothing beats coming home to Toronto. When travelling in Greece it’s impossible not to be aware of the impact of capital controls. The situation in Greece and the capitol controls the government has implemented are quite extreme but I couldn’t help but notice how effective capital restrictions, and increased taxation have been at stifling market activity.
Whats happening now?
Supply has been steadily decreasing since it’s peak in June. Listings always take dip in summer as people shift their focus toward vacation, family, and fun in the sun. Sales volume is down and sale prices are down month to month while prices remain up year to date. Prices are not down equally everywhere. Condo’s and premium product in prime Toronto neighbourhoods priced correctly continue to sell.
The buyers are back in Toronto’s housing market
Last month I wrote about and provided a link to new measures being discussed in Ottawa to further cool the market. Ottawa is reviewing changes to lending policy and mortgage qualifications that would make it harder for people to qualify for a mortgage regardless of whether they have a 5% or 25% downpayment. The proposal would require all borrowers to qualify for mortgages 200 basis points (2%) higher than the posted rate. Tightening the money supply is a form of capitol control. Requiring all borrowers to qualify at rates rates 2% above posted rates will have several consequences. The new stress test will reduce the amount of qualified buyers and house prices will need to drop in order for buyers to qualify for mortgages at the higher stress test rates.
Maybe the measures taken thus far have cooled the market enough and Ottawa will shelf it’s new lending policy plans. Here is one perspective:
Collapse in Toronto home prices may pressure Ottawa to hold off tightening.
Toronto home prices have plunged more than 17% since their peak in April, which analysts say should delay changes that would make it harder for consumers to borrow.
There are others who believe the new lending policy will move forward and have a major impact:
New mortgage rules could depress housing demand by another 10%: TD.
Three rate hikes this year? Economists now say Bank of Canada will tighten faster and further.
The Bank of Canada raised interest rates on Wednesday, surprising many, and left the door open to more rate hikes in 2017 even as it pledged to pay attention to how higher borrowing costs would hit Canada’s indebted households.
Why surprise the market with a rate hike the Bank of Canada knew was in the pipe? An unpredicted rate hike that comes as a surprise creates uncertainty and markets don’t like uncertainty. Creating uncertainty is a market cooling mechanism and an indicates to me that the Bank of Canada is looking to cool things further.
When the supply and access to money tightens up prices drop. Historically shifts in the real estate market are tied directly to the access to capital. An increase in money supply and affordable lending rates create borrowing opportunities while a reduction in money supply, interest rate increases followed by capital controls/tighter lending policy reduce rapidly flowing markets to a slow trickle.
There is a common misconception regarding market corrections. Many people mistakenly believe that buying opportunities will arise and it is prudent to wait for a correction in order to feast at the banquet provided by those who have big eyes and shallow pockets. If you have the ability to buy properties without a mortgage then you can take advantage of the opportunities a market correction provides as did Blackstone in the United States.
Blackstone acquisition creates one massive home-rental company.
The investor with bottomless pockets can afford to watch, wait and pick opportunities. Just to be clear a real estate investor is one who bases the purchase of a property strictly on the rate of return the investment will pay over the lifetime of ownership. Investors buy properties that generate positive monthly cash flow after expenses.
If you are looking for a single family-residential dwelling, a home close to a specific school perhaps, close to your parents or that is heavily influenced by a personal, non financial desire then you are not an investor and you can discard all the BS you’ve heard about how your home is an investment and focus strictly on your wants, needs and financial ability to acquire the home you desire.
If enacted the proposed legislation could be a serious obstacle for those in the single family home market. I suggest you speak with your lender/mortgage broker to determine how much of a mortgage you’ll qualify for if the proposed lending changes come into affect and then buy what you want before the changes have a chance to come into affect.
Over the next 30 – 60 days I believe we will see an increase in listings as is standard for the fall market. Properly priced, well presented properties in highly desirable neighbourhoods will continue to perform well. From a buyers perspective it’s pretty incredible that prices have dropped while lending rates remain pretty much the same. Ontario job growth, corporate profits and employment numbers are up while we remain one of the best cities on the planet to live.
If you’ve been following my posts you’ll note that I’ve continued to sell properties over the asking price and well over the values achieved by most recently sold comparable listings. During the same time I’ve managed to negotiate prices well below the asking price for buyer clients and recently I completed a purchase in which the property was appraised at a higher value than what my clients payed for it!
If you have any questions please feel free to call me at anytime.
If you know of anyone looking to make a move or in need of a professional realtor they can trust, please send them my way! I’m never too busy for any of your referrals.