Fewer Millennial Homeowners, New Deposit Protections, and Cracking Down on Property Scalpers: Weekly Real Estate News Recap

Millennials Less Likely to Own Homes: 2016 Census

Statistics Canada has released its latest crop of 2016 Census findings, with new revelations about national homeownership.

The data delves into the rate of homeownership over the past two decades, the emergence of certain housing types, regional variances and affordability, as well as how today’s generation of home buyers differ from those past.

One of the main findings is that millennials are less of a driving force in the market compared to their boomer counterparts, with just 50.2 per cent of 2016’s 30 year-olds owning their home, compared to 55 per cent in 1981.

It also shows boomers are mainly responsible for a surge in home buying between 1991 and 2006, and with the rate of homeownership levelling off following that year. Nationally, the rate of homeownership is 67.8 per cent, down slightly from 69 per cent in 2011 and from 68.4 per cent in 2006. However, that rate exploded from 62.6 to 68.4 per cent between that year and 1991, indicating boomers’ real estate purchasing activity.

That today’s home purchasers are more subdued has a lot to do with affordability, especially in Canada’s largest cities. For example, in the Greater Toronto Area, the average home cost $775,546 in September of this year, compared to $349,142 in September 2006 – a 122-per-cent increase that far outstrips that of wage growth.

Decreased detached house affordability is also the catalyst behind growing condo ownership – StatsCan finds 13.3 per cent of households (1.9 million) currently live in condos, an increase of 1.2 per cent from 2011. Of those, 67 per cent (1.3 million) owned their units, while 32.9 per cent, (616,570) rent.

Vancouver is home to the largest number of condo dwellers at 30.6 per cent, followed by Calgary (21.8 per cent), and 20.9 per cent of Toronto residents.

Interestingly, the percentage of households who found homeownership to be “unaffordable” – which is classified as paying more than 30 per cent of income on shelter costs – fell slightly to 24.1 per cent, from 24.4 per cent in 2006.

The Census also reports home values are up across the country, at an average of $443,058 compared to $344,182 in 2011.

Bank of Canada Holds October Rate

There will be no change to the variable cost of borrowing this month, as Canada’s central bank has opted to take a wait-and-see approach to its trend-setting interest rate, leaving it untouched at 1 per cent. This is an abrupt change in stance from last month, when the majority of economists expected another rate hike, to follow upward action in September and July.

However, weaker-than-expected job numbers and uncertainty over NAFTA have persuaded the BoC to back off their hawkish approach.

It also stated that new mortgage rules that will make qualification tougher for new applicants, will cool housing market activity, a main contributor to the economy.

“Housing and consumption are forecast to slow in light of policy changes affecting housing markets and higher interest rates,” states the BoC in their release. “Because of high debt levels, household spending is likely more sensitive to interest rates than in the past.”

CMHC Warns Market Increasingly Vulnerable

The Canada Mortgage and Housing Corporation, which monitors the housing market and mortgage holder debt levels, released its latest Housing Market Assessment and Housing Market Outlooks this week, with some dire warnings for the nation’s biggest cities.

Toronto, Hamilton, Vancouver, Victoria, and Saskatoon have all been identified as “highly vulnerable” due to price overvaluation, acceleration, and overheating. Calgary, Edmonton, and St. John’s also received warning bells for overbuilt conditions, as there isn’t enough buyer demand to justify the pace of new home development in those CMAs.

“We continue to see a high degree of vulnerability in Canada;s housing market, fuelled by moderate overvaluation and price acceleration,” said Bob Dugan, CMHC’s chief economist. “House price growth continues to outpace economic fundamentals likes household income and population growth. In 2018 and into 2019, housing starts are projected to decline while house prices should increase over the forecast horizon, but at a slower rate than in the past four years.”

Toronto and Hamilton have been specifically called out for price growth that’s not supported by wage or population increases while Vancouver suffers from moderate overheating, price acceleration and overvaluation as demand greatly outweighs supply, especially in the condo market.

CMHC expects that sales and new builds will both decline over the next two years, with the average MLS price to increase, but at a slower pace. It forecasts the average national home price to be in a range between $439,900 – $511,300 in 2017, and $499,400 – $524,500 by 2019.

Better Deposit Protection for New House Buyers

Good news for buyers of newly-built houses: Tarion, the provincial warranty provider for new construction defects, has proposed upping the amount of deposit protection by 10 per cent, from the current $40,000 to a minimum of $60,000 and maximum of $100,000.

These amounts will better reflect the prices of homes in the Ontario market, which have seen double-digit appreciation over the last year. The increase applies to houses only as newly-built condos are already covered by a number of warranties and consumer protections.

The proposal follows a provincial overhaul of Tarion, which, in addition to its role as warranty provider, was previously regulator of the pre-construction industry. Those overseeing powers have since been stripped by the province in lieu of a standalone regulator. Earlier in the month, improvements were announced targeting the claims process purchasers of homes with defects must undertake, which had drawn criticism for being convoluted and unfairly stacked against the consumer.

CRA Cracks Down on Paper Flipping

The practice of flipping a pre-construction condo – also known as selling on assignment – has been criticized for speculatively driving price growth in Canada’s hottest real estate markets. Ontario Finance Minister Charles Sousa even went as far as to refer to those who use the tactic (which involves purchasing a unit in development and selling it for more before the original deal closes) as “property scalpers”.

Now, the Canada Revenue Agency is cracking down on paper flippers, digging into their sales records to see if they’re effectively dodging taxes on their profits. The tax agency has ordered 44 developers to release information on a total of 2,800 such deals over the past year in Toronto, reports the Globe and Mail, and has plans to do so as well in Vancouver.

“In the Toronto area in particular, audit work has increased substantially on what are called “assignment sales”, wrote CRA spokesperson Paul Murphy to the Globe. “The profits from flipping real estate are generally considered to be fully taxable as business income.”

As there’s no official data collected on paper flipping deals, it’s not clear just how widespread it is in the Toronto market – however, as a result of the crackdown, the CRA will be joining forces with the province to better monitor and leverage real estate data to track activity.

Vancouver’s West Side is Canada’s Priciest Neighbourhood

It’s no surprise that owning a home costs more in Canada’s largest west-coast city. However, a new study from Century 21 finds that not only is Vancouver’s lower mainland home to the nation’s most expensive neighbourhood, but also encompasses seven out of the brokerage’s top 10 list.

Vancouver’s west side takes the title of Canada’s least affordable neighbourhood, with homes selling for an average price per square foot of $1,210. Downtown Vancouver comes in at a close second with $962.75, followed by downtown Toronto at $818.86.

The rest of the list ranks as following:

  • West Vancouver ($816.61 psf)
  • Vancouver’s east side ($718.75 psf)
  • Oakville, ON ($627.33 psf)
  • North Vancouver ($625.75 psf)
  • Richmond ($614.20 psf)
  • Burnaby ($588.11 psf)
  • Richmond Hill, ON ($585.31 psf)

For more perspective, the study equates the top price contenders to other hot international markets; West Vancouver is akin to San Fransisco ($1,454.57) in affordability, while Toronto is priced similarly to Tokyo ($775.72), and Montreal ($519.51) to that of New York City ($508.62).

So where should Canadian home buyers seek an affordable deal? Windsor, ON has been crowned as the most affordable city to purchase real estate, at ($94.64 per square foot), followed by Moncton, NB ($99.84), Halifax, NS ($130.70), and St. John’s, NL ($166.67).

Condos Toronto’s Hottest Housing Type: TREB

In the aftermath of the Ontario Fair Housing Plan, one trend is clear – more affordable home types are seeing the most action, even as overall sales numbers slide.

The latest condo report from the Toronto Real Estate Board reveals condo prices rose 22.7 per cent in the third quarter of 2017 to an average of $510,206, compared to $415,894 in the July – September period last year.

Said TREB President Tim Syrianos, “The condominium apartment segment has exhibited the strongest average rate of price growth since the spring, relative to other major market segments.”

He adds that upward price pressure is due to rampant buyer competition and fewer listings coming to market – there were 28.9 per cent fewer sales, with 5,684 units changing hands in Q3, while the number of condos listed for sale dropped 10 per cent to 9,845. Should this trend continue, Syrianos says policy makers should be wary of a potential listings shortage when further tweaking the housing market.

TREB’s Director of Market Analysis, Jason Mercer, doesn’t anticipate demand to diminish any time soon, as detached home prices remain above the million-dollar mark and out of the realm of affordability for many would-be house buyers.

“Condominium apartments will likely account for greater share of home sales as we move forward,” he stated, referencing a spring Ipsos poll TREB commission that indicated strong condo buying ambitions. “With this in mind, it is not surprising that we have continued to see robust price growth, as demand has remained strong relative to available listings.”

Condos within the $300,000 – $399,000 range saw the greatest proportion of sales, followed by units priced between $400,000 – $499,000. Two-bedroom units were the most commonly sold, accounting for 30 per cent of activity, followed by one-bedroom-plus-den units (26 per cent), one-bedroom (23 per cent), two-bedroom-plus-den (14 per cent), three-bedroom (6 per cent), and bachelor units (2 per cent).

Within the City of Toronto, the average condo price rose 23.2 per cent to $542,492, while prices fell 25.4 per cent, reflective of the seasonally slower autumn market, and in comparison to the multi-year price peak experienced in the first and second quarter of the year. 

Toronto Rental Prices “Up Strongly”

TREB also released data for condo units rented out via MLS, finding average rents continue to skyrocket as supply dwindles. There were 8,716 units leased in the third quarter, down from 9,150 in 2016 – a 4.7-per-cent drop year over year.

The average rent for one-bedroom units rose 11.2 per cent to $1,976, while two-bedroom unit rents are up 7.7 per cent to $2,607. That price points are up “very strongly” is indicative of heating competition among renters, and fewer units made available for lease, says Syrianos, adding that new rental controls introduced by the provincial government are to blame. While the rent caps are designed to improve affordability and housing security for renters, they may dissuade unit owners from renting them out, and investors from purchasing condos as a means for rental revenue, he says.

“Competition between renters remained very strong for available units in Q3. It is clear that supply is part of the issue,” he said. “Different levels of government have committed to looking at housing supply through the policy lens… To this end, TREB does have concerns that increased rent controls and a possible vacancy tax in the City of Toronto could serve to reduce the supply of available rental units as potential investors look to less-regulated sectors un which to invest.”

He says this is indicative in that the number of listings and leases have both declined at similar levels (down 3.9 per cent and 4.7 per cent, respectively). A total of 12,040 units were listed for lease and 9,150 rental transactions made in Q3, TREB reports.

About Penelope Graham

Penelope Graham is the Managing Editor at Zoocasa. A born-and-bred Torontonian and quintessential millennial, she has over a decade of experience covering real estate, lifestyle and personal finance topics. When not keeping an eye on Toronto's hot housing market, she can be found brunching in one of the city's many vibrant neighbourhoods.

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