Monthly Real Estate News Recap: March

They say March comes in like a lion, and last month’s housing market was practically a force of nature. Not only did prices continue their upward ascent, but the conversation around affordable housing, rents, and policy changes (not to mention the foray into extraterrestrial real estate) was downright stormy. Read on for March’s most dramatic real estate news headlines – and here’s hoping April ushers in a ray of sunshine for prospective buyers and sellers.

BMO Calls for 2-Year Bubble (March 13)

Last month, Bank of Montreal Chief Economist Doug Porter uttered the “B-Word” in reference to Toronto’s housing market, calling for media and analysts to “drop the pretense” and accept the reality of a bubble. Now, the lender is not only stating such bubble exists, but that its days are numbered, pegging it to pop in 24 months.

Senior Economist Robert Kavcic stated in a note to investors that should growth stay its current course, the market will be hitting 1980’s peaks within a mere two-year time frame.

“At the rate we’re now going with 20% year-over-year price increases, assuming stable mortgage rates and continued income growth, we’ll be at 1989 valuation levels in about 24 months,” he wrote. Following that year, the Toronto housing market experienced seven years of price declines – but no one holds the crystal ball to whether that will be the case in this day and age.

Sales – and Prices – Rise Across the Nation (March 15)

The latest numbers from the Canadian Real Estate Association reveal sales rose in 70% of the nation’s housing markets, with activity in Toronto leading the charge. The national average price rose to $519,521 from February 2016, a 3.5% increase from this time last year.

“In and around Toronto, many potential move-up buyers find themselves outbid in multiple-offer situations amid a short supply of listings,” said Gregory Klump, CREA’s Chief Economist. “As a result, they aren’t putting their current home on the market. It’s something of a vicious circle from the standpoint of a supply shortage and a challenge for first-time and move-up home buyers alike.”

“By contrast, housing markets in urban markets elsewhere in Canada are either balanced or are amply supplied. Because housing market conditions vary by region, further tightening of mortgage regulations aimed at cooling the housing market in one region may destabilize it elsewhere.”

The national agency also reports that while Greater Vancouver sales have fallen considerably since the August record, prices remain above 2016 levels, up 21.4% in Fraser Valley, and 14% in Greater Vancouver.

Related Read: INFOGRAPHIC – Was Your Down Payment a Good Investment?

Not including Toronto and Vancouver, the national average price would reduce by $150,000 to $368,728.

The U.S. Fed Hikes Rate (March 14-15)

The U.S. Federal Reserve (the American central bank counterpart to the Bank of Canada), opted to increase its trend setting interest rate and tighten monetary policy by 0.25%, from 75% to 1%. It’s the second hike since December, reflecting a strengthening economy and improving jobs situation south of the border. Another two increases are anticipated this year, should the U.S. economy remain on a positive track.

Where does this leave Canadians? While the Bank of Canada has tracked the Fed closely with rates in the past, its own recent interest rate statements allude to zero change to come in 2017, meaning banks’ prime rates – and the consumer variable cost of borrowing – shouldn’t get more expensive. “An increase like this in the U.S. does place more pressure on the Bank of Canada to make a move, but for now we still expect to see our key overnight rate remain at 0.5%,” says James Laird, Founder of CanWise Financial.

However, Laird points out that the bond market has responded to the Fed’s upward move with a sell off, driving up yields and, and by extension, fixed mortgage rates.

Morneau Says Supply is an Issue (March 23)

Despite previously stating that the Canadian federal government was finished with tweaking housing market rules, Finance Minister Bill Morneau alludes more action may be taken to address supply issues, which are blamed for driving real estate prices higher.

However, Morneau emphasizes that any changes made to the market must be weighed carefully, as conditions aren’t consistent from province to province.

“We’ll always consider whether we should be looking at new (federal tools) but we’ll do that recognizing that our approaches are national and when we look at what happens to the Toronto and Vancouver markets, we also need to remember what happens to the Moncton and Winnipeg markets.”

“We don’t want to do something that’s going to cause challenges somewhere else.”

His comments follow the Federal budget’s reveal of a dedicated $39.9 million to improve national housing market data collection, including the creation of a purchase and sale database that will also be used to track foreign buyer activity.

Sousa Announces New Ontario Affordability Measures to Come (March 27)

Provincial Finance Minister Charles Sousa has pledged that a number of measures designed to improve housing affordability in Ontario will be revealed in the next spring budget, the date of which has yet to be announced. Sousa says the changes will come after nothing to the effect was announced in the Federal budget; he had previously implored federal Financial Minister Morneau to increase the capital gains tax bracket on the sales of non-principal residences to help curb speculative activity in the housing market.

“There is a suite of options, and we want to put a package together that meets that,” he stated.

Tarion Loses Regulator Status (March 28)

Tarion New Home Warranty Corporation, which was put in place by the Ontario government over 40 years ago to oversee the builder industry and manage new home warranty claims, is being stripped of its regulatory powers.

The province announced it will be assuming all regulation and rule making procedures for the builder and developer industry, and will create a third-party regulator, following consultations. Several additions will also be made to the current warranty program, such as upping the minimum deposit protection amounts (now $20,000 for condos and $40,000 for houses, respectively), and including amenities and upgrades to new home coverage. Tarion will continue to manage the warranty program and fulfilling claims.

The corporation has been criticized as of late for being largely self-regulating – a large portion of its board is comprised of developers – and being slow to respond to warranty claims. A recent Toronto Star investigation revealed a surge of consumer complaints, along with allegations that Tarion was keeping inconsistent records on warranty work to be completed.

“Tarion’s multiple roles and responsibilities can give rise to a perception of conflict of interest, and could result in an actual conflict or conflicts of interest,” said Tracy MacCharles, provincial consumer services minister, in a speech. “The new home building sector is an important driver of Ontario’s economy and, quite frankly, I believe it deserves a stand-alone regulator.”

Toronto House Price Growth is Fastest in the World (March 28)

A new study from analytics firm CoreLogic fnds Toronto house prices are appreciating faster than any other major global city, as median house prices rose 19% over 2016. That edges the Big Smoke ahead of Sydney, Australia, with Vancouver real estate in third place – once the highest-ranked Canadian market, the study notes that growth has slowed over the last six months in the west coast city.

Toronto Mayor Considers Empty Homes Tax (March 30)

Toronto Mayor John Tory announced that he may be mulling over a tax on vacant homes, similar to the one introduced in Vancouver in January, among other considerations to improve affordability in the city. He made the comments following an affordable housing roundtable with several industry experts, including Ontario Real Estate Board CEO Tim Hudak. It is estimated that 65,000 dwellings are un-occupied, or under-occupied within Toronto.

“I look at housing as a place to live for people who live in this city, and if a tax we might put on vacant homes, and we are not there yet, incentivizes just a few of those 65,000 people top put those houses back into supply, then we’ll have made a difference,” he said. “That is what I look at as my responsibility, not to look after the investment of those who choose real estate for that purpose. They will be ok.”

The hope is that taxing vacant homes would help cut down on speculative investor activity in Toronto real estate, and encourage investor owners to return their homes back to the market, or to rental stock.

Plans in the Works for Asteroid Condo (March 30)

New York City-based Clouds Architecture Office has unveiled plans for “Analemma Tower” – a mixed-use residential and business development that gives a whole new meaning to the term “high-rise”. The renderings could be straight out of Alfonso Cuarón’s next script, depicting the skyscraper (groundscraper?) hovering in the earth’s atmosphere, tethered to the bottom of an orbiting asteroid.

While this may seem too sci-fi to be taken seriously, apparently recent scientific advancements could make dwelling within the Troposphere a reality; a new method to “capture” asteroids and return them to orbit is being tested, along with the development of drones that could shuttle residents to and from the surface. However, with built-in business, shopping, worship, and residence wings – and the ability to produce its own food and water supply – residents may not really be intended to leave the building at all. This has a bit of an Elysium vibe to it, don’t you think?

Oakville Mayor Calls Out Developers (March 31)

Back on earth, the debate rages on whether developers should be granted larger access to Ontario’s protected green belt region – and Oakville Mayor Rob Burton is firing back against the suggestion they don’t have enough land to work with.

He says developers’ claims that Ontario’s Room to Grow program is responsible for shrinking supply and rising prices are false – and that they’ve been sitting on ample land permits all along.

“The line that we’re being asked to believe is that they need more serviced land in order to supply this voracious demand for housing. But we’ve given them serviced land they’re sitting on,” he says, adding that in Halton, over 6,000 permitted housing units remain unbuilt.

“These developers own land that was caught in the greenbelt back in the day when it was created, that they were planning to crease more sprawl on, and they’ve been trying to get out of it ever since.”

Related Read: Is the Ontario Government Responsible for Soaring GTA Home Prices?

Low Interest Rates Not Responsible for Rising Home Prices: Poloz (March 31)

Bank of Canada Governor Stephen Poloz has shot down the idea that loose monetary policy – the record low interest rates put in place by the central bank as of July 2015 – are to blame for fuelling Canada’s housing prices.

In an exclusive interview with MacLean’s magazine, Poloz stated that with the steep returns enjoyed by today’s homeowners and investors, a slightly higher mortgage rate wouldn’t do much to dissuade them from entering the market.

“No, when you’re borrowing money to buy a house and you think you’re going to make 20% over the next year, I don’t think it’s going to make a difference if the interest rate you’re paying is 2%, 4%, or 6%,” he said. “It’s still an important capital gain. I would pretty well reject that. It’s not low interest rates that are fuelling speculation.”

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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. Find her on Twitter at @pjeg14.

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