Peak Millennials Housing Challenges, Toronto’s Empty Homes Tax, and Realtors Fight Ban: Weekly Real Estate News Recap

Peak Millennials Face Peak Housing Challenges

While it’s no secret that real estate remains out of affordable reach for many young Canadian adults, the majority still aspire to own a detached home one day – even if it’s just a pipe dream.

Only 36 per cent of “peak” millennials – those aged 25 – 30 – feel owning a house will ever be a reality, according to a Royal LePage study that surveyed 1,000 aspiring buyers. It found that only a third of this age group own their homes, as 50 per cent remain in the rental market, and 14 per cent live with their parents.

That’s having a profound impact on traditional homeownership trends, says Royal LePage President and CEO Phil Soper, as the huge size of this demographic – which will grow by 17 per cent in 2021, compared to 2016 – puts pressure on the supply of affordable housing.

“The pent-up demand for housing is enormous, with only a third of this large demographic currently owning a property and an overwhelming majority desiring to become homeowners,” he says.

“Whether they choose to buy or rent, peak millennials will inevitably shape the housing market due to their sheer volume. We expect demand from this demographic to put additional pressure on entry-level housing and investment properties being used to supplement the limited inventory of purpose-built rental buildings.”

Peak millennials face challenges their “baby boomer parents never encountered”, including stiffer mortgage qualification rules, limited home supply, and high prices in the best job markets. That’s prompted 52 per cent of them to consider moving to the suburbs to improve their affordability, especially when it comes time to raise a family (59 per cent). A full 69 per cent say they can’t afford a home in their region at all, while 24 per cent say they can’t qualify for a mortgage.

Why Toronto Prices Are (Not Really) Up 28%

A flurry of recent reports show the Toronto real estate market is in the midst of a sales and price downturn – but brand new data states values are actually up 28 per cent year over year!

The fresh findings from Teranet’s July Home Price Index also report month-over-month price increases of 2.1 per cent in the city, and up 2 per cent across Canada as a whole. But why do these numbers differ so wildly from Toronto Real Estate Board data, which says prices dropped 6 per cent from June to July?

In an attached research note, Teranet explains their report, which measures repeat sales of single-family homes, is a three-month rolling average, which they refer to as a “smooth” index. That means it averaged activity in May, June and July, not capturing the downturn reflected by other indexes, such as TREB’s literal measure.

However, their index does support TREB’s report that the detached segment is faltering, as “non-condo” homes declined 1.6 per cent, indicating “weakness” in the market.

“While this looks strong given the current context in the GTA, note that a weakening is occurring in the unsmoothed index for ‘dwellings other than condos’, which is down 1.6 per cent,” states Teranet’s report. “This abrupt trend reversal in the index of Toronto’s lease affordable type of dwelling is consistent with the recent loosening reported in the home resale market.”

The National Composite also found indexes were stronger than usual in Victoria and Vancouver (+2.8 per cent), Hamilton (+2.1 per cent), Ottawa-Gatineau (+2 per cent), and Montreal (+1.6 per cent).

Prices Strong in B.C. – But Is It Temporary?

Average home sale prices continue to rise across British Columbia, despite slowing sales in Metro Vancouver, its biggest region – but that could moderate, as new supply comes to market, says their chief economist.

In a statement from the British Columbia Real Estate Association, Cameron Muir states that strong fundamentals may be supporting demand and price growth, but that balance may shift as more listings pop up across the province. “Strong economy growth, an expanding population and lack of supply continue to drive B.C. home sales and prices this summer,” he says. “However, home sales have edged back 4 per cent since May with active listings beginning to bounce back from a 20-year low.

“If these trends continue, it may signal that more balanced market conditions could emerge before the end of this year.”

Province-wide, sales fell 6.3 per cent with 9,275 homes sold. In Vancouver, sales were down 8.8 per cent, at an average price of $1,029,786, a 2.2-per-cent increase from last year.

Strong price growth was also experienced in the following regions:

  • Victoria: + 11 per cent to $644,510
  • South Okanagan: +9.5 per cent to $415,720
  • Kamloops: +8.1 per cent to $367,303

CREA: Sales Decline Slows in July

Prices fell across Canada for the first time since 2013 in July, according to the latest report from the Canadian Real Estate Association. The national average cost of a home moderated to $478,696 – a decrease of 0.3 per cent. Sales also softened by 2.1 per cent – dropping for the fourth month in a row – and down 12 per cent year over year.

The majority of the downturn occurred in the Greater Toronto Area, which has seen considerable softening since the introduction of the Ontario Fair Housing Plan, though sales were down in two thirds of all markets since June.

The good news? While sales are slowing, they’re doing it at a less rapid pace, says CREA, with the downturn only a third of what was seen in May, though still 15.3 per cent below the March market peak.

Could it be a sign that the initial rush to list following rule changes may be subsiding? “Time will tell,” according to CREA’s Chief Economist Gregory Klump, who says buyers who needed to act on pre-approved mortgage rates may have given the market a temporary boost in July.

Realtors Say Double-Ending Ban Goes Too Far

The practice of “double-ending” – when a real estate agent represents both a buyer and a seller in a transaction and collects commissions from each – has come under hot scrutiny this past year for being a misleading tactic that puts sellers at a disadvantage. Following media reports of agents abusing the practice, the Ontario government has pledged to ban it altogether, with the Real Estate Council of Ontario opening a proposal for public review.

However, an outright ban would be too extreme, argues the Ontario Real Estate Association, and would make transactions needlessly complicated in certain instances. Instead, OREA recommends a model that will allow agents to still rep both sides, but in a “neutral facilitator” role, meaning they can’t provide guidance on offer pricing, strategy, or sale conditions.

This kind of hands-off approach wouldn’t be for your typical buyer and seller, and would mostly apply to corporate deals, sales within families, and other specialty transactions, as long as both clients agree to it. Should they not, the agent must refer one side of the transaction to another agent on their realty team.

Phil Soper, member of OREA and CEO of Royal LePage, told the Globe and Mail that he feels consumers should retain the choice, and to put more onus on agents in terms of fees should they abuse the system.

“It is better to make it the law to need independent representation, but allow the consumer the ability to contract out of that with clear disclosure and high penalties for those who don’t follow the rules,” he says. “You put it in the hands of people are actually paying the fees, rather than making it very difficult for them in the rare circumstances where it makes sense for them.”

However, not all industry experts agree a more moderate approach is the way to go – Lauren Haw, Broker of Record at Zoocasa Realty, has been a strong advocate for removing the practice altogether, saying it’s impossible for agents to act ethically when they have such potential for monetary gain. “Agents – including those that are on the same team – who have any monetary connection to the sale whatsoever should not be able to represent both the buyer and seller of a property, ever. Anything less than a blanket restriction on multiple representation is not enough,” she says.

Related Read: Is Your Real Estate Agent Double-Ending Your Deal?

Have Your Say on Toronto’s Empty Homes Tax

When the Ontario government revealed its 16-part Fair Housing Plan in April, included in the measures was the empowerment of Toronto City Council to introduce a tax on vacant homes, similar to what has been passed in Vancouver. The intention of such a tax would be to help combat investment properties sitting empty, and return badly-needed units to rental stock.

One of the most accurate ways to track whether a home sits empty is to gauge its water and hydro usage – but privacy laws prevent this data collection in Ontario. Instead, the City is proposing three options for assessing a home’s vacancy status:

  • A mandatory declaration and occupancy status for all property owners
  • A self-reporting model
  • A complaints basis

Want to have your say on the vacant homes tax? The City invites the public to fill out a survey, or attend its consultation meeting on August 22.

HELOC Use Rising with Real Estate Prices

Despite slowing sales, home prices are rising across Canada each year, and that’s encouraging current homeowners to tap into their built-up equity.

A report from National Bank correlates high home prices with consumer spending and debt accumulation, especially in the form of Home Equity Lines of Credit, revolving loans that can be taken out against a home’s equity, and don’t need to be paid back until the home is sold.

Related Read: What the Heck is a HELOC?

In fact, the number of HELOCs taken out in the first quarter of this year along has grown at the fastest pace since 2010, finds the report.

“The sharp appreciation in home prices in Ontario and British Columbia, fueled by extremely accommodative monetary policy, have undoubtedly encouraged some homeowners to tap into their home equity in order to support a spending binge,” says National Bank’s Chief Economist Stéfane Marion.

“We estimate that HELOCS at Canadian chartered banks have surged by close to $20 billion in the past year, accounting for close to 60 per cent of the growth in total consumer credit.”

According to National Bank, HELOCS account for 45 per cent of all consumer credit, with an average borrower’s balance of $70,000.

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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