Toronto Rents Rise, Questioning the Stress Test, and Vancouver’s Priciest Home… Ever: Weekly Real Estate News Recap

Toronto Rents Rise Higher Than Ever

A report from condo market think tank Urbanation finds that despite new provincial rules to protect renters, the average rent in Toronto rose 11 per cent this year, exceeding the $2,000-per-month mark.

The upward pressure is ironically due to the very measures designed to lower rents in the city – in April, the Ontario government capped annual rent increases at 1.5 per cent, regardless of dwelling type or age. Previously, rents could be hiked at landlords’ discretion for units built after 1991. However, rather than keeping rents low, these changes are driving more people into the rental market, and prompting landlords to hike rents higher now to offset future losses.

The number of units rented rose 12 per cent year over year, with 8,328 units changing hands, while active rent listings dropped 13 per cent – the equivalent of a two-week supply, according to the report. The province’s Fair Housing Plan has also led to softening in the Toronto ownership market, argues Hildebrand, leading to fiercer-than-ever competition for rentals.

“The decline in housing sales has been pretty swift. As fewer people enter the ownership market – all other factors remaining equal, population growth continues, the job market is very strong – you’re going to see that demand filter in somewhere. If they’re not buying, they’re renting,” he said to the Toronto Star.

“We are experiencing a housing correction in the GTA – no doubt about it.”

That’s what Phil Soper, CEO of Royal LePage, had to say about the current condition of Toronto real estate – but there’s no need to panic, as the brokerage’s mid-year forecast calls for healthier market conditions in the region. Those fearing a repeat of the downturn experienced in Vancouver can rest easy, Soper told the Toronto Star, as softening market conditions will play out differently in Toronto.

“Almost half of the (Vancouver) market disappeared overnight,” he said. “I believe what we’ll see (in Toronto) is modest price increases but fewer homes being sold – not as violent as the Vancouver correction where we saw 40 – 50 per cent of the market disappear.”

Royal LePage is forecasting that prices will still rise 18.5 per cent in the GTA by the end of the year, compared to a 13.8 per cent increase nation-wide.

It also states that Ontario-based buyers can expect friendlier conditions in the months to come.

“Following a period of unprecedented regional disparity in activity and price appreciation, we are now seeing a return to healthy growth in the majority of Canadian housing markets. The white-hot markets are moderating to very warm; the depressed markets are beginning to grow again. Canadian housing is in great shape – a statement that I certainly did not make last quarter,” says Soper in the report.

“Yet the GTA’s recent drop in sales activity may well signal calmer waters… Now as inventory inches higher and demand slows to a more orderly pace, some much-needed balance has been returned to the market. For the first time in years, buyers are able to include reasonable conditions in their offers and multiple bid situations are somewhat less frequent.”

A Proposed Ban on Rule-Dodging Lender Tactics

The Office of the Superintendent of Financial Institutions (OSFI), which regulates Canada’s banks, is proposing further measures to reduce risky mortgage lending behaviour in Canada. It is suggesting an outright ban on “co-lending”, a practice where regulated lenders (which are restricted by OSFI’s rules) team up with unregulated institutions to provide mortgage products that sidestep maximum lending rules – up to 90 per cent of a home’s total value. In Canada, lenders cannot loan more than 65 per cent to borrowers with poor credit, and only up to 80 per cent on uninsured loans for “A” borrowers.

OSFI has stated they “expressly prohibit co-lending arrangements that are designed, or appear to be designed, to circumvent regulatory requirements,” and will consider proposal feedback until August 17, when it will take action on the issue.

Vancouver’s Condo Inventory Crunch

Demand for high-rise units is growing in Vancouver, leading to multiple-offer situations and ever-higher prices, reveals the June report from the Real Estate Board of Greater Vancouver. Detached home demand, however, continues to soften as buyers seek out more affordable options. Prices continued to rise across all home types.

“Two distinct markets have emerged this summer. The detached home market has seen demand lease back to more typical levels, while competition for condominiums is creating multiple offer scenarios and putting upward pressure on prices for that property type,” says Jill Oudil, president of REBGV.

“Home buyers have more selection to choose from in the detached market today while condominium listings are near an all-time low on MLS. Detached home listings have increased every month this year, while the number of condominiums for sale has decreased each month since February.”

Detached home sales have dropped 15.5 per cent from 2016’s record-breaking activity levels, but continue to be out of the realm of buyer affordability, at an average from of $1,587,900.

Apartment prices increased 17.6 per cent year over year to an average of $600,700, while the MLS Home Price index composite for all home types rose 7.9 per cent last month to $998,700, and up 1.8 per cent from May.

Priciest-Ever Vancouver Home Lists for $63 Million

Speaking of Vancouver’s steeply-priced detached market, a mansion located on “Billionaire’s Row” has just listed for a cool $63 million – the highest ever for a single-family home in the city.

Owned by Joseph Segal, the 92-year-old President of Kingswood Capital Corp., and his wife Rosalie, the waterfront property has sweeping views of the Rocky Mountains and Vancouver’s downtown core.

In an interview with the Financial Post, Segal revealed he’s ready to move on from the epic property. “Why do people sell? Because they have a change of life,” he said. “Life is a runway. I’m finished cruising and now I’m descending.” When asked why he wouldn’t give his kids the chance to buy in, he said, “They can’t afford it. Besides, how do you divide a house in four?”

Toronto Luxury Condo Sales in Hot Demand

Looks like even the city’s wealthiest are seeking a break from steep real estate prices: Sales of luxury condos in the Greater Toronto Area (classified as priced over $1 million), have skyrocketed 98 per cent over the last year, according to Sotheby’s International Realty Canada. Sales of units priced at $4 million or more were up even more aggressively, by 150 per cent (a whole 15 units).

Brad Henderson, CEO of Sotheby’s, says luxury high rises offer the space and prestigious neighbourhoods sought by Toronto’s high-income buyers at a very comparable price to low-rise and detached options.

“Multi-unit residential, whether it’s condos or townhomes, is becoming a choice for move-up buyers or right-sizers because they’re looking to focus on something where it’s a bit more affordable and wanting to have a good address and still have enough space for their stuff and lifestyle,” he says.

“A good address” certainly seems to be a deciding factor – condos priced over a million sold fastest in the tony Rosedale – Moore Park neighbourhood, at an average of 16 days on market.

Mortgage Stress Test Isn’t Helping Risky Borrowing: Survey

The “stress test” introduced last fall by the Federal government, which requires mortgage borrowers to qualify at a rate of 4.64 per cent, hasn’t alleviated household debt or improved risky borrowing – in fact, it has made it worse, according to an assessment by Mortgage Professionals Canada.

The association argues that rather than encouraging disqualified borrowers to save larger down payments or improve their credit, the requirement instead prompts them to seek out riskier borrowing options.

“Rather than decreasing debt lead, the stress test is driving some consumers to uninsured lending options with sometimes significantly higher interest rates, thereby shifting the debt load of the most vulnerable consumers away from the stability of mortgage insurance,” states MPC’s release.

President and CEO Paul Taylor says the current threshold enforced by the qualification test should be revised, and take into account the potential for higher interest rates.

“We agree with a mortgage stress test, but it should be reflective of more realistic future interest rates so Canadians can continue to have access to affordable home ownership,” he says. “Modifying the criteria has a more realistic chance of improving homeownership for consumers.

When asked how they would proceed after failing the stress test, MPC’s survey respondents said they would resort to the following:

  • 31% would withdraw from RRSPs
  • 16% would obtain loans from financial institutions
  • 43% would delay their purchase
  • 30% would seek help from family (gifts/loans)

Bank of Canada Scratches 7-Year Itch

The nation’s central bank, which sets the tone of monetary policy and pricing for borrowing products for consumer lenders, hiked its trend-setting Overnight Lending Rate for the first time since 2010 on Wednesday. The rate rose 0.25 per cent to 0.75, meaning those with variable-rate loans, including mortgages and LoCs, will see their monthly payments rise. Canada’s big five banks (CIBC, RBC, Scotiabank, TD and BMO), have since responded by increasing their Prime to 2.95 per cent.

OREA President Tim Hudak expressed concern following the announcement that higher rates, coupled with proposed new regulations to stress test uninsured mortgage borrowers, could prove to be too much.

“A Bank of Canada rate hike will increase the costs of new mortgages and home equity lines of credit. With this increase in interest rates and the recent Ontario Government Fair Housing Plan, governments need to be very cautious about the cumulative impact of intervention in the housing market going forward,” he stated. “With both sales and prices slipping recently in the GTA, federal, provincial and municipal governments should think carefully about further measures to reduce demand for housing.”

Toronto’s Narrowest House On The Market

Talk about a smart use of space! An eight-foot-wide property, touted as one of the city’s narrowest homes, has come to market for $788,800, reports BlogTo. Located in trendy historic Corktown (and wedged between a stately Victorian and a mid-rise), this hyper-modern abode makes up for its slim profile with stylish and efficient details. Ample windows let in tons of natural light, while scrubbed pine floors lend a warm, rustic appeal. It even comes with its own narrow backyard – a rarity in downtown Toronto, regardless of house size.

Montreal Overtakes Vancouver as Chinese Real Estate Destination

Property search numbers released by massively popular Chinese real estate portal site Juwai.com reveal Montreal has usurped Vancouver as one of the top destinations for Chinese buyers and investors. Buyers from China accounted for 17 per cent of home purchases made by out-of-country buyers in Montreal in 2016, according to the Canada Mortgage and Housing Corporation.

It’s speculated that a 15-per-cent tax on foreign buyers introduced in the Vancouver real estate market last August has prompted investor interest in other markets. In Canada, Toronto tops the list, followed by Montreal, Vancouver, Ottawa and Victoria. On a global scale, the United States remains the most popular country for Chinese real state buyers, followed by the UK and Australia.

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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