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Hi.

I’m Stevie, welcome to Nestabode. I write about helpful real estate related topics. Be sure to subscribe to stay in the loop!

"Home Ownership is Changing, Here's How to Prepare."

"Home Ownership is Changing, Here's How to Prepare."

I had a pretty interesting chit-chat the other day.  Here’s how the conversation unfolded.

I got a call from Roger, a long-time client turned-buddy that he was referring a co-worker so I should listen out for the call.

A few minutes after we spoke, the phone rang.

On the other end was Marlon, Roger’s colleague, wondering if we could meet up for coffee to talk real estate.

His tone had a certain urgency to it, hinting that he would prefer to meet sooner rather than later.

It so happened that my schedule was clear that evening and his office was just a few blocks away.

We arranged to meet at a Starbucks in a few hours then off I went to see Marlon.

Just before his call came in, I was reading the October market figures released by the Toronto Real Estate Board.  As I went through the numbers, an interesting pattern began to emerge.  A little more on this later.

Our conversation began like this.  Stevie, my partner and I have been saving up for a while, but here’s the thing, we’ve been waiting for the market to cool for around four years now, thinking prices would eventually have to come down.

This obviously hasn’t happened so we decided it’s either now or never.

When we began saving, our plan was to buy a house in Toronto then start a family as we both grew up just a few kilometres from here.

Since then, he continued, we’ve seen prices gone through the roof.  Even though we have a substantial down payment and both have good incomes, we still feel priced out of the housing market.

I listened, observing the visible signs of frustration on his face.  We’ve been keeping up with the news and all the changing mortgage rules.  It’s a bit dizzying.

We also have friends who’ve lost out on multiple offers and some who’ve had to pay ridiculous amounts over the asking price just to land something half decent.

We don’t want to go this direction but are afraid that if we wait any longer, we might be permanently priced out.

What are your thoughts on where the market is going, he asked?  If you were advising a relative or close friend, what would you tell them?

I paused, reflecting on his words and current situation, then I began.

Marlon, sometimes the best way to predict the future is to observe keenly what’s already taking shape.

Last month, 10,000 properties changed hands throughout Toronto and the GTA, a 12% rise in sales activity from the same period last year.  Condo sales represented a huge chunk of that, climbing 22%.

Many buyers in your shoes are realizing that the traditional idea of home-ownership, defined as a detached, freehold house, is becoming for the most part, out of reach.

While the average purchase price in Toronto is  $770,000,  it’s significantly higher for detached homes now selling for $1.3 million on average and $950,000 in the (905) regions.

What this means Marlon, is we will likely see a galloping shift towards condo apartments, particularly two bedroom suites and larger as the go-to-source for many first-time purchasers.

To complicate matters, we are starting to see a potentially similar market tightening emerge in the condo arena as well.

Just before coming to meet you, I was looking at the numbers released by the Toronto Real Estate Board for the Humber Bay area. Condos in that community saw a 30% year over year spike in sales. That’s significant.

For the first time, ever, ‘new’ listings for the month equaled the ‘active’ listings total. This means that at month’s end, there were no leftovers.  

Everything that came up, was sold. ‘Days on market’ were just 20, an unusual pattern for the area and a possible tell-tale sign of what’s to come in the market overall.

If we see a similar tightening begin to occur, then expect price escalations and multiple offers to become the new reality in the condo domain as well.

What about the ‘Trump effect?’ Do you see this making a difference here, Marlon asked.

Well, it’s not likely that we will see a great exodus of Americans to Toronto, I replied.  What is plausible is that more people from other countries will end up choosing Toronto over major U.S. cities.

This bodes well for investors here but only adds to the competitive dynamic of an already tight market.

Something else worth noting Marlon, we are likely to see interest and mortgage rates rise in the short term.  Financial markets in Canada and the U.S. want higher interest rates as that allows for higher spreads and of course, more profits.

Trump’s promise of major infrastructure spending could lead to inflation.  Finally, expect to see a 70 cent Canadian dollar. 

The Federal Government is making it more difficult for residents to buy properties in Toronto while simultaneously making our real estate more attractive on the global market.

If you’re on the fence, now is the time to seriously consider securing a mortgage pre-approval sooner than later.  Be flexible and adjust your expectations, especially in the area of square footage.  Smaller is becoming the new reality.  You will have to compromise.  

The affordability landscape is shifting.  The share of average household income used for mortgage principal and interest is at its highest level since 1993. 

If current trends continue, we may be entering a period where ownership of real estate will soon spiral down to a  small, privileged few.  Leaving behind a generation long term renters.


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