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How is the Toronto real estate market looking for 2017?
The bubble will burst primarily by the external factors (iron curtain in China, financial crisis, US economy transformation/collapse). All intra Canadian factors such as Interest rates, population growth, tax policies will be secondary. Taking into account that Canada is heavily dependent on the USA and the global crisis will affect everyone, it might be an acceptable risk to explore what is going on on Canadian RE market.
To control the bubble, make the second house purchase very hard to make to prevent speculation, give more permits for the new houses to be build, specifically high dense ones (townhomes) to allow the first time buyers to enter the market. Do not penalize foreign buyers because it will shock the industry killing the last one left in Ontario.
I decided to run the answer as a blog updating it every few weeks with new observations.
First entry 17/01/2017: There might be a negative scenario too. China limited the cash flow for the residents to 50K/year. A half of the overseas buyers last year were buyers from the China’s middle class. Three days ago Bloomberg posted the data reflecting the fact: first time since Aug 2015 the money flow for China became positive. That means the CN government measures are affecting the runaway capital. Way less money left China in January. W/o such investors there is no way to maintain the growth on the global real estate market counting only on local speculators. The pyramid is built, ppl need to keep selling houses to move to the new ones. Who would be the buyer of that power in lack of overseas interest? By affordability Toronto is just behind few cities in the world, the cap is not too far. Australia, which is 2 years ahead of Canada in real estate bubble, shows first signs of Chinese buyers pulling the plug. Anyway, I believe, once the news are right there will be 3–4 months at least of the plato prices with falling volumes before the slide down. The market has inertia. The darkest article is here:
From the other perspective RMB is falling since 2015 and the Chinese currency devaluation must, have to force population to protect their assets by converting them to USD and purchasing real estate abroad. . It may take some time to figure out how to move funds (via blockchain currencies etc – see here ), but sooner than later the new money will arrive. A temporary cooldown of the prices would serve a healthy break before the new growth.
Сhinese information is in the beginning of January PBC audited Chinese payment systems policies and operators. In parallel 3 biggest bitcoin providers were under investigation. As a result there were about 5 MILLION suspicious accounts identified and shut down. Chinese soccer marketis booming as, I think, the art one as well. Any possible way to export assets is now being enabled
Update 01/02/17: The news are there are only 5% non-residents on the Toronto RE market. 11 around .9M townhouses for sale at Buthurst&Elgin Mills – no sales. And 2 km south a house built for 1.1M being sold for 2.6M. Something is not clear here.And the majority of the purchases is done by newcomers. I have no problem with this information if will find an answer why these so called “newcomers” are buying exclusively expensive houses 1.5M+. I see
Update 03/02/17: TREB published very promising data for January Sales in GTA: 5,188 residential transactions were recorded during the first month of 2017, an 11.8% increase over the 4,640 sales reported in January 2016. Most notably, average selling prices increased by 22.3% year-over-year, with the new average home price rising to $770,745.
Bitcoin passed 1000USD mark on the Thursday night. It looks like people figured out how to bypass new CN government restrictions only 4 weeks later.
Update 12/02/17: Would the GTA population growth be a vehicle to drive prices up? The most recent Census numbers telling it is “probably not”. Here is a quite blindsided article about the trend and the bubble burst prophesy: real estate prices is the capital running away from China, Iran and the most relaxed immigration policy in the world. Especially for business and investors.I do believe that the main driver for the
Update 17/02/17: It seems to be quite obvious the RE market driven by the international capital will cause steep diversity in house prices across Canada. The Canadian Real Estate Association reported Wednesday that sales were down by 1.3 per cent during the month, to the second-lowest monthly level since the fall of 2015 states CREA . Of course, it is not the end of run and comments by “experts” are not much informative and sometimes against the common sense. The stats are another proof how irrelevant the domestic factors comparing to the capital run to Canada. Worth to mention the China fiscal rules slowered the new buyers. But bitcoin is worth 1050 USD as of today. The flow is or will be restored soon.
Update 25/02/17: China is actively looking for the government controlled replacement of bitcoin to shut the one down:. Once happened it will be quite negative to the overseas RE markets. Meanwhile bitcoin hit the record $1200 value.
Update 27/02/17: An interesting article from US. Who is driving the RE market? It looks like it is driven not by the first home buyers or large investors, but by small investors (1–2 houses) operating on low margin in the buy-to-rent schema: “In 2009, according to this metric, 28% of all home purchases were investor-owned properties. In 2010, it rose to 30%. In 2011, 32%. Then as big investors pulled out, it fell back to 30%. But by 2015, small investors arrived in large numbers, and by 2016, investor purchases jumped to 37%, an all-time high”.
Update 06/03/2017: Toronto’s house prices hit another record high in February, with the average selling price for a detached home hitting $1.57 million, an increase of 29.8 per cent in one year.BoM is whining about “possible correction sometimes in the future”. The next update will be about ON debt and how to deal with it in this “future” and how it affects the RE market.
Bitcoin prices crashed overnight – down over $120 in a few short hours – following Bloomberg headlines citing China officials saying that Bitcoin regulation is not temporary.As a reminder, a lot of this most recent run-up has been catalyzed on hope of a positive ruling by the SEC with regard the approval of Bitcoin ETFs – the ruling is due on Saturday. ETF approval will trigger a bitcoin strong buy by new ETFs on the market.
Update 07/03/2017: The PBC measures to halt the outbound cash flow in Dec-Jan gave some results. I still believe, it is just a dead cat bounce as fundamentals still points to the CN capital run is in place. Growth of reserves would give more money to run.
Among the factors cited for the rebound in the world’s biggest FX reserve holdings are stronger economic growth, stricter capital controls and a stabilizing yuan. China’s reserves have shrunk by $1 trillion from a peak of $4 trillion in 2014 as Beijing has struggled to slow yuan depreciation. Following the positive data, the offshore yuan extended gains to rise as much as 0.17%, although it has since given up all gains and was little changed at 6.8975. With pressure on reserves easing in recent months, the onshore yuan has advanced 0.7% this year amid a decline in the Bloomberg Dollar Spot Index.
Update 13/03/2017: More taxes! This is what Canada needs. It will slow down the prices, but wont stop it. “The report, titled “In High Demand” and released Monday by Ryerson University’s City Building Institute, favours a tax on foreign buyers — similar to the one introduced in Vancouver last summer — but suggests it should be implemented in addition to a “progressive surtax” on expensive homes owned by people who aren’t paying income tax, including people with foreign capital.”
Update 17/03/2017: Bad news, we may hope there will be another way for the capital to run. Chinese regulators are circulating new guidelines that, if enacted, would require exchanges to verify the identity of clients and adhere to banking regulations.
A New York startup called Chainalysis estimated that roughly $2 billion of bitcoin moved out of China in 2016.
Update 22/03/2017: It looks like there is no federal action to take in 2017. Just data collection.
Soaring home prices in some of Canada’s biggest cities have prompted calls for further government intervention. The budget promises to give Statistics Canada almost $40-million over five years, and $6.6-million per year after that, to develop and implement a Housing Statistics Framework. The nationwide database of all properties in Canada would provide up-to-date information on purchases and sales, including the degree of foreign ownership, and information about demographics and financing. Statistics Canada is expected to start publishing initial data in the fall of this year.
US Data: Existing homes price down, new homes price up. Can be a bubble attribute or someone (marketmaker) targets only new houses. After a long thought the first option looks more realistic.
Update 26/03/2017: Having an interesting information how the price for a house in Toronto suburb was pushed up to 1.9M from 1.4M. There is a tactic to not put the house on sale on MLS (sic!). The new sale info spreads across realtors and finally reaches the Chinese real estate boards. Then the open house is scheduled (still no MLS) with a notice the next day such house goes to MLS right after the non-MLS bid round. In this particular case a family flew for a week to bid and won the house offering 1.94M.
Update 27/03/2017: Home Sales by Price Range in Feb 2017
Still quite short in listings in Feb 2017:
Update 05/04/2017: Builders here are also actively selling overseas
Update 06/04/2017: After the March RE market stats publishing , the government reaction is quite quick: Canada’s finance minister has requested a meeting with Mayor John Tory and Ontario Finance Minister Charles Sousa to address the “growing concern” about affordable housing in the Greater Toronto Area. “A combination of low interest rates and rising home prices has encouraged some Canadians to take on high levels of debt to get into the housing market, making them more susceptible to changing economic conditions,” Morneau wrote. Let’s see what they can offer: first of all the market has been destabilized already, prices are too high and the affordability of the houses in GTA is not the case for the new buyers. Second, there are few possible measures to apply to slo down the bubble: rise interest rates (in this case the Bank of Canada should be involved – not the case), introduce more taxes for house flippers (possible), introduce taxes similar to the one in BC. The problem with all these measures is cooling the construction industry, the only one keeping the Ontario budget afloat. What would they offer in exchange? Buy Ontario bonds by Canadian government? More funding for infrastructure projects? It would all require the federal budget changes. There is also a possibility to extend the construction expansion and new permits to provide enough houses for the demand. But this cycle takes 2 years to influence a market. The prices will be too high and market crash will be even severe. I guess they will come with more taxes for flippers which market of course will quickly incorporate into the flip schema. I think, the right way to slowly put things into order is to make very hard to get the mortgage on the second house in combination of severe taxes on the flip sales including assignments. IMO it will stop speculation pressure and calm down the market.
Update 10/04/2017: Misleading signals from March, to the highest annualized level since 2007, driven by higher multiple unit construction.appears to have sparked a panic-building spree among homebuilders. Canadian housing starts surged in
Update 19/04/2017: While the RE market is waiting for the Ontario budget to be published, CP24 suggested five measures to cool the prices. They actually make sense.
- Foreign buyers tax (low chance IMO)
- “Non-resident speculation tax” (also low)
- Speculation or flipping tax (good idea, but still too heavy to apply w/o impact analysis)
- Progressive property surtax (a killer for everyone)
- Vacant homes tax (high chance)
Update 20/04/2017: This the most useless measure to take among five from above IMO. The Canadian Press has learned theas part of a much-anticipated package of housing measures to be unveiled today, aimed at cooling a red-hot market. The rest are just “good intentions” .
Update 26/04/2017: Canada’s biggest non-bank mortgage lender just collapsed. Lets see if anyone will try to save it.
Update 11/05/2017: While market is standing still, here are bad news for Canadian economy:
Update 12/05/2017: Prices in GTA made a dip in April. No surprises.
Update 15/05/2017: Fixed mortgage rates went down.
Everyday rates in Ontario.
Scared by Ont gov new measures home owners failing to catch the market. Lots of new listings with sales down by 70% In April.
There will be a good chance to buy low for the next two-three months for sure.
Update 23/05/2017: A nice and inspiring article from cbcnews: Fourteen per cent of respondents to Manulife’s survey said they wouldn’t be able to withstand any increase in their monthly payments, while 38 per cent of those polled said they could withstand a payment hike of between one and five per cent before having difficulty. An additional 20 per cent said they could stomach a hike of between six and 10 per cent before feeling the pinch.
Add it all up, and that means 72 per cent of homeowners polled couldn’t withstand a hike of just 10 per cent from their current record lows.
Update 31/05/2017::“Credit ratings of Canada’s six largest banks were lowered recently, reflecting concern that high household debt and the rapid appreciation of house prices could weaken asset quality in the future,” the IMF stated.
On another note:
There is enough historical data to forecast what would be the possible scenarios for the GTA RE market. First buyers pulled back in April to evaluate the Ontario gov. changes as they are not much favorable to them. Then homeowners willing to cash out their homes at max price realizing it is probably it and put 3x more houses on sale on market. Sure such situation triggered buyers to do nothing even more. Ergo we have (see updates from above) lots of listings and quite few sales. This is the today’s status. Now the market goes into summer having low sales traditionally. What is next? More sellers w and w/o need to sell will show up on market (just finishing their houses renos) and others will pull from the market as it is hopeless. In September the truth will reveal: can these prices sustain w/o scalpers and foreign buyers if they are gone. Sellers which bought new house or “investment” properties will have to sell and push the price down. If BOC will increase the interest rate (as hinted on the last week), then it will definitely crash the market to -25% approximately. If there are buyers still willing to buy in Toronto, then we will see the Vancouver last year scenario – not a steep growth. I do not see the scenario for an exponential growth at this time, unless CAD value will be 1.6 to USD.
Update 21/08/2017: Once the dust set after the April changes in Ontario it is time to estimate the impact: real estate taxes made the opposite effect:Obviously, the Ontario government attempt to make money on
Personal Income Tax
A decline in housing prices will impact the job market, and that means less income tax revenues. In a low-impact scenario, $590 million in revenue would be lost by 2020, a 0.4% decline. A medium impact decline would cause $750 million in lost revenue over the same time, a 0.5% decline. A high impact decline in housing, would remove an estimated $1.11 billion in revenue, about 0.8%.
Corporate taxes would suffer the least. A low impact scenario would see a $450 million decline in revenue by 2020, a 1.1% decline. A medium impact scenario would estimates a $560 million decline, a 1.4% drop. A high impact scenario would see $810 million in revenue lost, a 2% decline. While this is the least impacted area, these numbers are far from insignificant.
Harmonized Sales Tax (HST) revenues will drop, mostly due to a decline in disposable income. A low impact scenarios would see a $1.640 billion decline by 2020, a drop of 1.9%. A medium impact scenario would see $2.24 billion decline, a 2.5% drop over the same period. A high impact scenario would see HST revenues drop by 3.7%, diverting a massive $3.54 billion in HST revenues.
Land Transfer Tax
A declining property market would impact sales, which will impact Land Transfer Tax revenue. Low impact scenario would see an estimated decline of $1.18 billion in revenue by 2020, a 13.6% decline. A medium impact scenario is estimated to be a $2.24 billion decline, which works out to a 17% drop. A high impact scenario would be a loss of $2.130 billion in revenue, which is a 24.6% decline.
You Heard That Jobs Increased 79,000 (Wow!)
Let’s go through the jobs reported in December from StatsCan, which is the bullish report most of you heard. StatsCan reported a seasonally adjusted increase of 79,000 jobs in December. This brings their estimate of the total number of employed individuals to 18,648,000. Unemployment also declined 0.2 points, down to 5.7%. It’s a really good report, and it spread confidence through the economy. It also influenced the Bank of Canada’s decision to raise interest rates. But here’s the thing…
However, Unadjusted, Canada Lost 6,700 Jobs In December
Using the unadjusted data, gives you a quicker read on the economy. Unadjusted, Canada lost 6,700 jobs in December. This means there were actually 6,700 less people working that month. That brings the unadjusted estimate of total employment to 18,560,400. That’s a total of 87,600 less people working, than in the “adjusted” data.
Toronto Detached Real Estate Inventory Rises Over 230%
Toronto’s detached real estate is seeing prices drop for a 7th month in a row, as sales continue to decline, and inventory soars.
Complicating the decline of sales is an increase in inventory. TREB reported 3,046 new detached listings in December, a 75% increase compared to last year. The City of Toronto did slightly better, with 670 new detached listings, a 61% increase. The substantial rise in detached listings, pushed total inventory higher.
Active listings, a.k.a. listings still available at month end, rose closer to historic levels. TREB reported 7,508 active detached listings, a 237% increase from last year. The City of Toronto had 1,467 of those detached listings, a 200% increase compared to last year.
The Canadian Real Estate Association (CREA) reported a record number of sales in December. CREA posted 45,976 sales in December, a 5.74% increase from the year before. The exact reason for the spike is unclear, but agents have been claiming buyers were trying to get in before the B-20 regulations go into effect. Buyers apparently rushed to buy before the maximum amount Canadians can borrow from regulated banks took a sharp decline.