Welcome to Urbaneer’s Spring 2014 Forecast: Part Two, where we ponder the stories behind two of the Toronto property market’s most influential players: interest rates and the condominium market. If you missed Part 1 of our forecast, click HERE.
The Condo Market: The Subtext
The Toronto market continues to play out on a split stage but with two very different dialogues.
The single family home market is gathering steam, due to the mechanics of supply and demand being out of whack. Quality, character housing stock is in short supply, so Toronto buyers are frequently subjected to bidding war scenarios – which frequently causes property prices to swell well above asking.
Meanwhile, in the condo market, inventory continues to flood the marketplace at a rapid pace. Buildings are getting taller and units that mirror each other in size, shape and character (or lack thereof in some instances) are becoming more and more abundant at a rate that far outpaces the freehold market. These new condos are having a hard time competing with the inventory becoming available on the resale market. Older condos tend to be larger and are often at a more attractive price point.
To further complicate the picture with more variables that could weaken an already potentially soft condo market is that a number of condominiums in Toronto are not owner-occupied, but are owned by investors as rental properties. This creates another subset of problems, tied to the possibility of mass, simultaneous liquidation.
Meanwhile, there are those that contend that 2014 holds promise for the Toronto condominium market. Developers cite both a number of positive and negative factors, but expect a robust year, buoyed by a steady rental market, a movement towards urbanization and favour for urban amenities (like easy access to shopping and transportation). CIBC has said that a correction in the condo market is unlikely in 2014, simply because the vacancy rate is expected to only edge up slightly, kept to balance by demographic influences.
All that said, and even after examining both sides of this real estate story, Urbaneer has long contended that if any cracks were to appear in the veneer of the red-hot Toronto property market, they would rest at the foot of the condo market. This is mostly because of the number of variables (i.e. inventory) and the size and scope – and potential impact that these variables could hold if they were to change direction. Condominiums that are unique and/or have special qualities (high ceilings, exceptional light, generous outdoor space, intelligent space plans, or a loft aesthetic) that stand out and appeal to potential buyers are a homeowner’s best bet to safeguard against the volatility of these variables.
The Interest Rate Story
While the moniker “Coming Soon” loses some of its urgency when the time horizon gets consistently pushed out month after month (and in this case, year after year), rest assured an interest rate hike is an eventuality.
The problem is that the interest rate environment has been so low for so long that people get lulled into a false sense of financial reality. Of all the variables that swirl around the Toronto property market, the one that could potentially contribute a major blow is this looming possibility of an interest rate hike.
As we touched on in the first installment of our Spring Forecast, Toronto homeowners are becoming increasingly leveraged with debt – a function of rising property prices outpacing incomes. When rates do rise, debt obligations increase – which could be difficult for some, and would erode affordability levels even more.
While a rate increase is unlikely in the immediate future, economic conditions will eventually require a rate hike. What this does drive home, is the necessity of understanding your property purchase as it impacts you now – and how it could impact you in the future.
Adding another twist to the interest rate story, was the recent change in command in Federal Finance, with the appointing of a new Finance Minister, Joe Oliver. While the expectation is that Oliver will not introduce any major changes in the style of his predecessor, Jim Flaherty, it does introduce another variable element into the equation.
Buying or selling a home goes far beyond a transaction. It involves employing and deploying strategy that involves keeping a finger on the pulse of the housing market through facts, figures and media interpretation. It also helps that we’ve had feet on the ground, moving through this market with success for over two decades. Need assistance in deciding your next move? We – the urbaneer team – are here to help!
This is only an excerpt from our 2014 Spring Forecast Part 2! For the full version, click HERE.
We’re here to earn your trust, then your business.
Steven Fudge, Sales Representative
& The Urbaneer Team
Bosley Real Estate Ltd., Brokerage • (416) 322-8000
www.urbaneer.com • firstname.lastname@example.org