Urbaneer’s Summer 2018 Toronto Real Estate Forecast: Part Two

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Welcome to my blog on housing, culture and design in Toronto – and Part Two of Urbaneer’s Spring/Summer Forecast for 2018!

In this segment, I’m going to dive deeply into the supply dilemma that is propelling prices, how Buyers and Sellers are adapting their views on value in a changing market after the government interventions last year and with changing interest rates, how the Bank of Mom and Dad continues to contribute to price appreciation but first, let me discuss the condo market!



The Condominium Market

The condominium market in Toronto has long been headline-worthy. Once an unusual housing type prior to the 80s, it’s amazing that in 40-ish years it’s become the dominant housing type in Toronto’s downtown core (if you love architecture here’s my blog on how the facades of condos have changed since the 1980s in The Face Of Toronto Condo Living, and to see how much condos have boomed here’s an article from April 2017 in The Globe & Mail which shares Toronto’s Five Decades Of Condo Growth, Mapped).  For years, I’ve expressed caution around the condo market being the potential Achilles Heel in a hot Toronto real estate market, mostly due to potential oversupply and a high proportion of investor-held units. However, unlike the freehold market which has moderated in the wake of the Fair Housing Plan measures, the condominium market ramped up this year, with price gains of around 20% this past year. Does this mitigate my concerns over the condo market? Here are my thoughts:

According to recent data from TREB, condo prices have been trending upwards, due in large part to the fact that available inventory has continued to slide in tandem. However, given new condo completions this year are surpassing the 10-year average for the first time since 2015 and, according to the highly analytical Better Dwelling site “Toronto Condo Prices Hit A New All-Time High, While Inventory Jumps To 21 Month High” – we may be entering a period where supply begins to balance with demand. Not that it’s all roses in condo-land, as there have been a spate project cancellations due to rising construction costs and other red tape issues: “Threat Of Condo Cancellations Looms Over Pricey Toronto Housing Market”.

This value surge in condominiums isn’t just about supply; it rests very much on a number of factors that are propelling demand. Click here to read “This Is Why The GTA Condo Market Is Still Red Hot, Despite A Dip In Sales” and “Toronto New Condo Sales Drop 66%, While Prices Soar 40% In Weirdest Correction Ever”. This story, “Toronto’s New Wave Of Development Looks For Community, Not Just Condos” talks about the rise of condos and how supply will have to escalate in the coming years to meet demand. It also touches on how urban expansion is evolving based on developing communities around amenities like public transit, which is becoming a critical factor in today’s purchasing decision.

Although investors have long been part of the buying profile for condominiums, they appear to have ramped up their commitment to buying them even when they’re taking a loss. In this CBC News article called Rental Investors Bought Half Of GTA Condos Last Year, But Rents Fall Short, CIBC Report Says, stats show more than 44% of the investors with a mortgage were cash-flow negative. Seriously? These buyers are obviously hoping their return on investment comes with an escalation in property value, rather than seeing it as investment income. I think this is risky, given a property has to escalate in value by about 7% just to break even, as I wrote in How Much Profit Should I Expect Climbing The Property Ladder?. And, in my Dear Urbaneer blog – Does It Still Make Financial Sense To Invest In Downtown Toronto Real Estate?, the answer on whether it makes sense to pick up a condo and rent it as an investment leaned more to “No” rather than “Yes” unless you’ve got deep pockets (you have to put around 50% down to break even), are buying for the long term, and you’re really strategic.

As I mentioned in Part One, as the government interventions effectively compressed demand into lower price points and shifted more focus of both investors and end users from the freehold market to the more affordable condominium – resulting in a spike in values for condominiums this past year – it’s also closed the gap in values between these two markets. This has helped open up the natural filtering of housing stock between these two housing types – as freehold houses came down in value or stabilized, while the condo market went up in value – giving condo owners significantly more equity to sell and springboard into a freehold dwelling. For the housing market to be healthy we need properties to trade in all price points, so this unintended byproduct of the interventions has been good. However, as condo values have shot up I am witnessing some Buyer resistance. Will they pull back? It’s ultimately about affordability, and this hefty increase in prices has eliminated a lot of buyers who’d like to purchase for reasons of affordability. As a result I think it is feasible condo prices have crested and values will plateau for the next while. And I still have reservations for the stability of the condo market. Given investors have riskily bought units which don’t even carry the precedent-setting rents Toronto is currently generating (and yet now have their income stream capped thanks to the Provincial Rent Controls which you can read more about in –> The Other Side Of Rent Control And Toronto Real Estate) the sustainability of values for this housing type is precarious, particularly if interest rates rise and investors start dumping their units. If you’re going to buy a condo, my rule of thumb is to buy the unique, whether that is for a condo’s higher ceilings, intelligent space plan, architectural styling, outdoor space or protected view. I also favour buying loft and boutique condos in Triple AAA locations where there is less competition like Leslieville, College Street, The Annex, St. Lawrence Market proper, near Trinity-Bellwoods Park and Roncesvalles Village. Future hot spots? St. Clair West and The Danforth (here’s A Brief History On The Intensification Of The Danforth In Toronto)!

No question, along with investors the condominium market has long been the entry point for First Time Homebuyers, offering an affordable starting rung on the property ladder. With the high prices of freehold housing in Toronto, this will remain very much the case from here on in. Likely compounding demand is that with both rising interest rates and the tighter qualification requirements for mortgages, there will be a new cohort of buyers considering a condo purchase whom might have otherwise pursued a freehold home purchase. Ultimately it’s really about affordability, price point, a convenient location and turn-key living, because the condominium is the only product offering those carrots that can be acquired for under $1,000,000 in Toronto. And if you’re a busy professional or down-sizing, it’s really really hard to find a spacious ‘house-sized condo’ in the city centre because developers long-catered to first time buyers, cranking out a lot of one and 1+1 bed spaces, so big units sell fast. Buying square footage falls in line with my ‘buy the unique mantra’ – as bigger is better as long as it’s in a building with similar sized suites and not a one-off. What’s golden for down-sizers? Something with a terrace where you can barbecue! Here’s some supporting content in Dear Urbaneer: What Is The Value Of A Condominium Balcony Or Terrace? and Downsizing: The Challenges Of Finding A House Sized Condominium.

As affordability erodes in Toronto, there has also been a marked shift in “what homeownership looks like”. Whereas there was a time when couples owning their first condo purchase would sell that home to buy a house in the burbs to raise their kid(s), over the past five years I’ve witnessed a baby boom in the city core; couples are re-evaluating their concept of the property ladder in favour of lifestyle, as couples elect to stay in proximity to work and raise their offspring in a high-rise. This is part product of a dwindling supply of detached housing and part product of sky-high prices, placing that housing type out of reach. It is also the product of a generational shift that redefines how and where people live at this stage in their lives in Toronto.

I think we’re at a crossroads where a generation used to growing up in low density housing is reconciling that what they’ll be buying may not match the homes that they had in their own childhood; they are sacrificing that vision of a low-rise home with a yard, but are embracing the lifestyle benefits that urban high-rise living affords them. Namely time – which as any young family will tell you, is invaluable. What’s causing this shift? Hands down it’s because commuting in Toronto is horrific. In fact Toronto was just ranked the worst city in North America for commuting with “73% of local commuters making at least one more of transportation change on a single journey, and the average driver sits in gridlock for a whopping 47 hours every 240 work days”. As I wrote in my blog What Are The Real Financial, Emotional And Health Costs Of Commuting, the value of living as close to work as possible results in more quality time which, for parents, translates into being together as a family. Whereas ten years ago kids living in condos were rare, there’s now a baby boom occuring in downtown condos. It even prompted this Dear Urbaneer blog when one of my clients asked Should We Raise Our Kid In A Condo?




Supply And Demand Need Equal Treatment For Balance

Yup, the market has pulled back substantially in the last year, after our Governments intervened with Ontario’s Fair Housing Plan and Canada’s New Mortgage Stress Test. To give you a sense of the impact of the mortgage stress test, before its introduction one typically could borrow 7 times your income as a mortgage. Now it’s 5 times your income regardless whether you have 5% or 50% down. This is a drastic change, considering up until February 1st, 2018 CIBC was offering foreign buyers and international students an uninsured mortgage without income verification provided their down payment was more than 35% of the purchase price. So while these new policy measures have done much to limit the borrowing power of all property buyers and owners – while Canada Revenue Agency Implemented New Reporting Rules To Discourage Fraudulent Real Estate Activity – and a 15% Foreign Buyer Tax was implemented to stem the flood of global capital – home prices are still high, which doesn’t help the affordability problem.

That’s in part because – as I mentioned in Part One of my forecast – the government interventions only addressed the demand side of the equation. To truly bring balance to the Toronto real estate market, one needs a recalibration between supply and demand, whereas the measures last year really only addressed the demand side of the equation. As long as there continues to be a shortage of supply in the GTA, it will continue to put pressure on prices, pretty much assuring the neighbourhoods located within the original City of Toronto ongoing value escalations.

A recent report from CMHC, “Gap Between Housing Supply And Demand Largest In Toronto And Vancouver: CMHC” outlines the persistence of supply problems in Toronto. This story from the Globe and Mail, “Ontario Needs An Evidence-Based Strategy To Expand Housing Supply” takes a cautious approach to the market slowdown, suggesting that it is a dangerous assumption to think that the Government measures have gone far enough to stabilize the market. Rather, the issue of supply based on data around the economic drivers that funnel demand needs to be addressed.

A common theme for noted CIBC economist Benjamin Tal has always been that in order to truly introduce stability to the market, you need a comprehensive solution that addresses both supply and demand. In this article, he cites stringent development policy as one of the greatest pressures on affordability in Toronto. He says, “We’re using demand tools to fight supply issues. “It is lagging way behind.” The solution to the supply crunch may reside with Municipal and Provincial Governments, and it isn’t about taxation or lending policy; rather it is about being proactive with policy combined with the easing up of fees associated with building to promote the introduction of new supply into the marketplace.

It’s the economic chain of events. The cost of new development is prohibitive in Toronto. The bureaucratic red tape notwithstanding, the sheer cost of the fees on development and construction material are substantial. These costs are passed on to the consumer, of course. But these costs have risen dramatically since 2013. Here’s my own post called The Pitfalls Of Permit Fees And Toronto Real Estate.

A new study from CD Howe outlines the barriers that preclude building supply, mainly the widening gap of the cost of building new housing and its market price. The study looked at several pricey, supply-constrained cities in Canada and found that fees and extra costs added 20 percent to the cost of housing in the Greater Toronto Area (or $70,000). These extra costs come in the form of property taxes, utility costs and building permits. In fact, from 2007 to 2016 buyers in Canada’s highest priced cities (among them Toronto) paid an extra $229 000 due to development fees, while the prices of home doubled during that same time period.

The study clearly demonstrates the problem, but the report authors clearly delineate a solution: “While land-use policies can generate important benefits, most studies find that the cost of higher housing prices imposed by housing regulation typically outweighs the benefits. Municipalities and provinces across Canada can take steps to reduce the economic cost of restrictions on new building… Municipal governments and provinces should enable more housing construction by taking steps such as easing restrictions on developing agricultural land, simplifying and updating zoning bylaws, and reducing development charges”. The study’s authors draw an interesting parallel as well. Homebuyers usually can’t pay for an entire home purchase in one payment, which is why they get mortgages and pay them down over the tenure of homeownership. The municipalities are requiring builders to pay towards municipal infrastructure immediately, rather than spreading it over time. These costs are then directly passed on to the consumer, as builders pay their municipal bills.

A new study from  BILD, shows that government charges are far outpacing inflation, which contributes directly to an affordability crisis. Government fees on a  new, single-detached home in the Greater Toronto Area was approximately $186,300, or 22 per cent of the price of an average home; for new condos the costs tallied to $121,300, or about 23.6 per cent of the cost of a new unit. (And it may get even more costly, as The Globe And Mail wrote about in “Planned Hikes In Development Charges Rile Toronto-Area Condo Industry“).

The study also shows that prices peak during times when developers are up against intensification and densification target when trying to get building permits. There is also a disconnect between the public and the Government in terms of creating supply. Many studies and anecdotal evidence suggest that homebuyers still very much want detached housing with backyards (Toronto-Area Millennials Want Their Own Backyards, Report Says”), but urban planners are favouring higher density housing. While the market in theory receives supply, it can create an additional dimension of supply/demand issues, and can create additional price pressure on some market segments. I’ve talked about this in the past in High-Rise/Low-Rise: The Toronto Real Estate Price Gap.

We can learn a lot from pricey Vancouver, where local and Provincial Governments have stepped in to assist with affordability, slightly before Toronto. The benefit is that we can examine the success and failures of their policies, because they face similar problems with supply and high housing prices. While the BC Government did include an affordable housing plan as part of their intent to assist with the affordability crisis in their 2018 budget, what is actually happening in the marketplace is that Government-imposed fees are crushingly expensive. Homebuyers can expect to shell out on average $250,000 for taxes and housing related fees (property tax, vacant home tax, building permit fee, development permit fee, speculation tax, property transfer tax, and GST, among others) when purchasing a new one-bedroom plus den condo. In relation to housing prices in Vancouver, that’s 26 per cent of the average purchase price of that condo. Click here to read “Housing Fees And Taxes Account For 26 Per Cent Of New Vancouver Condo Costs: Study”. The author of the study referred to in this article says that “Instead of implementing more taxes… the government should focus on creating more supply to meet demand”.

Toronto, like Vancouver, is in the same boat with prohibitive building costs and stringent development policies. Check out “High Housing Prices Blight Lives – And Widen The Inequality Gap” and “Mayors Are Ignoring The One Easy Fix That Can Cool Runaway Housing Markets”. In my opinion, this is the crux of the issue. Toronto lacks a sufficient supply of housing – in particular product for the middle segment of buyers who are seeking to climb the property ladder to raise their kids for the next ten to twenty years. While Buyers may covet the antiquated Canadian Dream of owning a detached housing, which has propelled many to argue the protected greenfields surrounding the GTA should be rezoned for development, I don’t believe Buyers truly desire ubiquitous detached stick frame boxes defaced with plastic gingerbread ornamentation situated in the farthest fringes of auto-reliant placelessness. Ideally they want a detached house in a convenient amenity-rich urban village setting in proximity to their work but, given its cost prohibitive, they’ll take a higher-density human-scale dwellings with the least time consuming commute. While the detached house is certainly coveted as a status marker, it may only be for our lack of well-constructed soundproof alternatives. I think our city Government needs to change our existing zoning, development approvals processes, and permit fees to allow more as-of-right higher density multi-unit low and midrise housing in our existing city neighbourhoods. Much like Vancouver, Toronto lacks urban planning policies that allow for a variety of residential product. In fact, Vancouver approved laneway housing, while Toronto is still struggling with silly obstacles. I mean,seriously? We need a richer array of product, including infill townhouse complexes on existing single family lots. This Vancouver article called “Higher Taxes No Solution To Vancouver’s Real Estate Crunch, Says Study” shares insights which could well apply to Toronto. I applaud James Tansey, an associate professor at UBC’s Centre For Social Innovation & Impact Investing, who said “You can house six families on a single-family lot if it is done well and not impact the character (of the streetscape) – and bring more social life to the community.

So how long will it take to see new government policies being introduced that can be effectively implemented to create enough rental and market housing to close the gap between supply and demand? My estimate is ten to twenty years at the earliest. Until then, the housing which offers the trifecta of a desirable location, on trend style and condition, and intelligently designed space plans, will be purchased by the Buyers with the most money. And the shelter which is most lacking will be affordable at best to the middle class, providing they can scrape enough of a down payment to get onto the property ladder. Whereas just two generations ago the working class earned a living wage sufficient to buy a modest residence in Toronto, the gap between incomes and property prices today makes it economically impossible. Unfortunately housing in Toronto is no longer a right, but for the privileged. This is part of the issue, for when government interventions restrict mortgage borrowing and increase taxes, they’re most detrimental to those who need housing the most. The entrepreneurs, consultants and self-employed with lower or irregular incomes; the cash-poor equity-rich investors; and the middle class who make good ‘but not great’ incomes are negatively affected, while those people with professional occupations, substantial savings and large down payments are afforded greater opportunity to thrive and leverage any downturn ripple effects of the intervention. As I’m witnessing in the neighbourhood wrapping the City Centre’s Financial District, is that the ‘well to do’ are competing in bidding wars for the best residences in Triple AAA locations while the marginalized middle income owners in the suburbs are slashing ten to twenty per cent off their asking prices.



Homeownership Continues To Be A Priority

Despite high prices, homeownership continues to be a major priority for most people. In fact, did you know 50 per cent of Torontonians own their own homes – and for all of Canada it’s 67 per cent – one of the highest rates of homeownership in the world? Research on housing and identity indicate that owning a home, as part of the Canadian Dream, is seen as a sign of financial and personal success, as well as reflecting one as ‘biographically on schedule’. But with the perceived privilege and status that accompanies owning your own ‘castle’, it also shackles us to a lifetime of debt serfdom to the money merchants of our capitalist machine, incentivized by governments who need their citizens complacently spending their coin in a culture of consumption so that sufficient taxes are generated. Homeownership is encouraged by government as a means to line the coffers of the state, with programs geared to steer you into property ownership along with fake news where the Canadian government used “tax dollars to write and promote articles with marketing-like copy on how to take out a HELOC (Home Equity Line Of Credit), and joining the affordable “condo boom” – as seen in Better Dwelling’s “The Canadian Government Used “Fake News” To Drive Real Estate Borrowing… Seriously.”

To help make homeownership more affordable, the Government has introduced measures into the market to try to bring prices down, but they also offer ways to try to reduce the costs of purchasing. Although as I mention below, some of these incentives really don’t offer much help in a pricey city like Toronto.

Federally, there is the Canada’s RRSP Home Buyer’s Plan, where you can borrow up to $25,000 from your own Registered Retirement Savings Plan (RRSP) to purchase your first home. The catch is that must pay the entire sum back into your RRSP within 15 years ($1,666.66 per year). RRSPs are tools for savings and for tax deferral, so if you don’t repay the required amount under the HBP in the required time, you will eventually have to pay tax on the overage. And for Buyers who would like to own but don’t have a 20% down payment to secure conventional financing, one can secure high-ratio financing where you pay a sizable ‘mortgage insurance premium’ to CMHC – a Crown Corporation of the Canadian government which doesn’t protect the buyer but the lender in case the buyer defaults. First time buyers qualify for land transfer tax ‘rebates’. This isn’t so much a rebate as much as a reduction in the crushing taxes due on 100% of the acquistion price of your property purchase even though you may only be putting 5% down – snapping up every cent of your savings. For those buying in the City of Toronto, this tax bill is effectively doubled, for one has to pay both the province’s tax and the city’s tax for the privilege of admission (here’s my post What Are The Closing Costs For A Property Purchase?). And, of course, once you have the key to your castle, your tenure as homeowner assures you significant annual property taxes to maintain civic operations.

Homeowership continues to be a priority for a couple of reasons: the desire to own a home for social and emotional reasons and of course, the objective to grow wealth. Back in 2011 I was interviewed by PropertyWire for an article called Locks Or Stocks? Which Should I Buy? Although I consider stocks and real estate to be equal opportunity investment vehicles – basically one investment consists of words on a piece of paper while the other is essentially a pile of bricks and mortar – their value is subject to change based on how well they’ve been tended and the market conditions at the time it is traded. The potential for profitability is very much linked to the law of averages, as well as to investor education and experience. However, there is one fundamental distinction between real estate and stocks. We all need and understand the value of shelter, as a fulfillment of a basic human need. In Maslow’s Hierarchy Of Needs And Toronto Real Estate For Buyers I explored how, for many, home ownership is the foundation to anchor, and nurture, our physical, emotional, mental and spiritual needs. So unlike stock, owning bricks and mortar satisfies both a necessity of life and offers you the opportunity to profit.

Though I caution your expecation of profit, because it’s more likely than not you won’t take into consideration the real cost of homeownership. If a first-time Buyer purchases a property for $750,000 and puts the minimum 6.7% down ($50,250), and secures a 3.29% mortgage with a 25 year amortization, were interest rates to never change during that 25 years (highly unlikely), they’d pay a total of $1,065,958 in principal and interest payments, along with $27,990 in mortgage insurance, and $14,475 in city and provincial land transfer taxes (it’s $22,950 in taxes if you’re not a first time buyer) in addition to all your operating, maintenance, repair, renovation and resale expenses. I’d conservatively say you’ll have easily spent a total of $1,500,000 at the end of  those 25 years, so keep that in mind when we all assume Sellers are making financial ‘windfalls’. That said, the value added benefit – even if your profit is modest after the real costs of owning shelter – is that you’ve effectively enjoyed quiet enjoyment, security of tenure, and ‘free shelter’ in lieu of paying a landlord for accommodation.

Perhaps owning your own home should more aptly be described as a ‘forced savings account’ rather than an investment . And the reward at the end when it comes time to sell is we Canadian homeowners are exonerated by not having to pay capital gains on the sale of our principal residence. Plus, as long as we perceive owning our own home is both a status marker and ‘secure shelter’, your real estate investment will have inherent appeal to a target market that are genetically wired to buy real estate which makes it, in my opinion, a wise investment. For this reason, along with the fundamentals of a strong post-industrial economy and employment profile, continuing immigration, the role of demographics, the desirability for a pro-urban lifestyle, our propensity to remain single for longer periods of time (in condominiums), and the severe lack of rental options (much which is summarized in 7 Reasons Why Toronto Real Estate Prices Have Skyrocketed Over The Past Decade), there will always be Buyers for property in the City of Toronto. The desire by most to own their home is a pre-determined market, so barring a gross mismatch between the earning power of the local market and property values – or the costs associated with housing (like interest rates which to me is probably the most critical factor on where prices go) suggests that there is plenty of demand to keep prices afloat and moving upwards.

As I touched on in Part One of the forecast, first time homebuyers are still keen on owning their homes, but are well aware of the challenges that the current market presents. That’s why affordability has become a relative term in Toronto.  “Affording” a home has become equated with maxing out your mortgage just to get into the market, not using the typical measures of household debt. And yet Millennials keep on buying. How are they doing this? Some are compromising on housing type or location, as I touched on in Part One. But it’s really about ongoing support from The Bank Of Mom And Dad.




The Bank Of Mom And Dad

The other thing that Millennials are doing enmasse to facilitate the purchase of a home is turning to the Bank of Mom. The Bank of Mom and Dad are helping out their kids, whether with the gift of a down payment  or by co-signing a loan. I’ve been witness to the Bank of Mom and Dad since 2013 when it started becoming more common for parents or grandparents to help their off spring. It makes sense as a pre-inheritance, and it’s one of the reasons why the Toronto real estate market has remained so strong. Here’s one of my posts on the subject called Relying On The Bank Of Mom And Dad – as well as Are Strings Attached When Parents Help You Buy?. I’ve consistently served this group of Buyers, with some financial assistance from the Bank of Mom and Dad, willing to spend upwards of $1.4mil.

Not only does this financial assistance let this young cohort become homeowners; it ends up having an impact of the market, supply and escalating prices. While the Government has tried to curb demand by limiting borrowing power and by raising taxes and fees to deter speculation and foreign investment, they may have underestimated the steady flow of capital into the market via the Bank of Mom and Dad and the pressure on prices.

According to Sotheby’s International Realty Canada’s Generational Trends Report, Baby Boomers comprise about a third of the real estate market. They are major influencers on the market. The report finds that most Urban Boomers have amassed wealth through real estate over the years and that their real estate investments have outperformed their financial investments. No doubt a reflection of their own experience, the majority feel that purchasing real estate is still a wise investment, despite high prices.  Thirty-five per cent of respondents from Toronto intend to give their children a living inheritance,  of which the median amount is $25,000 to $49,999.

It is important to note that, while Boomers frame their own real estate investments based on their own experience in the market, the same experience of enormous real estate gains won’t be the experience for the Millennials. It’s all about timing and about income inequality. The Boomers purchased at not only lower prices, but at much lower debt levels, meaning that values could grow and debt could reduce in tandem to create that wealth. Millennials will be purchasing at a time when the debt-to-income ratio is substantially higher, already cutting into their gains. As of the writing of this piece, Stats Can puts the current debt ratio in Canada (household debt as a proportion of household disposable income) at 168 per cent. We owe 68 cents for every dollar that we make.

Interest rates are an important component of this as well. Even though interest rates were substantial in the years when the Boomers were buying their homes (click here to read “Dear Urbaneer: Interest Rates In The 1980s And Now”) their overall debt was much lower in relation to their incomes. Even though interest rates have climbed recently, limiting the borrowing power of Buyers, given the current economic climate, rate hikes might take a breather. If we do engage in a trade war with the U.S.A., as appears to be looming, the economy will face some new challenges. When the economy is facing challenges, interest rates hold steady, or in some cases even go down. When rates are low, debt tends to go up; when rates are high, debt levels are low. And as I mentioned, when you begin your journey to build your net worth heavily laden with debt, the return on investment will be less.

It is a good idea for adult children and Baby Boomers alike to reframe their expectations around home ownership which is touched on in this article “Millennial Housing Crisis? Turns Out, It’s Real And Worse Than You Thought.” This article serves as a sobering reminder for parents to consider ‘paying any price’ to help their kids buy a home. The cost of home ownership extends far beyond the purchase, and can the kids manage in the long term if they can’t afford it on their own today?  Read Parents Can Financially Suffocate Their Kids By Helping Them Buy houses”.

Click here to read “Is The Bank Of Mom And Dad Driving Up Demand And Prices In Canada’s Housing Market?” and “One-Third Of Baby-Boomers Helping Millennials Buy Real Estate”.

Similarly, Mom and Dad are active participants in another housing phenomenon, borne in part by high housing prices and by the high cost of childcare in Toronto, there is a growing trend for homes that are able to house multiple generations, assisting adult children with their childcare and also setting up a supportive path for parents to age longer in place with the nearby support of their adult children. This isn’t a new phenomenon, but it is experiencing a resurgence. In 1940, pre-WWII, about one-quarter of the population lived with three or more generations in one home, a trend which began to decline in the 60’s and 70’s, reaching an all-time low in 1980. Now it’s on the rise again in Canada, in part due to our ageing baby boomer population and our sky-rocketing house prices. Did you know that, “between 2001 and 2016, multi-generational households were the fastest-growing household type in Canada, increasing by 38% to reach nearly 404,000 homes?” ( – 2016 Canadian Census.)  For more insights on how this is playing out in Toronto, read my blog How Demographics Affect Toronto Real Estate. This impacts the market as well because it directs demand, putting additional pressure on supply. Click here to read “Immigration, Aging, Housing Costs Fuel Rise In Multigenerational Households” and “Why More Canadians Are Embracing Multigenerational Households”.

Want to see an example? In our November 2017 – Home Of The Month – Scarborough, we share the journey of a Zoomer couple who, after some reflection and collective counsel, began to consider how their future might look in their elder years. As we each navigate how we might age-in-place it’s critical to assess our strategy to live in our own home and community safely, independently, and comfortably, regardless of age, income, or ability level. This includes reconciling potential issues of mobility, as well as ease of access to family, services and amenities. Which is how our Buyers recognized there might be merit in merging their Toronto residence with their son, daughter-in-law and granddaughter, who owned their own house downtown. By selling two properties to acquire a larger property that offered a space plan well-suited to multi-generations, they’ve been able to integrate collective support, nurture familial bonds, while retaining some independence. How amazing is that?



Buyers And Sellers Adjust To The New Market

According to a well-crafted study from Realosophy, 988 Toronto home owners lost $136 million in the five months following last year’s market peak. These are the people who got caught when the government interventions went into effect leaving these highly motivated Sellers to sink on their land ships while “Toronto, Vancouver Home Sales Slump As Buyers And Sellers Wait On Sidelines”. When the majority of Buyers and Sellers held back to confirm the direction our real estate market would take, only to see the government’s mortgage stress test intervention dampen the purchasing powers of the majority of Buyers, the concept of “value” along with a shift in approach from all real estate players became a natural consequence. However, what is ultimately the way forward?

What is market value? Economically, it is the price that a Buyer is willing to pay and a Seller is willing to accept at a specific moment in time. As we’ve seen in Toronto a lack of supply and the ‘Fear of Missing Out’ droven our prices up considerably until the intervention made the market stall. Since last year, depending on where a property is located, Sellers have had to re-adjust their perception on what their dwelling is worth, while Buyers had to re-align what their own matrix of value means in current market conditions. I talk about the concept of value beyond dollars in housing for Sellers in Dear Urbaneer: Will We Have To Accept Less For Our Home If The Market Shifts?. And for Buyers exploring the complexity of finding their Prince Charming of bricks and mortgage, it’s worth reading my post on The Psychology Of Real Estate, Housing & Home.

The concept of value is always subjective as it relates to the context of your end goal. It’s not simply about assessing the market and the likelihood that the property will be worth more than when you purchased it. This article “Why Canadian Homebuyers Are Playing ‘A Different Game” discusses how much a Buyer should be willing to pay theoretically in the context of a buying motivation. For example, a long-term Homebuyer who hopes to live in the property for years would look at how prices have gone up over the long term and how their purchase price compares against that; whereas the speculative investor is concerned with how large the profit margin might be in the shortest amount of time as it aligns with the seasons of real estate, while the medium to long term investor is ultimately interested the cap rate on income to service their debt while monitoring the dynamics of supply relative to demand.

Buyers should always look for similar elements to preserve and grow asset value – like proximity to shopping, public transit, schools and green space. Remember, you can change the house but you can’t change the location, so look for these Seven Factors On Choosing A Winning Location as part of your purchasing decision. And to reiterate my earlier comments regarding purchasing a condominium, look for the unique. Thoughtful layout and unique finishes and features will always help your unit to stand out in a sea of others and garner top dollar when you re-sell. If buying a condominium is in your future, read my blog Five Points to Ponder Before Buying a Condominium.

As for Sellers adjusting expectations, let me share some a recent experience from the Real Estate Trenches. Not too long ago I was meeting with some Sellers who had been challenged finding a Buyer for their central-suburban house-sized condo. Listed over $1mil, the property was in an expansive mostly car-reliant MLS District which, despite its massive geography, had seen only one condominium over $1million sell this year. The stats show the volume of sales has dropped 47% in the past year, and that the median freehold house price in the district has dropped from nearly $2.4mil to just under $1.7mil. A significant part of this condominium’s target market were local residents downsizing to a condominium and, well, if they could once get $2.4mil for their property last year but could now only get $1.7mil, it made sense that their downsizing budget would also be reduced. In fact, most downsizers aim to spend half or less of the value of their property sale so, while condominium values had gone up or remained stable in this MLS district, it’s always price and property specific. Furthermore, it also made sense that given the huge reduction in values this area was being hit with, a lot of potential buyers would simply withdraw from the market rather than make a move, shrinking the pool of potential buyers. Which is really what had happened in this case.

My counsel to these Sellers? Recognize the value of your property is a function of your target market, including the purchasing capacities of those active Buyers at the time you’re listing, and specifically the ones who are expressing interest. So what happened? Fortunately we reached out to a buyer’s realtor who had lobbed in a verbal offer a month earlier that represented a 5% decrease in values from the year prior and inquired whether there was still interest. When the answer was “Yes”, we had the Buyer’s realtor resubmit her offer, resulting in achieving a firm sale five days later which is now the second condominium to sell over $1mil in this MLS district in 2018. If you’re selling, be aware that current market conditions require a concerted, calculated, data-driven strategy in order for you, as the Seller, to extract and yield your profit. Until you, as the Seller, aligns with the psychology of values that the current market presents, you may be stuck holding onto your property until real estate values increase to meet your number.

With my bi-annual forecasting, I always reflect on where the market has been to understand where it is going. No doubt, with all the economic, social and political influences in recent months and current day, being a Buyer or a Seller in Toronto real estate can be a bit daunting. But as we look forward to the future and consider the direction forward, rest assured that Toronto real estate continues to have a number of fundamental that position it for continued growth. For instance, check out this article “Toronto Ranked One Of The Most Future-Proof Cities In The World” that discusses how highly Toronto ranks globally based on influences like higher education infrastructure, innovation capability and technology firms. These are just the things that support the path ahead, and Toronto cracked the top ten in the world, taking the #9 spot.

With decades of experience in the real estate trenches of Toronto, I have the knowledge and strategic skills to help you navigate the market with success, whether you are buying or selling. Please know my team and I are here to help!



If you missed part One of my forecast, find it here: Urbaneer’s Spring/Summer 2018 Toronto Real Estate Forecast: Part One


Are you considering buying or selling your property? In order to navigate Toronto’s complex real estate market, you need to not only accurately chart a path, you need to have a comprehensive view of market influences. With decades of in-the-trenches experience and a multi-disciplinary education in housing, my team and I can offer relevant support to understand the dynamics of our housing industry.

We are here to help!


~ Steven

Steven Fudge, Sales Representative
& The Innovative Urbaneer Team
Bosley Real Estate Ltd., Brokerage – (416) 322-8000

– we’re here to earn your trust, then your business –

Celebrating Twenty-Five Years As A Top-Producing Toronto Realtor


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