In Vino Veritas

IN VINO VERITAS ~ In Wine there is Truth

February 3rd, 2021.

All of the "factors" affecting this crazy market… that's just the wine talking.

The truth is, there is a housing shortage.

Construction:

There has been a shortage for some time, and pandemic delays means there will be for some time to come. It is a Supply and Demand issue. There are not enough homes, more accurately, not enough of the homes that people want to live in. The government can demand developers build small "affordable" units looking at the train tracks, but that's not where people "want" to live. 

This last year, like having too much wine, has just amplified the housing shortage.

People need somewhere to live. In 2020 we had less than 30,000 housing "starts" and 100,000 people, or family units, that need some form of housing. 

Interest Rates and Free Money:

We don't buy houses for cash, we use other peoples money and we live in the payments. 

Free Money is making it more affordable for first time buyers, move up buyers, and Real estate Investors. I just refinanced one of my investment properties at 1.58% changing my mortgage from $1,973/m to $1,172/m. TD now offers 1.55% Variable, 5 yr Closed, with a 30 year amortization.

At this historic low interest rate - roughly 75% of your mortgage payment is going back to you - as pay-down of Principle. So, if you pay $100,000 in mortgage payments over 5 years, you paid yourself $75,000. 

Passive Appreciation on Leveraged Cash:

Real Estate is still a great investment. That investment property I mentioned appraised at $490,000 last year and $580,000 this year. The house made $90,000 while I was sleeping. We bought it for $340,000 in 2017; with a 25% downpayment of $85,000, we made 106% on our initial investment just last year. Less Expenses of course, but add Cash Flow and $20,000 / year of Principle Pay-down. 

We need to live somewhere - rent or own - either pay our mortgage, or pay our landlords mortgage. 

People are saving money:

It is cheaper to live when we all stay home. We know there have been huge job losses but many homeowners are still doing well. Personally, I miss the kids activities and family outings but that is money saved. No new suits, less lunching, less driving, no Disney trip...

The money I saved on Starbucks alone would almost cover another mortgage. 

Need to Buy First:

People realize that if they sell, they will need somewhere to go. This is creating a log-jam. I am generally recommending the Buy First - Then Sell strategy, and until more listings come on… the lack of listing supply drives up the prices. The industry calls this a lack of inventory. The first lockdown saw a dip between St. Patricks Day and Victoria Day, but that just created more pent-up demand.

Migration to the Suburbs and Exurbs:

Exurbs are all the rage. The Exurbs are the "prosperous areas beyond the suburbs". Years ago that meant Oakville and Burlington, but today that means Grimsby, Binbrook, Lincoln, and Niagara-On-The-Lake, or to the North, Wasaga Beach, and Collingwood.

Many folks that were not retiring, or not moving, have decided that maybe an "Active Retirement", or working from home near the lake and coming to the city for meetings now and then, may not be a bad idea.

Move-up buyers are selling their 2 bedroom condo downtown for $700,000 and buying a Semi-detached 3 bedroom in Burlington for $800,000, with a back yard, 2 parking, & no condo fees.

At 1.55%, saving $700 per month in Condo fees, and applying that money to your mortgage payment, means another $200,000 in buying power.

What about apartment Condos:

Condos had softened, but... are now starting to pick up again. The Toronto condo market will recover. Condos are Housing - and remember what I said - there is a Housing Shortage.

When will the Bubble will burst:

Prices go up, prices go down, and anything could happen, but let's look at some scenarios. I moved to Toronto from the farm in 1994 and everyone then told me Toronto prices were too expensive. I became a Real Estate Agent in 2008 during the recession, and everyone said I was crazy. We had a government 16 point plan to cool housing in April of 2017 that did slow things down for a while, but as you can see, that was short lived. 

Because - it did not address the root problem - we have a housing shortage.

But what if the bubble does bursts, by a crazy amount, like 20%... sure, ok, that puts us all the way back to... November pricing. As long as you can afford the mortgage payments and don't need to sell, we know over time, the market will recover.

If you are worried about payments - you can get a 10 year mortgage - with no penalty for cancelling after 5 years.

When will it slow down?

It's been really hard to predict this year, and I don't support speculating in real estate. Move when it is the right time for you to move. 

If you are waiting for prices to "come back down", I think you likely missed it. 

That little dip last spring has shown us that Real Estate is solid.

In fact, once the pandemic is over, and people start moving to Canada, and migrating to the Toronto area again, I firmly believe that prices will go up.

I am hopeful that the Spring Market will bring more listings, which will take some of the pressure off. I'm hoping for a levelling, or a less steep curve. I can't imagine prices will go down any time soon.

It will continue to be a Seller's market for the near to mid term.

(Because there is a housing shortage)

Of course, if you, or someone you know is looking to make a move, or would like to learn about investing in Real Estate, please give me a call with their information. I promise to follow up and take great care of them. 

Oh, by the way… I'm never too busy for you, and I'm never too busy for any of your referrals.

www.CallRob.ca 

Rob McKichan: Ontario's Fair Housing Plan introduced today.

Rob McKichan: Ontario's Fair Housing Plan introduced today.: Ontario Fair Housing Plan Ontario’s Fair Housing Plan was announced today. I was prepared to write a long, point by point review, but; ...

Ontario's Fair Housing Plan introduced today.

Ontario Fair Housing Plan

Ontario’s Fair Housing Plan was announced today. I was prepared to write a long, point by point review, but; it doesn't actually do anything that needs deep analysis, so I'll just let you watch the news, and give you my take on the highlights.

I’ll give it a Solid B+.

Basically… all levels of government got together for tea and biscuits and agreed to get together for tea and biscuits to talk again…

They came up with a 16 point plan with a catchy name “Fair Housing Plan” and some made up villains “Property Scalpers” with solutions to solve problems that effect a very small percentage of real people.

So why do I give them an B+ and not an F?

They didn’t over-react for political gain, as many feared they might. They are doing a whole bunch of little things, some I agree with and some I don’t. 

They didn't do anything that will crash the market. They admit that they need more data to make better decisions. In short - they listened to all sides and admitted they don’t have an easy answer. For a politician to admit they don’t know is a really big deal.

​

They announced it today and made parts effective today. We were already seeing Seller's rush to get on market before the April 27th budget, while at the same time seeing Buyer's take a "wait and see" approach.

​

Today's announcement removes the uncertainty. That is good.

So what did they do?

Non-Resident Speculation Tax: Effective April 21st, any non-resident will face a 15% tax on top of the price of their property. There are a whole bunch of loop holes and rebates for people who become residents. They hope that this will slow down foreign investment on properties under 6 units. They didn’t tax Apartment Buildings. They admit that they don’t know what percentage of transactions are from foreign investors… so we don’t know if this will do anything. It seemed to have some effect in Vancouver, so hey, let’s do it here too.

Rent Control: Ontario has had rent control since around 1975. In the early 90’s Bob Rae lifted rent control on buildings built after 1991 to encourage rental units. It did not work as intended. It didn't increase purpose built units but we did see individual investors purchase homes and condos to rent out to tenants. Most people were actually totally unaware of this 1991 “loop hole” and I think it caught politicians by surprise when a condo developer doubled the rents to kick out tenants so they could sell off the units. This loop hole is closed, effective immediately, April 20th. Most landlords don’t double their rents, so I don’t know how many people this will actually effect. This may have a negative effect, of not getting individuals to invest in rental properties, specifically Condos where maintenance fees increase faster than CPI. We shall see.

Housing Supply: The government is going to sell off vacant land that they own for infill projects, and ideally affordable housing. It takes years to go from concept to move-in, but better now then never.

Review of REBBA: They are going to review the Real Estate and Business Broker’s Act of 2002. This is a good idea as a lot has changed in 15 years. As an active Real Estate Broker I see some of the negative things that happen in our industry. I personally agree that double-ending -  while currently legal - is unfair to the consumer as well as other Buyer agents, especially in Multiple Offers. The previous generation of agents get defensive, even mad at me, for saying that. It will be interesting to see what happens. 

I also support higher fines for the few Registrants that break our rules, more accountability, higher standards, better education, and any changes that help the Good Realtors(r) do business better.

The real reasons prices rise is Supply and Demand. Demand is caused by people moving in to the GTA, from all over the world, as well as from other provinces. A lack of Supply is caused by a Lake to our South, and a Green Belt on the other three sides. This has now been referred to as the “Manhattanization” of the GTA. The government isn’t going to build more land, they are not going to open up the Green Belt, and they aren’t going to prevent people from moving to the GTA.

THEREFORE PRICES WILL CONTINUE TO RISE.

If the Plan helps slow down the rate at which prices rise, that’s a good thing.

If the Plan makes the process more transparent and more fair for consumers, that’s a good thing.

If the Plan improves my industry and get’s rid of the few bad apples, that’s a good thing.

If you are looking to consider

- Buying

- Selling

- Investing

Let's talk.

Rob

Oh, by the way... I'm never too busy for your referrals.

Will GTA Home Prices Double in 6 Years?

As part of my Client Appreciation Program, I pass on information that I think may be of Value to you.

Yesterday I had 3 conversations with people about what the market is doing, and discussed why. It is my job to stay on top of the market, interpret the data, wade through it and separate the wheat from the chaff, the chicken from the feathers, the... well you get the idea. We are inundated with information but short on accurate interpretation and the Media posts headlines that generate clicks and impressions for their advertisers.

I could talk all day, and would love to discuss the details with you over a coffee, but; I thought I should take a moment to summarize it for you because I think it's important that you realize what is happening.

The Rule of 72It has been said that Einstein referred to Compound Interest as the 8th Wonder of the World. The formula is remarkably simple. Interest Rate X Time = 72. So if you invest for 10 years compounded annually at 7.2% interest your total investment will double. 10% takes 7.2 years. 3% takes 24 years. At 12% it takes 6 years for your investment to double. 24% actually doubles in only 3 years.

What the market is doingThe year over year average price for the GTA is up 12.1% (Aggregated - Toronto Real Estate Board), which means a doubling effect every 6 years.
Here are some specific highlights for March 2016 over March 2015:

The average price of all homes sold in Oakville: $1,027,834.
55.78% of homes sold in Oakville were over $1M.

Price increases from OMDREB, RAHB and TREB for March 2016 over March 2015:
Oakville 26.5%
Milton 12.6%
Hamilton East 26.2%
Hamilton (combined) 14.8%
Burlingotn 9.5%
Ancaster 23%
Stoney Creek 16%
Grimsby 24%
Toronto Real Estate Board Composite Index 12.1%
City of Toronto Detached 11.05%, Attached 10.29%, Apartment 6.77%
Mississauga Detached 11.42%, Attached 10.29%, Apartment 9.5%
Brampton Detached 13.09%, Apartment 7.87%
Vancouver Aggregate 21.6% (RLP Housing Survey)

Why
Interest rates? Yes. People are quick to say interest rates but that is not entirely accurate. It helps, but we also know that when rates were 12%, or even higher, people still bought homes.
Employment? Yes. Employment is more important than interest rates. If people have a job, they will invest in a home. Employment is still relatively good in the GTA.
Green Belt? Yes. The green belt does force homes to be built higher, and increase density, but we are seeing prices increase in Guelph and London as well.
Migration? Bingo! This is the one that economists that analyze the stock market always overlook. People need somewhere to live! As I have mentioned before, the GTA brings in "about" 100,000 new people every year (depending on the year and which report you read). This year we also seeing Canadians moving "back" to the GTA from out west.

The FutureWhen will it crash?
Who knows. 
We do know prices do go up and down. Let's look at a few things. Interest rates will eventually go up - but that won't cause a "crash". Employment goes up and down - but the GTA is pretty stable and we have a mixed economy - so that shouldn't cause a "crash". The Green Belt is protected. GO Train service should be improving commute times.

Ok, but; what if we DO have a crash?..., a major crash?... ok, let's say... for example Oakville dropped 26.5%?... that would drive prices way down to what they were... way back in March of 2015!

So that really brings us back to Migration - without getting in to any specifics of Geo Politics - does it make sense to say, and can we agree, that people will continue to want to move here?

Do you think the rest of the world will continue to be a rougher place, and that Canada will continue to be a better place; a great county to invest in, do business in, and raise your family in?

If you answered YES, then you need to buy more Real Estate!

"Operators are Standing By" and I'm never too busy for your Referrals.

Rob