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The 2017 residential Real Estate market will be remembered as both an extremely good and an extremely bad year

Mar 13, 2018

Resale residential, new single family homes, and new high-rise condo markets were all selling at record prices and at record velocity in the first quarter of the year, until the Provincial Government announced the 16 point “Ontario Fair Housing Plan”.

The 16 point plan included:

  • a 15% tax on some foreign buyers;

  • potential future legislation to discourage assignments of new condo contracts;

  • a new vacant homes tax, and

  • tax benefits to Developers of new rental buildings, among other things.

Although the elements of the plan themselves were benign, the complexity of the plan had a devastating effect on short term consumer confidence in the resale and new, single family home markets, with the 905 belt of the GTA being hit the hardest.

The volume of sales in these two markets suddenly skidded to a stop as buyers, who had been frustrated with an extreme shortage of available properties, resulting in multiple offers, and sale prices often $100,000 to $300,000 over asking price, decided to wait and see how the Plan would affect the prices.

So the wait and see approach of buyers, not the elements of the Plan itself, caused a price correction and a record slow volume of sales in the resale and new, single family homes market, with the 905 belt being hit the hardest.

Homeowners in the 905 average home price range of $750,000 to $1,250,000 suffered a $100,000 to $300,000 loss of their personal wealth due to the devastating effects of the Ontario Fair Housing Plan.

The Ontario “Fair” Housing Plan.

The downtown, resale condo market felt a minor affect, with condos taking a small reduction on price and still selling fairly quickly, at a normal pace rather than the pre Plan pace.

The sale of new condos however, were unaffected by the announcement of the Plan.

Although there were not many launches during the summer months, new condos sold at a record pace and a record price throughout the year.

New condos were selling so quickly that both the public and top selling Real Estate Agents were complaining that they could not get access to units before the buildings were selling out.

So the new condo market was too hot, the resale and new, low rise markets were too cold, and downtown resale condo market was just right.

In my 3 decades practicing Real Estate, I have never seen a year like this.

The GTA sales numbers for residential new construction properties have been announced by Altus Group.

The GTA has experienced its best year ever with both the record 36,429 new condo sales and the record average price of $716,000.

The GTA has experienced its worst year in over 10 years in single family new home sales with only 7,714 sales at an average price of $1.23 Million.

As we look to the 2018 Real Estate market, the topic of conversation often leads to the new “stress test” requirement for Applicants putting more than 20% down on new mortgages with federally regulated institutions.

The reality is that the “stress test” is the latest of 8 policies from the banking Industry that make it more difficult for first time buyers, seniors, and average Canadians to qualify for the amount of mortgage that they could traditionally afford.

The reason I say the banking Industry is that the Office of the Superintendent of Financial Institutions (OSFI) is independent from the government, made up of people from the banking Industry, funded by the banking Industry, and is mandated to protect the interests of the “stakeholders” (the owners) of the banks not the borrowing public.

The 8 policies range from the shortening of the length of the amortization of mortgages, the elimination of equity mortgages, to the stress test for Applicants putting less than 20% down on new mortgages.

Since this new stress test on all new mortgages does not apply to refinancing an existing mortgage, consumers will be less likely to change banks at renewal time.

So the new stress test will lessen competition between the banks with existing customers.

The new stress test will lower the amount consumers can borrow so a portion of the market will buy smaller, cheaper properties than they would like, or they will “drive to affordability” by moving to places like Milton or Guelph.

The new stress test will not stop many people from buying.

In fact, more people than ever will be buying Real Estate in the GTA in 2018 as the federal government is set to increase immigration by 100,000 this year.

Under the previous Federal Government, just over half of the current 240,000 new Canadians choose the GTA as their home thanks to the rich environment of good jobs and social programs, and this number will dramatically increase again in 2018.

Immigration has long been known as one of the factors heating up demand in the GTA Real Estate market.

Record low interest rates, which are expected to remain low in the midterm, is the other major driver of demand.

According to the OSFI website, they predict that interest rates may go up or down in the midterm.

There is a shortage of residential, serviced land that is zoned for either high rise or single family homes so GTA Developers cannot keep up with the demand.

Economics 101 tells us that too much demand and not enough supply to meet that demand cause prices to increase.

So the single family home buyers will return to the market when they realize that the sky is not falling, and as they do, the resale and new, single family home prices will return to pre Ontario Fair Housing Plan level.

The faster they return the faster the prices will bounce back.

The long term confidence we experienced in 2017 that resulted in record new condo sales and prices will remain through 2018, and we should see similar record numbers again, with a 5% to 10% rise in average prices.

R. Scott Davie, President of Davie Real Estate Inc., is a leader in the sales and marketing of Pre construction Real Estate, and has been an advisor to many of the GTA’s top Developers.

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