I don’t know if it’s a good sign, or a bad sign, that Monday’s post necessitated a follow-up.
If you like discussing real estate, then it’s great.
If the three items on Monday’s list were at all a “concern” to you, then perhaps you don’t want to see a second list, with seven more.
But you’re going to hear a lot about the following topics throughout 2017, so you may as well get started by reading…
Let me know if you think my “Top Three” from Monday were in the right spot.
As well, if I’m missing anything below as I round out the top-ten, let me know.
4) CMHC Policy Changes
Just because the CMHC enacted two major policy changes in 2016, doesn’t mean they’re going to stop there.
In fact, you might argue they now have a taste for blood, and will only continue to ramp up their initiatives.
As I’ve said on many occasions, I feel as though the CMHC has tried over, and over, and over, to slow the Vancouver and Toronto markets via their policy changes, and despite all the changes in the past 6-8 years, nothing has worked.
So when they jumped in and increased the minimum down payment from $500,000 – $999,999 from 5% to 10% in 2016, and then changed the mortgage qualification process so that borrowers have to qualify based on the benchmark rate instead of the actual rate, you had to figure that there was more change where this was coming from.
The Vancouver market may have slowed (sales have slowed, prices not so much), but that’s due to the municipal and provincial governments instituting the foreign buyer’s tax and vacancy tax. The CMHC can’t claim to have had any effect on the market.
But both 2016 policy changes produced a lot of talk, and equal amounts of skepticism, and buyer concern. If the CMHC’s goal is to force Canadians to take on less debt, then getting them talking, getting them concerned, and possibly causing them to get out of the market is a means to an end.
What else could we see the CMHC do in 2017?
A minimum 10% down payment from $0 onwards would be absolutely ridiculous – misplaced, misguided, unnecessary, and punitive. But it’s been bandied about before.
Higher down payments for investment properties, second properties, and/or multi-unit could be on the radar, although much of that is up to the individual lenders right now.
Personally, I think if the CMHC wants to try to slow the market via policy changes, they should focus on buyers outside Canada, and leave the hard-working Canadian residents alone. Many of their policy changes have already taken Canadian residents out of the market, while having zero effect on those overseas. Perhaps it’s time the CMHC re-examine what the “C” in CMHC stands for.
5) Active Listings
How many blogs did I write on this subject in 2016?
Every time I wrote about “Supply & Demand,” I talked about active listings.
In fact, one reader commented on my “Top 5 2016 Blog Posts” in December and asked if I could re-run the numbers from my August blog, “Toronto’s Real Estate Problem: Simple Supply & Demand.”
I will absolutely do so – probably next week, once we have the December numbers.
Now it doesn’t matter what you’re looking for – house or condo, low-end or high-end, 1-bed or 5-bed, for sale or for rent – there just isn’t enough of it, and that was made far more apparent than ever before in 2016.
Active listings were down between 30-35% each month from the summer through the end of the year.
And as I showed in my blog post above, and will continue to show you once I write the update next week, active listings are down fifty percent from five years ago.
Sales are up, and active listings are down.
Is it any wonder why prices are up?
A piece in the CBC showed the other day that in a city of over 3,000,000 people, there were only 537 detached homes listed for sale. As I’ll explain later in point #9, this makes for some incredible misconceptions among the buyer pool!
But as I said, and as is the theme throughout many of these points, and many of these blog posts, there just isn’t “enough” of what people want to buy, no matter what that is. Every property type in the city is lacking in supply, compared to the demand for that particular product.
Just imagine the effect this would have in any other industry, for any other product or service.
And then add in the facts that, a) this is a product that people need in order to sustain life, and b) this is a product that is often purchased with extreme emotion, and again, not to sound like a broken record, but it’s no wonder why prices are where they are.
I can’t imagine we’re going to see the same decrease in active listings as we saw last year, or anywhere close to it.
Take, say, June, for example. In 2013, there were over 22,000 active listings that month. Last year, there were only 12,327. If we saw the same 30-percent-ish drop in active listings as we saw in 2016, then that 12,327 is more like 8,600 and change. Imagine dropping from 22,000 to 8,600 in five years?
It can’t happen again.
The decline can’t continue – to the same extent.
The truth is, we have no idea how to forecast supply, but we’re just hoping and praying that inventory levels stay the same.
The word alone in real estate circles has taken on every meaning.
It’s a noun in many senses other than just the city itself. For example, you might refer to “A Vancouver” as an experiment in policy, or “A Vancouver” in terms of a decline in market activity.
It can be a a verb now too. “All we need is for our government to Vancouver us all, and we’re screwed,” you might say.
It could be an adjective, I suppose. “If our government is gonna get all Vancouvery here, we could see the market change.”
What we saw last year out of Vancouver was unprecedented, at least to many of us who follow government policy, the real estate market, or both.
The policy changes didn’t simply make for local news, as the whole country took notice. But the whole world seemed to take notice, as the story eventually made global headlines.
A story titled “Vancouver Enacts 15pc Property Tax To Stave Off Chinese Investment Surge,” came out of Australia from the Financial Review. They’re a bit more……honest(?) with their headlines, it would seem.
England’s The Guardian called Vancouver’s market a “crisis” in their August story, “Vancouver Slaps 15% Tax On Foreign House Buyers In Effort To Cool Market.”
The world watched while Vancouver began to institute punitive taxes and laws for investors, while many countries strive to attract foreign investment within their own borders. The policies must be even more of interest to countries like Australia, who already have restrictions on foreign ownership of real estate, and the “fallout,” if any, will certainly be watched closely by any other countries contemplating similar measures.
At home, most of us just want to know: is this going to work?
I don’t think we’ll know for years, to be honest. If the number of sales drop, and/or average home price drop, we’re still not really answering whether or not fewer foreigners are buying real estate in Vancouver.
7) 2-Bedroom Condo Market
Five or six years ago, the semi-detached home became a substitute for all those folks with dreams of owning a detached home.
A couple of years back, condo townhouses became the hot commodity, as even semi-detached houses and many freehold townhouses became unaffordable to many buyers in the market.
Last year, we saw a massive increase in demand for large, 2-bedroom condos, which only seemed like a logical next step.
More and more buyers are looking to own, looking for more space, and looking to be in the central core. Combine those three things, throw in the lack of supply, and the increase in prices, and you’re seeing a lot more people “settle” for 2-bedroom, 2-bathroom condos.
“Settle” is their word, not mine.
And personally, I wouldn’t call it settling.
You can’t afford a house, so you buy a condo. You’re only “settling” if your expectations were lofty to begin with.
And you’re better off owning, paying down principal, riding the appreciation wave, and experiencing pride of ownership, than renting, or living with mom and dad.
There are a lot of really, really crummy 2-bed, 2-bath condos in new condos, but that’s not the type of product I’m talking about.
We’re not necessarily talking about that “funky, sexy, unique loft” either, since that’s always been hot.
But just an understated 2-bed, 2-bath, 960 square feet, in a 5-10 year old, well-established, well-managed building, in a popular neighbourhood, with great access to public transit and walkability, is going to be in exceptionally high demand in 2017.
8) Interest Rates
The market bears love to talk about interest rates, don’t they?
For years, the market bears have told us that the Toronto real estate market will eventually collapse, because, “it has to.”
That’s been their reasoning, in addition to some rough fundamentals that have since been proved baseless.
“Market cycles are only seven years,” says a bear, who has seen this cycle last three times that long.
“Incomes aren’t climbing in tandem with house prices,” says a bear, who still believes the two are tied together.
“Prices are at unsustainable levels,” said a bear……back in 2008.
I’m not mocking, I’m just making a point.
And the one fundamental that bears are still holding on to at this point, is interest rates.
“Once interest rates rise,” says a bear, “The market is going to crash.”
Crash? I don’t think so.
My first mortgage was over 5%, and it wasn’t a big deal to me. The payment was manageable, and the rate, historically, was absurdly low.
We’ve played this “rates will never be lower” game for years now.
When rates dropped below 4%, we all collectively shook our heads.
And 3-4 years ago, when banks went to “war” with their stripped-down, 2.99% rates, we figured that was a gimmick that wouldn’t last, only to see mortgages with full-features drop to 2.39% and the like.
Yes, the low interest rates have made it a lot easier to purchase real estate in this market.
But if and when rates return to 3%, 4%, or (gulp!), 5%, that means the average home owner will need to come up with couple, or a few, hundred dollars more per month. I’m sure there are some people who are on margins way tighter than that, but for the most part, it’s not going to force people to sell.
I know that last point will bring about a lot of naysayers, and folks who tell stories about the 1980’s.
But it would take rates doubling, and a couple of years for the market to adjust to the shift in supply and demand, for us to really feel the effects.
I think the 5-year, fixed-rate is going above 3% in 2017. Rates are sitting at about 2.79-2.89% right now, having already increased from 2.39% only 7-8 weeks ago.
The crazy thing is, the Bank of Canada didn’t raise rates; the Big-5 banks just decided to raise rates around the same time as the CMHC changed the mortgage qualification process, probably thinking the public couldn’t tell one thing from the other.
Now Donald Trump is president, bond yields have been rising, and the US economy looks like it’s going to grow faster than expected.
Is it possible the Bank of Canada raises the overnight lending rate this year?
Is it probable, however?
Call it 50/50.
But either way, I see the 5-year rate going over 3.%.
This is a fun one………if you’re a sadist…
I think that more, now than ever, there’s a certain level of cluelessness among society.
It’s a “learned ignorance,” if you will.
For a definition of the phrase, look no further than to our neighbours south of the border who just “don’t wanna know” what they don’t want to hear; they choose not to know what’s going on outside their heartland.
The learned ignorance is prevalent in all areas of society, and real estate is certainly no exception!
Personally, I find that the people I deal with – both those readers/commenters on my blog, and buyers that come to me for help, are far more astute than average. I’m not saying that to pad anybody’s ego, it’s just the truth.
But out “there,” in the buyer pool, delusion is oh-so-high.
Now and again, I’ll get an email from a buyer who wants a detached, 4-bedroom house with parking for $700,000. Not often, as I said, since I find that my blog educates buyers before they contact me, but it happens from time to time.
There was an article on the CBC’s website just before New Years, called “More Torontonians Want Detached Home, Study Says,”
In the article, amazingly, shockingly, a study showed that over 50% of buyers plan to buy a detached home in the next two years.
Now, unless the 1,003 people surveyed happened to all be at the AGO wearing tuxedo’s on a Friday night, then I have to believe it’s not the sample that’s flawed, nor the survey, but rather the perception of those surveyed.
Delusion is rampant in the buyer pool, folks.
And this goes beyond wishful thinking; this is almost a learned ignorance.
With the price of a detached home in the 416 area sitting at $1,345,962 in November of 2016, I wonder where these buyers think they’re getting the 20% down, plus land transfer tax.
But that’s just the thing, see: they don’t think about it.
Because they’re too busy dreaming, or thinking without doing research, or, my fave – just assuming they can get what they want for half of what it costs.
This will be a theme in 2017.
10) TREB vs. Competition Bureau
Is this still a topic?
How many years has this been going on now?
Do people still care?
Well, I think people care about the end game, but do they know what that end game is?
Folks, we could talk about this ad nauseum, but let me say that if you’re part of the camp that thinks, or hopes, that the Competition Bureau is here to blow up the real estate industry, and make listing services free, bring down home prices, and make everybody happy, then see #9 on my list.
This fight is now down to exactly one issue: sold data.
I’ve made my feelings known on the matter: I think that Virtual Office Websites (VOW’s) should be able to provide sold data, since the “user” on the site is signing up, or signing-in, and thus is not merely a stranger, but a relationship does exist between the agent and the user.
TREB is making this fight about privacy, and I do agree that many things need to be kept private, and that the Competition Bureau’s original fight from five, six, or maybe it was even seven years ago, was ridiculous – wanting the seller’s name and phone number available for all to see, just to give one example.
But I think we need to use technological advances to our benefit, and what’s the difference between me talking on the phone to one person, or sitting in a room with two people, or doing an online seminar with three-hundred people, or interacting with five-thousand users on my VOW?
I should be able to speak to my users, or clients, in the same manner online as I would in person.
I’ll be very interested to see how this battle ends.
And there you have my Top-10.
The best part is – some of the biggest stories to come in 2017 are regarding topics we never considered.
Just take Vancouver as an example. Nobody had any clue that was on the radar a year ago, and it ended up being one of the biggest topics in real estate.
We’re into the first week “back” in the market, but nothing has materialized.
I expect next week to be slow too, and the market won’t really ramp up until the week of the 16th.
But rest assured, when the market starts, it’s going to be crazy…