2017 And The Year In Real Estate Ahead

I find these year-end, and start-of-the-year blog posts to become somewhat expected.

But having said that, I’m also a sucker for discussion of potential future events.  Not necessarily “predictions,” but rather a prudent, yet somewhat speculative, look at issues that lay ahead.

While most media members, financial advisors, and economists simply want to pick a percentage, add it to a DOWN-arrow, and tell us how much the market is going to crash this year, as has been the case every year for a decade, I want to talk about issues that I feel are going to be topics in 2017.

I thought a lot about real estate over the holidays.

I know that’s pathetic, but it’s also unavoidable.

To be quite honest, I’m not really sure how to “relax.”

I feel as though “relaxing” by definition is doing nothing.  It’s watching TV, reading a book, swinging in a hammock, etc.

Well, it’s too cold for my outdoor hammock, and channel-surfing between “Con Air” and “Die Hard II” on a Wednesday afternoon during the holidays makes me far more anxious than sitting in my office at 290 Merton Street, taking care of some business.

To me, the ideal “relaxing day” would be sleeping in a little bit, walking out to get my morning Tim Horton’s, driving to the office to tackle maybe 3-4 hours of work, hitting the gym, running a few errands and getting a few items crossed off my “to-do” list, taking the dog for a walk, and spending time with my newborn baby.  I know, I left that for last, and it’s questionable.  But you don’t really “relax” when you’re trying to soothe a crying baby, so I’m just being honest; but it’s part of the overall day.

I suppose we all have different definitions of “relaxing.”

But I think the underlying theme in “relaxing” is to be without anxiety, without tension, and in your own state of calm.  The crying baby doesn’t really get you there, does it? 🙂

I’m loving fatherhood thus far, and trying as it may be, it’s fun to look ahead.

Maybe that’s a running theme of mine – looking ahead.

Because over the holidays, I found myself pondering what 2017 has in store for us on more than one occasion.

I can’t stomach the discussion, or even thoughts of what the USA and Donald Trump are going to show the rest of the world.  “I can’t…” seems to be the favourite phrase among those who just don’t want to discuss, or deal, with the reality.  My wife has family in Atlanta, and they just keep saying, “…..I can’t…..I just…..let’s talk about something else….I can’t…”

I’ve thought a good amount about what the 2017 Toronto Blue Jays will look like, and while I’m not a pessimist, I am a realist, and I feel this piecemeal squad might contend, but will ultimately disappoint.

And alas, I’ve thought a ton about what the 2017 Toronto real estate market is going to do, what it will prove, and what, if anything, it will provide.

In 2017, as was the case in 2016, it’s hard to look at Toronto without looking at the rest of the country, and a lot of my thoughts on our city’s market will be intertwined with thoughts, or examinations, of what’s going on outside Toronto.  Look no further than CMHC policies aimed at Toronto and Vancouver, for the affect they’ve had on other markets.

So as was the case at the end of December, I’ve sat down and come up with a long list of topics I think will make headlines in 2017, and whittled it down to five.

I think a deeper examination of the top-three topics is probably more helpful than a quick mention and no analysis of the top-fifteen topics, so without further adieu, this is what should be on your radar in the year ahead.

1) Toronto Prices

Perhaps I could have left this to last, since nobody really wants to start the year with something so depressing.

But!  There’s a but!

If you own your home, and you’re never going to move, then you’re laughing all the way to the bank.

Okay, well, 99.9% of people reading this will move again in their lifetime, so sorry for that.

But there’s no denying that the biggest story in 2016 was the average home price, and that will continue to be the biggest story in 2017, in my opinion.

The December numbers won’t be available until the end of the first week of January, so much of what I write today will be based on the November numbers – just keep that in mind.

The average home price in 2015 in Toronto was $622,123.

The average home price in November of 2016 was $776,684.

That’s a ridiculous 24.8% annual increase.

Some of you are reading this and thinking, “And the market is only going to move higher.”

Others are looking at this and saying, “See – this is why the market is heading for disaster in 2017!”

Pick your poison.

Bulls versus bears, etc., etc.

I can probably make a case for both: a) the market increasing in 2017, b) the market declining.

But first thing’s first, let’s look at the average sale price and the year-over-year increase in the average sale price in 2016, and put it in perspective when we compare it to each of the past ten years:

Hmmm…

One of these things…..well….it reminds me of Sesame Street…

Except there would be more cookies on that plate.

A 24.8% increase, eh?  How ’bout that.

But I fail to see how one could argue this will lead to a decline in the 2017 average home price, simply based on current market activity, demand, and interest rates.

Now just for fun, I’ll provide the bears with this chart, and give them all the ammunition they need to formulate their arguments:

There’s a lot to work with here, folks!

The bears might argue that in 1986, the 27.3% increase led to a downturn.

Of course, the bulls will argue that the 27.3% increase was followed by THREE more years of double-digit increases in average home price.

We should also note that in 37 years, the average home price has only decreased 6 times.  Perhaps that’s a sign of an undervalued city?

In any event, the average home price in Toronto hasn’t declined in two decades, and that’s not going to change in 2017.

–

2) Government Response To “Crisis”

This naturally flows from the above, doesn’t it?

In 2016, we saw the government try to “address” the housing crisis.

Crisis.  Is it a crisis?  Who gets to decide?

Is it a “crisis” when politicians are politicking and need to make a point?

Or is it just “reality” when we sit back and look at a growing population, massive net migration into the largest Canadian cities, and an imbalance between supply and demand?

What we saw out of Vancouver this year would make it look like a true “crisis.”

The provincial and municipal governments spun their wheels as fast as they could to gain favour with residents (ie. voters), and instituted the 15% foreign buyer’s tax, and the vacancy tax.

And they also announced they would “lend” first-time buyers money for their down payments.

There could be more changes on the way in 2017, with a provincial election looking on May 9th.  The Liberals have held office since 2001, through four elections.  So does that mean they are more, or less likely, to do something drastic to hold office for a 5th consecutive time?

Of course, we here in Ontario know all about politicians struggling to gain favour.  Our Premier, Kathleen Wynne, has seen her approval ratings drop to 14%, and as I wrote in my year-end blogs, I think that’s led her to “give back” to Ontarians, looking for votes.

She’s given back $2,000 in land transfer tax to first-time buyers.

What else will she do in 2017 to help her 2018 re-election campaign?

Excuse my cynicism here, folks.  If I’m making it sound like I believe that every single decision a politician makes, is politically-motivated, it’s because, well, I do.

Public policy might not be borne out of politicking, but it’s often in response to public outcry, as we saw in Vancouver.

And I think in 2017, both Ontario Premier, Kathleen Wynne, and Toronto Mayor, John Tory, are going to enact a lot of policies in response to the growing frustration among Toronto residents when it comes to home prices.

I can only speculate as to what policies they will enact, or as is often the case, promise to enact.

But I think we’re going to see a lot of talk about “affordable housing,” which should be directed at the lowest-income earners, even though the irony is – everybody in Toronto is looking for something “affordable.”

It might be time to look at the role of TCHC, and determine if what they do, and how they do it, is the most effective use of tax-payers money.  I mean, I would suggest that having a family of five live in a $1,000,000 house is not the most efficient use of tax dollars, but that family, who has been living there for free for a decade, might call the Toronto Star and pout in a front-cover photo, so that might not be a boat we want to rock.

For years, we’ve seen the government approve condominium developments – many of them massive in size relative to what’s around them, in exchange for a couple of units earmarked for lower-income families.  Maybe the city will grow some stones, and ask for more from developers than they’re already asking?  Don’t worry – it’ll only drive up the cost per square foot for investors…

I wrote a blog last year October about developing the Greenbelt.  I didn’t really take a side on the issue, but rather posed the question of whether or not it’s time to even consider discussing it.  Perhaps 2017 is the year when this idea will gain favour.

I actually had a dream around Christmas-time that the Don Valley Golf Course was turned into a sub-division.

I woke up and laughed about it in the shower, but by the time I got the shampoo out of my hair, I started to wonder whether or not an idea like this could, eventually, make sense.

The Don Valley Golf course isn’t exactly a money-maker for the City of Toronto, and the city, with all of its problems, shouldn’t argue that there’s any responsibility to provide a “public option” for golfers.

The course isn’t a great one either.  It’s short, easy, not very scenic, not well-kept, and is frequented by beginners and people looking to drink at 4pm on a weekday.

It’s also only utilized five months per year.

There’s hundreds of acres of land that’s owned by the municipality, and could, in theory, be used to house the city’s residents, at one point or another in the future.

Crazy idea?

Or is this the highest and best use of this public space?

I think as time moves on, our three levels of government will need to get more creative to address our housing “crisis.”

Unless they start to round people up and move them out of Toronto and Vancouver, the city’s populations will continue to swell, and with limited space for new housing, something has to give.

This is going to be a big story in 2017, and it will be interesting to see how the three levels of government respond.

–

3) Rental Market

I’d say that roughly 99% of the blogs I write, and the conversations we have here on TRB are with respect to the purchase and sale of real estate, as opposed to leases.  Maybe that’s because leasing isn’t as sexy a topic, but it’s certainly not because 99% of my readership are buyers.

In fact, I get a lot of emails from readers asking for me to write more about the rental market, or even answer specific questions they have.

The truth is, I rarely do leases on the lessee-side.

I lease out a lot of units for my investor clients, but it’s been years since I’ve been pounding the pavement with tenants.

So perhaps I’m desensitized to how tough the rental market is out there for young people trying to secure their first property for lease.  But as I wrote a few times last year, I do hear all the stories from young agents in my office – about multiple offers on leases, and how tough the market is.

Recall a blog I wrote back in November called, “What The Heck Is Going On In The Rental Market?”

The company Urbanation shared their statistics with us, and half of their presentation was on the skyrocketing rental market.

The most interesting statistic, in my opinion, was the massive increase in average rent per square foot in 2016, as shown here:

It’s not just the increase, but the rate at which rents are increasing.

If you look at the chart above, and take increases from 2011, it’s nothing compared to the average house price.

The average house price in 2011 was $465,014, compared to $776,684 in 2016 (November).  That’s a 67% increase.

Meanwhile, the average rental per square foot was $2.62 in Q3 of 2011, and $3.10 in Q3 of 2016.  That’s an 18% increase.

But if you look specifically at the last year – $2.81 per square foot in Q3 of 2015, compared to $3.10 per square foot in Q3 of 2016, you see a massive 10.3% increase in one year.

We know that the average house price has increased 20-something-percent in the past year, so a 10.3% increase in rents seems insignificant by comparison.

But when you consider that rents have only risen 18% in five years, and 10.3% was in the last year, suddenly the increase is more than significant; it’s crippling to some would-be renters.

For a young person considering a condo at $1,450 per month, only to see that same condo cost $1,600 per month the next year, it can take them right out of the market.

Imagine that.

For folks who wanted to buy, it’s too expensive, so renting is the answer.

And now with rent prices increasing 10% year-over-year, many people can’t even afford that.

With condo prices expected to rise again in 2017, it will be quite interesting to see how closely downtown Toronto condo rentals follow suit.

Perhaps this means that 24-year-olds living at home will have to wait until 26, or 27, to make the move.

–

So there are the “Top Three” stories in my mind, but there are a lot more topics worth discussing.

Why don’t we regroup on Wednesday and take a look at other, smaller, yet important issues for 2017.

Back To Top Back To Comments