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2180 Steeles Avenue West,
Suite 204, Concord,
ON, L4K 2Z5

Phone:     905-761-7001
Toll Free: 1855-761-7001
Fax:          905-761-7005

Email: mortgageadvisor@rogers.com

3 December 2018

What challenges are waiting for the GTA housing market next year?

Although this year, the GTA real estate market has already faced numerous challenges, the next one may bring new difficulties to deal with.

At the beginning of 2018, the market was hit by a new mortgage stress test, following months of attempts to adjust to the Ontario government’s Fair Housing Plan.

Today, it shows historically low rental vacancy rates, weak housing activity, and growing interest rates.

Let’s take a closer look at the possible challenges of 2019.

A sharp lack of available rental units

As more people move to Toronto, the rental market just can’t meet the demand.

According to the Canada Mortgage and Housing Corporation (CMHC), the rental vacancy rate in Toronto is only 1.8% now.

Meanwhile, strong income growth keeps raising rents up each month.

“In case of Toronto, apartment rents exceeded the provincial guideline amounts even despite turnover rates remaining below the provincial average numbers,” – the CMHC’s report says. “Toronto still shows almost record low vacancy rates, supporting higher prices for vacated units because of the strong demand”.

Condo investors have been one of the main solutions for this problem, as they buy up units and lease them out to tenants, raising the rental supply. Bullpen Research & Consulting president Ben Myers says the recent provincial roll back of rent control legislation on new units may encourage it in 2019.

“The main result of this move will be keeping private investors still interested in buying pre-construction condos to lease out,” - says Myers. “Condo investors’ work accounted for more than 75% of all new rental supply for the past 20 years in the GTA, so the situation would be much worse without them”.

Bottom of Form

Sellers may take a wait-and-see approach

Following months in buyers’ territory, the Toronto real estate market finally balanced out in summer. However, in case the sales keep cooling down, it could change.

“Toronto entered buyers’ conditions after the Fair Housing Plan was introduced, as concerned sellers filled the market with strong supply outpacing the market activity”, - the report by Zoocasa shows. “The market has recovered and the ratio reached 57%”.

Nevertheless, as many experts predict a cool start to the new year, sellers may decide not to list their homes in order to avoid sales and prices decline, and an even stronger market decline.

In October, sales went down and listing rose. It could mean the beginning of sellers’ anxiety. According to Zoocasa, even if the city enters buyers’ territory, the real estate prices will still exceed the national average.

Rate hikes will decrease the market activity

What can lead the market into buyers’ territory? Growing interest rates. As you know, the central bank raised its key lending rate to 1.75% last month, and more increases are expected next year.

“We can’t say for sure how much of the recent slowdown in the market activity has been caused by stricter mortgage rules versus higher interest rates,” - says CIBC economist Royce Mendes. “However, based on previous estimates of the influence of the rule changes alone, the slowdown in lending has been sharper.”

In other words, October’s weak housing activity may be not a one-month thing, but a start of the longer tendency, as potential buyers postpone their purchase.

“With the way the monetary policy works, the impacts of rate hikes will show themselves fully in 2019”, - Mendes says.

A soft landing for the market

According to the largest home builder in North America, Canada has successfully avoided the housing crashes that has tormented other countries for decades, and its due to government regulations restraining home prices growth.

“Now we’re in the middle of a soft landing, and we’ve expected it and contributed to it as well”, - noted Brad Carr, chief executive officer of the Canadian division of Mattamy Homes Ltd. “It was really necessary, as the market here was overheated.”

Different levels of government implemented rules changes, including a foreign buyers tax and stricter mortgage lending rules, after real estate prices rose by 60% in Toronto and by 70% in Vancouver during 5 years. Since January new rules introduction, the housing market has cooled significantly, though prices and sales have stabilized.

Today, builders all over Canada, including Mattamy Homes, call for a pullback of the stricter mortgage regulations, including the requirement to qualify under a contract rate plus 2%. “The goal has been achieved, so it’s too much already”, - Carr said. He says growing rates are doing part of the government’s job now.




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