Real Estate Roundtable: Greater gains in the 2014 house and condo market
This summer saw better-than-expected gains in house and condo sales. We asked our roundtable experts if the market will remain hot
Starting top-left, clockwise: Sherry Cooper, Mathew Rosenblatt, Harry Stinson, Elise Kalles, Brad Lamb, Paul Miklas, Mike Eppel, Eve Lewis & Barry Cohen.
POST CITY: Are there pending influences that might drive or change the housing market in the near future? Is there anything that may concern you coming down the line?
Elise Kalles: I am confident in the Toronto real estate market for many reasons: money is flowing to Toronto based on banking and political stability; it is a great place to live and work and raise a family. There are close to 100,000 people per annum coming to the GTA, and these people need housing.
Brad Lamb: Prices will be higher again this fall; volume in all categories will be strong; 2014 will finish up as the second best year in the history of Toronto for MLS sales; and new condo sales will continue to be strong, likely exceeding 18,000 units annually. The economy of the world will continue to strengthen, and a low interest rate environment will continue into 2020. Rates will start to inch up in early 2016. It is unlikely rates will affect sales until a recession is triggered, likely after
Harry Stinson: Ironically, the dark clouds of global conflict have been a major factor in the continued growth and strength of the Toronto real estate market. Yes, it has become a bit of a cliché, but money really does flow into Canadian real estate, and Toronto in particular, because it’s perceived as politically and legally stable. I don’t expect interest rates to rise significantly. Meanwhile, politicians have painted themselves into a corner given that rates have been low for so long that consumers (voters) take them for granted. A major increase would be economically and politically traumatic. Having said that, I’m increasingly hesitant about price levels in Toronto. Even at current interest rates, ownership and
Barry Cohen: I think that affordability is the only real concern moving forward. While rates are not expected to increase anytime soon, I have some concern about the single-family home prices nearing the $1 mil mark within Toronto proper. I am comforted by the fact that much of the sales are to families without the intent to flip, so values should continue to rise, not necessarily at its present pace, and number of units sold should decline mostly to do with the historically limited new inventory of the fall market. We should be cautious if and when we reach double-digit appreciation percentages as both the Canadian and U.S. markets corrected following after a year of overdramatic increases. The economy seems to be slowly rebounding. Unemployment rates continue to hover at 7.8 per cent in the GTA, but those who have jobs are making their moves. The election outcome should have little effect, as the result will be more about policy changes than economics unless of course someone wants to fulfill RF’s [Rob Ford’s] original election promise to lower the municipal land transfer tax rate.
Mathew Rosenblatt: In the short term, I do not see any significant changes in the overall demand for residential real estate in Toronto. Interest rates appear to be stable in the short run and global conflicts seem to increase the demand for Toronto real estate rather than to dissipate it. Price growth should be a moderate one to five per cent. Single-family home prices in the downtown area and along the Yonge Street corridor will increase the fastest, due to the scarcity of inventory and the elastic ability of high net worth buyers to purchase what they want, even at premium prices. Condominiums and outlying suburban housing will underperform the market but should not show negative growth.
POST CITY: Why did condo sales not slow in 2014? Are condos still a sound investment and is the detached housing market too pricey for the average buyer?
Elise Kalles:The condominium market continues to move at a healthy pace based on the fact that Toronto has no choice but to grow up not out. We simply do not have land in the centre of the city to build low-rise homes that are affordable to most buyers. With single-family detached homes in Toronto reaching $1 mil (on average) and the desire for buyers to be close to downtown, condominiums are the best and sometimes only option for buyers.
Eve Lewis: Condo sales slowed in 2013 because they needed to. From the second half of 2009 through to the first half of 2012, over 70,000 new condos were bought in pre-sales. Sustaining that volume would create more supply than the market will need, given that investors likely purchased around 60 per cent. Although talk hasn’t started, it is our concern that the government will misconstrue the recent rebound in sales activity as a signal that the market is overheating and once again target the condo market in tightening mortgage insurance policy. It’s important to convey the message that sales this year are coming off of 10-year lows in 2013, which exaggerates growth rates. A 20 K a year sales pace is healthy, given that we build around 15 K low-rise homes a year and total demographic housing requirements are above 35,000 a year.
Sherry Cooper: I wouldn’t say we are in a bubble, but sharply rising interest rates would surely exacerbate the affordability issue. Single-family homes will continue to outperform given the paucity of supply. Condos at the less costly end are still in substantial demand thanks to the growing jobs prospects in the GTA, especially downtown and along the public transportation routes. The fact is, young families still want to own a home. Affordability is the biggest issue, but rates are likely to remain over the next year or so.
Brad Lamb: Condo sales haven’t collapsed because it’s virtually impossible to have a recession in strictly one sector of the economy. If the condo sector was to correct significantly, it would likely create a broad-based correction that would deeply affect the entire Canadian economy. This kind of event would require a massive crisis in confidence and shift in public opinion. I think it is a very unlikely outcome during a low-interest-rate/tepid-growth type environment. While this economy grows and strengthens, consumers will feel more confident. They will buy homes and cars and other items. The recovery is just unfolding more or less as it should. I don’t believe that real estate prices are overvalued anywhere in Canada, they reflect the value they represent.
POST CITY: Would you recommend your kids buy now or to wait? Is there money to be made from an investment standpoint?
Sherry Cooper: My son is buying now because his family is growing and he needs more space — a lifestyle decision. I have no doubt that, when he is ready to trade up, he will do just fine.
Harry Stinson: From an investment standpoint, I would hold off; as a residence, maybe the right property in the right location. As of the summer 2014, I would be cautious. Certainly I would still encourage them to get started on home ownership, but it would be unfortunate if they started off at the wrong time, at the wrong price. Rather than a generalized “buy now” endorsement, I would want to look carefully at the specific property that appealed to them. Yes, there are still good long-term values to be found, but there are buildings and locations that have benefited from an overall boom market and may not hold up as well. However, if they are just thinking of buying a property as an investment, then I would suggest holding off.
Barry Cohen: Assuming that they had secure employment and an adequate downpayment, I’d definitely encourage my kids to move forward with a purchase. In a perfect world, we'd be looking for a ‘handyman’s special’ in an up-and-coming neighbourhood that would allow them to increase the value of the property over time through renovation. With regards to investment, I believe that there are opportunities in today’s housing market, although they are fewer and farther between than in years past.