Toronto Real Estate Speculators Causing a GTA Market Bubble?
There’s been a lot of talk of a “housing bubble” in the Greater Toronto real estate market. Many pundits are talking about speculators – domestic investors fuelling an already overheated market. RE/MAX looked at just over 5,000 individual freehold transactions in the GTA between March 15, 2019 and March 14, 2021 and found that less than 2% of sales were repeated in that time period, leading to the conclusion that speculators are not a significant factor driving the current market and rising prices.
RE/MAX examined home-buying activity in six Greater Toronto Area neighbourhoods – C03, W05, E01, Erin Mills, Aurora and Northwest Ajax – on properties priced between $500,000 and $1,499,999.
Of the 1.58% transactions between March 2019 and March 2021 that were repeat sales, only approximately 20% of these indicated that renovations were made between sales.
Wrong Conditions for Speculators
Investors tend to wait out hot markets, preferring to buy when prices are down and sell when they’re up again. Those who are looking for short-term investment opportunities in the Toronto housing market (and in many other Canadian regional, for that matter) will be hard-pressed to find them under current conditions.
Bully offers and bidding wars are commonplace in the current market, with demand outpacing supply in virtually all areas of the GTA and the winner buyer paying top dollar. The current environment is simply too hot for investors and builders.
There may very well be some investment/speculation occurring in the GTA condo market, as pricing dropped in tandem with condo sales, but investors have always played a role in the condominium market so this isn’t entirely surprising. That’s unlikely to end anytime soon.
RE/MAX Brokers Say Homebuyers Are Not Speculators
RE/MAX brokers in the GTA were clear that there is no speculation in the market at this point. We took our research a step further and conducted an online survey of RE/MAX brokers and agents in Western Canada, Ontario and Atlantic Canada. A landslide 96% confirmed that the majority of homebuyers are end users, while only 4% were classified as speculators. With a freehold market that’s being driven by end users, upward pressure on housing values is often a function of limited supply.
If Not Speculators, Who (Or What) is Driving Toronto Real Estate Prices?
There are many other factors that may be contributing to the dramatic price growth across the Canadian real estate market. Covid-19 prompted a spike in sales of single-detached homes at a time when condominium sales have dipped, and prices of detached homes are traditionally higher than condominiums. We’ve also seen an uptick in the luxury freehold market, with sales over $3 million posting their best year on record in 2020. All of these factors tend to skew prices higher.
To illustrate, this data table depicts the average prices for detached homes and condominiums from January 1-February 28, 2021, according to the Toronto Regional Real Estate Board.
The Market is Self-Regulating
After some concerns of overheating earlier in the year, there has been a shift in the market activity in recent weeks with more detached inventory coming on-stream. In areas north of the 416, the increase in new listings appears to be meeting demand, with fewer bidding wars taking place. Evidence of this can be found in the number of listings that have been cancelled and reintroduced to the market at a higher price point. The 416 also reported growing inventory levels.
Covid-19 fatigue is playing a role as well, with some purchasers taking a step back from the heated market conditions experienced during the second half of 2020 and in the first quarter of 2021.
The Future of Canadian Real Estate
What’s in store for Toronto real estate, and Canada as a whole? While it’s difficult to predict the market with the uncertainty around Covid-19 and the economy, we expect domestic buyers to continue to be active in the market, due to a number of factors.
Interest rates are playing a major role in spurring home-buying activity, as buyers scramble to take advantage. The government is committed to low interest rates until the “economic slack is absorbed.”
Equity gains are inspiring existing homeowners to trade up to larger homes or better neighbourhoods – both in and outside of the city.
Pent-up demand is also a going concern. For every bidding war, there is a handful of disappointed buyers. They’re still out there, and they’re still hoping to buy a home.
Savings have grown year over year, and some purchasers are sitting on a substantial amount of money. With traditional “safe” investment vehicles like GICs yielding next-to-nothing returns, and stock market risks, many are choosing to invest in their principal residence. The Bank of Canada says savings rose to $180 billion in 2020. Statistics Canada says that the household savings rate was at 14.6% in Q3 2020 and economists estimate that figure will be 13% in the Q4 and continue into 2021. To put that number into context, the average savings rate in 2019 was 1.4%.
Strong economic growth is expected as the vaccine rolls out and confidence returns to the market.
Immigration will ramp up, with an anticipated 401,000 new Canadians coming this year, another 411,000 in 2022, and 421,000 more in 2023. The February 13 Express Entry draw invited almost 28,000 candidates to apply for permanent residence.
Source: blog.remax.ca
TRREB Market Watch – February 2021 Stats
Record home sales in the Greater Toronto Area (GTA) continued in February as buyers remained confident in their employment situations and took advantage of ultra-low borrowing costs. With multiple buyers continuing to compete for many available listings, double-digit annual price growth was the norm throughout the GTA, with stronger rates of growth in the suburbs surrounding the City of Toronto.
GTA REALTORS® reported 10,970 sales through TRREB’s MLS® System in February 2021 – a 52.5 per cent increase compared to 7,193 sales reported in February 2020. Looking at all areas of the GTA combined, the condominium apartment segment led the way with a 64 per cent sales increase compared to last year, with similar rates of increase in the ‘416’ and ‘905’ area codes.
“It’s clear that the historic demand for housing experienced in the second half of last year has carried forward into the first quarter of this year with some similar themes, including the continued popularity of suburban low-rise properties. It’s also evident that the supply of listings is not keeping up with demand, which could present an even larger problem once population growth picks up following widespread vaccinations later this year and into 2022,” said TRREB President Lisa Patel.
The MLS® Home Price Index Composite Benchmark was up by 14.8 per cent year-over-year in February 2021. Over the same period, the average selling price was up by 14.9 per cent to $1,045,488. While market conditions were tight throughout the GTA region in February, the detached, semi-detached and townhouse market segments in suburban areas were the drivers of average price growth, with annual rates of increase above 20 per cent in all three cases.
“In the absence of a marked uptick in inventory, the current relationship between demand and supply supports continued double-digit average home price growth this year. In addition, if we continue to see growth in condo sales outstrip growth in new condo listings in Toronto, renewed price growth in this market segment is a distinct possibility in the second half of the year,” said TRREB Chief Market Analyst Jason Mercer.
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7 things about Airbnb that no one tells you
With rent continuing to rise in Toronto, it’s never been a better time to fill that basement apartment. For those of us who don’t have separate units, there is still opportunity to make a little extra cash by renting out your place while you’re away, or even a spare room or couch through Airbnb. Here’s 7 tips that no one ever tells you about being an Airbnb host from Apartment Therapy:
1. You will have to “neutralize” your pad.
This means clearing out all of the personal items and then some, says Mariana Leung-Weinstein, who has been hosting guests for over a year at Wicked Finch Farm, a property she and her husband inherited in Pawling, New York.
“Most people think they can just open up any home and make it into a rental, but it took more time than I ever imagined,” she says. “You want it to have some personality but not enough to be off-putting or for guests to feel like they are crashing at a stranger’s home.”
For Leung-Weinstein, this meant sweeping the house for anything that could be deemed “creepy.” “Weirdly, that meant surveying any decor items, figurines, or artwork that looked like they had big eyes or strange faces,” she says. “This was one thing I never anticipated.”
2. Plan for tons of paperwork and price wars
This includes scheduling, check-in logistics, shopping for the best homeowners insurance, and organizing your taxes, says Lindsey Smith, who has been a host at this Pittsburgh property since 2014.
“A lot of people don’t want to talk about money when it comes to hosting, but it’s super important,” she says. “It’s pretty frustrating when other hosts drop their prices super-low to be competitive or when people try to haggle a price.”
Prices can—and should fluctuate—but Smith says that many times, it feels like the market devalues how much time and money it costs to operate an Airbnb.
3. Expect for odd things to go missing
“This still surprises me,” Smith says of the sheets, lamps, and games that have disappeared from her Airbnb over the years. “I usually assume it’s because an accident happened and the person is afraid to say anything, but honestly, I’d rather know than to find out later that an item is gone.”
It’s not always intentional. “Forks and spoons disappear the most probably because people take them for snacks,” says Felipe Cabrera, who manages seven properties on Airbnb (four in Peru and three in San Francisco).
This ends up meaning that Cabrera buys a new set of six forks and spoons every three to four months per apartment. But sometimes it’s not just the cheap stuff that get taken: “We also had a nice set of steak knives disappear and learned our lesson not to provide anything fancy in that category,” he says.
4. Prepare to become a repeat towel shopper
Cabrera provides three large towels and three small towels per registered guest.
“This prevents us from getting requests for more towels,” he says. “We use nice cushy towels, the ones that make you feel good in the morning.”
Still, those get worn out very fast since they have to be washed after every guest. Since there are many days when guests check out at 11 a.m. and new guests arrive at 3 p.m., that leaves no time for laundry, so Cabrera needs more available as back-up. On average, Cabrera says he buys three new towels every month for his bigger property (which sleeps eight) and three new towels every two to three months for the small apartments.
“This is the only way we can manage this at scale,” he says.
5. Prepare to paint—and repaint.
If you’re planning on opening a family-friendly Airbnb property, take note of Karen Akpan’s experiences when she rents out her L.A. home.
“We have a big home and our goal is to accommodate families,” says Akpan, who blogs at The Mom Trotter. “This means lots of kids and me constantly painting the walls, especially due to the lingering fingerprints!”
6. Consider toiletry purchasing to be a balancing act
Determining the right amount of toiletries to offer guests has been something of an experiment, says Leung-Weinstein.
“I want to make sure that guests have enough amenities to enjoy throughout their stay, but not leave the bulk of supplies for guests to raid and take home,” she says. “In addition to items like shampoo, conditioner and soap, I like to also supply sheet masks and makeup remover as lots of girlfriend getaways get booked at our property. It has been interesting trying to figure out how many items to offer.”
7. You may have to deal with partiers
Cabrera says he used to have guests using his properties for parties at least once a month—until one very bad guest experience.
“We weren’t around to check on the place and it turned out that this person hosted a birthday party with 50-plus people at our house, much to the chagrin of our neighbors,” he says. “They tried to clean up afterwards but still left the biggest mess we’ve ever seen. Their guests went into private areas of the house, snooped around in our garage and stole a few expensive bottles of alcohol from the cellar.”
Because of this, he had to update his house rules and welcome messages to make it very clear that parties and larger gatherings aren’t permitted.
Still thinking about jumping in? If you live in a condo, be sure to check out the rules and regulations on short term rentals. Owning a freehold property will provide you with more flexibility, but do you due diligence to ensure you’re thoroughly covered and know what you’re getting into.
