For the month of October 2016, the average semi-detached in Toronto was $902,137, detached at $1,303,339 and condo at $459,199 per TREB's Market Watch Report. With prices at an all time high, I still believe there are opportunities to invest in real estate. Here are 3 reasons why it is good to be a real estate investor in Toronto:
1. Higher Mortgage Rates
In the last 7 to 10 days, monoline lenders and banks have increased fixed mortgage rates due to government changes which impact their cost of funding mortgages. As interest rates rise, less people will qualify for their desired purchase price. Their options will be: buy a smaller property, buy a property outside the city to get the space they need or rent.
2. New Mortgage Rules
With the latest round of mortgage rules coming into effect on October 17, 2016, all buyers with less than 20% downpayment (many first time home buyers) will have to qualify, regardless of their mortgage product or term, based on the posted rate which is approximately 2% higher than the 5 year fixed mortgage. This rule equates to a ballpark of 20% reduction in purchase power for many buyers. Again, these buyers, will either buy down (a smaller property) or buy farther out from their desired location to get the square footage they want or rent.
3. Lack of Supply
Toronto's market has had chronic shortage of homes for sale (listings). For example, in all of Humewood-Cedarvale (C03) between April 1 and June 30, 2016, there were only 16 detached and 2 semi-detached homes sold (per TREB's 2016 Q2 Community Report). That's 18 low rise properties sold over 3 months!
Furthermore, Places to Grow Act (which encourages intensification), Green belt, immigration into the GTA, diverse economy (high tech, government, health care, financial services, professional services, manufacturing, universities, tech companies...) create demand for housing in the city and its suburbs.
As affordability deteriorates due to the above reasons, rental demand would increase pushing rental incomes higher. Bidding wars which are the norm for low rise houses, are now seen on rental condos downtown Toronto!
Risks to rental demand
The two risks I see that would slow down rental demand are:
Foreign event such as 2008 global market meltdown or scraping NAFTA which would hit Ontario hard due to its high export levels to the US market. This would result in higher unemployment numbers.
Supply: Developers overbuilding purpose built rentals above and beyond market demand
Looking to invest in Toronto's real estate? We can help.