The Real Estate Hibernation

With inflation seemingly on the decline both here in Canada and south of the border and interest rates seemingly having peaked, it looks like the real estate market has gone into hibernation in advance of winter 2023. 

 

Based on assessments of listings and sales in the months of September and October, we are seeing both buyers and sellers largely stepping back and waiting out the winter in the hopes for a spring acceleration. 

 

However, it seems the conditions in the market have swung largely in favour of buyers. Mortgage renewals into 2024 and beyond will see existing owners re-financing at higher rates than when they purchased in 2019 and 2020. This will inevitably induce the sale of properties by poorly capitalized owners, favouring well capitalized buyers who are able to withstand higher short term mortgage rates. 

 

Housing demand remains very high in Canada, especially in the GTA. Which, in due course, will only serve to drive prices higher until supply catches up, notwithstanding some near term softness. We at Dash don’t have a crystal ball to predict or prognosticate on what the interest rate or housing market will hold in the future. Most economists seem to believe that interest rates will moderate down towards the end of 2024; especially given the flood of refinancing expected in the next two years.

 

If interest rates come down, more buyers will enter the market to compete for a limited supply of properties. 

 

Timing the market is nearly impossible. And, the Dash team is here to help you assess whether now is a good time for you to buy or sell your property based on your unique needs and goals. Please reach out to us to discuss your plans, and let us help you maximize your returns. 

 

More than ever before we are being invited by leading developers to assist them with positioning rental guarantee programs for their projects. We would be excited to share these opportunities with you. 

 

Our team is welcoming all Nobu Condos purchasers to assist them with leasing out their suites and realize the appreciation to their investment.

 

Until then, we hope you have an incredible November!

SALES COMMENTARY

The good news for October was that sales on TRREB at 4,646 matched September levels. The bad news was that October sales were the lowest for this month since 1998! So where do buyers and sellers look for some positive signs?

First, it would appear that the Bank of Canada rates have plateaued at 5%. Everyone likes certainty. The bond market has since declined by 20-30 basis points which suggests that fixed rate mortgages may become cheaper. Looking further out, rates should start to decline by the middle of 2024.

Secondly, the sales-to-new listings ratio moved up from 28% last month to 32 % this month. But we are still in a ‘buyers market’. This occurred from an increase in listing cancellations, not from more buyers. For those with the money to buy, there are now some really good deals. You don’t have to worry about ‘multiple’ offers and you don’t have to worry about being rejected because your offer includes conditions.

Thirdly, there is another market for sellers. If you don’t get your price, then rent your property for a year. Rents are higher than a year ago and there are more tenants than usual – due to higher immigration and more people needing to rent.

 

 

RENTING V.S. BUYING

For years people have said buying rather than renting was the right decision. But with higher real estate prices and higher mortgage rates, most people would now say the opposite. But let’s revisit the question. We looked at a first-timer condo property in Toronto – 1030 King West (a popular building for young people). Recent sales show that you can buy a studio for $470,000 and you can rent the same unit for $2300 per month. We used 5% down, 5-year fixed rate, and a 25-year amortization.

What is the impact of interest rates in your decision? 

The Table below shows the answers. While mortgage payments are critical to your cash flow, a portion of your payment is a repayment of principal. Starting with a 3.75% mortgage rate it is better to buy than to rent.

Now let’s compare what happens over the 5-year term. Assume all costs and rents increase at 2.5% per year which offsets. Your down payment was $23,500. If property prices increase by 2.5% as well, then your equity would increase by $61,000 before any principal repayment. That is equal to a monthly gain of $1,016 which would more than offset any cash flow deficits, even at today’s mortgage rates!

The conclusion: if you can afford today’s higher mortgage costs, it is still better to buy!

RENTAL COMMENTARY

In October 1483 units were leased in the Downtown and Harbour Bay markets. This was down from the summer when 2500 units were leasing per month. The drop from September (1534) was minimal which indicates that more than just students are in the rental market. 

There are currently over 3,000 units available which represents a two-month supply. This has resulted in slightly lower rents and fewer multiple offer scenarios than last month. 

This month we looked at two-bedroom units with one and two bathrooms. The available market for one- bathroom units is roughly 20% the size of the two-bathroom units. These tend to lease faster as the second bathroom adds almost $500 per month to the rent. 

The table below represents average rents by bedroom type for October.