Real Estate Market Update
Good News on the Canadian Economic Landscape
There is an old adage that stated that “when the United States sneezes, Canada gets a cold”. This phrase is rapidly working its way into obsolescence, as Canada’s banking policies, abundance of natural resources and sound economic policies move Canada to the front of the world stage. If an individual can get past the sensationalism and the doom and gloom scenarios often portrayed in the media, the reality is Canada’s perspective radiates with plenty of optimism and promise.
Some good news starting on the national front is as follows:
* Strong Canadian Home Equity: According to a report from Scotiabank Economics, in 2008, Canadian mortgage debt was approximately 30% of the total value of Canadian homes equating into equity of 70%. Compare this to the equity position of homeowners in the United States who have approximately 55% mortgage debt and 45% equity.
* 2009 Economic Growth: According to an International Monetary Fund study just released, Canada should lead the other G7 countries in economic growth in 2009. It is expected that Canada should see economic growth in the range of 1.2% in 2009.
* Strong Employment Growth: According to Statistics Canada, employment increased by 107,000 new jobs in the month of September 2008, even though the majority of these positions were part-time. In Ontario, there were 52,000 jobs created in September. The employment rate remained steady at approximately 94%.
* Strong Canadian Banks: Since Canadian banks are run as an on-balance sheet banking system with less than 23% of mortgages securitized, Canadian banks were not subjected to the same problems plaguing European and US banks. With the capital position of most Canadian banks remaining strong, three Canadian banks are now in the top ten in North America by market value.
* Low Subprime Exposure: According to CIBC World Markets, subprime and similar type mortgages accounted for approximately 33% of mortgage originations in the United States. In Canada at its peak, these types of mortgages accounted for only 5.4%.
* CMHC injects $25 Billion: CMHC has set aside $25 Billion to purchase insured mortgage debt from Canadian banks, which is expected to ease lending policies at the major Canadian banks and assist in the downward movement of interest rates.
* Low Mortgage Defaults: According to Moody’s Economy.com, in the United States, 1 in 6 homeowners owe more on their mortgage than the entire value of the home; with 16% of homeowners “under water”. In Canada, the default rate is well under 1% and is not expected to change dramatically.
* Low Interest Rates: Interest rates remain at historical lows. With the state of the economy, it is anticipated that the Bank of Canada will start a reclining rate trend that will only lead to downward movement. CMHC’s Housing Market Outlook expects mortgage rates over the next two years to remain within 25 to 75 basis points of the current level
Central Toronto Real Estate: The Recession Resistant Market
On a micro level, the news pertaining to the Central Toronto housing market is fundamentally sound. The Central Toronto real estate market can justifiably be described as an oasis in the midst of the United States meltdown. On an even closer inspection, one might say that the Central Toronto real estate market is “Recession Resistant”.
Real estate valuation, appreciation and market activity have always been and will always be localized. Each market is really a microcosm with its own geography, demographics, employment, traffic patterns, infrastructure, schools and market dynamics. The Central Toronto real estate market has been and remains one of the strongest markets in Canada and North America. Additional good news on the Central Toronto front includes the following:
* Location is Key: The demand remains strong in key neighbourhoods. Neighbourhoods such Rosedale, Forest Hill, Leaside, Hogg’s Hollow, The BridlePath, Lawrence Park, Bedford Park, The Annex, Yorkville, The Beach, Riverdale, Cabbagetown, Moore Park, Cedarvale and Allenby are still in high demand amongst potential purchasers.
* More Time on the Market: According to the Toronto Real Estate Board, the average number of days on the market for a listing increased in August 2008 to approximately 30 days in the central market. This change provides buyers a little more time to ponder their purchases. The average number of days on the market is somewhat higher in the eastern, western and northern markets.
* Excellent Time to Purchase: The market has shifted from a seller’s market to a buyer’s market which more indicative of a balanced, cyclical market. The occurrence of multiple offers is declining and listings are staying on the market a little longer compared to a few months ago. More sellers are now starting to accept offers based on the conditional sale of the buyer’s property. The Market Watch Report (published by the Toronto Real Estate Board) showed a 31% increase in listings in the month of August 2008 relative to the same period last year, which translates into increased inventory for prospective purchasers. The number of recorded August 2008 sales was 22% off last year’s record number, and when compared to August 2006, which was a more typical year, the spread is a lot more in line.
* Good Time to Sell: Quality properties and properly priced properties located in key Toronto neighbourhoods are still in demand. Sellers need to understand the importance of pricing listings properly and leaving some flexibility or margin for negotiation.
* Builders Out of the Market: The vast majority of builders have pulled out the Central Toronto real estate market resulting in a stabilization of prices.
* End of Speculation: With the current economic situation, many of the speculators have pulled out of the market resulting in an end to artificial increases in property values.
* Traffic Gridlock Avoidance: Locating in the Central Toronto core allows residents to avoid the overflowing suburban traffic arterial routes that bring commuters into the city. Residents that work in the suburban areas travel against the rush hour congestion and those that work downtown can utilize the public transit system saving both time and money.
* Easy Access to World Class Schools: Locating in Central Toronto provides close proximity and public transportation to world class universities, renowned private schools and top quality public schooling.
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