Real Estate Update - Spring 2022

Like all markets, Toronto real estate follows a relatively predictable cycle: a surge of inventory, followed by a lull in mid-summer and a final boost after Labour Day which ebbs again into the holidays.?The basic rules of supply and demand apply, with a limited number of well-positioned, well maintained properties encouraging buyers to clamber over one another, throwing money into a market they believe to be a run-away train. Surely it must stop eventually, right? Or at least slow down?

Almost daily we’re asked about the future of Toronto’s real estate market, and one thing that seems poised to withstand the unpredictability is Toronto’s desirability relative to other urban areas. In fact, we’ve now been flagged as a budding tech hub, with Meta Platforms Inc. (Facebook’s parent company) seeking out a new home-base downtown, while Microsoft, Apple and Amazon already occupy space along the corridor.

Ongoing transit initiatives, and the rejuvenation of some of the communities that have long been underfunded, will, in time, enshrine Toronto’s spot on the international stage. Moving out of the pandemic, vacant commercial spaces can provide a launching pad for creative, resilient small businesses infusing culture and excitement. A strong employment rate and steady flow of new residents should continue to underpin the city’s existing foundation, allowing for stable investment and growth. ?

While being recognized as a desirable place to live, it’s also prohibitively expensive for many and the unabated growth from the past few years is coming up against downward pressure.

As of March 30th, the Ontario government adjusted the Non-Resident Speculation Tax from 15% to 20% to match B.C. With approximately 4% of Toronto’s housing stock owned by foreign investors, the additional cash required for a purchase might prompt contemplation as conservative investors consider other options.

Interest rates have begun their ascent, with 5-year fixed rates sitting around 3.7%, and variable rates set to move through a period of sustained increases into 2023.

From April to June, we expect inventory levels to grow, while buyers adjust budgetarily to rising consumer costs, and higher interest rates. There will be less frenzied buying, less competition, and, as we move through the cycle, a softening of value appreciation.

Rental stock is stable. We’re seeing strong lease rates across the portfolio with the only real laggard being our basement apartments. Minor upgrades and thoughtful use of space can help combat some of those headwinds. We’re also seeing longer than average days on market for our higher end leased properties, we expect this segment to remain flat until corporate relocation, and cost to build/renovate return to some semblance of pre-pandemic normalcy.

At the moment we aren’t seeing any indicators for a substantial resale market correction (+15%), however with gains over the past two years pushing 40% at least some of that growth has been illusory and a reversion closer to the mean sale prices of 2021 may materialize in the back half of the year.

?We’ll be watching how the steady interest rate increases, the increased foreign buyer tax and the spring inventory surge impact values across the city. If something noteworthy changes – we’ll be in touch.

If you have specific questions about your real estate investments, we’re always available to help you strategize.

Looking forward to warmer weather, and more stable, peaceful times ahead.

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