Restoring Balance in the Real Estate Market

The notes below were taken from last night’s 2017 Economic Outlook Presentation (March 7, 2017) with CMHC speaker Ted Tsiakopoulos at Coldwell Banker Peter Benninger Realty's theatre (Kitchener, Ontario). I hope you find the content interesting.

—House prices have grown at a rate that is not sustainable.

-Kitchener has less imbalance than Toronto and Hamilton, but these markets will impact K-W

-Some first time buyers are being priced out and choosing to rent, or choosing less expensive options such as condos and town homes

-Resale is less expensive than new housing

-Rental markets for investors an area of opportunity as Millennials may choose to rent instead of buy (based on budget and lifestyle choices)

-renovation market still has room to grown, especially with Baby Boomers make changes to homes to accommodate their changing needs

-Sales have dropped off in Vancouver as Foreigner Investor Tax implemented, Toronto sales still driving forward.

-CMHC expecting a plateau in sales later in 2017 and 2018. K-W sales expected to continue to break new records in 2017, carrying 2016’s momentum forward. Sales should ease in the next couple of years.

-The economy has to grow in jobs to support more home sales. Ontario is growing above the National average. However, Employment is expected to decline slightly in next few years. The economy cannot be depended upon to create balance in the real estate market.

-Job growth in Ontario is more in part-time lower paying jobs, less in full-time high paying jobs. Employment in higher paying sectors growing in K-W. Good news for sure.

-Higher Household debt will restrain consumer spending

-it takes new Canadians/immigrants 3-5 years to begin to buy a home

-Low affordability causing spillover demand to neighbouring GTA (Greater Toronto Area) markets

-Economy and demographics not keeping pace with home prices

-K-W not seen as an “over-valued” market in bubble territory but requires close marketing.

-Prices growing in all segments, not just single detached homes, driving up price averages.

-when 7 of 10 new listings sell in a market (70%), it is considered “overheated”, which is where Ontario is now. Kitchener has hit 82% in 2016

-Overvaluation of properties has been driving an overheated market in Hamilton, and could do so in K-W if we follow suit

-Market Balance in short term? Needed: a Drop in price level; economy/demographics catch-up; Growth in Pricing Slows; Expectations Normalize (A buyer may feel that the prices are growing too fast and they should get into the market as quickly as possible, even it the property is not a perfect match).

-Foreign Currency Deposits in Canada correlated with resale activity post 2010 showed strong increases

-The shift to less expensive housing options gaining momentum (re-alignment of expectations), with huge increase in condos in late 2015 and 2016.

-Rental vacancy rates very low (less than 2.5% for K-W for 2016), offering great opportunities for investors.

-Driving forces for market lack of inventory: Out of town buyers who are buying property, but don’t have a home to list; Aging demographic not that interested in moving.

I hope you found something interesting to read. Regards, Derek.