For many homebuyers, the first step on getting onto the property ladder is purchasing a condo apartment.  While they aren’t as plentiful in smaller towns or cities, when they do exist they are almost always the cheapest option if you’re considering buying a home of your own.

For much of 2024, we’ve seen very elevated levels of condo apartments for sale.  As of December 20, 2024, there are 9,671 condo units for sale within the Greater Toronto Area.  If you’re wondering if that’s an unusually high level of options for condo buyers, the answer is a definitive yes.  We’ve currently got almost twice as many condo apartments for sale now compared to a couple of years ago.

With such high levels of supply and relatively few buyers on the demand side of the equation, there are many opportunities for getting a great deal on a condo apartment these days.  If you’re currently renting and are wondering if buying might make sense, then we’d say the answer is a definitive yes.  Let’s go through the math and explain why we think now is the time to get on to the property ladder!

What’s it cost?

While your specific situation will be different than the average, we gathered a bunch of data in order to be able to analyze the differences between renting and buying on an overall level.  We’ll make our assumptions clear as we go.

When we pull the data for the average cost to rent or buy a one-bedroom or two-bedroom condo unit in Toronto and beyond, here’s what we see.

The above chart uses data for the average rent and purchase price for Q3 (July to September) 2024.  We had to exclude Dufferin from this analysis as there just isn’t enough data to be reliable.

With an average rent in the GTA of about $2,500 for a one bedroom unit, or just over $3,200 for a two bedroom unit, it isn’t cheap to rent a condo apartment these days.  On the buy side, a one bedroom goes for about $578,000 in the GTA and a two bedroom costs about $200,000 more at around $782,000.

Durham is the cheapest place in the GTA to supersize your condo, as going from a one bedroom to a two bedroom condo adds just $77,000 on average.  Compare that against Halton, where buying a place with a second bedroom adds a whopping $250,000 on average.

OK, but what is the cost to carry a condo if you buy at those prices?

In order to do an apples to apples comparison, we ran the numbers to see how much it cost in each area to own that one or two bedroom condo unit.  Before we get to the results, let’s clearly state our assumptions:

• We assumed a 20% down payment, so there are no CMHC insurance costs, and we calculated the mortgage cost using a 4.99% interest rate with a 25 year amortization period.
• We put maintenance fees at $550 per month for the one bedroom units, based on the idea that such units are typically in the 500 to 600 sf range, and maintenance fees of close to $1 per sf are common these days. For the two bedroom unit, we upped that to $750 per month, based on the idea that they will be a couple of hundred square feet larger than the one bedroom units.
• We assumed a 0.07% mill rate for the property tax as that is a reasonable rate across the various municipalities in the GTA. We used the actual average price as the assessed value but given MPAC is always a bit behind (and currently very, very far behind), our estimates for property tax will be on the high end.  Better to assume it will cost more than too little!

Obviously, any changes to the above assumptions will impact the end result, but we wanted to use some base calculations to be able to compare across the different areas and for the one and two bedroom condo options.  Here are the results.

Let’s see how those monthly carrying costs compare against the different markets and for one and two bedroom condo units.

We can see that it costs between about $750 to $1,150 more per month to own a one bedroom condo compared to renting it.  Peel has the lowest percentage difference at just 32% more per month and Toronto and York are tied at 45% more per month to own compared than renting.

For two bedroom condo units, the range goes from about $1,050 to over $2,000 per month.  In percentage terms, Peel once again has the lowest difference, where it costs just 35% more to carry a two bedroom condo than it does to rent one, and Halton is the worst area, where it costs 68% more to own a two bed unit than it does to rent one.

While this tells us which markets get the best results if you buy versus rent, it also tells us that if you’re an investor, Peel is your best option.  If the difference between what you can charge for rent and what you have to pay to own is the lowest, it means you don’t have too much of a spread to cover.  An investor who put down more than 20% would quickly approach a cash flow neutral or positive property if they bought in Peel.

It still seems like renting is cheaper.

There is one part of the rent versus buy calculation that is often overlooked, namely the percentage of the mortgage payment that is principal repayment.  This is important because while the monthly mortgage payment is money you as an owner need to have available, a portion of that payment is effectively a forced savings plan.

At the 4.99% mortgage rate and 25 year amortization we used for our mortgage payment calculation, the payment is about 28% principal repayment and about 72% interest payment.  That’s from the first payment and the way mortgages work means that every subsequent payment is slightly higher principal repayment and slightly lower interest payment.  For each of the markets we can calculate the effective monthly mortgage cost and get a revised effective monthly cost.  This isn’t what you’d pay each month, but it is the number if you recognize that more than a quarter of your mortgage payment is building your equity in the unit.

Here’s how that math works out, when we calculate the principal repayment and what the effective mortgage payment is once you remove that forced savings aspect.

If we take that effective monthly mortgage payment and add in our other costs, we get an effective monthly cost to own, which we can compare against the actual rent.  Doing so means that we see the difference between what it costs to rent versus own shrink tremendously.

For one bedroom condo units, the effective difference between renting and owning is as little as $97 a month in Peel, up to $345 per month in York.

With two bedroom units, Peel is just $222 more per month (effectively) to own a unit and Halton is the worst option, at $944 more per month.

Anything else to consider?

The final part of the buy versus rent calculation is appreciation.  While the condo market has been very tumultuous over the last couple of years, the historic average for condo units appreciation has been about 6.29% per year.  That’s a significant equity gain that you don’t receive if you are renting, but at the same time, you haven’t invested the 20% down that we used in our calculations, and that money could be appreciating if you invested it.

We consider this part of the conversation to be out of wheelhouse, as forecasting appreciation in a given market is very challenging, and we can’t speak to likely returns on invested funds in the stock market at all!  In a very general sense, we’ll just say that if you own a condo unit, when you eventually sell it, you will either benefit from market appreciation, or lose out on market depreciation.  Historically, we’ve seen real estate appreciate and we believe that will continue, but we’ll let you decide on what you think will happen with this aspect.

Put it all together and we see the buy versus rent question as having a clear answer.

The high rent being charged in the GTA, when contrasted against relatively low sale prices for one and two bedroom condo units, means that the difference between the costs for owning and renting have narrowed considerably.  When you take into account the principal repayment portion of your mortgage payment, the difference can be as little as about $100 per month in certain markets.  Even at higher differences between the effective carrying costs when you own versus renting, the gap is nowhere near as extreme as many people think.

If you have a significant down payment available, you like the idea of building equity in your own home versus your landlord’s income property and you think real estate will appreciate over time, then now is a great time to buy a condo.  If that sounds like you, then get in touch with us so we can run the numbers for your specific situation!

We’re officially halfway through 2024 now we thought we’d examine what we’ve seen so far this year and put on our predicting hats to say what’s coming in the second half of the year!

The fine folks over at the Toronto Regional Real Estate Board generate a lot of data about real estate and we’re going to take what they’ve provided and tell you what it means.

We’re only going to look at two aspects of real estate, but they are the most important ones.  First, how many sales are taking place, and secondly, what’s happening with the average price for real estate!

For each, we’re going to show you the chart that shows the monthly data for the year to date, with the previous three years for comparison.  It’s colourful and a handy way to see trends over time, but we’re going to take it a step further and tell you what the data tells us.

Sales galore!  Well, perhaps not galore.  Uh, sales somewhat!

Here’s the chart for the monthly sales on the Toronto Regional Real Estate Board’s MLS system for the year to date and the past three years.  The orange bar represents the sales in each month this year (2024), with the gray bar being 2023, the yellow bar is 2022 and light blue is 2021.

Keep in mind this is the total sales for all of the GTA, both freehold homes and condo units.  It’s a great representation of what’s happening in the real estate market in general, but don’t assume the same holds true for a specific neighbourhood, housing type or price point.

Here’s the key things to gather from this chart.

• 2024 started off busier than 2023, a reversal of the three year trend of fewer sales each year since 2021. January and February of this year saw more sales than the same months last year.
• As of March, however, things started looking less rosy. Instead of being busier than the previous year, we started seeing fewer sales than the previous year for each month moving forward.  March, April, May and June all saw less sales per month in 2024 than in 2023.  In fact, without exception, each of those months this year was the lowest number of sales in the past four years.
• Our total sales for the first half of 2024 total about 36,600. You won’t be surprised to hear that is fewer sales than the first half of 2023 (about 38,600), 2022 (about 47,000) or 2021 (about 70,000).

Not exactly the rosiest of years so far in terms of sales, which begs the question as to what’s coming next.

What’s going to happen in terms of sales in the second half of 2024?

Now that we’re clear that we’ve had a slower first half of the year than in the last three years, it’s time to look into our crystal ball and forecast what will happen in the next six months.

We pulled the sales data for the GTA for the last 10 years, going from 2014 to 2023, in order to see what has typically happened to sales in the second half of the year.  Unfortunately, it does not bode well for how we’ll end the year.  Here’s the key points.

• The first half of the year is almost always busier than the second half of the year. In the last 10 years, only one year, 2020, was busier in the second half than the first half.  You may recall that March 2020 was the start of the COVID pandemic and real estate was definitely slow in that initial few months before coming back with a vengeance.
• On average, 54% of the year’s sales take place in the first half of the year, with 46% happening in the second half of the year. If we use that average and assume that our 36,600 sales in the first half of 2024 are 54% of the total sales we’ll see this year, it means that we’ll see about 31,600 more sales this year in the next six months.  That would end us at about 68,200 sales for the year, which would actually be a little higher sales than 2023, when we saw 65,900 sales.
• If that sounds a bit too optimistic, unfortunately we are thinking the same thing. The above prediction is using the average for the past 10 years, but if we use the last three years on the assumption that it may be more accurate of the market these days, we get a different result.  If we’re just talking the last three years, the first half of the year accounts for 59% of the total sales, which would mean that in the second half of 2024, we’ll have about 24,800 more sales, ending with about 61,400 sales for the year.  Anything under 65,900 sales means it would be the slowest year for real estate sales in the GTA in more than 10 years.

Let’s turn from sales to what’s been happening with prices in the GTA and what’s coming next.

Prices for real estate have been all over the place lately.

Here’s the chart for the average price on the Toronto Regional Real Estate Board’s MLS system for the year to date and the past three years.  The orange bar represents the average price in each month this year (2024), with the gray bar being 2023, the yellow bar is 2022 and light blue is 2021.

Keep in mind this is the overall average price for all of the GTA, both freehold homes and condo units.  Even more so than with the number of sales, such general market data is susceptible to considerable variations within any individual area or housing type.

Despite the fact that the average price in the GTA for real estate is a pretty broad metric, there are some key things to gather from this chart.

• We started off 2024 with an average price of about $1.025M in the GTA, and from January to May, each month saw the average price increase. May was our high point of the year so far, with the average price hitting $1.16M.  June saw that drop, at least on a technical basis.  The average price went down by $3,914 in June, but it is worth noting that is the first month so far this year that it didn’t go up.
• If you look at the three previous years, you’ll notice something in the latter half of the year for both 2023 and 2022. In 2023, June was the highest average sale price, at about $1.195M.  In the second half of the year, it bounced around a bit, going down a bit and then up a bit, but it didn’t reach that heigh again during the year.  In fact, since then, June 2023 has remained the highest average price in the GTA.  If we look back at 2022, the highest average price was in February, when it was $1.334M, and we haven’t hit that height since then.
• If we take all of that into account, it tells us that we’re not likely to see higher prices in the GTA in 2024, at least based on what we’ve seen the last couple of years.

Prices are not going to go up.  Well, probably not.

Just like with the sales data, we pulled the average price information for the GTA for the last 10 years, going from 2014 to 2023, in order to see what has typically happened to prices in the second half of the year.  The expression “It’s as clear as mud” comes to mind after reviewing that data.  Here’s the key points.

• When we look at when prices peak each year, in five of the last 10 years, the highest average price was in the first half of the year, and in five of the years, it was in the second half of the year. Let’s say our crystal ball is a bit foggy when it comes to what will happen with the average price in the GTA during the second half of this year.
• That being said, in seven of the last 10 years, the lowest number of sales and the lowest average price took place in the same month. In 2024, our lowest sales and lowest average price was in January, so as of halfway though this year, we’re following that same trend.  If we’re forecasting that we’ll see fewer sales in the second half of 2024, it seems unlikely that we’ll see our highest average price during that time.

There are of course a lot of variables that impact the average price, including interest rates and available inventory.  If we see another two or three drops in prime this year, it may result in an increase in the number of buyers entering the market.  While that typically means upward pressure on prices, we are currently seeing the highest amount of inventory in the market in the recorded history.  With over 23,600 active listings in the GTA, supply is currently outpacing demand.

If you’re considering buying or selling, then we’d love to do this sort of analysis for the areas you’re focused on, the type of housing you’re interested in and the price point you’re considering.  Get in touch with us and we’ll arrange a time to go over what’s coming next for you!

While real estate is often focused on numbers and statistics, we can’t forget that it is about people, and people often frame their realities using stories.  As such, we wanted to talk about the story for homeowners in the last little while and what the next chapter will look like given all the recent changes.  Grab a mug of hot chocolate and settle in for the story.

Once upon a time, someone bought a home.

This story should be familiar to you, either because something very similar happened to you, or to people you know.

The story starts with someone buying a home.  They save up a down payment, they work with a trusted Realtor to find, negotiate and close on the home and the happy day arrives when they are given the keys and settle into their new home.

Over a period of time, they live their lives in the new home, all the while, making their mortgage payments and not really paying a lot of attention to what’s going on in the real estate market.  While it can be all-consuming when you’re looking to buy a place, once you own your new home, your interest in the latest listings and forecasts naturally wanes.

Eventually the day arrives when they discover that the home no longer suits their needs.  Maybe they’ve had a life change with the arrival (or loss) of family members, perhaps they need more (or less) space, or their work situation could have changed and with it, where they want or need to live.

As they begin to assess options, a very important question is raised – how much can they spend on their next home?  While income, credit scores, interest rates and other aspects will impact how much of a mortgage they can be approved for now, we’re often involved to help determine the value of their current home.

For the last 20 odd years (depending on which dataset you look at), the story for home owners has been a positive one, with price appreciation.  In addition, for the last 12 years or so, mortgage rates have been at or near historic lows, which means homeowners paid less interest and paid down more principal.

Combine the two and if you or someone you know has bought and financed a home in the GTA in the past dozen years, this is what happened.

1. The value of your home has increased considerably as the real estate market went up.
2. The equity in your home increased as well due to your mortgage payments including significant principal repayments.

When the time came to consider a new home, you found that not only was your home worth a lot more than what you paid for it years ago, you also had a much smaller mortgage than when you bought it.  Hurray!

The combination of these two factors led to home owners being able to move up the property ladder.  While not all homeowners saw the exact same levels of appreciation, or had qualified for the lowest possible interest rates, in general, the story was a very positive one.

Even if a homeowner hadn’t increased their income substantially during the time in the home, they had a significant amount of capital available to allow them to move up the property ladder.  In many cases, these moves took place with the homeowner not seeing a significant difference in their monthly mortgage costs, despite buying a home that was hundreds of thousands dollars more expensive than their prior home.

It’s a good story, with happy homeowners, moving up and forward, finding new and better homes that they can afford, primarily because they were smart enough (or lucky enough depending on who you ask) to buy a home and finance it at a low rate.

Nothing stays the same forever though, and we’ve seen some significant changes in the real estate markets in the GTA in 2022, which leads us to an important question.

What will the next chapter look like?  Odds are, it won’t be as good.

When we look at what has changed this year, we see that the two factors that made being a homeowner such a good story have changed.  We’re going to have to go into a few numbers but I promise we’ll get back to the actual story bit soon.

First off, let’s look at interest rates.

The Bank of Canada has had eight policy interest rate announcements in 2022, as is the norm for the institution.  These overnight rate announcements have a direct impact on the variable rate for mortgages as these rates are what the banks use to set their prime rate.

When we look at what the results of the eight rate announcements were this year, we see that were seven rate hikes.  The latest and last for the year (which took place on December 7, 2022), saw the Bank of Canada raise its overnight rate by 50 basis points to 4.25 per cent.  The last time the bank’s policy rate was this high was in January 2008.

We won’t focus on the numbers too much, but it’s worth pointing out that at the start of the year, you could get a 5-year variable rate in Canada for 0.85%.  After the latest BOC announcement, the best out there for a  5-year variable rate in Canada is 5.30%. That’s an increase of over 500% since the start of the year.  Ouch.

The impact of these changed interest rates on how much of your monthly payment is principal versus interest is massive.

At the start of the year, if you were lucky enough to get the lowest possible variable interest rate mortgage, 81% of your mortgage payment would have been principal repayment.  That’s from your first payment and it just gets better over the term.  On average, you’d have paid 83% principal and 17% interest.

With the latest rates, your first payment would see you pay 27% principal repayment and 73% interest.  Not quite a total reversal, but pretty close.  Over the course of the term, it gets a bit better, and when you look at all of your payments, you’d pay 31% principal and 69% interest.

What about fixed rate mortgages?

On the fixed rate side, things aren’t much better.  These fixed rate mortgages are based on bond yields and they have also gone up considerably in 2022.  At the start of the year, you could get the best high-ratio, 5-year fixed rate in Canada for 2.34%.  By the end of the year, the best option is 4.69%.  That’s just over 100%, which in layman’s terms, means they doubled.  Not nearly as bad as what happened with variable rates, but still a huge change.

The impact of these changed interest rates on how much of your monthly payment is principal versus interest is also huge on the fixed rate side.

At the start of the year, if you were lucky enough to get the lowest possible fixed interest rate mortgage, 56% of your mortgage payment would have been principal repayment.  That’s from your first payment and it just gets better over the term.  On average, you’d have paid 59% principal and 41% interest.

With the latest rates, your first payment would see you pay 31% principal repayment and 69% interest.  Not quite a total reversal, but pretty close.  Over the course of the term, it gets a bit better, and when you look at all of your payments, you’d pay 35% principal and 65% interest.

The end result is that whether you went with a fixed or variable rate mortgage with a purchase right now, only about a third of your mortgage payment is principal repayment.  When homeowners who bought recently look to move up the property ladder or even just renew their mortgage, they will not be seeing the significant level of equity freed up by their mortgage payments that we’ve been enjoying over these years of incredibly low interest rates.  They will have paid off some of their mortgage, but the bulk of it will still be there and need to be paid off before they have the remainder available for a new purchase.

Into the Unknown

The other part of the equation for our story moving forward is how much will home prices have appreciated when current buyers are looking to sell.  While the specific appreciation varied based on the type of home, location and even price point, the real estate market has been on a tear for the past couple of decades.

When current buyers are ready to make a move, will their homes have appreciated to the extent that it is financially feasible?  We already know that they won’t have built up a significant nest egg in the form of principal repayment during their mortgage term, so the pressure lies on the real estate market appreciation to allow it to happen.

If we see a mostly flat real estate market for an extended period of time, then homeowners who want or need to move up the property ladder will find themselves in a bit of a bind.  Unless they have had significant career and income advancement during that time, they won’t have the ability to cash out on their current home and move up the ladder for the same cost.

We will be watching the interest rate environment as well as the average resale price closely over the next year or two.  If interest rates stay the same or continue to rise, then home owners will be in a bind when they want to make a move.  If the real estate market stays flat or even sees more price drops, then the situation worsens.

While what comes next is unknown, we are clear that real estate fundamentals are more important than ever.  If you buy a good home, in a good area, at a good price, whatever happens with the market, you’ll do better than the market.  If that sounds appealing, then don’t hesitate to get in touch.

Unless you’ve been hiding under a rock, you can’t have missed all of the stories about interest rates in the news lately.  With inflation in Canada hitting a 31-year high and housing prices a major topic of conversation in both backyards as well as campaign platforms, we’re entering into a very unusual period of change around interest rates.

As Realtors working with clients buying and selling property, our major focus is, of course, how such changes influence real estate.  It’s not a theoretical question for us or our clients, as understanding the impact of interest rates on real estate has a tremendous impact on how to proceed with a purchase or sale.

We’re going to try to avoid being overly technical on how interest rates are determined and what impacts them, and instead focus on the result of changes.  That being said, it’s worth us sharing a quick overview of some key terms.

• The overnight rate is the interest rate at which banks lends or borrows funds with another bank in the overnight market. In many countries, including Canada, the overnight rate is the interest rate the central bank sets to target monetary policy.
• As such, the overnight rate is basically what determines the prime rate, which is what banks use as their base interest rate that they charge customers, so it has a very strong influence on variable rate mortgages, which are based on the prime lending rate.

Now, back to what it actually means when interest rates go up.  We’ve considered the question and we’ve got three things you should know.

Here’s what happens to the number of sales.

We’ve been working with clients since 2010 and during that time, we’ve seen some relatively significant changes in interest rates.  We say relatively as it appears that the period we’re entering into now will make those changes appear positively insignificant.

Our experience in working through times of interest rate changes is that it always causes a dip in sales activity.  In times of uncertainty, some buyers and sellers decide to take a step back and wait and see what happens.  Buyers or sellers who have strong reasons to transact on a property still do so, but people who do not have an urgent, time-sensitive need to buy or sell will often take a cautious approach during times of change.

The Toronto Regional Real Estate Board has reviewed what higher interest rates have on the number of sales that take place, and it follows what our experience has been working with clients in the market.

The big take-away from the chart above is that in the short-term, sales decline by an average of about 11% as the market adjusts to the new reality of higher interest rates.  Within two years, the average sales level has gone up by 14% from the level it was at before the higher interest rates began.

In February, 2022, the Bank of Canada raised their overnight rate for the first time since 2018, going up 25 basis points, or a quarter of one percent.  In April, 2022, they again raised their overnight rate, this time by 50 basis points, or half a percent.

Using the analysis from the chart above, we would expect to see the level of sales activity (adjusted for seasonal differences) drop as of March, 2022, yet by March, 2024 we will have rebounded to higher sales levels.

When we look at the number of sales in Toronto in March 2022, while we are up on a month over month basis, on a year over year basis, we’re down over 22%.  April should see a similar story where we see a much weaker spring market in terms of overall sales than is typical in Toronto.

The simple answer to the complicated question of how rising interest rates impact real estate sales, is that sales go down for a bit before recovering.  Over the next three to six months, we expect there to be fewer sales and the longer the period of interest rate changes, the longer that time of supressed sales will last.

Here’s what happens to the price of real estate.

The next specific question as to how rising interest rates impact real estate is the big one – what happens to the average sale price during a time of interest rate increases?

It’s a hugely important question and also a very difficult question to answer.

The primary reason for this is because increasing interest rates often go hand in hand with changes in government regulations related to real estate.  The last time we saw such a combination was back in April, 2017, when in response to a frenzied real estate market, the Ontario government of the time introduced the Ontario Fair Housing Plan with 16 measures designed to cool the housing market.

If that sounds somewhat familiar, it might be because in February, 2022, the Ontario government of the time released a Housing Affordability Task Force Report with 55 recommendations on how to cool the housing market.  That turned into the More Homes for Everyone Plan that was released on March 30, 2022.

The combination of higher interest rates and government policies designed to increase supply and ameliorate demand adds up to uncertainty for buyers and sellers.

We have a saying in real estate – buyers live in the future and sellers live in the past.  Put bluntly, this means that buyers are focused on how the home they buy will fare in value during the time they own it, and sellers are focused on what recent sale prices are for homes similar to their homes.

In a time of uncertainty, you have buyers who worry that they could overpay for the property and see it lose value over time, and sellers who refuse to believe that their home is worth less than a neighbour who sold in a less uncertain time.

Let’s be clear here – in times such as we’re currently experiencing, buyers quickly become more cautious and sellers take a while to come to grips with the new reality.  We see that translate into fewer sales as the bargaining zone between buyers and sellers becomes much narrower.  Following a period of adjustment, we see an initial wave of sellers accept that the price they had hoped for based on past sales may no longer be reasonable.  As new sales take place that reflect the new average price for a given market, the sellers that enter onto the market come with new, lower expectations.

When we look at the start of 2017, we see the average price play out in exactly this fashion.

In November, 2016, we had the lowest interest rates we’d basically see in Canada, with a five year fixed mortgage averaging just 2.09%.  Prices starting skyrocketing, with fierce competition for what was on the market as buyers flooded the market.  By February, 2017, mortgage rates had risen to 2.42% and by March, the steam had gone out of the market.  It hit a high for the year in April of $918,130, but the mortgage rate increases and government policy changes had influenced the market and we saw prices drop back down until August, when it hit a 2017 low of $730,969 on average in the GTA.  We ended the year down about $30K from the average price back in January 2017.

The above data is for all housing types and includes all price points within the GTA.  It differed somewhat based on geography and housing type, but the story was largely the same.

When interest rates rise, particularly when combined with government policy change, there is a period of slowing growth, plateauing and then the average price drops.  The extent to which it will drop and for how long before it recovers is a function of how long the interest rates continue increasing as well as other macro economic factors.

Here’s what is coming next.

No review of our current situation can be complete without looking to see what else is coming in 2022.

If interest rates continue to rise, then it appears likely we will a prolonged period of average price drops.

The scheduled dates for the interest rate announcements for 2022 are as follows:

• Wednesday, January 26 – NO CHANGE
• Wednesday, March 2 – INCREASED BY ¼ PERCENT
• Wednesday, April 13 – INCREASE BY ½ PERCENT
• Wednesday, June 1
• Wednesday, July 13
• Wednesday, September 7
• Wednesday, October 26
• Wednesday, December 7

With inflation at a 31-year high, there are many people speculating that the June 1^st interest rate announcement will be at least another ½ percent increase and perhaps even higher.  A lot can change in the month and a bit before we hit that date, but it seems extremely likely we will see another increase on June 1^st.  This will directly impact the variable rate for mortgages, and while lenders don’t always pass on the full change, it seems likely they will do so this time around.

On the fixed mortgage rate side, those rates are directly influenced by Bank of Canada bond yields.  This is because bond prices and mortgage interest rates have an inverse relationship with one another. That means that when bonds are more expensive, mortgage rates are lower. The reverse is also true – when bonds are less expensive, mortgage interest rates are higher.  Given the Bank of Canada is now in a period of quantitative tightening, we would expect fixed mortgage rates to increase as well this year.

With both fixed and variable rate mortgages going up and predicted to go up more in 2022, buyer purchasing power is eroded and this directly impacts how much a buyer is able to qualify for with a mortgage.  The lower the demand, the more we expect prices to stagnate or drop.

We are already seeing a change in the market conditions within the various parts of the GTA.  In Toronto, our sales to new listing ratio is approaching a balanced market for the first time since the start of COVID.  We expect to see it go into officially a balanced market (with 55% to 60% of properties on the market being sold in the month) in April and if things continue as they currently are, we may enter a buyer’s market in May or June.

It’s a complicated time to be buying or selling real estate and more than ever, you need to be working with real estate agents who don’t simply shrug when you ask them what’s coming next.  We pride ourselves on looking out for our clients as we’re looking for a buyer or seller for them.  If that sounds appealing, don’t hesitate to get in touch!

When you’re selling a property, the biggest expense is going to the real estate commissions you pay.  It’s a perennial hot topic and while real estate commissions are not set or regulated, each real estate markets tends to come to a consensus on what the “normal” commission is for selling a property.

On the selling side, the commission you pay is largely a reflection of the skill and experience of the listing agent.  After all, when you are talking about a sale of hundreds of thousands or even millions of dollars, the impact of errors can be huge.  While you can hire agents to sell your home for very little, agents who command larger commission fees do so because the sellers realize their agent can make or lose them tens of thousands of dollars.  The wrong pricing approach, poor marketing efforts and weak negotiating skills aren’t just harmful to the sale price you receive – they’re disastrous.

On the buying side, real estate commissions that are being offered to the buying agent are visible to real estate agents on the agent version of MLS that we use.

This commission may vary from market to market, but within a given market, you will find that the vast majority of commissions being offered to the purchasing agent are the exact same.

Part of commissions not being set or regulated is that a seller is free to offer whatever commission they feel is fair or appropriate.

It is also true that according to the regulatory obligations as set out in REBBA 2002, all Realtors (or registrants in the act) in Ontario have to abide by a Code of Ethics.

The Code of Ethics (Ontario Regulation 580/05) provides that a registrant’s loyalty rests with the client by protecting and promoting his/her best interests. The Code also requires that, in doing so, the registrant must also deal honestly and with integrity with every person with which he or she is involved in the course of a trade and provide conscientious service to both clients and customers.

Here are the specific parts of the code that are relevant:

In addition, there is even a list of all obligations imposed by common law and inherent in the single representation relationship that was developed by the Agency Task Force of the Canadian Regulators Group (of which the Real Estate Council of Ontario is a member).

The very first obligation on that list is Locate Property—Promote Buyer’s Best interests, where it states that the registrant must use best efforts in locating a property in the specified market area(s) that meets the material requirements identified by the buyer and to promote the interests of the buyer.

If that wasn’t clear enough, there is another obligation on the list, Seek out Available Properties, where it states that the registrant is to seek out and advise the buyer in a timely manner of available properties in the market area which may meet the buyer’s requirements, including those listed with other brokerages, those “for sale by owner” and other available properties known to the brokerage or its representatives.

All of this makes it pretty clear that regardless of what commission is being offered, a buyer agent should show the home if it fits their clients’ needs.

They should.

They absolutely should.

Unfortunately, sometimes things that should happen, don’t happen.

In our years in real estate, we’ve heard of a number of agents that refuse to show listings offering lower commissions.  If they do show such listings, they might do what they can to encourage their client to dismiss the property as unsuitable for some reason.

It’s unethical, it’s reprehensible, it makes Realtors as a whole look bad – but it happens.

If we deal with the reality of such agents existing, it leads us to one of the only situations in which we would tell a client their idea is a horrible one – when they suggest that we offer a lower commission than is typical in the market to the buyer agent.

We’ll say it is a horrible idea because we honestly believe that doing so is absolutely not in their best interests.

They will have fewer showings of their property, which will translate into fewer interested parties and fewer offers.  They will likely sell their home for less than what they would otherwise receive.

By “saving” on the commission they pay the buyer’s agent, they end up selling for less money and netting less overall on the proceeds from the sale.

In Toronto, the most common real estate commission offered to buyer’s agents is 2.5%.  Sellers can offer whatever they want, but the vast majority of listings offer this 2.5%.  What do we mean by “the vast majority”?

Let’s take a look at what a typical day looks like in Toronto.

April 7, 2021

On April 7^th we had 108 freehold sales in Toronto.  4 offers 2% commission to the buyer’s agent, 4 offered 2.25% and the remaining 100 sales offered 2.5%.  That means that 93% of sellers offered a 2.5% commission.

If we look at one of the homes offering a lower than typical commission, it tells us an interesting story.  It is a detached home near Keele and Greenbrook in west Toronto, with a huge lot backing onto a ravine.  By all measures, it looks like an attractive home in a good location.  It listed at $1.599M and after holding back offers for a week, it sold for 94% of asking price, at just over $1.5M.

It’s hard to infer causation from just one variable (even as important a one as commission), but let’s run the numbers to see what we can discern.

We had 108 sales and the average sold price that day was $1.591M, placing this home solidly in the average range.  They offered 2% commission, significantly less than the average commission of 2.5% that was offered by 93% of the sales that day.

The average sale to list price was 114% and this house got 94% of their list price.  That’s a staggering 20% lower than the average result from selling on April 7, 2021.

With their sale price of $1.5M, the sellers “saved” $7,500 in commissions to the buyer agent.

If they had received the average sale to list price for their home, it would have sold for 114% of list price, which would mean $1.822M.  That’s about $322,000 more than they sold for, but at least they saved $7,500.

As we’ve said, it is hard to infer causality strictly from one variable, so the math above is likely not reflective of the whole story.  That being said, it’s clear that the listing agent made a mistake in the list price.  We say that because if in this hot market they were 20% below the average sale to list price ratio, something is clearly amiss.

We will say for certain that by saving a small amount on the commission they paid out, the sellers’ ended up with fewer agents showing the home, fewer potential buyers seeing it and that likely meant fewer offers.

If you’re planning on selling your home and want the best possible price, we’d urge you to view commissions as an investment in getting the result you want.  If your thinking about selling and want to work with agents who know how to make it happen, get in touch.

Many clients ask us when the perfect time is to sell a home.  It is an important question to consider, as the prices for comparable homes can differ in the tens of thousands of dollars, depending on when they sell.

The activity in your neighbourhood and street as well as changes in the world we live in play a crucial role in when the best time to sell is, but there are some general trends on sale prices during different months of the year.  It doesn’t mean you have to sell based on what these trends tell us, what it is information worth knowing.

Below are two charts (showing data up to February 2021) from the Toronto Real Estate Board that are very useful in observing the trend.

Number of Sales

The highest number of sales takes place in late spring, in either April, May or June.  The lowest in December or January.

As indicator of how unusual 2020 was, is that the highest number of sales was basically a tie between September and July.  September is not unusual but so many sales taking place in July, traditionally the start of the summer slowdown, is very unusual.  Similarly, we saw the lowest number of sales in 2020 in April, traditionally a very busy time for sales.

Average Price

The highest average price typically takes place in fall, often October.  The lowest average price is for homes that sell in January.

Last year was again unusual in terms of prices in that while October was the highest average price, July to December didn’t show much variation.  April 2020 was actually the lowest price month on average, as the market reacted to the COVID-19 pandemic.

It is interesting to note that over the past three years, we’ve seen the best time to sell (in terms of highest average sale price for the year) flip from the spring (April and May) to the fall (October).

While 2020 was an atypical year in many regards, we have seen an overall shift away from pronounced differences in activity and price that follows the seasons.  If you’re considering selling, we would advise you to focus more on local considerations and overall market factors rather than a specific time of year.

Local Considerations

Real estate is all about location and what will happen in your neighbourhood is heavily influenced by what has happened in your neighbourhood.

1. When does your street and neighbourhood look its best? This can include mature, leafy trees that hide a decrepit building, or the quiet, relaxed feel that you get to enjoy one month a year in your otherwise hectic neighbourhood.  Major planned city work on curbs or water pipes is also not going to do your sale price any favours.  A good realtor talks with you to determine when and how your home will show at its best.
2. What are comparable homes on the street and in the neighbourhood selling for? Buyers are heavily influenced by what someone else paid nearby for a similar home.  If your neighbour down the street ran into financial difficulties and had to sell the house quick, the fire-sale price they accepted is not what you want as a comparable when you list your home the week after.  A good realtor times your sale to maximize the positive comparables.

Market Factors

1. What is the perceived state of the real estate market? The media is very fond of taking conditional predictions and turning them into absolute statements for their headlines.  If the media coverage of real estate in your area is focused on the negative, it will deter some buyers from looking and it will deter some sellers from listing.  A good realtor keeps up to speed on the public impression of the real estate market to time (and market) your listing accordingly.
2. What events or changes are taking place politically, environmentally, socially or technologically that will impact the market? We saw a huge example of this in 2020 when the COVID-19 pandemic occurred, with a temporary slow down followed by huge volume and rocketing sale prices.  Regulatory changes can also have a major impact on the real estate market.  A good example is the changes to the mortgage rules in 2012.  On June 21, 2012, the changes were announced and on July 9, 2012, the changes came into effect.  The highest month for sales took place in May and dropped to almost half by September.  In terms of average sale price, the highest in 2012 was reached in April during the spring market and it dropped by almost $40,000 by July.  We saw similar results from the spring 2017 introduction of the Ontario Fair Housing Plan and it is a good bet that any regulatory changes put in place due to COVID related concerns will have a similar impact.  A good realtor keeps aware of what is going on that will have an impact on the housing market and advises you accordingly.

Timing the market is a very difficult thing to do and in recent years, it has become even harder.  If you’re considering selling, you need to first and foremost focus on what works for you and your family.  Once you’ve got that clear and you’re ready to discuss other considerations, get in touch.

In our work with clients on both the buying and selling side, we are regularly talking about what is going to happen next with the GTA real estate market, currently experiencing an absolute frenzy of competition and escalating sale prices.

In the latest market data (February 2020 to February 2021) we saw an increase in the average sale price in the GTA by 14.9%.  Freehold homes (detached, semi-detached and townhouses) in suburban areas saw growth of over 20% in the past year.  For a detailed review of the Toronto market, check out our latest analysis here.

Back in early 2017, we saw a market similar to this current market.  After an insanely busy start to the year that saw prices skyrocket, the Ontario government released the Ontario Fair Housing Plan on April 20, 2017.  It included a number of measures to make housing “fair” and immediately cooled the housing market.

This implies that the market reacted to the OFHP and said “Oh, OK then, let’s all take a step back”.  In reality, an understanding of market conditions often follows this pattern:

1. Realtors and their clients actively buying and selling (or trying) notice a shift in the market.
2. A while after we notice, the media starts picking up on the shift and reporting on it.
3. A while after the media stories have become constant, the general public who isn’t buying or selling real estate understands what has been going on.
4. A while after that, the market starts to shift again, as “everyone” says this is crazy and people start backing away from selling or buying.
5. Shortly after that, the government steps in and takes some measures to intervene. The market had already shifted again, so it appears that the government intervention was very effective, but in fact it had already started to happen.

If you’ve ever had a friend or spouse who offers to help clean up after dinner as you’re just drying the last dish, you get what the government’s timing is typically like.  It seems to be the nature of how government reacts that by the time they take steps, the market has already started to shift.

While real estate agents and buyers and sellers carefully parse every latest sale and market data to try to see if a change is happening, as of the end of March 2021, we’re still seeing a very strong seller’s market with tons of competition driving prices higher and higher.

Given the buyers and sellers in the market haven’t yet taken a step back, it would appear we’re not quite at the point where we will see government intervention.

The Ontario 2021 Budget was just released and on April 19, 2021 we will see the Federal Budget released.  Let’s take a look to see if the government is taking any action to cool the market and if there are specific expectations for any real estate focus for the Federal budget in mid-April.

2021 Ontario Budget

The provincial budget that was released March 24, 2021 did not have any measures specifically designed to cool the housing market.

There was a considerable amount of speculation in the media as to whether steps would be taken similar to back in 2017, but the threat of a 3^rd wave of COVID as well as ongoing concerns about the economy as a whole has resulted in no direct action being taken.  The frenzy in the GTA housing market, while making buying very challenging and increasing the gap between home owners and renters, is one positive spot in the economy.

The focus in the Ontario budget was on measures for mitigating and defeating COVID as well as supporting people throughout these challenging times.

The only real-estate related aspects to the budget were commitments to infrastructure building, and more indirectly, broadband internet access in rural areas, which is hugely important to real estate values in those areas.

2021 Federal Budget

The Federal Budget is focused on the country as a whole so it can be difficult to implement changes that equally impact all parts of the country.  With very different real estate markets existing across the country (urban vs rural, 416 vs 905, east coast vs west coast), any intervention needs to be broad enough to be applicable across the country, yet nuanced enough to be effective where it is required.

The easiest way to achieve that goal is to create federal policies or changes that support initiatives that provinces or municipalities could implement.  In essence, setting the stage for more local changes that accurately reflect the real estate markets we’re seeing.

We reviewed various ways in which the federal government might try to set the stage for helpful intervention into specific real estate markets.

• Increasing the tax credit for rent paid to see more benefit for tenants paying higher levels of rent in the urban areas that see high rental rates. By increasing the tax credit, such high-end tenants save more money for potentially entering the real estate market as a home purchaser.
• Modifying the capital gains payable on a rental property in a few ways. One would be to incentivize the owner to sell to the current tenant via a reduced capital gain on the increase in the value of the property.  This could provide more housing supply to the market, as investor owners agree to sell to tenants.  A second would be the ability to defer the capital gains if you purchase another investment property within a short time-period of selling.  This may not increase the supply, but it could provide added incentive to see turnover in the market.
• Implementing a capital gains tax on principal residences, similar to how it operates in the US. Currently, we have no capital gains on the proceeds of the sale of your principle residence.  At the same time, we also do not allow the claiming of interest paid on mortgage payments, which is permitted in the US.  There is some talk about implementing some partial form of capital gains tax on principal residences, but it is likely to be strongly opposed by homeowners.  In our opinion, it would take a major financial crisis to allow there to be public support for such a measure.  Many Canadians view their home value as a significant, tax-free portion of their retirement plan and changing that will be deeply unpopular.
• An increase in lending restrictions on investors, such as was recently done in New Zealand. Requiring a higher down payment on investment purchases (such as 40%) could restrict the number of investors in the market and take some pressure off of prices for end-users who plan to live in the home.  There are significant challenges in monitoring and enforcing such restrictions.  Such a change is not likely to be done directly by the Federal Government but measures to support such a change could set the stage for it being done in the future.

We may also see some measures that will support provincial or municipal tools to intervene in the real estate market (such as land transfer tax changes, vacancy taxes, etc.) but it is unclear whether the Federal Government will wish to muddy the waters much.  It is likely the Federal Budget will mirror our Ontario Budget in focusing on health and jobs.

Predicting the future is a difficult job at the best of times, and predicting government initiatives can make the crystal ball even foggier.  We spend lots of time thinking about the market and we’re always happy to chat about it.  If you want to talk, don’t hesitate to get in touch.