Bosley Realestate

Dear Toronto Real Estate: Where Are The Property Listings?

March 13th, 2017 | Real EstateTales From The Real Estate Trenches

If you're a Toronto real estate buyer, or a realtor, you're potentially reaching wit's end trying to navigate this scorching hot market. Yup, the gap between supply and demand is ever-widening in the frothy Toronto housing market, as listings become scarce and scarcer still. There is new reality of buying property in Toronto: the first challenge is finding a place to purchase (which suits your needs) and the second is actually securing the purchase.

Usually new listings emerge as part of a natural progression of the property ladder; first-time homebuyers enter on the lower rungs and then climb their way up, eventually reaching a stage where they want to downsize and scale their way back down. With real estate prices shooting sky-high in Toronto, the property ladder is taking a different shape, severely affecting the natural filtering of listings coming forth when they usually would.

Why is this happening? Here are some of the current market influences:

 

 

 

The Shift From Flipping To New Builds

Until fairly recently, a good chunk of the available vintage housing stock was being snatched up by flippers, who sought to renovate substandard vintage bricks and mortar to sell homes in a much higher price point (here's Why Are So Many Downtown Houses Being Renovated). These flips often moved these homes beyond the grasp of most first time homebuyers, which was problematic enough, but today a similar phenomenon is unfolding that is knocking out the next tier of second time buyers. Instead of renovating and flipping homes, there is a growing movement towards the total teardown of existing properties and rebuilding from scratch. More and more properties are being leveled (or perhaps keeping about 5% of the original dwelling to avoid new permit fees and instead be classified as a 'renovation) and being rebuilt by architects, residential developers and lovers of great design, and then marketed to the executive class in the $1.6 to $2.5mil range (like our recent sales 'A Modern Cube Of Perfection In Roncesvalles Village' and 'A Unique Architectural Masterpiece In The Beach'). These executive properties are luring affluent Buyers who are seeking a 'near forever home,' where they plan to spend a couple of decades laying roots, whether that be raising a family, or enjoying an urban life as down-scaling Zoomers.

The reality, now, is that, in the urban core, many houses in the 800k-$1.3m price range are being sold almost exclusively as land value for redevelopment, which in turn is causing prices to escalate even more. Here's a recent post, entitled 'Exploring Toronto Real Estate Property Values', where I discuss the current drivers behind Toronto property values.

The impact of this 'new build' trend is that the downtown market is being saturated with luxury housing that are being snapped up, pushing high prices even higher, and essentially eliminating an 'affordability threshold' for existing urban freehold housing. The phenomenon is at the expense of the middle class, who are clamoring to find properties downtown under the $1.4 million benchmark (now the entry cost for a midtown semi). You have to consider that if a tear-down (land value) is now commanding 800k-ish to $1.4m-ish, and all the new product replacing it is $1.6m+, then there's a real housing crisis for families trying to climb the property ladder.

 

 

 

The Crazy Costs Of Parenting, Including Daycare And Millennial Underemployment

Housing prices aren’t the only cost of living that is skyrocketing in Toronto; if you have a young family, you’re familiar with the high price of daycare. In fact, Toronto is the priciest city in Canada for childcare. A recent study by the Canadian Centre For Policy Alternatives showed that Toronto’s care costs have climbed by 15 per cent in the last two years, far out pacing inflation.

It also revealed:

     • A middle-income family in Toronto with two children (infant and toddler) would expect to pay $36,000 a year for regulated child care (which is more than university tuition. Yikes).

     • Toronto has the highest costs across all age categories: infants ($1,649 a month), toddlers ($1,375 a month), and preschoolers ($1,150 a month).

Given that household income hasn’t increased at nearly the same rate, these costs are taking a substantial bite out of people’s income (almost to the point where it consumes most or all of one of the parent’s take home pay). This expense does limit opportunity, especially in setting a housing budget. Whereas some families may be preparing to move out of their “starter home” at this point, some may have to stay put until children are older and the costs subside. What this means is that movement slows on the property ladder, and the listings slow alongside.

Here is a CBC article “Property Owners And Parents Must Often Compromise To Pay For Kids, House” that outlines how the cost of care, along with income reductions during maternity/paternity leave are factoring into the house hunt. “Families Driven Out Of Toronto By Sky-High Daycare Rates”, explores the dilemma faced by Toronto parents, some of whom relocate because the combination of high care costs and high housing costs is substantial.

Another factor impacting the lack of listings is the delayed exit of adult children from their parents' home. The millennial generation - a cohort squeezed by both the high-earning well-educated Boomers and GenXr's who dominate the work force - are either under-employed, in low-paying positions or, even when generating a reasonable income, are opting to stay living with their parents while they squirrel away a future down payment (or pay off their student loans). As the New York Times just wrote in Toronto's Housing Boom Refills Empty Nests Driving Prices Even Higher, mature home owners who might consider down-scaling their property for retirement are keeping their dwellings to house their kids. This puts further pressure on the lack of listings.

 

 

 

Moving Is Costly

Although there is a common belief that you can turn a sizeable profit from buying and selling a home in quick succession, the opposite is almost always true. When people consider the “profit” on their home, they aren’t always recognizing all of the costs.

There are a number of costs involved in selling, including legal fees, realtor commissions, taxes, plus any monies you’ve spent maintaining or renovating the home during your ownership. It's commonly believed that you need to stay put in a home for 5-7 years (at least!) to break even. In Toronto especially, it's also costly to buy when the double land transfer taxes are substantial (on a $1,000,000 purchase the city and provincial land transfer taxes total a whopping $32,200!), deterring many from climbimg the property ladder. This is yet another compelling reason prospective Buyers are deciding to stay put, reducing the potential listing pool even more.

Check out these past Dear Urbaneer posts that outline these costs and what homeowners should reasonably expect in terms of timeline and profit when it comes to their housing purchase: 'How Much Profit Should I Expect Climbing The Property?' and 'What Are The Closing Costs For A Property Purchase?'
Given that there seems to more than enough reason to stay put, Buyers are turning more and more commonly towards home renovations and additions as a solution. In the long run, it is more cost-effective to jump over a few rungs on the property ladder to purchase a home that will suit Buyers need’s down the road and taking that time to modify their property to suit their lifestyle needs and wants.

Buyers may still dream of climbing the property ladder into a bigger home, but the high prices are limiting their opportunity. Check out this Globe and Mail article "Unable To Afford A Bigger House For Their Families, Homeowners Are Renovating Instead" where a couple is put off by high housing prices and the prospect of engaging in frenzied bidding wars and elects to renovate and add on to their current home. The cost to do so was less than buying a new, larger home.

This Toronto Star article - “More Homeowners Weigh Whether To Move Or Improve” - explores the shift from moving to staying put and renovating, where homeowners are drawing on the increased asset value of their homes to modify or make improvements, with an eye to staying put for the long run.

 

 

 

A New Reality

There's no question these factors are contributing to the lack of supply of Toronto real estate where, in a climate of intense demand, property values are soaring to new heights. With prices setting new precedents - to the tune of over 27% in the last calendar year - having the fortitude to compete in this climate is really trying. Both Buyers - and their realtors - are fatigued given that its not uncommon for Buyers to lose multiple bidding wars (you'll feel your blood pressure rise reading this post in my Tales From The Real Estate series called A Real-time Tale On The Struggle To Buy Toronto Real Estate In Spring.)

Have you competed in a bidding war? For those in the fray - or dipping their toes into this market reality - here's an essential read on why many Buyers get crushed (initially) in their pursuit of property in A Winning Bidding War Strategy.

Shaking your head? It's easy to get overwhelmed unraveling the many factors influencing the Toronto real estate market. If you're in the process, here a post from my Dear Urbaneer series called  Why Is The Toronto Real Estate Market So Hot?. Want to equip yourself with even more knowledge? Here's our handy guidance on How To Search For Your Next Property Purchase. Are you considering selling a property? Here's our advice on How To Prepare Your Home For Sale

Are you debating your next housing move? Wondering if you should stay put or if your dream home is out there somewhere? With vast experience (over 25 years!) in successfully navigating the challenges of this hot market, my team and I are here to help!

 

~ Steven and the urbaneer team

Steven Fudge, Sales Representative
& The Innovative Urbaneer Team
Bosley Real Estate Ltd., Brokerage - (416) 322-8000

- we're here to earn your trust, then your business -

 

Like what you've read? Consider signing up in the box below to receive our FREE monthly e-newsletter on housing, culture and design including our love for unique urban homes and other Toronto real estate!

Love Canadian Housing? Check out Steve's Student Mentorship site called Houseporn.ca which focuses on architecture, landscape, design, product and real estate in Canada!

Subscribe To Our Free Monthly Newsletter