I'm Steve Fudge, and I help Owners' sell - and Buyers' purchase - Toronto Real Estate!
Welcome to Part Two of my Urbaneer Toronto Real Estate Forecast for 2019!
In Part One, I examined the state of the Toronto real estate market in terms of recent activity and prices, while addressing how the provincial and federal government interventions - and policy changes - since April 2017 have impacted affordability while influencing the dynamics of supply and demand of our property market.
For this edition, I’m going to explore 6 macro trends in consumer behaviour towards shelter and domesticity which - as they've each gained traction over the past decade + in Canada - I believe now have a collective momentum as to be reshaping the downtown Toronto housing market. While this isn't sufficiently well-documented to be a certainty (this is a forecast, after all), I support this idea by sharing the recent journeys of several Urbaneer buyers as they navigated their property purchase in one of the many Toronto Neighbourhoods, my team, and I sell.
Incidentally, if you're interested in the price of admission to secure a variety of Toronto real estate consider visiting our Home of the Month category here on the site.
* This condo townhouse unit - originally listed at $689,000 with a holdback offer date that did not generate multiple bids - was relisted for $749,000 and sold for $756,600 last month *
First Time Homebuyers In Toronto Often Receive Financial Gifts From Family
No question the biggest challenge facing first-time homebuyers, who are often single or recently attached, is one of affordability.
Traditionally, the condominium market was the domain of two buyer segments: the first time buyer and the smaller scale investor, but with the yawning price chasm between freehold and condominium housing, the government interventions and policy changes, along with a lack of supply, funneled numerous other buyer segments into the condo market in recent years. This, in turn, has propelled condo prices higher and higher, making affordability an ongoing challenge across the board.
It’s never easy being a first time home buyer navigating the complexity of the property market with fresh eyes (here's my Crash Course In First Time Home Buying that offers a 'next step guide'), but with the current environment, the challenge is unprecedented. Despite high, high prices, the dream of homeownership continues to burn, with first-time homebuyers unwilling to waver from their homeownership goals, but I wonder if we might be heading to an Exhaustion Movement as I'm beginning to witness increased Buyer resistance. For those who are buying - as I wrote about in How Can Millennials Possibly Afford To Buy Real Estate? - it means subscribing to a longer-term strategy to buying a home: living at home longer, pooling resources with friends or family, considering alternative ownership models or - most commonly- tapping into the Bank of Mom and Dad.
I’ve written a great deal about the Bank of Mom and Dad and how it is a major factor influencing the market. In my piece How The Bank Of Mom And Dad Is Stabilizing Canadian Real Estate Prices, I wrote about how the generous support of extended family to make housing 'affordable' for their loved ones has actually contributed to fueling the rise of real estate values. Often the objective is to help the family buy property as close as possible to relatives, therein driving prices up while also protecting the existing portfolio of properties owned by family nearby.
At Better Dwelling, whom I love for their statistical analysis on Canadian real estate, they condensed the recent data available on Teranet to report that Over 1 In 7 First-Time Homebuyers Are Tapping The Bank Of Mom And Dad, identifying that the number of homes with a single person on title is decreasing while buying with a partner is on the rise, and that the number of co-owners of homes with a 20-year+ age gap (i.e. parents) has also increased considerably.
In addition to financial limitations, let's face it, if you're single you're probably going to want to be as close to the action as you can afford. Single buyers tend to have a very specific housing wish list that prioritizes amenities (either on-site or in proximity to where they live) that facilitate social engagement. And given single buyers are increasing in numbers, this also increases the possibility of competition for dwellings geared to this target market. Did you know the number of single households in Canada has doubled in the last 35 years? Here's my piece about it called Single And Home Hunting In Toronto.
So, what are the first-timers and singletons buying? For the most part, this group is buying condominiums, with a few exceptions.
For example, as we featured in our December 2018 - Home Of The Month - one of our first-time buyers who had some help from the Bank of Mom & Dad secured - for $669,900 - a 2 bed (second bedroom for use as a home office) suite with parking and outdoor space located in Liberty Village because of its excellent walkability, ability to accommodate a future partner and first child (should need arise) and the easy commute to his job.
Another purchased this 2bed 2bath Dundas & Bloor West condominium near High Park for $671,100 (our June 2018 - Home of the Month). Well-situated for his job but also accessible to the downtown core, he gravitated to the place for its exceptional view over the century homes and canopy of mature trees, the quality of the upgrades, and the split bedroom layout that he favoured so he could rent the second bedroom to a friend as an income supplement.
However - right now - with the Autumn market well-entrenched in its seasonal dynamic, I'm finding younger singles and couples - even with help from the Bank of Mom and Dad - are expressing resistance to the dramatic price increases over the past 24 months. Basically, values have pushed beyond their threshold of affordability and their earning power. It's resulted in making the under $1mil condo market wonky, where the List Low Holdback Strategy to incite bidding wars is going awry more often than not, as buyers resist going into competition. Over the past few weeks we brought two 2-bed 2-bath condominium listings to market with list prices lower than recent comparable sales values. Each garnered one offer on the offer date instead of the multiples we anticipated given the number of viewings each listing generated. In one case we relisted the unit for $60,000 more to align with past sales and within the week received a condition-free offer for $7500 above that new asking price (see photo above). In the other, the co-operating broker shared her Buyers were anticipating being in competition and were willing to pay more, so we created a meeting of the minds which was not quite as high as a similar unit that sold in the Summer, but reasonable enough the Sellers were happy to take their profit and move forward.
* This 4bed penthouse in Leslieville sold to a couple with a child (and more to come) with room for visiting (grand)parents *
Young Couples Are Raising Kids In Condos
Traditionally, as a family grows and homeowners cycle through the stages of life, they move their way up the property ladder, upgrading their shelter to accommodate their changing needs. Twenty-five years ago in the early days of my career, this meant Buyers started with a condominium and then moved into the freehold property market within the city core. However, given the sky-high prices in the City of Toronto, along with a very limited supply of stock, over the past seven years, professional couples are deciding to purchase centrally-located condominiums to start and raise their children. I wrote about this in my post - Should We Raise Our Kid In A Condo?.
This isn't easy however, as this growing market segment face a few challenges. Firstly, although developers are beginning to catch on to how large this buyer segment is, and what their specific needs are (a proper second bedroom with window and closet and not the tiny den spaces which are promoted as second bedrooms), we are witnessing a smattering more family-friendly condominium units being included in new developments, although there remains a lag in supply relative to demand. Here's a piece that shares how “Family-Sized Condo Units Are Changing Toronto’s Real Estate Market”.
This 2017 study called “Bedrooms In The Sky” from Urbanation and Ryerson City Building found that despite a record number of condominiums being built that will be completed by 2022, only 38 per cent of them had two bedrooms or more, which is what this growing segment requires. Similarly, it is expected that the 35 to 44-year-old age segment, which characterizes this group, is expected to grow by 207,000 residents by 2026. This story from the Ontario Home Builder's Association discusses how the trend of raising kids in condos is rapidly picking up steam in Toronto: “The Challenge Of Affordability Means More Young GTA Families Are Turning To Condo Living”.
Also, condominium prices have grown exponentially over the last short period of time, making this “affordable” housing choice less affordable, particularly during the very costly child-raising years that families must endure. One reason is that this group are competing with DINKS - the double income no kid cohort - who celebrate the conveniences and cultural amenities of urban life who have no interest in maintaining a house and yard. Plus, they're also competing with downsizing boomers who are selling their near obsolete house (here's Should I Replace My Vintage Windows When My House Is Considered A Teardown?) to purchase a turn-key condo as an ageing-in-place complement to their country home (btw, here's my tips on Buying A Country Home).
So what do couples having kids seek in a Toronto condominium? First, it's all about proximity to work, because this Buyer segment is highly-educated professional couples committed to career-pathing, so they're seeking the opportunity to craft a life which is central and convenient for both themselves and their family. After all, they've acknowledged The Real Financial, Emotional And Health Costs Of Commuting Are High, so they're choosing a walking life. Also, these Buyers seek engaging amenities, either onsite or nearby. In days gone by, kids ran out in their neighbourhoods, playing games with other kids. That still happens, but within the condo context (think indoor play zones, the equivalent of the adult party room). Also, outdoor child-friendly green space is a must, as are having family-friendly amenities and grocers within a short walk for family outings. And buyers are paying close attention to the quality of the schools in the areas they're considering, recognizing they're purchasing with the aim of living in the suite for seven to twelve years. FYI, the closing costs are so substantial it no longer makes sense to buy and sell within a few years, as the property has to increase at least 7% to simply break even, as I wrote about in Dear Urbaneer: How Long Does it Take to “Break Even” After I Buy Property?.
When it comes to raising kids in a condominium, an intelligent space plan with ample storage overrides square footage. While 3+bedrooms would be ideal, it's rare to find units much larger than 2beds and those tend to be expensive. Although that's exactly what one of our Buyers purchased for $1,801,000 - which we featured in our October 2018 - Home of the Month. This 4bed Leslieville penthouse was originally two suites offered by the developer during the Preconstruction Launch, and a savvy couple with 2 kids combined them into an expansive lofty space that featured exceptional light and views. Although they eschewed the outdated 'dream of a backyard' in favour of vertical living, I see the merit of this lifestyle. And be assured more and more families are living with the benefits that accompany embracing the urban family lifestyle. There is a richness in being surrounded by amenities within walking distance, and I'm discovering there is a rich community-spirit emerging in condominium buildings where there are many families. Click here to read “Kid-Friendly Condo Features”.
This generation of parents is realizing the opportunity here. Are kids able to run outside into their own backyard, as they might in generations past? No. Are they deprived of fun, exercise, educational or social opportunities? Definitely not (and neither are their parents). Check out these posts for more insight on this trend. Click here to read “Why We Are Raising Kids In A Condo”, ”Two Parents, Three Kids And A Dog In A One-Bedroom Condo: ‘You Just Adapt”, and Urbaneer's own posts called Twenty Reasons Your Kid Will Love Living In A Condo and Urbaneer’s Tips For Moving With Kids.
Purchasers Aim To Buy Once And Stay Put (If Possible)
Given the lack of stock in Toronto and the prohibitive cost of moving, I've long recommended my Buyers attempt to skip multiple rungs on the property ladder to secure a home that they can occupy for several years. Given the high costs associated with buying and selling, there is a better scale of economies if one can purchase a residence which can be upgraded and/or expanded over time to suit their needs. However, some times it's simply not feasible given how step prices are in Toronto.
There are risks with this, however. One - these buyers often have to purchase at the top of their budget while leveraging themselves heavily with debt. While building wealth in real estate is a viable and usually profitable move over the long term, there is short term sacrifice when you buy at the top of your budget. In fact, it isn’t uncommon for highly leveraged Toronto homebuyers to take out additional consumer credit products just to cover costs.
However, for my buyers who have access to larger sums of capital and who recognize the freehold market - which hasn't been escalating at the clip of increase that condos have been over the past 2 years - offers tremendous value on a price per square foot, the opportunity to secure a freehold property for a long term hold is an intelligent purchase. And it's a growing trend, identified in this recent post called “Millennials Are Buying More Houses Than Usual In Toronto Right Now”. One of my own recent sales, which I wrote about in our June 2019 - Home Of The Month, was a detached 3bed house with a quality dugout finished basement in the Wallace Emerson Neighbourhood. Although the dwelling was a bit taste specific to its previous owners, what was remarkable was the quality of the property. It was obvious the previous owner was in the construction industry, and he had lovingly elevated the property with the very best of building components. My buyer competed for the property knowing she would change the house cosmetically to make it her own. And to offset the mortgage and operating costs, she proactively convinced her existing roommates at their rental property to move into her new house with her, and she subsequently converted the lower level into a revenue suite.
Yup, the hot ticket in the Toronto real estate market is the freehold family-friendly house located on public transit in the downtown core that sells for under $1,500,000. Because the mortgage stress test forced a lot of first-time buyers into the condominium market, the push of condo prices has created significant equity growth for those condo owners who purchased three to five years ago. In that short window of time condos - which were purchased in the $500,000s - are now selling in the $800,000s+! Young professional couples who may have used their RRSP savings to put $40,000 down on a $500,000 condo a few years ago can now sell their first property purchase and clear $300,000+ in capital for their next buy. And given freehold houses have not surpassed April 2017 values (in the year prior house prices went up 30%), what would have been prohibitively expensive at one time is now 'affordable' for this target market. In fact, had the government not intervened, the low rise / high rise price gap may have continued broadening, leaving two distinct markets oscillating under their own accord. Instead, this massive financial gain for condo owners is enabling the filtering of condo buyers into the freehold housing market. A significant amount of my business has been young couples who will, or are, starting families. Here's a couple of examples of what they're buying this year in May 2019 - Home of the Month - Upper Beaches - and - August 2019 - Home of the Month - The Pocket.
However, as more buyers with the financial means of all different demographics are purchasing - and keeping - their “forever home”, the once typical filtering up and down of housing stock that was common for many different socio-economic and demographic markets twenty years ago simply isn't happening like it once did, which has impacted the flow of housing supply, and put pressure on prices across all housing types. There are loads of reasons housing prices shot skyward in Toronto over the last several years, including demographics, speculation, immigration, gentrification, and low interest rates, which I share in 7 Reasons Why Toronto Real Estate Prices Have Skyrocketed Over The Past Decade.
*Image courtesy of Macleans
It's All About Renovating Because It's Cheaper Than Moving
With less housing stock changing hands, the more pressure it puts on prices, so as skyrocketing prices impact the ability for people to move, it prompts families to stay in their dwellings and upgrade them. As I wrote in Dear Toronto Real Estate: Where Are The Property Listings? the shift from flipping to new builds, the soaring costs of parenting, and the expense of moving (including the double land transfer taxes in Toronto), amongst others, has reduced the amount of inventory being listed for sale. This recent article from the Globe and Mail: "The Soaring Cost Of Housing Is Forcing Canadians To Renovate Instead Of Move” looks at the plight facing a number of families in Toronto. With a growing need for space, but priced out of their existing locale or hindered by the high costs of selling and buying (with our double land transfer taxes), it is making sense for families to look at renovating their existing spaces rather than move.
What’s more, is that the recent stress test mortgage qualification rules are also limiting the ability for families to qualify for the mortgage debt they would otherwise need to climb the property ladder. In fact, it's also making it more difficult for them to extract existing equity to refinance a renovation.
If planning a renovation is on your radar, invest in renovations that will increase your home’s asset value. Certain renovations generate a better ROI than others. Invest in quality building components and an intelligent space plan as opposed to expensive fixtures and finishes, which you can replace over time with higher-grade items if your renovation is for the long gain. Renovations that will get you more bang for your buck include eco-friendly upgrades, roofs, basements, decks, front doors, windows, garage doors, kitchens and bathrooms. Of course, adding more square footage to your home will automatically increase its value as well.
Click here to read “Home Renovations. What To Spend Where” and “Which Home Improvements Pay Off?” and my own How Should We Renovate Our Kitchen With Resale In Mind?. In order to be profitable and manageable (in terms of budget and maintaining your sanity - renovations are stressful) a great deal of planning is necessary, including establishing timelines, available budget and learning about the necessary processes, like design and permitting.! Here are my own posts of sage advice How Do We Establish Our Interior Design Style? - and - Help! We Want to Renovate And Keep Our Relationship Intact.
I’ve written extensively about home renovations, much of which is drawn from my own personal experience. Here are my posts What Are The Steps To Add Onto A House In Toronto?, What Are The Steps To Home Renovation? - and - Should I Renovate My House In Stages Or Do A Full Gut?.
Navigating the world of permitting for renovations in the City of Toronto is no easy feat. Here are my posts of advice: The Pitfalls Of Permit Fees And Toronto Real Estate, I Need Help With Architects, Builders And Toronto’s Committee Of Adjustment, Navigating The Committee Of Adjustment For Toronto Real Estate, Will Title Insurance Cover A Prior Renovation Completed Without A Building Permit? - and - Understanding Party Wall Agreements In The City Of Toronto”
Ageing In Place Gridlocks The Property Ladder
Whereas in past generations, as a homeowner aged, they would downsize and/or sell their home in favour of purchasing another home that is more suitable for them in their golden years. But for a variety of reasons, including a pervasive desire to remain in neighbourhoods where they have roots, close to the amenities that they are most familiar with, many Baby Boomers are choosing to stay put and age in place. This has resulted in much frustration of those lying in wait on the property ladder, hoping to move up and buy these homes from the seniors as they downsize. Demographically speaking, the sizable Baby Boomer cohort and the sizable Millennial cohort are a bit at odds, because the Boomers have what the Millennials want, creating a substantial pool of buyer gridlock on the property ladder. I wrote about this in How Demographics Affect Toronto Real Estate.
This story from TVO: "Waiting For Baby Boomers To Die Is Not Effective Housing Policy" discusses the perils of approaching housing strategy, including the filtering of stock on the property ladder, with status quo - because everything else around the traditional model has changed. Even though numerically, there should theoretically be enough housing for the Millennials as the Boomers' age, this approach hinges 100 per cent on the assumption that the boomers will vacate their homes at the same rate that new buyers emerge. Boomers are living longer, working longer and are staying more able for longer to manage homeownership - both by choice and due to their improved physical health.
This story from the CBC, “GTA Seniors Delaying Downsizing, Putting Housing Squeeze On Younger People” refers to a study from CMHC that found that seniors were more likely to be homeowners than they were a decade prior, by about 5 per cent. This is contrary to the trend of seniors downsizing that has long been in place. The study attributed this to a couple of factors, like seniors working longer and seniors wishing to age in the communities that they know well. However, it's unfortunate given a 2017 Ryerson University report found the majority of Toronto's 140 residential neighbourhoods have had a stagnant or declining population for the past 30 years because households are having fewer children and residents are choosing to age-in-place rather than sell their homes. This translates into a reduction in the use of amenities (like schools, libraries and recreational facilities) which are coveted by families, diminishes community engagement and vitality (fewer residents supporting local retailers & fewer kids playing road hockey) while restricting the filtering of housing stock necessary to maintain a balanced real estate market. Clearly, this 'hollowing out' of once vibrant neighbourhoods would be well-served if these dwellings accommodated more families.
Seniors may also be staying in place because downsizing is more than just simply exchanging a larger residence for a smaller one. There is a compromise in lifestyle and it is hard to find a condominium that mimics house-style living. It can also be a challenge to adjust to living smaller with less stuff and be comfortable. I write about strategies on how to deal with this in Downsizing: The Challenges Of Finding A House Sized Condominium and Dear Urbaneer: Is It Time To Downsize My Property?.
The Coming Rise Of Multigenerational Housing (And Pooling Of Resources)
With the sky-high housing prices in Toronto and a lack of options for many buyers, creative homeownership solutions are becoming more and more prevalent. One such movement is the growing trend towards multi-generational housing.
In eras gone by and in other cultures in modern-day, it’s common for multiple generations to live together under one roof. In addition to cost efficiency, there are numerous pragmatic and emotional benefits. There is help with childcare and with caring for ageing parents. In Toronto, given the high cost of childcare and the high cost of housing, this is an excellent solution. It’s no surprise to learn that in the 2016 Census, it was revealed that the number of multi-generational houses is on the rise.
Click here to read,” Why More Canadians Are Embracing Multigenerational Households”.
This story is U.S.-based, but its narrative is very reflective of the Canadian environment as well: “The Future Of Housing Looks Nothing Like Today’s”. As is underscored in this article, housing design is a function of the society that seeks it. Today’s housing stock has largely been creating around cars and single-family living, making it hard to find homes that are suitable to house multiple generations. Developers in this story are beginning to shift their development plans to accommodate this segment of buyers.
House design needs to be laid out in such a way to provide space, privacy, access and safety to people with very different needs. It’s a real challenge to find some a home (or a home with such potential) despite the growing buyer segment. But there are possibilities.
Take for example the experience of one of my recent buyers who purchased a “multi-generational compound” of sorts in Kensington Market Lofts. A decade ago, my buyer’s parents purchased a loft for her. She married and started a family, so her spatial requirements changed. They were able to secure a neighbouring loft and renovate it to suit them. Additionally, my buyers and their parents expressed a wish to live close to each other to share in each other’s lives and to nurture that connection between generations. They were able to secure an additional loft within the same building. This story is interesting not only because it demonstrates how housing can be modified to suit multi-generations but is also reflective of the growing trend for families to raise their kids in condos in urban settings.
Where To Next For Toronto Real Estate?
Although the story of Toronto real estate over the last decade or so has had a number of different characters and subplots, the thematic tie has always been the same: the mismatch between supply and demand, which will fundamentally drive prices upwards, regardless of secondary influences. While we have seen some downright wonkiness in the market of late, signs still point up for Toronto real estate, because of that particular economic engine. We’ve already seen the continued price appreciation over the years in Toronto land material impact on the city, with a shift towards rentals, a generation actively raising families in condominiums, as opposed to homes with yards in the burbs and a reconfiguration of the shape of the traditional property ladder.
Property prices remain stable and in line with the sums achieved in the spring, with a variation in values by plus or minus 3% for my property trades, which generally reflects the level of motivation of the buyer or seller (and degree of competition) at the time of negotiations. The less expensive (under $1mil) condo market appears to be tempering which, after significant price gains over the past couple of years, seems to be a function that values have topped out at the affordability threshold of the local market.
While the market isn’t as crazy as it was a couple of years back, and there is a sense of caution and defensive play among buyers at the moment, there are still influences that will accelerate the market. For example. I’m not seeing condos under 700k go into bidding wars, whereas freehold houses are; there is a definite split in the marketplace which I think that can be at least partly attributed to diminishing consumer confidence and unease with the economy at the moment.
Click here to read, “Toronto Home Buyers Are Out In Force – But Cautious”.
This financial malaise is a stark reminder of one of the by-products of a hot housing market: the subsequent financial vulnerabilities that are created when the fear of missing out, low supply and prices that outweigh incomes introduce.
Furthermore, I am finding increasing resistance on the part of buyers to compete in bidding wars, along with this uncertainty as to where the market may be headed. It seems to be mostly on the macro-level, including the global geopolitical unrest that is making headlines daily. And while none of my buyers has mentioned it, being in the thick of a federal election could be causing pause, especially given how polarized the political landscape is right now. Over the past month, the listings I brought to market spanning The Danforth west to Dufferin Grove and from King West north to Eglinton/Bayview all sold within ten days for a value that aligned or exceeded my sellers' expectations. However, the 'list-low holdback-on-offer' strategy has not proven to be successful. I currently recommend my Sellers list at a sum that reflects recent comparable sales rather than trying to incite a bidding war. When that approach is embraced, a sale is facilitated promptly.
As for where prices will go in the future?
I am witnessing the Bank of Mom and Dad - and the transference of wealth from one generation to the next - as critical factors influencing the central core of the Toronto housing market. This group of wealthy buyers (and other buyer segments - like the exploding Creative and Professional Classes with the means to pay what the market requests) remains far greater in numbers than the city's housing supply, which means - unfortunately for those with limited means - that price appreciation is, by my forecast, despite moments of wonkiness going to continue to climb to lofty heights.
May my team and I become your realtors of choice, and guide you to the best of the best Toronto real estate as it meets your wishes, wants and needs?
With a multi-disciplinary education in housing - and 27 years experience in the property market - I believe the search for a property requires engagement on every level, and bringing to your attention when a property is not your ideal.
In fact, it's how I've achieved my place as one of Toronto's top producing realtors.
Here are some of my past posts on Canadian Housing, some of which are embedded in links throughout the post:
With decades of experience navigating the highs and lows of our market, and our commitment to remain acutely aware of shifts and trends, we are here to help without pressure or hassle.
May we be of assistance to you, or someone you love?
Thanks for reading!
-The Urbaneer Team
Steven Fudge, Sales Representative
& The Innovative Urbaneer Team
Bosley Real Estate Ltd., Brokerage - (416) 322-8000
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*Love Canadian Housing? Check out Steve's University Student Mentorship site called Houseporn.ca which focuses on architecture, landscape, design, products and real estate in Canada.