Affordability is a funny animal. With a scarcity of property listings in a booming city, prices keep climbing. With the forces of migration, demographics, international investment and three generations of Torontonians competing for property in the original city boundaries, demand for downtown housing far exceeds the limited supply. Today, a typical freehold house listed in the $500,000 to $1 million range will receive anywhere from four to eight offers+ and garner anywhere from 8 to 20% over its list price, even in the humidity of summer.
Spurned by bidding wars which have been vaulting values up for well over a decade, the threshold of affordability remains a lofty bar for homebuyers. More and more buyers are finding themselves challenged to leap into the property market, while current owners whose dwellings no longer serve their needs are finding the costs to climb the property ladder prohibitive. In fact, those house owners who can are opting to put additions on their homes instead of upgrading into something larger because it’s more economical. This serves only to exacerbate the tight supply chain.
On the flip side, interest rates are at historic lows, which mean that more people are able to borrow more money. But it’s not just the low interest rates themselves, but the extended period of time that rates have hovered in and around these levels that raise our flag of concern.
The reality of homeownership today, is that most participants have succumbed - out of necessity or desire - to the lure of cheap money which encourages us to get on the “buy-now-pay-later” band wagon. This is a bit of a scary prospect - because it is a contrived reality. When the single-focused aim is to secure property in a bidding war climate where the overriding sense of urgency prevails, the winning bidder often says... “What’s another $100 a month on our mortgage payment if it means we get this?”
This dynamic isn’t limited to borrowers, for there’s plenty of competition on the lending front as well. In mid-May, Investors Group put forth a time limited offer of a three-year variable rate mortgage at a shocking 1.99%. While this was a rather shrewd move by IG to snap up market share, it does stoke the fires of an already super-hot property market, creating an extra layer of urgency where it already prevails, and bringing to light interesting questions. How low is too low and what are the implications as interest rates drop - and then drop again?
Is there a rate race to the bottom? Scotiabank, not to be left out in the cold, also offered a time-limited 5-year fixed rate, at 2.97%, which expired on June 7. Word on the street from analysts is that the big banks will likely follow suit, eager to make up for what some had categorized as a slow spring, with enticing low rate offers.
It’s not just the big banks that are under fire, with concern about vulnerability. The Bank of Canada is thinking about the smaller entities too. The Bank of Canada recently released a financial review, in which it didn’t have much concern over the current lending practices of the big six Canadian lenders, but did express concern over some of the smaller lenders, who they deem as more vulnerable for a variety of reasons. The market, by its very nature is compiled of different vulnerabilities, and being aware of them is the first step in understanding how to navigate them. Though not absolute, there is a definite relationship between the ability to borrow cheap money and Toronto’s rising prices - because making larger mortgages accessible to more people allows them to buy more expensive property. And right down the middle of this widening gap is a rather static income line - as the income for the average Canadian household is increasing at a far lower rate than housing prices - particularly in a center like Toronto.
What does this mean? The intelligent buy is the prudent buy - both when it comes to finding a property that fits your budget and your wish list. For both, you need to understand the purchase in the context of your current life, and what the goals of the purchase are down the road, as well as understand how the activity around your purchase figures into the current property market.
At Urbaneer, we pride ourselves in having our fingers on the pulse of the Toronto real estate market. With a multi-disciplinary education on the Toronto housing market including finance, construction, design, urban planning and the psychology of housing and home, plus over twenty-five years of renovation, development, sales and marketing experience, we are a unique full-service real estate boutique with a sterling reputation. Do you need help navigating your housing choices, and to determine your next move? Are you a Seller seeking a custom strategy to garner top dollar? We are here to help!
We’re here to earn your trust, then your business.