Sales of high-end real estate soaring
The Globe and Mail
Friday, May 23, 2014
Byline: TARA PERKINS
Sales of high-end homes in Toronto have surged this year, outstripping the growth in sales of more modestly priced homes.
Indeed, a number of markets across the country are seeing a strong pickup in the number of high-end homes that are selling. Real estate industry players say they think it's because people are less worried about the housing market's future.
"I think people are feeling confident that the real estate market isn't going to face a major correction," says Ross McCredie, the founder and head of Sotheby's International Realty Canada.
It's still a gamble, but one that it appears more wealthy individuals are now making.
A record 754 homes sold for more than $1.5-million in the Greater Toronto Area during the first four months of the year, according to statistics from the Toronto Real Estate Board compiled by Eva Blay-Silverberg, a principal at Point Blank Communications who works with real estate data. For reference, she says that the corresponding number of homes that sold in that price range during the first four months of the year was 566 in 2013, 623 in 2012, 435 in 2011, 399 in 2010, 132 in 2009, 260 in 2008 and 250 in 2007.
So, sales over $1.5-million are up by more than 30 per cent from a year ago, while sales of homes at all price points in the GTA during the first four months of the year are up by about one per cent.
Realtor Barry Cohen, who has a listing in the Bridle Path area priced at $25.8-million, says his sales seem to be about evenly split between foreigners and Canadians.
"There is consumer confidence," he says. Both he and Mr. McCredie said that while luxury buyers don't tend to take out large mortgages, they take note of interest rates as a reflection of where the market will head.
"You've got low interest rates feeding the lower end of the market, and those sellers become the next buyers for luxury," says Mr. Cohen.
"Last year people were really worried about what interest rates were going to do, whereas this year rates are low again and it doesn't look like anything is going to change," Mr. McCredie says. "It gives people confidence. Luxury buyers ask themselves, 'If I buy this now, who is going to buy it from me in five years?'"
Vancouver, too, is seeing a resurgence in its high-end, Mr. McCredie says. "It is really bouncing back faster than anybody was expecting."
The Toronto Star
Thursday, May 22, 2014
Byline: Susan Pigg
Ontario’s housing market remains “modestly” overvalued, and that may be, at least in part, because of “gifting” — baby boomer parents who are helping finance down payments on pricey homes their grown children couldn’t otherwise afford, according to the Canada Mortgage and Housing Corporation.
That’s why the federal housing agency has launched a study, trying to determine how frequently young buyers are making purchases backed by the Bank of Mom and Dad.
CMHC is also trying to determine how much money is being handed down to echo boomers by their baby boomer parents, the wealthiest generation ever thanks to skyrocketing house prices and inheritances from their own parents.
“It may explain some of the gap between what’s fair market value and what people are paying,” especially in the Toronto market where bidding wars and fierce competition continue to drive up house prices, says Ted Tsiakopoulos, CMHC’s Ontario regional economist.
“It’s not data that’s readily available. It’s hard to get at, but it could explain a lot on the overvaluation front.”
CMHC has already compiled some preliminary data from Canada’s banks, which account for about 70 per cent of all mortgage lending.
Lenders are seeing a growing number of applications now accompanied by so-called “gift letters” worth tens or even hundreds of thousands of dollars from parents, outlining how much they are contributing toward the purchase in an effort to ease the monthly payments their grown children will have to carry.
Economists are now trying to factor that wealth transfer into housing models to see if it’s actually skewing house prices and purchases. Traditionally, economists have tended to focus on house prices compared to income, prices compared to rents and the impact of low interest rates to better understand the ups and downs of the real estate market.
“We’ve captured most of the variables we think are important. The missing piece is this wealth and gifting,” says Tsiakopoulos. “Industry people (lenders) have told us it’s happening. What we want to do now is quantify it in our (economic) models to help us understand this modest overvaluation, because we’re missing something.”
Statistics Canada data shows that between 1999 and 2012, Canadians’ net worth grew by 44.5 per cent, and the highest growth was among those over age 55, says Tsiakopoulos.
“That makes the wealth piece more important today versus 20 or 25 years ago.”
The data is critical, says CIBC deputy chief economist Benjamin Tal, because “it could be a market driver we’re not aware of.
“This transfer of wealth may be generating demand that otherwise wouldn’t be there.”
In a market like Toronto’s, where the supply of homes for sale continues to lag demand, it would also explain the bidding war mentality among young buyers armed with all the free money they need from their parents.
Tsiakopoulos mentioned the study Thursday while discussing CMHC’s spring outlook report for 2014 which found the GTA real estate market remains “resilient” and modestly overvalued, but no where near bubble territory or a major correction.
Sales of existing homes are likely to increase over the next two years but price growth ease, says the forecast.
Even the much-watched condo market is holding up well.
“Between 18,000 and 20,000 new condominium units are expected to be sold in 2014 as the pickup which began in late 2013 continues into this year,” says the outlook report.
Rental is expected to be a major growth sector over the next few years, says Ed Heese, senior market analyst for the GTA.
That’s because echo boomers, who average 24 years old, now outnumber their baby boomer parents. Many are expected to remain renters for years to come. That should drive strong demand for rental condos, especially close to the downtown core, with another 10,000 or so likely to come up for rent this year as more units, many bought by investors, come to completion.
Rental rates, however, which have been growing strongly the last few years, are likely to ease, notes CMHC.
The Canadian Press via CTV News
Friday, May 23, 2014
OTTAWA - Canada's housing market will continue to slow, with some of the sharpest declines occurring in large urban areas like Toronto - but the Canada Mortgage and Housing Corp. still sees no major crash in the offing.
The government-backed mortgage insurance agency says in its latest forecast that the market will continue to weaken this year, before stabilizing at what many would consider "fundamental" levels in 2015.
CMHC predicts the average home price will rise 3.5 per cent to $396,000 on a seasonally adjusted basis this year, and 1.6 per cent to $402,200 in 2015.
In terms of new building, the agency forecasts starts will range between 172,300 and 189,900 for a midpoint prediction of 181,100 this year, down from 187,923 in 2013 and 214,827 in 2012. The midpoint forecast for 2015 is 182,100, suggesting a flat, but not falling market.
"When you look at how the market has evolved over the past few years it is indeed headed toward a soft landing," the agency's deputy chief economist Mathieu Laberge said Wednesday.
Laberge says he sees no catalysts that would result in a hard crash in the market as some have predicted, most vociferously by Capital Economists analyst David Madani. Laberge says the fundamentals, particularly population, employment and economic growth, low interest rates and the pool of first-time buyers all support the market.
"When we set house prices against those fundamentals, we do see some modest level of over-evaluation, but it's within historical norms."
CIBC housing analyst Benjamin Tal agrees with the CMHC view, saying a crash would require a "trigger," such as sharply risingmortgage rates, but there is no sign of that happening. The Bank of Canada under Stephen Poloz has taken a dovish stance on rates and many don't expect any hikes until the spring of 2016, and even then that the increases will be small.
Barring such a shock, Tal says if anything the housing market may even perform better than the agency's baseline forecast would suggest.
The CMHC spring report does see a slightly bigger correction occurring in the Toronto area - arguably the country's hottest market - with starts slowing seven per cent to 31,000 in 2014, and stabilizing at that level in 2015. After a fast start to the year, condo construction will slow as the year progresses as will sales in the sector.
Construction of single detached homes in the greater Toronto area will dip about 20 per cent this year to 7,500 units, the CMHCsays. Overall, the agency sees the enthusiasm cooling for condo construction, which mostly occurs in large urban markets, as builders deal with inventory build-ups.
"Builders are expected to continue to manage their starts activity in order to ensure that demand from buyers seeking new condominium units is first channelled toward unsold completed units or unsold units that are currently under construction," said the agency.
In terms of sales, CMHC also sees Multiple Listing Service sales flattening at about 457,900 units this year, virtually unchanged from 2013. Sales are expected to pick up to about 471,100 units in 2015.