CANADIANS GIVE UP LOOKING TO BUY A HOME
GLOBAL NEWS - Craig Lord
Despite a sizeable drop in home prices over the past year and a slew of federal government measures aimed at addressing housing affordability, a new poll suggests Canadians are no more encouraged about breaking into the housing market.
Some 63 per cent of Canadians who don’t own a home have “given up” on ever owning one, according to the results of an Ipsos poll conducted exclusively for Global News published Wednesday. That figure is similar to a similar poll conducted a year earlier.
The findings show that while 76 per cent of respondents felt that owning a home was the best investment a person can make, nearly seven in 10 say that home ownership is now only for the rich.
"Some 63 per cent of Canadians who don’t own a home have “given up” on ever owning one."
Younger generations (those aged 18-34) were most likely to agree that owning a home is a major accomplishment, but also that it was a privilege reserved for the wealthy. Sean Simpson, Ipsos senior vice-president, tells Global News that Canadians are still “upset” about the state of Canada’s housing market. “There’s a feeling out there that despite the fact that homeownership continues to be a good investment and people believe that you’re better off financially if you own a home, something is holding them back,” he says.
Home prices have declined significantly over the past year, with the Canadian Real Estate Association (CREA) reporting a 19 per cent decline from the highs of the pandemic in February 2022 to the same month this year. But driving those declines and an overall cooling in the housing market has been a surge in the Bank of Canada’s benchmark interest rate, which had raised mortgage rates and limited how much Canadians can afford to borrow. The central bank has adopted a conditional pause to rate hikes after raising its policy rate to 4.5 per cent from the rock-bottom lows that fuelled a flurry of housing activity in the first two years of the COVID-19 pandemic.
Some 71 per cent of respondents to the survey said high interest rates were keeping them on the sidelines of the housing market. Three in 10 said they believed now was a good time for a first home purchase.
“Despite the fact that we’ve had a softening of housing prices over the last year and that interest rate increases have leveled and are perhaps going to be hopefully going down soon, attitudes have not changed,” Simpson says.
Whether federal government measures are having an impact on Canada’s housing market or not, Ottawa’s efforts are not translating to a substantial boost in confidence among buyers, Simpson says. The Ipsos poll only shows 27 per cent of Canadians feel the federal government is doing enough to address housing affordability in the country, up two percentage points from a year ago.
For the first time in more than two years, housing affordability improved in the final quarter of 2022, National Bank reported in its latest report, ending the longest sequence of declining affordability since the late 1980s. National Bank economists expect the trend to persist into 2023 as the housing correction continues and the Bank of Canada appears to be holding its benchmark rate steady.
While TD projects home prices will start to climb gradually again through the year, declining mortgage rates could open the door to more Canadians looking to enter the housing market.
WHERE ARE THE APARTMENT SALES?
THE APARTMENT GROUP - CFR
It appears that the rise in interest rates over the past 10 months has cooled the overall investment ICI market in the GTA. According to Altus Group, over all sales volume is down from 800 deals to 400 deals per quarter in the past year. More importantly, deal prices have come down from $10BB to $4BB. That is an unprecedented decline in overall activity. Interest rates are one factor but coming out of covid certain segments are still in survival mode. Hotels, retail, office and development land have been hard hit and market drivers are still uncertain in those areas. Industrial has done well given the huge uptick in on line shopping.
How about multi-family? That segment showed the strongest resilience during covid and generally is the go to segment in uncertain times. Currently the market drivers for apartments has been the strongest in decades. Very low vacancy, little or no new supply coming on stream and huge demand coming from immigration, students and potential homeowners who are displaced from ownership due affordability issues.
Well, it appears that multi-family has been caught up in this negative malaise that all buyers seem to have gravitated to. In the GTA there were only 9 apartment deals completed in Q1 2023 as compared to 26 sales in 2022. That is over a 65% decline in activity. The number of suites sold too was down from 2,032 to 905. Total dollar volume declined from $770MM to $290MM. Price per suite in Q1-22023 was around $320,000 in the GTA and that too is down from $380,000 a year ago and down from $350,000 in Q4-2022. Average cap rates have moved up from Q1-2022 when they were 2.9% to 3.7% in Q1-2023.
The market was more buoyant in the first half of 2022 but interest rates started to move up in the spring of 2022 and things have been in transition since then. The decline in volume was not due to a decline in buildings being offered for sale. There were many buildings on the market in the past 10 months but deals were not materializing to any great degree. Q1-2023 has similar metric as Q4-2022 so we have had 6 months of what we call "stagnation". How long this will last is anyone's guess.
Having been in the business for over 25 years, we have not seen this situation before. Strong market drivers - higher and higher rental levels - and a stagnation in demand for the product. All those who are involved in the apartment market are preaching the same thing - market is strong - rents will go up and up and cash flows will grow and grow. Yes lending rates are up and lending is tighter but it is not draconian. It is not like rates went from 2% to 10%. We think the stagnation has more to do with psychology rather than reality.
As Warren Buffet said "Be fearful when people are greedy - but BE GREEDY when people are FEARFUL".
BANK OF CANADA HOLDS RATES
BANK OF CANADA
The Bank of Canada today held its target for the overnight rate at 4½%, with the Bank Rate at 4¾% and the deposit rate at 4½%. The Bank is also continuing its policy of quantitative tightening. Inflation in many countries is easing in the face of lower energy prices, normalizing global supply chains, and tighter monetary policy. At the same time, labour markets remain tight and measures of core inflation in many advanced economies suggest persistent price pressures, especially for services.
Global economic growth has been stronger than anticipated. Growth in the United States and Europe has surprised on the upside, but is expected to weaken as tighter monetary policy continues to feed through those economies. In the United States, recent stress in the banking sector has tightened credit conditions further. US growth is expected to slow considerably in the coming months, with particular weakness in sectors that are important for Canadian exports. Meanwhile, activity in China’s economy has rebounded, particularly in services. Overall, commodity prices are close to their January levels. The Bank’s April Monetary Policy Report (MPR) projects global growth of 2.6% this year, 2.1% in 2024, and 2.8% in 2025.
CPI inflation eased to 5.2% in February, and the Bank’s preferred measures of core inflation were just under 5%. The Bank expects CPI inflation to fall quickly to around 3% in the middle of this year and then decline more gradually to the 2% target by the end of 2024. Recent data is reinforcing Governing Council’s confidence that inflation will continue to decline in the next few months. However, getting inflation the rest of the way back to 2% could prove to be more difficult because inflation expectations are coming down slowly, service price inflation and wage growth remain elevated, and corporate pricing behaviour has yet to normalize. As it sets monetary policy, Governing Council will be particularly focused on these indicators, and the evolution of core inflation, to gauge the progress of CPI inflation back to target.
In light of its outlook for growth and inflation, Governing Council decided to maintain the policy rate at 4½%. Quantitative tightening continues to complement this restrictive stance. Governing Council continues to assess whether monetary policy is sufficiently restrictive to relieve price pressures and remains prepared to raise the policy rate further if needed to return inflation to the 2% target. The Bank remains resolute in its commitment to restoring price stability for Canadians.
RECENT APARTMENT SALES
33A FLAMBOROUGH DRIVE - NORTH YORK - $9,000,000 / $209,000 PER SUITE / 4.50% CAP RATE
This is a collection of three storey walk up residential apartment buildings dating from the 1950's. The buildings are on 1.5 acres of land and are of concrete construction. All the suites are large two bedrooms and there are surface and garage style parking. Tenants pay their own hydro and heating is hot water gas radiant. There is a brick exterior, flat roofs and double glazed windows. The property was fully marketed and sold to a private investor.
335 COLLEGE STREET - TORONTO - $13,000,000 / $520,000 PER SUITE / 3.75% CAP RATE
This is a rental apartment investment well located in its market (downtown) and it represents a new build being constructed in 2016. The concrete building has a retail store on the main floor and 25 apartments above. Utilities are separately metered here and the property was built by the Seller who is a developer. This property was on the market for some time and was exposed. It sold to a private company just entering the multi family market space.
194 VAUGHAN ROAD - TORONTO - $6,100,000 / $277,000 PER SUITE
This is the sale of a 22 suite rental apartment building dating from the 1950's. It has a brick exterior, double windows, flat roof and is of concrete construction. There are mostly small one bedrooms and bachelors. The asset is well maintained and well located. The building was heated by a gas fired radiant system. The property was fully marketed and sold to a private investor.
THE APARTMENT GROUP
Together the team has completed over 1,500 transactions and has sold over $7.0 billion in apartments and development land. Put us to work for you and see the results. NO ONE has sold more buildings than our group. Experience, knowledge and professionalism will insure you get the right deal or the highest price if you are selling.
The Apartment Group is a dedicated team of professionals specializing in the sale of multi-residential investment properties. With over 40 years of combined experience, the team brings together their strengths including strong negotiation and sales skills along with highly technical market analysis and appraisal methods.
We are a boutique Brokerage but have the capabilities of the larger houses without the overhead. We have: an internal database of over 10,500 active apartment and land Buyers; a list of all apartment building owners in the Greater Toronto Area; our web site gets over 50,000 hits a month; we highlight properties for sale through our newsletter which reaches 10,000 investors monthly.
President & Owner,
LORENZO DIGIANFELICE, AACI
Broker of Record, Owner