When it comes to Canadian hot button issues, fewer are more scorching than real estate. The cost of homeownership has been a pressing topic for several years, and 2017 was no exception with a number of new measures and policies designed to improve the affordability of the housing market. But from new mortgage rules to rent caps, how will these changes play out over the coming year?<\/p>\n
Here are Zoocasa\u2019s top seven predictions for real estate in 2018.<\/p>\n
1 \u2013 It Will Be Tougher for First-Time Home Buyers<\/strong><\/p>\n The past five years have been an increasingly tough slog for first-time buyers, and they won\u2019t find any relief in 2018; rising prices, tight inventory and changing policies will continue to make homeownership a moving target. According to a recent study conducted by Nanos Research for the Ontario Real Estate Association, there\u2019s hard evidence that it\u2019s tougher than ever to break into the market. It now takes 15 years of full-time work for the average buyer to save a 20% down payment, compared to just five years in 1976 \u2013 1980, the report states.<\/p>\n \u201cWe may never settle the \u2018who has it harder\u2019 argument between baby boomers and millennials but on this particular issue, there\u2019s no contest, owning a home is tougher these days than it was for the previous generation,\u201d says OREA CEO Tim Hudak. \u201cIt takes much longer for millennials to save up for a down payment, and when they finally do, their housing options are limited. Either because the housing that\u2019s available is out of their price range, there\u2019s not enough of the housing they can afford, or public policy keeps changing and pushing their buying plans further away.\u201d<\/p>\n New mortgage qualification rules from the Office of the Superintendent of Financial Institutions (OSFI) will further squeeze affordability as of January 1st, requiring all low-ratio applicants of new mortgages or refinances (those who pay 20 per cent down or more) be stress tested, either at the Bank of Canada\u2019s qualification rate of 4.99%, or with an extra 2% added to their contract rate \u2013 whichever is higher.<\/p>\n While borrowers paying less than 20% down have been stress tested since October, many managed to get around the rules with the help of the \u201cbank of mom and dad\u201d; boomers contributing to down payments helped push them above the high-ratio threshold, avoiding the stress test altogether. Now, there\u2019s no way around it \u2013 under Guideline B-20, buyers will have to prove they can handle higher mortgage payments to qualify. Experts say this will reduce affordability by 20% and knock 10% of buyers out of the market altogether.<\/p>\n 2 \u2013 Interest Rates Will Rise<\/strong><\/p>\n Further compounding mortgage woes will be rising interest rates; it is widely anticipated that the Bank of Canada will hike its trend-setting Overnight Lending Rate several more times in 2018, following the July and September increases that brought the rate to its current 1%.<\/p>\n A stronger economy, shrinking output gap and rising inflation are paving the way for tighter monetary policy. For many of today\u2019s millennials, though, it will be the first time they have experienced a rising interest rate environment, as the BoC stuck to record lows between 1 \u2013 0.5% throughout the recession and subsequent recovery years.<\/p>\n \u201cWhile higher interest rates will likely be required over time, Governing Council will continue to be cautious, guided by incoming data in assessing the economy\u2019s sensitivity to interest rates, the evolution of economic capacity, and the dynamics of both wage growth and inflation,\u201d the BoC stated in its December announcement.<\/p>\n However, experts are undecided on timing; an independent economic analysis from the C.D. Howe Institute\u2019s Monetary Policy Council says the rate should stay at status quo for the first half of 2018, with a quarter-per-cent increase in May, rising to an eventual 1.50% by the end of the year. However, swap investors are pricing in a more aggressive trajectory, with the first hike of the year as early as March.<\/p>\n 3 \u2013 An Uptick in Alternative Mortgages<\/strong><\/p>\n While these mortgage policies have been put in place to reduce risky borrowing in Canada, some experts think they could have the opposite effect \u2013 rather than force home buyers to save for longer, they may turn to the alternative lending marketplace rather than go with an \u201cA\u201d lender.<\/p>\n OSFI\u2019s changes also ban \u201cco-lending\u201d mortgage arrangements, which are multiple loans combined to help a borrower satisfy mortgage qualification requirements. It\u2019s a change than may impact the most vulnerable borrowers says Mike Bricknell, a mortgage broker at CanWise Financial.<\/p>\n \u201cFor those who don\u2019t fit within the \u2018Big Bank\u2019 Criteria, it can be very difficult to obtain this kind of financing,\u201d he says. \u201cRestricting this type of loan will reduce these borrowers\u2019 options, sending them instead to the dark \u2018private\u2019 loan market, where super-high rates and fees are the norm. In these situations, repayments tend to be interest-only, and can make it even more difficult for those in challenging financial situations to dig themselves back out.\u201d<\/p>\n Borrowers who remain in the \u201cA\u201d market may also undertake a few other tactics to relieve some of the pressure \u2013 those with low-ratio mortgages can opt to extend their amortizations up to 30 years from the typical 25 to lower the monthly payments they\u2019d need to satisfy at qualification.<\/p>\n And, while traditional mortgage advice says buyers should strive to be low-ratio if they can (paying less than 20 per cent down requires they also pay for mortgage default insurance, the cost of which is rolled into their mortgage), under the new rules, it may actually be cheaper to do the opposite.<\/p>\n Bricknell explains that while high-ratio borrowers cover the cost of insuring their mortgages against default, lenders are on the hook to do so for their low-ratio counterparts. For this reason, they\u2019ll often a slight discount on mortgage rates to those in the high-ratio camp. With stress testing now equal across the board, the trade-off of paying mortgage insurance over the course of a total amortization can be cheaper than carrying an uninsured one at a higher rate. This could lead to a flux of borrowers opting to put 19% down rather than the full 20, Bricknell says.<\/p>\n 4 \u2013 A Quiet First Half of the Year<\/strong><\/p>\n The 2017 autumn home buying season was busier than usual \u2013 but it will be at the expense of typical January activity, reports the Canadian Real Estate Association (CREA).<\/p>\n In CREA\u2019s December report, in which it also released its updated forecast for 2018, it revealed that, month over month, sales were up 3.9% in November and 2.6% higher than in 2016. It was the fourth consecutive month to see growth, and the first year-over-year gain recorded since the introduction of the Ontario Fair Housing Plan, led by a 16% increase in the Greater Toronto Area.<\/p>\n However, says CREA, this rush is likely due to buyers looking to beat the implementation of B-20, prompting them to make their real estate decisions before the new year sets in. This has created a \u201cpull-forward\u201d effect, which won\u2019t be alleviated until the second half of the year, the association says, as buyers who had waited to save larger down payments re-enter the market, and the impact of B-20 has been absorbed.<\/p>\n CREA expects sales will drop in 2018 by 5.3%, to 486,600 \u2013 27,000 fewer than this year, and a decline of 8,500 from what was originally forecasted. Prices are expected to fall 1.4% to $503,100, as the hot demand for expensive detached homes seen in the first half of 2017 won\u2019t be repeated next year.<\/p>\n 5 \u2013 Condos Will Lead the Market<\/strong><\/p>\n Condo sales have been particularly brisk in 2017, especially in comparison to the detached segment, which \u2013 while still extraordinarily expensive \u2013 has stagnated in Canada\u2019s largest markets.<\/p>\n While houses remain out of financial reach for many Canadians, average condo prices are still within the realm of affordability \u2013 but that continues to erode, as price growth has steadily skyrocketed for multi-family housing. For example, the Toronto Real Estate Board reveals condo prices within the City of Toronto rose 17 per cent in November, compared to a negative drop of 5.1% for the detached market.<\/p>\n The fact is, the price gap remains too wide between housing types; according to TREB\u2019s November numbers, the average detached house price stood at $1,276,184, compared to $555,396 for the average condo \u2013 a difference of $720,788. The comarison is even more astronomical in Vancouver, where detached homes cost $1,608,000 and condos $648,200 \u2013 a whopping $959,800, reports the Real Estate Board of Greater Vancouver.<\/p>\n This has led to everyone from first-timers to downsizers to choose high-rise living, putting even more pressure on supply.<\/p>\n The increased demand will make the need for \u201cmissing middle\u201d housing \u2013 such as townhomes, low-rise walk-ups and basement suites \u2013 all the more urgent, and a focus point for policy makers in the new year.<\/p>\n 6 \u2013 Toronto Rental Prices Will Rise<\/strong><\/p>\n While the affordability of the resale market was a hot topic throughout the year, perhaps the most scathing commentary was reserved for Canada\u2019s rental markets which have become increasingly less affordable. Historically low sub-1-per-cent vacancy rates in both Toronto and Vancouver have pushed average rents astronomically high, prompting bidding wars among prospective tenants, and a slew of rental scams.<\/p>\n And it doesn\u2019t appear the issue will resolve any time soon, despite new measures from provincial governments : In Ontario, the Fair Housing Plan included rental caps for all private units regardless of when they were built, as well as a $125-million, five-year plan to incentivize developers to create more rental purpose housing.<\/p>\n Experts say the changes, while well-intentioned, will actually reduce the number of available rentals; it\u2019s still far too profitable for developers to create condos for the ownership market rather than rental units, argues the Federation of Rental-housing Providers of Ontario.<\/p>\n A few Toronto-based projects have since reverted from rental purpose to condo after the rules were announced. There are also concerns that, since the majority of Toronto rental supply is via privately owned condo units that are leased out, the new caps would dissuade investors from purchasing units with the purpose of adding them to rental inventory.<\/p>\n The presence of Airbnb in the Toronto real market has also been a point of controversy, due to concerns that units used for short-term rental profit should instead be added to long-term supply. Toronto City Hall has recently attempted to alleviate this concerns, with new rules that require short-term rentals be principal residences only and ban income suites from being listed on the platform.<\/p>\n 7 \u2013 A Focus on Data<\/strong><\/p>\n Last but not least, 2018 will usher in a new era of data for real estate customers, as a push for market transparency gains momentum in Ontario with implications for the rest of the country. On December 1st, the Appeals Court of Canada chose to uphold a previous Competition Tribunal ruling to allow members of the Toronto Real Estate Board to share historical home sales data.<\/p>\n In the past, TREB has considered this data to be proprietary, claiming sharing it publicly would both void copyright and the privacy of home sellers. Its members \u2013 which include real estate agents, brokerages and online virtual offices (VOWs, of which Zoocasa is one) \u2013 could only divulge such information directly to clients when representing their interests in the market.<\/p>\n With the restriction lifted, consumers can expect greater access to transparent market information and tools that leverage data to improve their buying and selling experiences \u2013 a great benefit for clients, says Zoocasa Broker of Record Lauren Haw.<\/p>\n \u201cBy sharing more information, we are able to make for a more transparent buying and selling process. Agents will provide value by interpreting price points, market trends and fluctuating data for their clients,\u201d she says. \u201cZoocasa\u2019s users are researchers and come to our site looking for relevant information to influence their home purchase \u2013 such as school boundaries and rental options. Past-sold data will help them make more informed decisions.\u201d<\/p>\n However, at press time, the data remains under wraps; TREB has announced its intent to take the fight to the Supreme Court of Canada, and is applying for a stay on the order to keep the data private in interim.<\/p>\n