2016 - Should We Bother With Real Estate Predictions Anymore?

People don't like to be wrong. And when it comes to real estate predictions, wrong is what most people are. It doesn't matter if you're a crazy troll making comments on how dumb all Canadians are for buying real estate in the past ten years, or if you are from an analyst from a think tank with all the real estate data and economic algorithms at your finger tips to make predictions. It's not  an easy game.

For the 2016 real estate predictions, I think the predictors are becoming aware of how wrong they have been in the past. So, the sky-is-falling predictions seem to be less common this year. I'm seeing a lot more levelled, even non-commital predictions. CMHC, for example, says the housing market in Canada will barely keep up to inflation until 2017. This basically tells us, according to them,  that house prices will not rise by leaps and bounds like it has for the past few years, and it tells us that it won't sink either. Not too extreme one way or the other.

In 2015, no one was right on their predictions, not even the very optimistic real estate brokerages of Canada. Everyone called for less gains than 2014, and for some, there were certainties that some kind of correction would occur. Everyone complained about affordability and the number of condos in the Toronto real estate market. What really happened? A better year for price appreciation in 2015 than 2014, one of the stronger years for condos in a long time, and all of those new condo units still seem to have been absorbed in 2015.

It's not just 2015. It's 2014, 2013, 2012, 2011, 2010 and the list goes on. Each year there are predictions on where the real estate market goes, and each year, it's wrong. It's not to say there there could never be a correction or a temporary price slip. Of course there can be. When or if that will happen in 2016 cannot be guaranteed by anyone.

So, instead of offering my 2016 predictions as a whole,  let's look at what I think are important factors that could effect the real estate market in 2016.

1. House Supply I'm sure some of you are tired of hearing me say this, but I am saying it again because it is an important point: There is a limited supply of houses in Toronto. This will not change. As the city grows, very few houses are built. So, demand goes up. You are still going to see news stories about how dumpy house in an established hood sold for a million dollars this year in my opinion.

2. Condos Are The New Sponge Condos will absorb more people than ever before. I think over the past five years we are seeing more families with kids in condos. This includes families who prefer to live in condos in central neighbourhoods and those who do not like their options for houses in Toronto. We'll also see a lot more boomers selling their houses for the easier-to-maintain condo. Overall, we still see reasonable demand on condos. In turn, we'll see more demand for community centres and places that would benefit kids in condo neighbourhoods. Condos will not be for retirees, those who hate yard work and young folks exclusively. It will be for everyone.

3. Poor Economic News  This may bring some of the air out of the real estate tires as news of a poor Canadian economy over the next year will make Canadians feel less inclined to buy property. It may instill enough fear to disrupt the steam engines of Toronto and Vancouver real estate. Of course, the flip side of this: Ontario and British Columbia will benefit from the low dollar. Alberta, you may be out of luck until oil rebounds.

4. Greater Investment In Toronto Infrastructure This is a good one to look at for investors or for those who would like property with better appreciation. With Trudeau in, we should see a lot more money coming for improvement of our infrastructure. At long last! So, keep an eye out for improved transit lines or even a few new ones.

5. Size Adjustment This is a hard pill to swallow, but Torontonians will have to learn to live with less space. There are a lots of benefits to living in the city. Space is not one of them. The good news is that there will be less to clean. Living in Toronto, like many big cities in the world, will be for the spatially challenged. More so than ever.

6. More Investors Though there are much more foreign investors going to the improving U.S. market, our lower dollar sure makes our higher prices seem lower to others, particularly Americans who will start to see our property as a kind of bargain as the  Canadian dollar slips.

7. Interest Rates  They won't budge. I could be wrong here. There will be inflation, but I suspect the government won't increase interest rates if they feel the GDP won't grow all that much in 2016, and projections are on the lower side.

8. Conversions, Low Rise and Boutique Condos No matter where the market, houses will still be king. Low rise condos, conversion lofts and townhomes will also do well. This year giant condos may do well depending on their location and the fitness of their reserve fund.

I think that covers most of the broad strokes. Now if I dare to generalize a little, even though I said I wouldn't, I don't think we'll see the wild increases we saw in 2015, but that's exactly what I said after a very strong showing for real estate one year ago.  I was wrong then. Maybe I'll be wrong again.

Why Condos Are Back

I often go on about how great I think houses are as an investment in Toronto. They are in limited supply in a growing city, and there are very few builders planning to build any more. Condos, on the other hand, are in great supply, particularly high rise condos. Many have even set off the alarm bells that they are in oversupply.

I am not here today to prattle on about how many condos are in Toronto. You can easily lift your head up downtown and take a 360 degree look around the city. It's changed. No doubt about that. Still, I am here today in praise of condos. At this particular moment in time, condos are not looking so bad - at least if their windows are not falling to the street below.

So, why now? What has changed?

Well, here's a few reasons.

1. There's less condo inventory than you think.  For years now, everyone has been worried about the unsold condo units in Toronto and the pace of new condo units added to the existing inventory. It's a pretty fair concern to have. A growing number of unsold units could indicate that there is too much supply and not enough demand. The truth is, according to Urbanization Inc., the number of unsold condos in Toronto have dropped 13% in the second quarter of this year compared to a year ago. Simply put, more condos were sold this year than last year. The number of unsold units sits at around 17,700 this year compared to the 20,800 unsold units from last year. This may be a sign that this worrisome clump of unsold condo units are actually being absorbed. Should we break out the party hats and uncork the champagne? That may be a bit hasty, but some may consider this a sign that the condo market has come back from the brink of oversupply. 2013 and 2014 where the two years to watch in terms of the most new condos hitting the market. We have passed those two years. From 2015 onwards there will be fewer new condos coming to market.

2. Affordability. Some may be wondering why there are so many people buying condos. Well, a lot of this would have to do with affordability. In other words, houses of all sorts and even lowrise condos have been performing incredibly well in terms of appreciation.  In the last few years, some of these have seem double digit increases making them more and more unaffordable to a larger number of people. So where do they turn? To high rise condos that are more affordable and have not been increasing in price the same way in the past five to seven years as their smaller cousins.

3. There are still investors out there. Though I do believe many of Toronto buyers are largely those who plan to live in their condo units, there are those investors out there who buy up our city's condo units. And in case you have not noticed, the Canadian dollar has been slip sliding away. It was not too long ago that we were on par with the U.S. Now that we're hovering around 75 cents to the U.S. dollar. U.S. investors appear more keen to buy here now for the simple fact that it has become a whole lot cheaper for them.

4. Condos are in awesome neighbourhoods.  For those who truly embrace downtown life, then condos are a reasonable option. A house in a central and established areas would most often clear a million dollars provided it didn't need to be gutted. For some, an affordable house is too far away. These days, if you like to walk to work and to the gym and be near a subway, condos are the best bet.

5. Lifestyles are a changing'. Travel seems to be a high priority for a lot of people these days, especially those who don't have kids or your kids have grown up and left the nest. These folks want to be able to leave on a European or Pan-Asian adventure for months at a time or spend several weeks up at the cottage. Houses are too much work and maintenance. Condos supply the security and the lock-it-and-leave-it option for extended periods of time.

Now, to be clear, I don't want to suggest that there is nothing that could throw the price appreciation on condos off their course. There are. Rates could go up by leaps and bounds. There could be external factors - another world financial crisis, for example. There could be an element of fear that comes into the Toronto market as a whole that could bring prices down. My point here is to say that the oversupply argument that so many have been using for the reason that condos will crash does not seem to be taking hold. The panic over the oversupply of condos may not hold as much bite as many have anticipated. Once again, the art of predicting when a real estate market will change has proved to be tough to do.

When Condos Are Better Than Houses

"Drive til you qualify." I've heard this phrase used more and more over the past year. It is currently been thrown around in North American cities where downtown prices have increased more than the suburbs and commuting is painful. Cities like Toronto. Basically, the logic of "drive til you qualify" goes something like this: If you cannot afford a house downtown, then you keep on driving until you are able to find a house in your price range. For those with more money to put down on their home or for those who qualify for mighty mortgages, they won't have to drive very far. They could land in Cabbagetown in the east, still walkable to downtown or Little Italy in the west, just a touch west of downtown with a thriving established neighbourhood. Still can't afford here? Then you keep on driving. Try the advanced emerging neigbhourhood of Leslieville in the east or The Junction in the west. Still too much? Then try an early emerging neigbhourhood like The Danforth Village in the east or Oakwood or Caledonia in the west. Thinking that will tap out more than you can afford, then you keep on driving out of town for some of the lowest prices in the GTA in Durham region or in Hamilton to the west.

I'm sure you understand my logic here. Though there are exceptions to this rule, it would largely appear that houses cost less the further you drive, for the most part.

But the thing to remember is that there are exceptions. And if you cannot afford to buy a house in High Park, then there are still choices for you. I often talk about the benefits of owning a house, but I think if you want to buck the "drive 'til you qualify" trend, your best bet is to look at a condo. Why? you ask. Well, condos have not increased in price as much as houses. So, they are much more affordable. There is a better supply chain when it comes to condos. More keep coming out to accommodate the demand. With houses, the demand is greater than the supply.

To be clear, it's not that "drive to qualify" does not effect condos at all. It is true that condos in downtown Toronto will be more expensive than ones in Hamilton, but you can still live in a central, established neighbourhood in a Toronto condo for a reasonable price. I currently have a boutique-style condo with parking and a locker in Little Italy that is 764 square feet with unobstructed south-facing views and a modern kitchen and washrooms. It is available at $489K. You would have to drive pretty far to find a house at that price, and it would not have the pizzazz of Little Italy. If 489K is too rich for your blood, there are still options for less that will keep you in a central location.

 My point here is that if you are one of those downtown Toronto folks who needs to be in the city, you can find a property downtown to live in. You have to choose your condo carefully. Not all condos are created equal, but you can afford to be in the centre of it all and you don't have to drive til you qualify.

Why Bidding Wars Are Back Big Time for 2015

Bidding Wars. It's the FIFA World Cup of the real estate world. Several teams play in the competition, but there can only be one winner. It can be a crazy game with plot twists and surprises, or it can play out as every one expects. Of course, most transactions do not involve a bidding war. So don't expect one every time you set out to buy or sell a property. Still, 2015 so far is proving to hold many more bidding wars than last year, and in areas that did not have them before.

Up until recently most bidding wars were predominantly found in downtown neighbourhoods in the old city of Toronto (pre-amalgamation), and it pricier parts of North York. Many advanced emerging neighbourhoods draw in quite a few bidding wars when they are well located, well staged, well marketed and well priced properties. Since houses, as opposed to condos, are in low supply in Toronto, that is where most of the bidding wars have been, and will likely remain.

Some neighbourhoods are more prone to them than others. And some price ranges are more prone to bidding wars than others. A property in Leslieville, Roncesvalles, Trinity Bellwood or the Junction Triangle will likely bring in a higher number of bidding wars.

I should be clear that a neighbourhood that has more bidding wars does not necessarily mean the properties are more valuable. It means that some neighbourhoods have a more prevalent culture of bidding wars over others. Some neighbourhoods seem to expect bidding wars. Other neighbourhoods, such a Cabbagetown, you'll find the list price higher, but the difference between list price and sale price to be much smaller than in neighbouring Riverdale. Why is that? Are houses less valuable in Cabbagetown? Well, not at all. Buyers expect a more realistic list price in Cabbagetown than in Riverdale. It's just a different way of doing things.

The bidding war culture is spreading though. I'm seeing it in areas of north of the 401 that did not have them last year. I am hearing about them as far off as Durham Region. I am also seeing a few bidding wars with condos, though this is still much less common than with houses. Bidding wars were much more common ten years ago with condos, but have slowed down with the growing supply. This past year, however, does show that condos are increasing their level of bidding wars. I think it speaks to an increase in the demand for condos, particularly ones that are distinct and well-located.

Bidding wars are also a result of price point. A home for sale for $3,000,000 will draw in fewer buyers than a home for $600,000 (that will net a lot more buyers simply because there are very few people who can afford a $3,000,000 home).

The rise of bidding wars can also be blamed on real estate sales people. Yes, people like me. Some believe that bidding wars are a good way to reveal the best price for a given property. It's almost like a blind auction where the home goes to the highest bidder. It is a strategy that can yield great results for sellers. Of course, some agents price their properties so low  that they receive 20 plus offer, which I believe is a waste of time for buyers and their agents. Some agent like to pad their stats. So,  if they sell $350K over asking they can be talked about in the Toronto Star or use these stats in their next listing presentation. They can brag that are the reason that their sellers have received hundreds of thousands over the asking price when the reality is that the listing agent has priced the property far too low.

Not all properties that sell well over asking are a result of an agent listing low. Sometimes you can have a change in the market where one house makes a leap ahead of the other. It is the best home put on the market that week, and buyers flock to that particular property. But lets temper our expectations, sellers.  To have a competitive house there is a lot at play. Yes, it has to do with location, but also your marketing plan, and how your house is laid out and staged.  Not all houses are sold in bidding wars, and that's not a bad thing! Other strategies work too.

Buyers, don't let your ears hang low like a dog because of your fear or disappointment with the bidding war culture. There are strategies to buying as well. If you want to live in a certain neighbourhood, you'll have to be competitive, but if you don't have time, the stomach or the money, there are other ways too.

Toronto Real Estate in 2014: Year End Review

In 2014, real estate predictors were wrong again. Like 2013, the think tanks, banks and number crunchers were mostly on the wrong path, showing us that the art of real estate prediction is a tough business, right up there with crystal ball reading and UFO sightings. Once again, those predictors who represented financial organizations tended to be more negative in 2014. Pimco, for example, felt there were be a 20% correction in the housing market this year. This is not, of course, as dire as 2012 where some were calling for a 50% drop in home values.

The government, often cautiously pessimistic called for a soft landing. I'm not sure if they thought we were going to have a soft landing, or if they were trying to will it. And the rosier and upbeat predictions, not surprisingly, came out of the real estate industry calling for some respectable increase in home value. CMHC, for one, called for an increase in value but not as good as 2013. Well, as it turns out 2014 was a lot like 2013. The predictors were wrong again, and now that we're coming to the close of this year we can look back and see what did happen in Toronto real estate.

HOUSE POWER House prices increased a lot this year. Percentage increases vary from neighbourhood to neighbourhood, but the average single home shot up 13 % from last year, which is slightly higher than the previous year's increase. There were fewer houses listed for sale this year than 2013 adding to a chronic shortage of houses available in many of Toronto's neigbhourhoods.

Bidding wars in many established and emerging neighbourhoods were frequent. First-time buyers had to work hard to snag a house in the Toronto market this year as emerging neighbourhoods with affordable house prices, like the Danforth Village, became more competitive. 2014 was a classic tale of supply and demand as far as houses are concerned. Very few developers build houses or low density condos very often any longer because there is a better financial payoff for them in high density condos, not to mention that the city of Toronto encourages densification in most parts of the city where zoning allows.

CONDO POWERThere was a lot of concern at the beginning of this year for the condo market. More new units came to the Toronto market this year than any other year before it. The fear was that the condo market would be flooded with new condos and the crash would begin. The last few years have not always shown positive gains for some condos in this city, but this year has been the bestsince 2010. We are not seeing the kind of gains you see with houses, but the healthy condos, particularly low rise ones or well-managed and designed large ones, performed quite well with respectable gains. The demand stayed very strong this year for condos despite the number of units hitting the market . But why? Some suggest that the tight market on houses has pushed more buyers into the more affordable condo market. Some say, the millennials, the nextbiggest demographic since the baby boomers, are buying them up, keen on living in the city.


THE CHI-CHI-FICATION OF QUEEN WESTNow that Vogue has called Queen West the second coolest neighbourhood in the world, the desire to live here has exploded. Most Torontonians already new about Queen West for awhile, but now it is the terrain of incoming Americans and other buyers from abroad. Many hipsters may have left Queen West looking for less obvious cool neighbouhoods, but the demand is stronger than ever. The demand has grown almost as fast as the new trendy businesses arrive, particularly along Dundas West, just north of Queen St. It's become foodie's paradise, and the experimental neighbourhood for trying things out, making Yorkville look provincial and Annex seem so 90s. Best of all, you don't have to be hip to live here any longer.

All in all, a very positive year if you currently own a property. Does that mean buyers and investors have no chance of getting into the Toronto market? Not at all. You just need to look in the right places. 2015 promises to bring something a little different. And that will be the subject of my next blog!