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The Canadian Condo Market is an Open Bar Wedding

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wedding_crashers_02Wedding season is essentially over. It’s cold, dreary, and unless someone gets pregnant, you’re probably not going to a wedding for the next little while. Chances are though, you went to at least one wedding this summer; and if there was an open bar, you got to see all kinds of kinds.

After an enlightening breakfast seminar with Craig Alexander, Chief Economist at TD Bank, last Friday morning, this blog post almost wrote itself. Craig described the overall real estate market in Canada, as an open bar. It’s traditionally a good thing, but the odd person goes overboard with varying degrees of consequence. Well, if that’s the case, then the condo markets in various cities are their own cast of characters.

At this open bar wedding we call the Canadian condo market, let’s grab a spot at that prime table between the bar and the dance floor and see who showed up. People watching can be a great time.

Vancouver: Who’s that guy? The one with an extra undone button or two? Fedora? Probably. Don’t worry about that him, that’s just Darrell (Or Darren, or Doug). I think he’s the bride’s dad’s friend. You know, the one all the kids call “uncle” but mostly because he’s older & drives a Mustang, and not because you put much stock into his guidance as an adult. He keeps reaching under his table and whipping out a fresh, cold Sapporo every 15 minutes or so. He also seems to have the inside track on shots of Russian Prince, but maybe it’s just optics. Regardless, it’s an open bar, and yet the guy is pulling this booze from anywhere and everywhere to keep an already roaring party going.

Vancouver’s real estate market features the highest percentage of cash purchases in North America. It’s also has the 4th highest sales of Mercedes-Benz cars in the world. The money? It’s not Canadian. It’s from Eastern Asia, an alternative to communist bank accounts or mattress stuffing. Like Darrell’s life skills, it’s all a facade. Side note: In reality, the guy was probably drinking something pretentious like Corona Light, but I changed the booze to fit the analogy. Sorry guys.

Calgary: We all know the bride’s kid brother had to feign interest through the ceremony, probably wishing he could just sit down. But after taking the obligatory 5th groomsman role, that wasn’t an option. Thankfully, 4 hours of photography later, it’s finally paid off. Now 19, and at his first open bar from the looks of things, this kid is pounding Coors Lights like they’re going out of style. The bar is fully stocked, he’s mixed in about 4 Red Bulls, and the night is young. My money’s on him to be the king of the dance floor about 11:30.

Even with the recent decline in oil prices, Calgary’s (and Edmonton’s) booming housing market is in it for the long haul. Relatively new to the dance, these markets are backed by real Canadian dollars, natural resources and when people are making $25/hour to pour coffee, naturally they can’t build fast enough to keep up with demand. Being young and free is the greatest.

Toronto: *Clinking Glass* Oooh, speeches. The moment of truth where we see just how hammered the Best Man is. The groomsmen’s gifts were flasks, and between that & cutting the bar line, this guy’s been to the well a few times. He’s got that slight lean thing happening, and his blinks are about 3 times longer than maybe they should be. We’re about 30 seconds away from either one of the finest clutch performances of public speaking or, the more likely, tales of crossing swords and poop jokes.

Toronto condos are the definition of a hot-button topic. People with no interest in real estate know about the Toronto real estate market, and absolutely have an opinion on it. Just like everybody somehow knows the Best Man, Toronto is top of mind in any real estate discussion. The speech equates to the inevitable rise in interest rates once the USA ends it quantitative easing processes and bond rates begin to rise. Then we’ll see how well the leveraged Toronto market withstands the jump in borrowing costs and the negative media attention that goes with it. Will prices hold? Only time will tell. But like the chances of the Best Man’s story not involving feces, I’m not wholly optimistic.

Kitchener: Unable to track down a bottle of sulfite-free, organic wine, the groom’s buddy (We’ll call him Gregory. Why not?) settles into dinner with a neat single-malt scotch. Despite the fact that nobody under 50 would ever do that, Gregory doesn’t care. He likes the taste, and by that, we all mean pretends to. Tequila shots and beer are too mainstream for this guy, and hey, it’s an open bar, he might as well go to town. That houndstooth tie screams “I’m better than you”, and we all know he believes it.

Condos? Pssh, lofts are where its at. At least according to every 21st century developer in Kitchener & into Waterloo. Arrow, Bauer, Seagram, Kaufman, the list goes on. Why build a new building where a house or parking lot was when we can just gut this old building with really high ceilings, huge windows and beautiful exposed brick? Actually, this does seem like an incredibly good idea. At a higher PPSF, the aforementioned buildings can justify it with stunning layouts that command deserved attention.

Waterloo: Ol’ Gramps is a bona fide member of the old boys’ club. He’s been around the block in his 60 plus years, so the only thing left to do is hit on good-looking 20-somethings. Just like the beer cart girls at the course, he’s overtipping to the tune of $5 bucks a Molson 50, just to get that blonde to smile. Sorry old gals, this suave gentleman’s only got eyes for the youngins. So what if he swings and misses? I doubt he really cares at this point. It’s all about this one night, so damn if Albert won’t enjoy himself.

Has anyone driven King St. North lately?! Holy. More and more student residences, admittedly of various types of ownership, but lets be honest; Waterloo developers are going to play the student angle until they’re blue in the face. If your kid doesn’t go to U of W, your money’s no good here. And you know what? More power to them. As the student population swells, so too will their profits. Who cares if the units don’t have balconies or functional layouts. Once they’re sold, they’re no longer the developers’ problem, so quick and cheap will be the way of the near future. More money for developers’ Lincolns & green fees. What happens as Universities shift to online entities? That’s the buyers’ problem to figure out.

Guelph: Is that suit from Men’s Warehouse? Sure it is. The bride’s cousin’s in University, so he’s working on a budget. Cut him some slack. He’s been clutching that fiver and looking at the bar longingly for an hour. His brother comes by with a drink and I’m no lip reader, but it’d seem he just realized it’s an open bar. Hah, yep. He stuffs the fiver, which now looks like it was his drink budget for the night, into his all-too-shiny suit pocket and dashes to order an Old Milwaukee, only to find real beers are also an option.

Just like this poor kid, Guelph finally realized that high-rise condos are a thing, and damn if they don’t taste better than the condo equivalent of Old Milwaukee. Granted, the condos Guelph had been working with are better than no condos, and certainly part of a healthy real estate mix. But just because we can build a bunch of 4-storey (soon to be 6-) wood frame, middle-of-the-road condos, doesn’t necessarily mean we should. It’s nice to settle into a Stella Artois once in a while, Guelph. Keep it up.

Montreal: There’s always a hot, sorta trashy looking 40-something floating around. Well, tonight is no different. Of the two table bottles, one was hers, and the other was the other five’s to split. And, well, look who’s first on the dance floor! Odds are, those heels will be off in about 10 minutes; since the red wine and vodka-crans are taking their toll. It’s that or a broken ankle. By the end of the night, this one’s going to be belligerent, vomiting, or some weirdly promiscuous combination of the two.

Sorry Montreal, I’m not buying that a big recession in unit sales in 2013 was a fluke. Among the big three markets, Montreal’s prices are the lowest, but affordability is still a concern. With large inventories, developers are probably feeling a little loose too. Expect that they may have to further incentivise pre-construction buying, which’ll continue to curb price growth, which has shrunk year-over-year, since 2010. Montreal might be a fun night for an 18-year old, but the long-term prospects aren’t stellar.

For some markets, the honeymoon might be over. I think we’ll have a better sense sometime in mid-2015. In the meantime, settle in and have a drink. Most markets are going to be fine. Especially around here.

House price relief coming for first-timers?

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reduced priceIs there a light at the end of the tunnel for first-time buyers? In spite of the first calls for price declines, lower prices may not mean an easier buy.

In a recent report, Robert Hogue, an economist for Royal Bank, sparked some interest by claiming that he expected interest rates to rise enough over the balance of 2014 & through 2015 to incite a drop in the sales prices of homes in 2016. That price drop would come on the heels of slower than average price growth through 2015 as well, which he estimates could be somewhere around 1.1%. The article here is worth a read for some perspective:

RBC economist predicts home price declines in 2016 as rates rise

Tara Perkins, Globe and Mail, August 20th 2014.

An economist at Canada’s biggest bank says home prices could start falling in 2016 if interest rates return to more normal levels. And he warned that, in the meantime, what goes up will likely come down if salaries and incomes don’t keep pace.

“The higher home prices get relative to income by the time rising interest rates really start to bite, the more prices will have to adjust (downwardly) over time to keep longer-term affordability from reaching intolerable levels,” Royal Bank of Canada economist Robert Hogue wrote in a research note Wednesday. “This means that any price increases exceeding the rate of household income gains in the near term (2014 and 2015) likely would result in steeper price declines down the road.”

Mr. Hogue is now expecting sales to tick down by almost 1 per cent next year, and home prices to rise by just 1.1 per cent (he is expecting prices to rise 4.3 per cent this year). That’s actually a stronger forecast than he released just two months ago, because low mortgage rates have been giving the housing market more fuel than expected. He’s now cautioning that too much momentum could be a bad thing for the market long term.

He believes that the current low level of interest rates is not sustainable, and that longer-term rates could rise meaningfully by late 2015 (RBC expects five-year Government of Canada bond yields to more than double to 3.30 per cent by the end of 2015. Five-year fixed mortgage rates tend to move in step with five-year government bond yields).

Rising interest rates will erode housing affordability, which Mr. Hogue notes is already stretched in some markets. “We expect the current upward momentum in home prices to wane gradually, as demand cools and more home sellers emerge,” he wrote. “We expect that the current condo construction boom in large urban centres will bring more properties on the resale market as units are completed. While the majority of condo units under construction are already sold, rapid increase in the stock of existing condos is likely to create a displacement effect whereby older units are vacated in favour of newer ones.”

Looking across the country, he expects a decline in the number of homes sold next year everywhere except in Atlantic Canada and Alberta. “High-priced British Columbia (mainly Vancouver) and Ontario (mainly Toronto) markets are projected to see the bigger drops (2.3 and 1.3 per cent, respectively), reflecting a more extensive erosion of affordability,” he wrote. “We forecast the resale declines in the other provinces to be modest to marginal.”

As for prices, he is forecasting a significant slowdown in the rate of growth next year everywhere except across Atlantic Canada, with Quebec likely to see a small decline in prices.

“Prices in B.C. and Ontario are forecasted to show greater moderation since this is where these negative pressures will be more intense,” he wrote. “Alberta remains at the top of our rankings for next year thanks to its strong economy and in-migration keeping the demand-supply equation still somewhat tight. We expect prices in Atlantic Canada to continue to track a slight upward trajectory.”

A number of signs have pointed to an inevitable decline in housing prices, particularly when it comes to the affordability indexes of housing relative to other necessary expenses. Salaries simply aren’t growing at the rate of housing prices, an issue that has been present since the beginning of the 21st century, if not sooner. It’s safe to say that, at least relatively speaking, we’re approaching the ceiling in terms of how much Canadians can spend on their abodes.

As noted above, Hogue expects Toronto to be among the hardest hit regions, although I don’t necessarily share that sentiment myself. While I understand that it’s among the most expensive real estate markets in the world in some clusters, I would expect that some buyers may turn to less expensive properties and create a bulge in the middle of the price spectrum (There are places in Toronto for less than $100k).

In my opinion, there are ample buyers in the Toronto single-detached market to sustain the current levels of sales activity. If there is a decline, it makes the most sense to me that the pre-construction condo market would be the first to go. I could understand sales being hampered by an unwillingness to tie-up deposits with slower price growth, speculation of price retractions, and more profitable options for those monies. This in turn though could have the opposite effect on the pricing of resale condominiums.

In terms of the effects on first-time buyers, there are divergent effects; the ultimate weight of which remains to be seen. On one hand, the increased rates, should they force downward price pressure, could result in lower sales prices as Hogue speculates. At the same time, first-timers will be facing a higher cost of borrowing, which could be detrimental for those attempting to buy with smaller down payments.

The luxury that first-time buyers have is time. It’s not worth waiting for prices to drop to make a first purchase. Even with a lower purchase price; unless you’re buying with cash, the net effect will be marginal. Keep in mind that there are going to be many fluctuations of the housing market over your 50 or so years of home ownership; and the housing market has traditionally done very well at weathering the storms. Whether you’re buying now or later, the net effect of 2-year price decline over 50 years is going to be negligible over the long-term. Consider too that when selling, chances are you’re concurrently buying as well -which means that even if you’re selling at a low point, you’re probably getting the same discount on the house you buy. It all works out in the end.

 

 

Zehr Bringing Life Back to Downtown Kitchener

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The other day I tweeted that Carl Zehr’s legacy as it pertains to Downtown Kitchener could depend on how strong the sales of OneHundred Condominiums wind up being.

For what it’s worth, the name is derived from its address at 100 Victoria St. S; they’re well clear of 100 units (276 to be exact). OneHundred just sounds cooler. Its sister building, One Victoria is rapidly approaching a sell-out, so Momentum Developments (Red Condominium, The42) is really testing the strength of Downtown Kitchener’s condo market in the face of its unstable past.

Downtown rejuvenations have been focal points of community agendas in both Kitchener and Waterloo for about the past 10 years, with Zehr being Kitchener’s mayor for that entire duration. As his term of leadership comes to an end, the downtown core is markedly improved, though only time will tell whether it’s reached the point where people are lining up to live there.

Downtown Kitchener has seen ups and downs over the past few years as developers looked to find appropriate residential uses for properties in and around the core. Kaufman Lofts was an incredibly successfully loft conversion, and the earliest buyers in that building have seen their investment appreciate astronomically. Additionally, Arrow Lofts was another successful recent project which saw brisk sales and creative floor plans that made downtown living an easy transition for many.

On the other hand, moving deeper into the core has been a battle for City Centre Condominiums. The project has taken longer to come to fruition than first expected, and though it’s now under construction, there are a number of unsold suites in the building. It’s taken about 3 years on the market to reach a sufficient level of pre-sold units to get construction underway.

The cleanup of central & eastern Downtown Kitchener has certainly been slower than the west-side, without the main draws (Tannery/U of W/LRT/Via). To some effect, EOQ (East of Queen) may still have a similar stigma to London’s EOA (East of Adelaide). That said; it’s all part of a natural yet municipally accelerated push towards the rebirth of downtowns across the map. It’s only a matter of time until the influx of disposable income from new downtown residents promotes renovation and growth out from the Victoria/King intersection.

Uptown Waterloo is seeing this same trend, although in fairness, they’ve had quite the head start. The rebranding of Waterloo Town Square, public gathering spaces, Seagram & Bauer Lofts; all have greatly contributed to what is now a thoroughly vibrant and thriving central core. Quick-selling newcomers like RED Condominium at King & Allen have opened the door for other developers to take their shot at being the next big thing.

Reinvesting in downtowns is certainly the smart man’s approach and Mayor Zehr has led an oft-contested push in the right direction. Ten years may seem like a long time, but with some condo projects taking 5 years from sales launch to occupancy; you have to consider that development, particularly re-development, is a slow process. I would guess that OneHundred is looking at a 12-16 month sellout, which is phenomenal from a developer’s perspective. That’d be great for cementing Zehr’s legacy as one of Kitchener’s all-time greats.

“I WANT TO BUY A CONDO…

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Coletara's latest Guelph condo under construction- Ten77

Coletara’s latest Guelph condo under construction- Ten77

…But I don’t know what, how or why I should buy.”

For many first-time buyers (nearly all, if we’re talking about Toronto), downsizing seniors and empty nesters, condo living is a desirable option –if not far & away the best.

For those who have never owned a home, condo ownership is essentially Home Ownership Lite. Instead of doing all the maintenance and undertaking the personal expense of a freehold home, you pay into a communal pot that takes care of most of the upkeep you’d normally have to do yourself. This is especially great if you’ve always lived at home. It gives you the chance to learn things like how to make Kraft Dinner and how an iron works, without tying yourself up worrying about the expense of a leaky roof or how not to kill a garden full of hostas & geraniums.

If you’ve owned your home for many years, I don’t need to tell you how quickly the Honey-Do list becomes a multi-page pipe dream. Besides, now that the kids are gone, it’s time for Mom & Dad to forego the house work and head down to Mexico and the island barstools with your names on them. Condo living is the paramount option for those of us who just want to lock the door and take off for weeks or months at a time. Not to mention that the communal property maintenance doesn’t eat into your time on the golf course.

So, however your condo wish came to be, I’m here to help make it a reality. With over 150 condominium transactions’ worth of both new and resale experience, I know that whichever style of condo you’re looking for, I can get you into something that’s exactly what you’re looking for.

I’ve created a package, in which you’ll find some key forms to help you differentiate various condo options as well as a glossary for terms that you may have never encountered before. There are a number of things (ie. The reserve fund) that are not necessarily public knowledge or easily accessible. That’s where the value of a good Realtor and hard-working lawyer can be of tremendous service to you. All you have to do is ask and we’re happy to track down that information on any listing you might find on Realtor.ca, in a newspaper or just by driving around the area. Remember that as a buyer, you pay no commission, as it is the seller’s responsibility to pick up that tab. Use the professional help that’s there for the taking.

If you’re ready to get started, that’s fantastic. All you have to do is give me a call and we can work as a team to take it from there. I can’t wait to hear from you.