Toronto new condo market

Photo: James Bombales

While 2018 had no shortage of hurdles for the GTA housing market to overcome, it’s looking like 2019 may not be any easier.

The year started off with the gut punch of a new mortgage stress test, after the market had already spent months trying to adjust to the Ontario government’s Fair Housing Plan.

Now, heading into the new year, it faces historically low rental vacancy rates, lagging housing activity, and climbing interest rates.

For a closer look at these issues, Livabl has rounded up the latest industry commentary, to keep you in the know.

A serious shortage of rental units

With more and more people moving to Toronto every month, the city’s rental market is bursting at the seams.

Its rental vacancy rate currently sits at just 1.8 per cent, according to the latest report from the Canada Mortgage and Housing Corporation (CMHC).

The record low comes at a time when strong income growth is pushing rents up on a month-over-month basis.

“In Toronto, apartment rents grew above provincial guideline amounts despite turnover rates remaining below provincial averages,” reads the CMHC report. “Toronto continues to post vacancy rates that are near historic lows — providing greater pricing power for units that are vacated as evidenced by high asking rents.”

One solution to the problem has long been condo investors, who buy up units and lease them out to tenants, increasing the city’s rental stock. According to Bullpen Research & Consulting president Ben Myers, the recent provincial roll back of rent control legislation on new housing units could encourage the practice in the new year.

“The biggest impact as a result of this move will be keeping private investors interested in buying pre-construction condos to lease out,” wrote Myers earlier this week. “Condo investors have been responsible for over 75 percent of all new rental supply for the past 20 years in the GTA and without them, rental rates in the GTA would be much, much worse.”

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Sellers’ could begin to avoid the market

After months of sitting in buyers’ territory, the Toronto housing market balanced out over the summer months. But, if home sales numbers continue to cool heading into the new year, that could be about to change.

“The City of Toronto was plunged into buyers’ conditions in the months following the Fair Housing Plan as anxious sellers listed en-masse and flooded the market with new inventory, outpacing sales activity,” reads a recent report on the subject from real estate website Zoocasa. “That market has since recovered to balanced, with a ratio of 57 percent.”

But, with plenty of forecasts calling for a cool start to the new year, sellers’ might be anxious to list their properties, dampening the market further and cutting into sales and prices.

The market saw a drop in sales and a rise in listings in October, which could be a sign of the beginning of sellers anxiety. The Zoocasa report notes that, even if the city entered buyers’ territory, its home prices would still be well above the national average.

High interest rates will cut down on activity

One factor that could cause the market to enter buyers’ territory? Rising interest rates. The Bank of Canada raised the overnight rate to 1.75 percent last month, and is expected to do so again in the new year.

“It’s difficult to identify how much of the recent slowdown in housing activity has been due to tighter mortgage rules versus higher interest rates,” writes CIBC economist Royce Mendes, in a recent note. “But, based on prior estimates of the effects of the rule changes alone, the slowdown in lending has been more precipitous.”

That could mean that October’s sag in housing activity isn’t a one month anomaly, but the start of a larger trend, as would-be home buyers delay entering the housing market.

“Given the lags in monetary policy…the impacts of rate hikes will actually become more apparent [in the new year],” writes Mendes.

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