The Weekly 411

TLDR:

💸 GTA Homes Selling Below Asking

📉 Canadian Inflation Eases, Interest Rate Pressure Cools

🏙 Condo Maintenance Fees Skyrocket in Toronto

🏗 Purpose-Built Rental Construction Hits All-Time High

💸 GTA Homes Selling Below Asking 

• The spring real estate market is shifting away from the frenzy of bidding wars and rapid price increases.

• For years, sellers held a strong advantage, but that dynamic is changing.

• Data from HouseSigma Inc. indicates that nearly 60% of homes in the Greater Toronto Area (GTA) sold below the asking price as of March 21.

• The percentage of homes selling below asking in the GTA has increased by 9% from last year 

Why This Matters: The shift away from bidding wars and the trend of homes selling below asking suggest that investors might find opportunities to purchase properties at more favorable prices than in recent years. Investors must assess a property's true value, resale potential, and potential carrying costs to ensure they make informed decisions.

📉 Canadian Inflation Eases, Interest Rate Pressure Cools 

• Canada's inflation rate eases to 2.8% in February 2024, a positive sign for the economy.

• This trend could allow the Bank of Canada to lower interest rates. 

• However, housing costs, driven by mortgage interest rates and rent, remain major inflationary factors.

• Immigration contributes to strong housing demand, particularly impacting rental markets.

Why This Matters: Canadian inflation is easing, this could signal a more encouraging approach from the Bank of Canada, potentially leading to a modest reduction in interest rates. However, strong demand and factors like immigration continue to drive up housing costs, requiring careful monitoring as these impact both the purchase and rental markets.

🏙 Condo Maintenance Fees Skyrocket in Toronto

• In Toronto, condo maintenance fees are rising significantly faster than in previous years. 

• Condos.ca data shows average fees increasing by 5.51% in 2023, compared to 2.72% and 2.98% in preceding years.

• For a 650-square-foot unit, this increased fee translates to an extra $620 annually compared to 2020.

• This further reduces condo affordability, adding a substantial monthly expense for buyers on top of high mortgage payments.

Why This Matters: Low condo fees can sometimes indicate inadequate reserves. Underfunded reserves can lead to special assessments where owners must contribute additional funds for major repairs. Buyers should carefully examine a condo's status certificate and budget to assess the building's financial health.

🏗 Purpose-Built Rental Construction Hits All-Time High

• Purpose-built rental construction increased by 7%, reaching a record high, with Montreal as a notable exception experiencing an 8-year low.

• Purpose-built rentals now represent 42% of new apartment construction.

• Canada must build roughly 700,000 new purpose-built rentals annually to meet demand.

• Despite the rise in purpose-built rentals, Canada must double its construction pace to meet the federal government's 2030 affordability target.

Why This Matters: The surge in purpose-built rental construction signals growing investor confidence in the rental market. Traditionally, condo development dominated the Canadian housing market. This shift towards rentals signifies a changing landscape, pointing to a potential undersupply of rental units. Adding REITs that focus on purpose-built rentals to an investment portfolio can offer diversification benefits.