The Ripple Effect of Real Estate Prices in the GTA

This week I’ve been vacationing in NYC with my family – we have a bunch of family out here and a wedding was the perfect excuse to visit and spend some time out here.  We received amazing hospitality from my uncle and aunt in their beautiful ocean front home in a suburb called Massapequa.   We made sure to enjoy the beach – and the weather was fantastic for this time of year.

Of course I always get into real estate talks with people everywhere I go.  I know we complain about the cost of living out in Toronto – but I was shocked to hear that the property tax prices out here can be more than $15,000 in the suburbs.  That’s aside from the cost of groceries and food which I also noticed were significantly higher where we were staying.

With the results of the latest US Presidential Election – Americans are anxious about what this will mean for them (jobs, economic growth, real estate prices etc).  I think we as Canadians are also wondering if and how this will affect us.  On a side note, as I watched the election results on CNN all I saw flashing across the bottom was how many points the stock market had dropped by.  Made me so thankful I am no longer invested in stocks.

I get questions all the time about what will happen to the Toronto (GTA) real estate market, from investors and homebuyers alike.

If you ask me, I will say that the GTA real estate market has started to cool off slightly because of the time of the year (usually slows down in winter).  The New Mortgage Rules effective October 17, 2016 has also slightly cooled off one segment of the market, but I believe that the impact will be minor in the overall market. The only real impact has been on first time home buyers that are putting less than 20% as down payment and getting an insured mortgage.  For investors, this is a great time to buy as we have less bidding wars and can get a good deal.  For some properties, I would normally see 4+ offers, but now seeing 1-3 offers instead.

The Greater Toronto Area in the third quarter of 2016 saw an aggregate (non-condo) average price of just over $700,000. That is some big bucks required to buy a home – especially for a first time home buyers.

With this in mind, the ripple effect has been happening to areas just outside GTA seeing big growth in Cities like Hamilton, Brantford, St Catharines, Barrie, Oshawa and Cambridge which have seen average house price grow over 10-20% depending to just over $450,000.

It’s a domino effect from the same pressures that are forcing Toronto buyers to look outside that city and seek bargains in these areas,

In these markets, you can get more house for your money and it is still affordable.  For example, the price of a home in St. Catharines is less than half of what it is for a similar home in Toronto.  Affordability is the main reason driving the new wave of growth and investment in these cities.

There are rumours floating around that the Vancouver Foreign Buyer Tax may make its way down to Toronto.  Seems like the Government is testing what will happen to the market in Vancouver before implementing here in Toronto.  My prediction is that eventually the Foreign Buyer Tax will come to Toronto.  It will be interesting to watch what will happen.

Although this price growth is great from the homeowner and investor’s perspective, I am expecting that the market will eventually cool off in 2017 – however I highly doubt the prices will decline.  I would be more than happy with a slow and steady price growth of around 3 to 5%.

As a sophisticated investor, I look at the long term success formula and study trends that are 12 to 24 months behind such as GDP Growth, Employment Growth and Population Growth in a specific area which will eventually cause an increase in rents and higher demand for my properties.

My recommendation as an investor is to put your money in productive assets that pay for themselves  What I mean by that is your rental income has to cover all your expenses.  Even if you are $50 a month in positive cashflow, you are good.

We are all waiting to see what all these changes will bring long term.  But I continue to buy for cashflow and in areas with strong economic growth predictors.  So really – I don’t get too worried about all these external forces.  It doesn’t scare or intimidate me.  I still believe that real estate is the most lucrative and sound investment vehicle there is.

So until next time, happy Canadian Real Estate Investing.

Jose Jafferji, REIA

Your Real Estate Investment Advisor