Money Toronto Real Estate's Harsh New Reality: Buyer Beware

10:16  08 april  2018
10:16  08 april  2018 Source:   huffingtonpost.ca

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Their current homes can't be sold for the amount they expected last year. With new government-mandated mortgage stress tests in place, and lenders So in essence, it means we now have to take to heart an old adage that has been long forgotten in Toronto ' s real estate market: Buyer beware .

With new government-mandated mortgage stress tests in place, and lenders re-assessing the value of GTA properties, they can’t get mortgages to cover the So in essence, it means we now have to take to heart an old adage that has been long forgotten in Toronto ’ s real estate market: Buyer beware .

a large ship in a body of water: Condominiums are seen under construction in Toronto, July 10, 2011.© Provided by AOL Inc. Condominiums are seen under construction in Toronto, July 10, 2011.

Until recently, Greater Toronto's housing market had been something of a fairy tale. Years and years of price growth convinced many that buying into the market — at any price — would pay off. In essence, a house in Toronto had become a miracle investment: no matter what happened, you made money.

But now, with home sales in the metro area down nearly 40 per cent over the past year, and prices down 14 per cent in that time, the market is doing something it hasn't done in a good three decades: It's creating losers.

The Toronto Star reported recently on a group of buyers of pre-sale homes in Oakville, who made down payments in February 2017 (just before the peak of Toronto's house prices) and who are now stuck with the bill for homes they can no longer afford.

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Buyer Beware : Toronto Real Estate ' s Harsh New Reality . All of which proves that the sort of real estate frenzy that has overtaken Toronto and Vancouver in recent years can certainly spread to Canada's other cities.

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Their current homes can't be sold for the amount they expected last year. With new government-mandated mortgage stress tests in place, and lenders re-assessing the value of GTA properties, they can't get mortgages to cover the full amount. They fear they may get sued by the developer, Mattamy Homes, if they don't close on their deals.

The Mattamy Homes Preserve development in Oakville, Ont., where a number of buyers are under financial pressure following a decline in house prices in the area.© Provided by AOL Inc. The Mattamy Homes Preserve development in Oakville, Ont., where a number of buyers are under financial pressure following a decline in house prices in the area.

They are not the only ones to face financial pressure from a slowing market. According to a report from CIBC and real estate consultancy Urbanation, released Friday, many of the city's condo investors are now losing money.

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BILD president and CEO David Wilkes echoes the argument of many in Toronto 's real estate sector, saying that restrictions on development are preventing housing supply from coming online. Buyer Beware : Toronto Real Estate ' s Harsh New Reality .

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The study found that nearly half of the condos delivered in 2017 — 48 per cent — were bought by investors. And of those, nearly half — 44 per cent — have "negative cash flow," meaning rental income isn't covering the costs of ownership, such as mortgage and condo fees. (Some 80 per cent of investors have a mortgage, so leaving units empty isn't a good option for most.) And more than a third of those losing money are losing more than $1,000 a month.

So is it time to panic? No. Or, well, not yet. For those who bought well before last year's peak, the math still adds up nicely. Most homeowners would not be underwater on their mortgages if they sold today. Most condo investors have made large gains in the resale value of their properties over the past several years, even if for many rent isn't covering costs.

And even if all the investors who are losing more than $500 a month bailed on the market, they would increase housing supply by only 3.4 per cent of the total, the CIBC/Urbanation report estimated — hardly enough to flood the market and tank prices.

GTA home sales down 40 per cent in March compared to last year, report shows

  GTA home sales down 40 per cent in March compared to last year, report shows GTA home sales down 40 per cent in March compared to last year, report showsTREB reported 7,228 residential transactions last month in the GTA, a steep drop from the record 11,954 sales reported in March 2017. Last month’s figure is down 17.6 per cent compared to average March sales for the previous 10 years.

Toronto Real Estate ’ s Harsh New Reality : Buyer Beware . In short time, both buyers and sellers will realize their situations haven’t changed with the new rules in place, and resume the same activity that was happening prior to April 20.

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a screenshot of a cell phone© Provided by AOL Inc.

But the lesson here is that things have changed, and the housing market going forward won't be like the housing market of recent years. Rapid house price growth is unlikely, if for no other reason than governments are now actively fighting to stop it.

For some investors, that could be bad news. The CIBC/Urbanation study estimates that an investor who buys a typical condo today will need to see 17 per cent growth in rental rates to make money off that condo when they take possession in 2021. If mortgage rates rise by a single percentage point, they'll need 28 per cent rental growth. It's possible to get that, but it's by no means guaranteed.

And for those who buy pre-sale homes, it means scaling back your ambitions. You can't be sure that your home will sell tomorrow for as much as it would sell today, as those buyers in Oakville have learned. Nor can you be sure that you'll get a mortgage tomorrow that's as large as the one being offered today, because mortgage rates are on the rise, and regulators could tighten rules again.

So in essence, it means we now have to take to heart an old adage that has been long forgotten in Toronto's real estate market: Buyer beware.

This article originally appeared on AMP: HuffPost Canada at https://www.huffingtonpost.ca/2018/04/07/toronto-real-estate-new-reality_a_23405449/

GTA housing market poised for spring thaw .
GTA housing market poised for spring thawOakville broker Tracy Nursall says it’s been longer than a single aberrant year since the Toronto Region experienced a typical spring market. This year is more similar to 2013 or 2014 than any season since, she said. There was a long run-up to last March’s historical peak of a 34 per cent year-over-year price increase. The exceptional activity dates back to 2015, she said.

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