Activity in Toronto’s housing market appears to be levelling off following a sharp decline over the spring that saw home prices drop significantly.
“Nationwide, our view is that that benchmark prices will fall 14 per cent from peak to trough and probably a bit more in Ontario,” RBC Economist and report author Robert Hogue told CTV News Toronto in an interview.
The data shows that activity in the Toronto area real estate market was generally flat from July to September with 63,000 to 69,700 resales taking place during that time. The report’s preliminary estimate for the month of October sits at 62,600.
Compared to the February peak that saw 110,800 resales, Hogue said Canada’s rising interest rates have “clearly” turned down the temperature on both demand and supply and the “excesses” of an overheated Toronto market are burning off.
“We’re seeing that in prices that are coming down quite substantially, and will continue to do so,” Hogue said.
The Bank of Canada has raised interest rates six times already this year and is expected to announce another hike in December in an effort to fight inflation.
Since the first hike in March, the MLS’ Home Price Index (HMI), which Hogue describes as a “pure measure of a property’s value,” for the Toronto area has fallen 18 per cent
That means a home purchased in February is now worth roughly $230,000 less on average.
A for sale sign is shown in front of west-end Toronto homes Sunday, April 9, 2017. THE CANADIAN PRESS/Graeme Roy
But when exactly will prices bottom out and could that be the time to get into the market as a first-time home buyer?
According to Hogue, spring 2023 will be time to watch as it could “open some doors” to buyers who have been waiting on the sidelines.
“At that point, we would expect to see affordability start to improve given, hopefully, by then, interest rates will have reached their peak and the big declines in prices will start to flow through better affordability,” he said.
“Downward pressure on prices will persist for the time being [in the Greater Toronto Area]. And, in our view, the way to alleviate, at least partly some of the affordability problem, is prices have to fall, so we have prices continuing to fall until the spring.”
At the same time, and despite interest rates being the highest they’ve been in more than a decade, Hogue’s report suggests the market hasn’t witnessed what he described as a “distressed selling wave.”
“Delinquency rates remain exceptionally low. And for sure, there is some tension building with higher rates, especially for those with variable mortgages, based on tremendous increase in the interest rates.
“This could potentially lead to trouble for some, but at this point, we’re not seeing this,” he said.
Hogue went on to say the federal government’s stress test—a tool used to cool down an overheated housing market—will help prevent a “critical mass” of homeowners selling off.
The newest iteration of the stress test went into effect in June of 2021 and sees uninsured mortgages set at either the mortgage contract rate plus two per cent or 5.25 per cent (whichever is greater) in order to make sure a homeowner can afford to pay off their house.
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Builder blames city as Toronto-area condo cancelled
The first Toronto-area condominium project cancellation of the year has been registered by Aspen Ridge Homes, an arm of the De Gasperis family group of companies.
On January 26, investors who put down deposits to buy a condo at the project known as Union Margo on 1735 Bur Oak Ave., in Markham, Ont., received a letter from Union High Rise Inc. – the corporate entity set up to build a 20-storey building – with notice that they would be receiving their deposits back and their agreements of purchase and sale were cancelled.
According to the Home Construction Regulatory Authority, 176 agreements were cancelled, out of a potential 246 units that were planned for the building.
Aspen Ridge began marketing the project for sale in 2019 without having planning approval to build the 20-storey tower as part of an existing mid-rise condo project that was already under way. In 2020, Aspen Ridge made use of home warranty provider Tarion’s “unavoidable delay” protections – which can allow builders to push back important progress dates that are spelled out in contracts – and notified investors that the COVID-19 pandemic would create unknown delays.
Nevertheless, the company blames the City of Markham in its letter to investors, saying “The City’s inability to address the site’s outstanding planning issues in a reasonable and timely manner has resulted in today’s announcement.”
Beginning sales before planning is in hand is a standard practice in Toronto-area condominium development, though the risks of delays have risen in recent years thanks to spiralling construction costs and the increasingly high interest rates that are making debt more expensive.
Condominium analyst Pauline Lierman, Vice President Market Research with Zonda Urban, argues the cancellation is likely not a sign of financial distress for Aspen Ridge, which is part of the multi-billion-dollar TACC/Condrain group of companies that has dozens of projects scattered around the region.
Outright cancellations have been relatively rare in recent years, after Ontario condo investors saw a record number of contracts being annulled in 2018: a dozen projects accounting for more than 5,600 apartments were cancelled that year. “Last year was the lowest number of units cancelled in apartments since 2016: 379 units,” said Ms. Lierman.
The main damage to Aspen Ridge is likely to be reputational, as the company suggested in its letter to investors.
“We know that the termination of your purchase agreement will be a disappointment. It was to us as well,” the letter reads. “For decades, Aspen ridge has worked [sic] relentlessly to earn an unparalleled reputation … Determined to maintain that good reputation with those affected by the unique circumstances that forced the termination of Union Margo agreements, we are prepared to offer you additional benefits beyond those owed to you under Tarion.”
Self-identified investors who discussed the “additional benefit” online described it as a cash payment over and above the return of their deposit, which has accrued interest for some parts of the three years since the project began selling in 2019.
But there are questions in the industry as to whether cancellations even cause much in the way of reputational damage.
“The last time we saw a wave of cancellations in 2018, the large developers were able to subsequently launch other projects in the following years with no impact on sales. It’s really the small developers that generally don’t recover from a cancellation,” said Shaun Hildebrand, president of real estate analysts Urbanation Inc.
According to Mr. Hildebrand, two formerly cancelled projects relaunched in late 2022 with sales “that were fairly in line with other launches”: Highlight of Mississauga and Vic Condos. He expects that Aspen Ridge will also eventually relaunch the Margo project – without the initial investors – once zoning is obtained.
“They are a large, reputable developer with a long track record in the GTA, so I don’t think one cancellation will dent their reputation,” he said.
Graywood Developments LP Launches Tenth Private Real Estate Development Fund
TORONTO, Feb. 1, 2023 /CNW/ – Graywood Developments LP (“Graywood”) announced the launch of its tenth private real estate development fund, Graywood Fund X Limited Partnership (“Fund X”). Graywood aims to raise CAD $200 million from Canadian financial institutions, pension plans, family offices and high-net-worth individuals. The Fund will pursue investments in for-sale and rental development properties in Toronto, Canada with a targeted net return to investors of 15% Net IRR/ 2.0x Net MOIC. It is anticipated that a first closing will be held in mid-2023.
Stephen Price, President and CEO of Graywood commented, “We continue to see an urgent need for more housing in Toronto, which is only expected to increase as Canadian immigration targets grow over time. As a full-service developer operating in the Greater Toronto Area for almost 40 years, we are well positioned to continue to pursue the development of residential properties within Fund X.”
The launch of Fund X follows the final closing of Graywood Fund IX Limited Partnership (“Fund IX”) in November 2021 which raised total commitments of CAD $148 million. Fund IX has acquired four investments, representing approximately 2,900 residential units and over $2.2 billion of development value.
For further information regarding Fund X, contact Stephen Price or Aleks Karamarkovic, Vice President, Corporate Development.
More about Graywood
Graywood is a private real estate development management company based in Toronto that specializes in the development of residential mixed-use real estate projects of exceptional quality. Graywood’s expertise includes identifying attractive development sites, deal structuring, all aspects of development management including land use approvals, project design, sales and marketing, construction management and project financing.
Graywood currently has 15 active projects with 6,500 residential units under development, representing $4.9 billion in development value. During its 38-year history, Graywood has managed 54 projects, representing $8.9 billion in development value and 31,500 units.
This document is for information purposes only and does not constitute an offer or solicitation for any security, product, service or fund. The information in this document should not be considered legal, tax, investment, financial or any other professional advice. This document contains only summary information as of the date hereof and no representation or warranty, express or implied, is or will be made in relation to the accuracy or completeness of the information contained herein, by Graywood or any of its affiliates or funds. Target returns are hypothetical in nature and are shown for illustrative, informational purposes only. Target returns should not be relied upon in making investment decisions, are not indicative of future results, and are not guarantees. There can be no assurance that any targeted investment returns will be met. Should any of the descriptions or terms herein be inconsistent with any applicable governing documents, such other documents shall prevail.
SOURCE Graywood Development
For further information: Stephen Price, President & CEO, Graywood Developments LP, (416) 599-1930; Aleks Karamarkovic, Vice President, Corporate Development, Graywood Developments LP, (416) 599-2466
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