Real Estate Predictions for 2018

2018 will be the year where the centuries old adage of;
Location, Location, Location will reign supreme!

The New Federal Government Mortgage Qualification Stress Tests, which will be fully applicable in 2018. Will prove most difficult on property owners whom reside in many of the small towns & cities that form the backbone of this country. Residential housing prices could fall as much as 20% or more thru 2018 and into 2019.

Metropolitan centers like Toronto, Montreal, Vancouver & Calgary with their constantly expanding populations will fair marginally better than their smaller siblings. However Location is likely to be the most important factor in mitigating price declines this year.

New suburban subdivisions (< 7 YEARS) with there already prolific resale ratios will almost certainly be the pockets to feel the biggest pecuniary pinch.

Conversely mature upscale residential pockets with their subdued turnover ratios will be much less effected.(think Rosedale or Forest Hill). Basically everything in between will be up for grabs.

The question remains WHY; the financial math is rather straight forward;

Ceteris Paribus to external factors: IE: Health, Job or Marriage status, etc.

Plus micro components remain the same; The purchaser is still requesting the same mortgage & terms; IE: 25 year amortization, same down-payment & the same terms of payment (biweekly).

Succinctly, the $750,000 home you could afford in July now allows you to purchase a $600,000 home. This 20 % reduction in purchasing power must logically reverberate through the housing market. This digestive condition could potentially take as long as 2 to 3 years to pass.. If the federal government does not repeal it’s ruling.

If you combine this unalienable fact with the new Provincial Excise Tax recently imposed on Foreign Residents.  Who apparently constitute just fewer than 5% of the metropolitan housing market. This Value added tax has added a double whammy to the G.T.A. housing market.

There is much pending discussion on just how effective this excise has been in curtailing determined offshore buyers.  Human nature has repeatedly demonstrated that, “when there is a will, there is a way”, to outfox the Tax Man. There is a general consensus amongst realtors that the 5% figured espoused by the government, O.R.E.A & T.R.E.B is substantially truncated.

Thirdly tighter banking rules regarding investment properties, along with the implementation of Bill 140 will also dampen real estate markets through 2018.

Plus, Least We Forget; Regional development charges have doubled or more throughout multiple G.T.A municipalities in less than a decade (average 75,000).

Combine this 3rd governmental factor with the historic explosion of land prices and you have the makings of a perfect storm regarding the necessity for provincial & municipal planners to concede to large developers the need for massively intensified neighborhood densities. The OMB has it’s next 25-year plan under revision through 2018.  This will be the template for all major development in the province of Ontario.

Presently, there is no credible property development program in place other than the conceptually elementary plan called “Places to Grow”. The tenuous implementation of this plan has subsequently added to the chronic shortage of affordable housing coming on stream.

Experience has repeatedly demonstrated that if the entry level of the market starts to shrivel, that succeeding layers will undoubtedly feel the squeeze.

The numerous municipal politicians who are seemingly beholding to local N.I.M.B.Y minded residential groups will only exacerbate this phenomenon further. Who feel that there under advertised & often unwelcoming once a month meetings submerged with like-minded & mostly non-professional individuals constitutes a public quorum. Handing greater responsibility to local town planners who are more susceptible to moral, ethical & fiscal persuasion is a road bound to be full of folly.

There needs to be a precise, transparent overall plan controlled by the province that has vetted it’s way through the political process that is more representative of a public housing policy that better accommodates the needs of all it’s citizens. Failure to do so, will likely lead to the negative & positive ghettoization of our communities & much turmoil in between.

Further the historic debt loads of 172 % for the average Canadian household will inevitably affect consumer purchasing power. Look for the published quarterly consumer spending numbers as an accurate barometer to personal economic health.   A notable demise will be a dangerous harbinger for the housing market.

Keep in mind that North American equity markets have mimicked the astonishing rise in the housing market.  If there was a near term correction which many a pundit would argue is overdue. This too would have a notable effect on the consumer’s fortitude.

Fortunately, not all the prognoses are negative.  The aforementioned shortage of housing stock will be most evident through the early months of 2018. Presently home prices have corrected by approx. 15% across the board in the G.T.A. There is still a hangover demand from last spring and the fall of 2016. When homes garnered a 100 offers or more over a weekend of showings. This euphemistic pent up demand will likely generate a  mild resurgence of home prices thru the first 6 months of 2018.

However this bounce should be short lived! Look to the builders, gauge their incentive programs & rate their sales to better obtain a true pulse of the Real Estate market. Many of the condominium buildings, which often take 7 to 10 years to finance & develop.  They will be hell bent on finishing off these projects; some of the incentives may become rather surreal.

Keep in mind that If & when the projects are better than 50% sold, do not be surprised by developers quickly becoming large rental property management companies.

Last but not least; 1 in 6 jobs in the G.T.A is related to the construction trade. Presently there is more than enough work on the books to keep almost everybody busy for at least the next 18 months. The government is promising more mega transport projects, 23 billion to be spent on public transport over the next 5 years in the G.T.A.   Hallelujah!!!  Long overdue!

Finally, Canada’s largest trading partner that sleeping giant to the south is rapidly emerging from it’s economic hiatuses. Plus China, Japan, India & the E.C.M appear to have found solid financial footing in the last 2 or 3 years.   All of which bodes well for Canada. Presumably we are overdue for some economic turbulence but medium to long term the prospects look excellent.

If you have any questions; Please feel free to contact our distinguished office staff, appraisers & highly experienced agents.  It would be their pleasure to be of assistance.