CONNECT Commentary: CMHC’s Spring 2016 Toronto Real Estate Outlook Report

May 27, 2016 - 4 minutes read
 

CCONNECT asset management Analysis Brief –  CMHC’s Spring 2016 Toronto Real Estate Outlook Report

By: Ryan Coyle, CoFounder, CONNECT asset management

Toronto Condo Market

“Continued low mortgage rates, tight resale market conditions and an improving job market will support buying activity in the short run.” – CMHC Spring 2016 Report

We are well into summer, and we couldn’t be happier. Not only is patio season taking shape, but it also means CMHC releases its much anticipated Housing Outlook for the Greater Toronto Area (GTA). Ok, this may not excite everyone, but we love this stuff!

For condo investors, this report contains some important information. Let’s review this report and talk numbers.

To begin, the report indicates that “low vacancy rates will mean strong investor demand in the high-rise sector over the forecast horizon.” This is a result of historically low purpose-built rental options, which in turn will force more renters to seek condos as a substitute.

In Toronto’s already strong rental market, this is music to a condo investor’s ears. This shift is exacerbated by the high carrying costs of single-detached properties in the GTA:

2016 Toronto Real Estate Statistics

The report continues that there will be a greater shift towards condo’s given the ongoing price gap between single family homes and condos.

In terms of economic projections, Toronto continues to lead in Ontario: “positive economic growth in the Toronto CMA will continue, retaining its provincial lead.” Employment in Toronto is projected to also increase into 2016 and 2017, as more jobs continue to come to our great city.

Population growth is also expected to continue to increase. Migration to Toronto and increased in job availability is partially the result of the slowing economic picture in Canada’s western provinces as oil prices continue to flat-line in the mid-40’s.

But what about the rental market as a whole?

Well, coupled with a growing rental supply in Toronto, demand is expected to continue rise. This however, will have little impact on vacancy rates. With current vacancy rates at all-time lows, this status quo is positive for our investors. According to CMHC, the “vacancy rate will remain unchanged at 1.6.” This is actually lower when you look in the downtown core and areas we tend to focus in.

Although, the picture isn’t entirely rosy. The report concludes that increasing mortgage carrying costs as a result of rising home prices will have a dampening effect on home buying into 2017.

But for our purposes, this isn’t concerning. First, although condo prices have increased, they have not experienced the skyrocketing price rises we have seen with single family homes. Secondly, as buy-and-hold investors, a calming of home buying activity into 2017 doesn’t affect us.

Finally, a quick note on interest rates. CMHC predicts that mortgage rates will stay near current levels until at least the end of 2016. We agree.

With the Bank of Canada stating in April that “the Canadian economy continues to undergo complex adjustments to the declines in global commodity prices,” we strongly believe that interest rates aren’t making any significant moves through 2017. In turn, this will allow condo investors to continue taking advantage of favourable lending rates in the short term.

That’s enough numbers for now, but we couldn’t help ourselves. Now, get back to more important stuff, like your BBQ!

Ryan Coyle, Co-Founder CONNECT Asset Management

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