We’re now finally through the first month of the year, and there is no shortage of things to talk about. The housing market in Canada, particularly in Toronto, has experienced stress due to rising interest rates and cautious investors. As interest rates increase, borrowing costs become more expensive, leading to decreased affordability for potential buyers and price pressure on potential sellers. This, combined with uncertainty in the market, has caused some investors to hold back and wait for conditions to stabilize before making any investments. We’re going to take a look at some of the issues we’re seeing on the negative side. Still, we must also keep in mind that this is temporary – the housing market is going through a normal cycle, and when things return to normal, there are plenty of reasons to be excited about the future. Several factors have contributed to a slowdown in the housing market and increased competition among sellers. Despite these challenges, the demand for housing remains strong in many areas of Canada, including Toronto. However, it’s important to note that this decrease has brought prices back to levels seen a few years prior rather than a significant drop. This price correction could be seen as a positive opportunity for those willing to invest in the housing market. With lower prices, potential buyers may have a better chance of finding a property within their budget, and investors may find good value in purchasing properties that are priced lower than they were in the past. While the market may still experience fluctuations in the short term, a price correction can signify a more balanced and stable market in the long term. If we take a look at the most recent publication from TTREB, we can indeed see that this is the case.
And while this price drop is something to monitor, we can see it really is a function of the lack of activity in the market – those who are selling now are probably doing so because they have to, due to affordability issues or liquidity needs. Sales really have dropped off as interest rates have ratcheted higher in the last year.
Where will interest rates end up?
The big question for 2023 and beyond is where interest rates will end up. So far, central banks around the world have been hiking interest rates at a faster pace than at any time in history. Looking at Canada specifically, we’re now at a target rate of 4.5% for the overnight rate after a 0.25% increase at the end of January.
At their last meeting, the Bank of Canada also said that this latest hike should be the peak while they watch what happens in the economy, and to not expect much more movement after this 4.5% target. They did keep the door open to hikes “if necessary” to cool further inflation, but even then, it wouldn’t be expected to be a significant move higher – maybe another 25 to 50 bps (0.25- 0.50%) higher. That, in itself, is a significant signal. It means that for most builders and lenders, they can now factor in a pretty accurate cost structure, at least on part of the equation. Whether we start to see more activity remains to be seen, but it’s a step in the right direction. Labour is the other significant hurdle to get past in terms of pricing builds, but that should be more competitive from a hiring side, especially if the economy slows somewhat.
RECESSION? DOES IT MATTER?
With all of these interest rate hikes starting to affect the economy, it’s a far question to ask if there will be a recession, and what that means for the housing market. To answer bluntly, yes, there will likely be a recession this year or at least within the next 12 months. However, that doesn’t mean we’re going to have a return to a significant recession, or even come close to terms of a depression. In fact, the most likely scenario at this point is that we have a mild recession, something that is characterized by unemployment levels that are not significant, and economic activity that dips in the negative range, but not too bad – likely because of that consumer employment. If we’re in a recession now, you’re certainly not seeing it in the numbers.
Canada’s unemployment rate is likely to be around 5% for the foreseeable future, which is very close, if not what is considered “full employment” by our economy. The US just released their numbers for January and blew employment numbers out of the water – Canada may do unexpectedly well, too.
THE FUTURE STILL LOOKS BRIGHT
With the possibility of higher interest rates in the short term, the long-term outlook remains positive. The increased immigration numbers and targets and the growing population are expected to continue to drive the demand for housing, which will likely outstrip supply in the coming years. Despite what may come, those with an eye on the longer term still have to have a glass-half-full approach. This imbalance between supply and demand will likely lead to an increase in property values over time, as it has always done in the past, making real estate a potentially lucrative investment right now. We are seeing plenty of opportunities, and although liquidity isn’t relatively as high as it was several years ago, there are still ways to get deals done. In light of these trends, real estate in Canada and Ontario is poised to be a smart investment choice for those looking to build significant wealth over the long term. For those looking to get a jump on the next cycle, or larger developers with some idle cash, our RealAlt® Investments holding is a mortgage fund trust that is returning 11. 26%*. Contact us for more details today.
Brampton is a city in the GTA and is a lower-tier municipality within Peel Region. The city has a population of 656,480 as of the 2021 Census, making it the ninth most populous municipality in Canada behind Toronto and Mississauga. Nowadays, Brampton’s major economic sectors include advanced manufacturing, retail administration, logistics, information and communication technologies, food and beverage, life sciences, and business services. Companies with headquarters in Brampton include MDA Space Missions, Loblaw Companies Ltd., Chrysler, Gamma-Dynacare Medical Laboratories, Mandarin Restaurant, Brita, and Clorox. According to Statistics Canada, Brampton placed 7th in the country for total construction value in 2016, generating $2 billion in investment. With high growth expected to continue until 2041, the City of Brampton is in a strong position to attract investment and will remain among the country’s most active markets in the coming decades.
The most significant land transaction in Brampton in the past 12 months is at 11722 Mississauga Road. The 94.157-acre parcel of land was purchased by AIMCo and Crestpoint Real Estate Investment Ltd. for $103MM. The City of Brampton Official Plan designates the property Northwest Brampton Urban Development Area and Corridor Protection Area. The Zoning By-law classifies the property A, an agricultural zone classification.
Year over year comparison
The chart below expresses the year over year (YoY) change. The average home price decreased by 26%, and the number of units sold has decreased by 53% Year-over-Year in Brampton. In the land market, average land price per acre has seen a increase of 46% when comparing past 12 months transactions with transactions in 2021.
Condo Watch: Brampton
New condo data from RealNet states that the average price of a one-bedroom condo is $583,894 with an average size of 562 SF and a price per square foot of $1,040. 2-bedroom units has an average price $842,681, with size 925 SF and a price per square foot of $911. 3-bedroom units have average price of $957,627, with size of 1,256 SF and a price per square foot of $762