Good News for Landlords

2018 forecast: New mortgage rules could be boon for investors

The new mortgage stress test, in addition to rapidly escalating housing prices, is keeping an increasing number of people in rental accommodations, and that’s good news for investors.

“A+” tenants—people with high incomes and good credit—used to rent for about a year before purchasing their own homes, which would repel investors, however, they’re becoming long-term renters.

“With the mortgage rules changing, what we used to consider an A+ tenant, who would usually

 only stay in a rental unit for about a year and then move onto purchasing their own home, are now staying for two to four years on average,” said Crystal Ross, owner of Investors Property Management.

“It’s very good news if you’re an investor. Investors used to back away from A+ tenants because they’d have to find new tenant the following year. I think they’ve given up on the idea of owning a home and decided there’s comfort in being long-term tenant. They’ve accepted the lifestyle.”

 Ross noted that the Greater Toronto Area housing market has normalized, but the new mortgage stress tests will remove about 40% of middle-income earners from the purchasing market. Coupled with a rental shortage in Toronto, they’re looking elsewhere.

“We’re seeing a lot of renters are willing to go outside big cities,” said Ross. “There is a lot of construction and building development being done on the outskirts of big cities, like Toronto and Hamilton.

Peopled aged 25-39 are increasingly putting roots down in smaller towns like Grimsby, Beamsville and St. Catharines.

That doesn’t mean Toronto’s condo market isn’t still the best real estate investment in the region.

“I think the condo market will remain strong because it’s the only market younger people can afford; it’s the first step to getting into the real estate market,” said Engel & Völkers Toronto Central’s Owner and Broker of Record, Anita Springate-Renaud. “Investors will buy them to rent them because there’s a shortage of rentals.”

Springate-Renaud is confident the market will assimilate the new mortgage rules and that market fundamentals, like the GTA being the fastest growing region on the continent, will carry the day.

Montreal has recently emerged as a hot market and Springate-Renaud says that will continue provided things don’t change.

“Montreal is still going up,” she said. “It was depressed for a long time and things would take 

time to sell, but now it’s a hotter in-demand market. As long as the government stays stable and the separatists don’t win, it’s going to stay strong. Montreal is a great place, a fantastic city, and a lot of people are investing there as well. There’s surprisingly a lot of development going on.”

Volatility Normalization_CBRE November 2018

Interest rate hikes, plunging oil prices, unresolved U.S.-China trade tensions and an uncertain Brexit outcome are all factors lifting market volatility from its doldrums of the past face years. However, even as the stock market works through its fourth major rout this year, the CBOE Volatility Index has remained in line with its long-term historical norm this month. According to The New York Times, this period of volatility is likely to persist as the U.S. economy and financial markets become more vulnerable to risks including slowing global growth and higher domestic interests rates.

Back home, falling global oil prices and a wide discount to WTI crude has led to the worst pricing environment for Canadian oil in history. At the same time, the industry is at an impasse on how best to resolve the supply glut. Some producers are calling for mandated production cuts while refiners decry government intervention. Stalled pipeline projects continue to exacerbate the situation.

General Motor’s recently announced global restructuring plan signals a transformation in the auto industry towards electric and autonomous vehicles. While this industry shift has the potential to ripple across one of Canada’s key economic drivers, its impact will likely see some offset from increased capital expenditures. Auto manufacturers will need to repurpose and upgrade their facilities in order to adapt to shifting transportation demands. As well, the $14 billion in corporate tax cuts introduced by the federal government will be of particular benefit to Canadian manufacturers.

The prevailing risk-off mood of investors this month pushed Canadian bond yields down towards their September levels, igniting fresh concerns over the yield curve inverting and the economy being late in the cycle. During a recent presentation at the Toronto Real Estate Forum, two prominent economists called for an impending slowdown of the economy, through each argued for differing levels of its severity. Under either scenario, the need may weaken for the Bank of Canada’s projected interest rate increases in 2019.

Challenges may have risen in some sectors, but the Canadian tech industry continues to benefit from a strong and expanding tech employment base as reported in CBRE’s 2018 Scoring Canadian Tech Talent report. While Toronto still leads the country with top talent, significant growth has also been recorded across emerging markets from coast to coast.

 

Economic Highlights :

  • Retail sales grew 0.2% in September with increases in six of the 11 subsectors
  • Headline inflation rose 2.4% in October and the average Bank of Canada measures rose to 2.0%.
  • The share of highly indebted households in Canada fell to 13% in Q2 2018 from 18% last year.

 

 

 

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