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This is Where Canadian Real Estate is Going

This is Where Canadian Real Estate is Going

While you’re out and about, enjoying the warm summer weather, you're likely to see a lot of home "For Sale" signs, big billboards for new condo development, and soaring construction cranes. You can't miss the current impact of condos in Toronto these days. And it may have you wondering, "What is going on in Toronto real estate and where is the Canadian economy heading in general?"

If so, do read on.

Earlier in the month, we attended a luncheon hosted by Genworth Canada where we got to hear from Benjamin Tal, Chief Economist for CIBC. He spoke about real estate in Toronto and the state of the Canadian economy. So . . .

Benjamin Tal on where Canadian real estate going in the next few years

1. Canada’s big real estate boom was in 2016, driven by demographics, low supply, big demand, and immigration policies.

2. The Fair Housing Plan in Ontario was a government policy to price out first-time buyers from the market.

3. The plan drove rental prices higher and lowered the number of first-time home owners.

4. Rent controls are the best way to destroy a city.

5. Condos have been a stabilizing force in the Toronto real estate market and we are not overbuilding. The lack of supply will get worse.

6. We are experiencing the demise of the middle class. Canada is one of the most educated countries yet many of the most educated live in conditions of poverty.

7. 47% of condo sales are to investors yet 1/2 of those investments are in a negative cash flow.

8. Look for interest rates to hold or go up minimally as employment goes up.

9. This is a demographic story. Aging population is working longer but working less hours. Wages are not increasing because older employees are happy to keep their jobs and work less.

10. American tax cuts will affect Canada. Trump is deregulating companies, lowering tax rates for corporations, increasing deductions on equipment, eliminating carbon taxes. The US will likely pay heavily for these initiatives down the road in terms of greater debt. For the time being, however, companies may move to the US.

11. With 170% debt to income ratios, the Bank of Canada may try to keep rates low so that people don't get stretched too far.

12. The B.C. foreign buyer tax and Ontario’s NRST were just the cost of doing business, but the real slowdown came from domestic buyers waiting to see what happened next.

13. Don't expect a typical crash. Lots of people are suffering bubble fatigue and with any bad news, gravity can sometimes take over.

14. Expect a small recession in 2020/21 with the caveat that when it happens you should buy more real estate because if you think it’s expensive now, just wait!

15. Every fix is temporary when you don't tackle the main problem: supply