Rent Mania, Means Protected Market.. Here’s Why
I’m going to go out on a limb here and explain to you why I believe we will not see a collapse in our housing market.. I know, another realtor telling you why the market will stay strong. I get it… You’ve heard the connotation before, but I would like you to look at the Toronto Real Estate market from this angle with me..
There is no secret that the market is beginning to pick up steam again this fall. Septembers TREB report showed gains in sale prices and total sales for the first time in about 6 months. This trend is carrying on into October (from what I can tell) and should continue, and here’s why.
So when I look to see what a property is worth, I take a look comps, of course! But the thing many people overlook is how much income could the property generate? I’m going to go out on a limb here and say that the RENTAL market dictates true property value. Of course, it’s not the only factor, but its important, and it’s a factor which I do not see people putting enough faith in.
The rental market has gone completely insane, yes… INSANE! If you think 10-15 offers on a single rental apartment is normal.. It’s NOT! We have a serious shortage of rental properties in the city of Toronto. This is causing bidding wars for not only $, but also who has the largest deposit (sometimes full year up front) which is pushing rental rates sky high with no signs of a fix to the problem. The government implemented rental increase control which was aimed to keep a lid on rental rates by allowing landlords to only increase the tenant’s rent by the dictated rate of inflation for that calendar year. This has had a negative effect on the market (from what I can tell) and it looks as though landlords are now renting initially for higher rates due to the fact that year over year the landlords carrying costs go up (condo fee’s, property tax) more than inflation! Of course, this is caused by lack of inventory, or else the landlords would not get their desired “high off the bat” numbers… Backwards thinking in my opinion.
So now that we understand there is a huge shortage of rental units on the market, and a competitive atmosphere for the best tenant… Why do I think that this is going to underpin Toronto Real Estate Market???
Here’s why… The government is toying with the idea (and seriously toying) to implement a stress test on buyers who are putting down more than 20% on a property. This stress test is already in place for buyers who are purchasing through high-risk insurance (less than 20%) but out of fear of a market collapse, Ottawa wants to push it past the 20% marker as well. If you don’t know what a stress test is, it’s when you have to qualify to carry a mortgage at 4.64% rather than the current market rate approx. 3.25% which affects your purchasing power severely. This is going to cause a knee-jerk reaction to the market, the same as we saw in April when the 15% foreign investors tax came in.
But here’s why I really think the market is going to stay strong due to our rental property shortage… If the government is going to make it even HARDER to buy a property… Where is this going to push people?? Back into the rental market!! Creating an even more competitive atmosphere and driving investors to scoop up as many properties as possible. Lets hope this does not monopolize the investment market for only the affluent, as real estate is such a great way for the average person to build wealth. If the rental market’s inventory stays low, rental prices will stay high… Simple as that. Although the market is going to look as though its slowing down when this knee-jerk reaction kicks in, it will be temporary.
If there has ever been a time to purchase an investment property, its now.