The Monthly outline by: Jason Friesen of Outline Financial
As another month moves into the rear view mirror, we are left with a trail of new records and continued highs. How long can/will this last? We explore these questions and more (including the potential impact of the proposed OSFI/mortgage changes) in this month’s edition of the Monthly Outline.
While the email commentary focuses on macro level stats, if you scroll to the bottom, you are only one click away from 100+ customized March reports with similar data/charts for over 38 Different TRREB Zone combinations by property type.
Don’t see what you are looking for in the report links? Email hello@outline.ca and we’ll be happy to help. A sample picture of our new StatsPowerPack report layout is included below. This new design includes everything you’ll need for current month, Y-T-D, Rolling 12-Mth comparisons across 10 years of stats in a compact easy-to-digest layout.
TRREB Stats/Trends – March 2021 Key Takeaways:
Sales: Sales continued to climb at a record pace. Overall, March 2021 vs March 2020 sales increased by +97% (“416 Zones” +86% / “905 Zones” +103%) with all 65 TRREB zones posting year-over-year gains — ranging from +32% to +230%! Caution – we need to careful when comparing 2021 vs. 2020 given the “COVID market pause” experienced from the second half of March 2020 though May 2020. So how did March 2021 compare to the years prior to 2020? As illustrated in the 10year charts below, March 2021 sales surpassed the previous record (March 2017) by a wide margin — and we had nearly double the transactions vs. March 2018, March 2019, and March 2020 in both the “416” and “905” zones:
Year-to-Date sales were also up significantly with Q1/2021 ending +70% vs. Q1/2020 (33,503 sales vs. 19,680 sales). Q1/2021 sales were also more than the Q1/2018 AND Q1/2019 sales combined! Given the historically high activity, resources will be stretched for inspectors, appraisers, lenders, and lawyers as the huge number of sales progress towards their closing dates. We’ve included a helpful list of things you and your clients can do to prepare for a likely overstretched system further down in this email.
Average Price: Overall, TRREB average price across all property types/territories exceeded $1,000,000 for the second month in a row. March 2021 average price came in at $1,097,565 up 21.6% vs. March 2020 ($902,787). Based on the March 2021 average price, this represented a March over March 3yr growth rate of 11.8% per year, 5-year growth rate of 9.8% per year, and 10-year growth rate of 9.2% per year. Condo average prices bottomed out in December 2020 and have joined other property types in the upward trajectory as illustrated below. For specific property type/TRREB zone details, please scroll to the bottom and click on your desired TRREB zone combination.
Sale Price vs List Price: There’s a media obsession for reporting which house had the highest sold vs. list price. Who wins that race? Those that list for a $1. Joking aside, sale price vs. list price has risen quickly across most property type / territories given the tightening market conditions. Based on your (realtor) feedback, it sounds like the rapid accent may have slowed somewhat in early April, but with the recent OSFI tightening announcement, that may be short lived as people rush to beat a potential June 1st purchase deadline. For illustration, we’ve included a Sale-to-List-Price chart (including ratio) for March over the past 10 years. The “All Region/All Property Type” Sale-to-List-Price Ratio came in at 107% during March 2021. This was up vs. 2018 (99%), 2019 (99%) and 2020 (103%). The TRREB Regions with the highest Sale-to-List-Price Ratio were Toronto East Zones at 114% and Durham Zones at 113% (Note: W01, W02, W03 were also all 114% or above).
The property type with the highest Sale-to-List-Price Ratio in March 2021 was Semi- Detached at 112% and the lowest was Condos at 103%. Scroll to the bottom and click on the StatsPowerPack links to access the below chart for all different property types and regions.
Where do things go from here? Unless we see a government surprise in the upcoming budget, or the recent lockdowns get worse, we likely have many months of upward momentum to come (and no, we don’t believe the proposed OSFI change will do much to slow the market). As the vaccine continues to be deployed over the course of 2021, we expect to see a slow transition where the fastest growing markets in 2020 begin to level out, and some of the lagging areas (condos) begin to pick up momentum. With respect to available/active listings on the market as at March 31, 2021, detached properties remain scarce vs. March 31, 2020, and condos are closing in on their 5year average which will keep upward pressure on prices given the current level of demand.
Specifically:
– “416 Detached” Active Listings: -5% vs. Mar. 2020 / -12% vs. the 5yr Mar. avg
– “905 Detached” Active Listings: -22% vs. Mar. 2020 / -28% vs. the 5yr Mar. avg
– “416 Condos” Active Listings: +27% vs. Mar. 2020 / +13% vs. the 5yr Mar. avg
– (Note: 416 condo active listings are down significantly from their peak of +194% active
listings in Nov 2020 vs. Nov 2019)
– “905 Condos” Active Listings: +15% vs. Mar. 2020 / -7% vs. the 5yr Mar. avg
– (Note: 905 condos active listings are down significantly from their peak of +136%
active listings in Nov 2020 vs. Nov 2019)
Proposed OSFI Changes (proposed effective date June 1, 2021) – how will it impact you and your clients?
OSFI (the federal banking regulator) has proposed a change to the mortgage qualification guidelines. While it is a proposal at this stage (official announcement will be May 24th with a June 1st inception date if approved), based on historic announcements, we anticipate this change will be approved and people should prepare accordingly.
What’s changing? Currently for conventional mortgages (more on that later) you qualify for your mortgage based on a “Stress Test” rate vs. your actual mortgage rate. The “Stress Test” rate is calculated as the greater of your actual mortgage rate +2.00% OR the Benchmark Rate (which is currently 4.79%). OSFI wants to increase the Benchmark Rate to 5.25% effective June 1st (will be called the “floor rate” going forward).
Answers to common questions we’ve received:
How is the Benchmark Rate currently calculated? It is the average of the Big Six Canadian banks’ 5 year fixed POSTED mortgage rates (typically much higher than their actual 5 year fixed mortgage rates).
What is the Proposed Change? OSFI wants to increase the Benchmark Rate from 4.79% to 5.25% effective June 1, 2021. This will also decouple the Benchmark Rate from the Bank’s 5-year fixed posted rates creating a new “floor rate”.
Impact on Max Qualification? A Benchmark Rate increase from 4.79% to 5.25% will reduce a person’s maximum qualification by approx. 4% (i.e., reduction of approx.. $40,000 purchasing power per $1,000,000 of purchase price).
What is our opinion? While we don’t like the timing of this change, we do like the fundamentals. By separating the Benchmark rate from the Big Bank’s posted rate (which can fluctuate regularly and is also impacted by bank business decisions), it will create more stability and provide OSFI/Government with a powerful housing market heating/cooling tool going forward.
Where can you find more information? To review OSFI’s press release please [Click Here]
Who will this impact? This change is aimed at conventional mortgages. What does that mean? For purchases, a conventional mortgage is (1) any purchase $1,000,000+ OR (2) any purchase with 20%+ down payment. The change will also impact anyone looking to refinance their existing home.
Who will this NOT impact? For now, this change will not impact those buying for less than $1,000,000 with less than a 20% down payment (High Ratio buyers). As this is a federally imposed change, this may not impact provincially regulated lenders (i.e., credit unions). As a mortgage brokerage, we have access to over 20 banks, credit unions, and mono-line lenders and always look for the best fit solution depending on a clients’ goals, priorities, and circumstances
What can you do to prepare? Discuss with your mortgage broker and have them run the numbers specific to your circumstance to determine if/how much this could impact you. For those that are not buying up to their absolute max qualification amount, they may find this potential change has no impact.
Get ready for a busy 6 weeks! While this change is still in the “proposed stage” it will likely have a short term stimulus affect on the market as people rush to get an accepted offer in place before June 1st . This is layered on an already heated market where many clients are shopping with ultra-low rate holds which are set to expire in July/July (they will be looking to not only buy, but also close during that period). This double demand shock should result in fierce buyer competition over next 6 weeks offsetting any potential slow down caused by buyer fatigue and/or the most recent pandemic lockdowns.
How to navigate an overwhelmed (or soon to be overwhelmed) system: With Q1/2021 transaction volume almost double from what we had in Q1/2020, Q1/2019, and Q1/2018 it is putting a strain on all facets of the real estate market including inspectors, appraisers, lenders, and lawyers as they work towards the closing date and also handle all new sales coming in. While the system is stretched, there are some tips you can keep in mind to help make sure your purchase goes as smoothly as possible:
Dive Into the Details Early: The more you know early in the process the better. Work with your mortgage broker, realtor, accountant and lawyer early in the process to
prepare for every step of your potential purchase. Do you have your deposit ready? If you’re buying a condo, do you have a lawyer lined up to review the status certificate? Take the time to assemble all your income documents, down payment documents, and any other required paperwork to get a full review / pre-approval from your mortgage broker done up front. Given the backlog at almost all banks/lenders avoiding as much back-and-forth with the lender as possible can save precious time. Try for closing dates longer than 30 days: If you can get it, try to set your closing date longer than 30 days keeping in mind any rate hold/rate expiry dates you may have in place.
Closing date tip: Real Estate Lawyers usually have the most closings on the first and the last day of the month. Try to avoid an end-of-the-month closing date, and ideally try to close mid-week vs. a Friday.
Impacted by the proposed OSFI changes? If you are going to be impacted by the new changes, ideally try to enter into an agreement prior to May 24th (vs. June 1 st). OSFI will be officially announcing the final changes on May 24th, and as nothing is certain yet, it is always best to try and remove as many potential variables as possible.
TRREB Stats Outline: Report Formats / Descriptions / Links
Executive Summary (5 Page Report)
On the go? The Exec Summary Format provides 1yr/3yr/5yr/10yr comparisons across all key TRREB metrics in a “one-page-per-property” type layout. Details for current month, year-to-date, and rolling 12-month totals and historical comparisons are also included.
NEW! Power Pack – 17 Page Report
The latest (and we think greatest!) addition to the collection. This report includes everything from the Executive Summary Tables, plus some amazing charts/visuals for all major metrics including: sales, new listings, active listings, sales-to-new-listings ratio, months of inventory, average price, and sale price to list price.
Stats Outline – 38 Page Report
Our most comprehensive report. This report can be used as a stand-alone analysis, or use it in combination with the Executive Summary and/or PowerPacks for a complete picture! This includes our rolling 12-month average graphs, popular price-band statistics as well as a full range of graphs/visuals to help analyze stats and trends in the market.
Credits to: Jason Friesen of Outline Financial