The Runaway Home

The Runaway Home

Why the best time to buy is now

Brought to you in collaboration with:

2021

The Runaway Home

Why the best time to buy is now

WHY WAITING MAY NOT BE YOUR BEST OPTION Let’s use Anna and Pete as an example. Anna and
IN THE TORONTO REAL ESTATE MARKET Pete are first-time home buyers in Toronto and have been
pre-qualified based on their combined income to purchase
Toronto first-time home buyers often believe the best approach to entering a house or condo in the $850,000 price range. They have
the market is to take the extra time to save for a larger down payment in currently saved $60,000 – enough for the minimum down
order to reduce their monthly mortgage payment. Unfortunately, given the payment, but hope to save an additional $12,000 over the
dynamics of the Toronto real estate market, this thoughtful approach can next year (at a rate of $1,000/month) so they can reduce
often cost them their dream home. their mortgage payments.

MINIMUM DOWN PAYMENT* MAX PURCHASE PRICE GREAT IDEA, RIGHT?

$20,000 $400,000 The challenge: one year later the same $850,000 house or
condo they were looking at now costs $924,000 (based
$25,000 $500,000 on the average annual growth rate over the past 10 years
per Toronto Regional Real Estate Board – TRREB - statistics).
$35,000 $600,000 Despite their additional $12,000 in savings, not only would
their mortgage payments and closing costs be much higher,
$50,000 $750,000 they wouldn’t even qualify to buy their target home. Combine
this with increasing interest rates and more restrictive qualifying
$75,000 $999,999 ratios, and it is no wonder it feels like homes are running away
from potential buyers.
$200,000 $1,000,000

$300,000 $1,500,000

*Note: in addition to down payment, buyers will also be required to provide closings costs such as land transfer tax, legal fees, etc. Your real estate lawyer can provide you will full details.

Why your buying power CHANGING LENDING GUIDELINES
erodes in the Toronto market
Canadian lending guidelines have changed significantly and regularly from
STEADY INCREASE IN HOME PRICES 10 8.7% 8.8% 2010 through to the present. While the long-term goal of these changes is to
9 strengthen the real estate market, unfortunately, if you are looking to purchase, each
Toronto house prices have steadily climbed. On a 8 10 Years 5 Years change can have a dramatic and immediate impact on your affordability. While
compound annual growth rate basis, Toronto properties 7 5.7% a complete list of changes is available from Outline Financial or your realtor, an
(all TRREB regions) have grown 8.8% per year over the 6 example of one such change is the Benchmark Qualifying Rate implemented on
past 5 years, 8.7% per year over the past 10 years, and 5 April 19, 2010 and further restricted on Oct 17, 2016. This simple change had a
+5.7%* per year over the past 20 years. There are market 4 dramatic impact requiring that a buyer must qualify at a higher interest rate than they
blips you read about in the media reflective of short-term 3 would actually be paying. For example, Anna and Pete’s $850,000 affordability
volatility that occur in any market. But, if you step back 2 on Oct 16, 2016 would have dropped to $720,000 literally overnight.
and look at the longer-term picture, the growth in Toronto 1
real estate prices has been very consistent. While no one can predict exactly when and how regulators will make a policy
20 Years change, there is no doubt the impacts can be profound.
Toronto is a high-demand real estate market, and while
overall results are impressive, pockets of the housing COMPOUND ANNUAL GROWTH RATE BASIS RISING INTEREST RATES
market have outperformed whether it be on a geographic ALL TRREB REGIONS & PROPERTY TYPES*
or property type basis. After hitting an all-time low in the later half of 2020, 5-year fixed mortgage rates
started to climb quickly in February 2021. Only time will tell how far and how fast
While your realtor can provide you with a full analysis for interest rates rise; however, given wide scale vaccine rollouts, massive amounts of
your specific circumstances, one example of this would government stimulus, and a recovering economy, it appears that record low rates are
be the recent outperformance of the detached vs. condo behind us.
segement. For example, detached property average
price across all TRREB regions have grown +11% per year SO HOW WOULD THIS IMPACT ANNA AND PETE?
over the past 3 years. To put that in perspective, Anna
and Pete’s target home priced at $850,000 could have Simply put, if Anna and Pete qualify for $850,000 today and the qualifying rate* goes
increased to over $940,000 just one year later. up by 0.25% tomorrow, their buying power would drop to approximately $835,000.
On a more long-term basis, if qualifying rates were to increase by 1.00%, their buying
*Note: past performance may not be reflective of future resutls. For illustrative purposes only. power would drop to approximately $785,000.

Given the general expectation of rising rates, Anna and Pete could look at securing a
4-month rate hold & pre-approval to lock in today’s rates. Not only will securing a rate
hold insulate them from any rate increases over the 4-month period, but going through
the pre-approval process will also help them determine exactly what they can qualify
for, and what to expect throughout the homebuying journey.

*Qualifying rate is defined by the government, and is the greater of your actual mortgage rate
+2.0% OR the Benchmark Qualifying Rate. (Note: for mortgages with less than 20% down, it is
simply the greater of your actual rate OR the Benchmark Qualifying Rate).

Why there is no slowing
down the runaway home

Supply shortage in a high-demand city
drives up prices

Toronto real estate has a supply issue caused by rapid This systemic supply issue is confirmed when looking BUYING POWER TODAY VS. WAITING How to catch your
population growth and finite land to develop that is at months of inventory (i.e., how fast would all existing runaway home
driving up the house prices at a steady rate with no homes on the market sell assuming no additional listings Overall, while it may seem like a good strategy to sit on
signs of slowing down. are added). Generally, if there is 0 to 3 months of the sidelines and wait for the perfect time to buy, given The first-time homebuyers’ market has
available inventory it is considered a sellers’ market, 4 to the dynamics of the Toronto market, this strategy can often experienced some of the fastest price
“The main issue facing 6 months is a balanced market and above 6 months is cost people their dream home. increases given the growing demand and
Toronto is supply. a buyers’ market. According the Canadian Real Estate relative lack of supply for this segment.
There is simply not Association (CREA), the long-term average across Let’s look back through the example of Anna and Pete.
Canada is 5.1 months of inventory. Toronto, on the other They have their heart set on a home at the target price of If you are in a position to buy today, speak
enough supply, while hand, has averaged a mere 2.4 months over the past $850,000 and have saved the minimum down payment with your realtor to request a tailored multi-
demand is rising due to 15 years – and some property categories and locations amount of $60,000. If they decide to postpone their year statistics report for the Toronto real
have trended even lower. decision to purchase, their circumstances could change estate market to help guide your investment
demographics.” as follows after one year’s time: and catch your runaway home.
Anna and Pete are up against a long-term sellers’
BENJAMIN TAL market with low supply and high demand, that shows no • The $850,000 home could have increased to
Deputy Chief Economist of CIBC World Markets Inc. signs of reversing. $924,000 based on the 10-year average price
average, or significantly higher based on more recent
trends especially for homes at this price point.

• If interest rates were to increase by 1.00% over the
next year, their maximum buying power could be
reduced to $785,000.

• Any mortgage rule tightening could further erode the
purchasing power.

*Note: TRREB results are updated with historical figures through February 2021. Please contact Outline Financial or your realtor for an updated document when available.

Olena Vus

Mortgage Agent | Outline Financial

Tel: (416) 799-1152
Email: [email protected]
Web: www.outline.ca

Outline Financial is an award winning mortgage brokerage offering direct access to rate and product
options from over 20 banks, credits unions, mono-line lenders all in one convenient service. The Outline
team was formed by senior level bankers and financial planners that wanted to offer their clients choice
with an exceptional service experience. Licence #13151.

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This report is brought to you in For up-to-date Toronto real estate statistics, and access to available, or
collaboration with: soon to be available properties in the Toronto market, please contact
DeClute, Union Realty Brokerage your DeClute, Union Realty Brokerage representative:

DeClute, Union Realty Brokerage Inc
Tel: (416) 686-9618

Email: [email protected]
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