Sharp Upward Trend Continues in Toronto Housing Market

The United States is not the only nation experiencing the return of a booming real estate market: Our neighbors to the north are also in the midst of a similarly extended surge in the marketplace, and it is the renewed strength of the Canadian economy that has powered this upward trend in the average price of existing home sales. Our analyses indicate Toronto is perhaps the most salient example highlighting this continued upward trend, particularly since the city’s average home sale price checked in at $1.2 million in the last month, increasing at a rate representing a 28-year high.

After reviewing each category of housing within Toronto’s city limits — including detached homes, condominiums, and townhouses — it is evident that the sharp increase in the average sale price applies more or less equally to the different types of housing. Even with the 33-percent increase in prices across all housing categories encouraging a 15-percent increase in new listings put on the market, the Toronto housing supply still remains limited by any measure.

Although the sudden increase in equity would lead most economists to predict a continued increase in the number of real estate listings — thereby introducing more balance within the market — our research indicates that many homeowners are still somewhat reluctant to cash in on their gains by putting their home on the market. It is somewhat ironic, but here at Tweed Economics we believe this might be the product of the limited housing supply leaving few good options for potential sellers who wish to remain in the city of Toronto.

City officials are looking at the limited supply of real estate as an issue that may need to be addressed through some sort of government intervention. Throughout our many years working in similar markets in which limited supply issues can be overcome with off-market expertise, intervention by government entities — despite wholly good intentions — all too often leads to unintended consequences that only exacerbate an existing issue or create new, more complex issues.

Various city officials have intimated potential steps they might take to intervene, citing the current lack of affordable housing as a deterrent for first-time homebuyers who wish to live and work in Toronto. This is certainly problematic, and city officials are right to be concerned about a continued lack of supply preventing potential buyers from entering the real estate market. Without first identifying the precipitating factors and understanding how each of these factors influences the market, outside intervention will almost certainly lead to a host of newer and more complicated problems for city officials to handle.

As Toronto city officials discuss the possibility of implementing a vacant-home tax or a foreign-buyers levy in the hopes of reducing real estate speculation, it’s worth pointing out that it is typically ideal to simply allow the market to self-correct. With home values continuing to soar in Toronto, it seems likely that potential sellers in the city will ultimately decide to take advantage of a strong marketplace rather than standing on the sidelines as others reap the rewards of the sharp rise in home equity.

References:

https://www.theglobeandmail.com/real-estate/greater-toronto-area-faces-looming-jump-in-housing-prices-royal-lepage/article33589023

https://www.bloomberg.com/news/articles/2017-04-05/toronto-home-prices-jump-33-in-march-as-market-tightens

 

Trump’s Win Could Spark US Housing Boom, Says Yale Economist

 

Yale economist Robert Shiller believes that Donald Trump’s surprise presidential win could prove a “turning point” that catalyzes a housing boom in the US. The Nobel laureate further argued that the real estate billionaire’s landmark election indicated a shift in American attitudes toward wealth and conspicuous consumption and away from modesty and prudence.

“We used to be more into modest living,” Shiller told CNBC, with regard to the post-Recession years. “Now people are thinking, ‘[that] doesn’t work.’ You know? You have to live big-league and you’re on your way.”

While the data aren’t there to support his cultural observations, Shiller noted that such excitement and attitudes could be seen at Trump rallies and in the stock markets, which rallied following the news of Trump’s win. Indeed, there is an emerging belief that Trump’s administration may usher in preoccupation with big living and materialism, and an aspirational culture reminiscent of the 1980s, according to CNBC.com.

Shiller speculated these attitudinal changes could, in turn, stimulate spending in the housing market: “Trump is a real estate man, right? He talks about living big, living large. I can imagine that this will boost housing demand as well, among at least those who are excited by Trump,” he said to CNBC.

Shiller’s statements came on the same day that the S&P CoreLogic Case-Shiller data came out, revealing that the 20-city property values index had risen 5.1% year-over-year in October 2016, with each of the cities seeing year-on-year gains. The Case-Shiller U.S. National Home Price Index soared by 5.6% during the same month, marking the highest margin of growth since 2014. US home prices have risen steadily due to increasing demand, higher employment, and rising incomes.

“I think we’re at a turning point. The numbers that we’re reporting today are October, before the Trump election, and everything looks different now,” the eponymous Shiller told Bloomberg Television. “There might be a Trump boom coming.”

Shiller also hastened to add that he was merely “wondering” about rather than forecasting a boom, given the uncertainty surrounding Trump’s policy positions.

Trump campaigned successfully on an economic platform of lower taxes, deregulation, and massive investment in infrastructure, all of which spurred palpable excitement among investors. The Dow rose 14.4% in 2016 whereas the S&P grew by 10.8%. That being said, Shiller warned that like Coolidge, Trump may preside over a short-lived era of American prosperity which ends badly. 

References:

https://www.bloomberg.com/news/articles/2016-12-27/trump-win-could-usher-in-boom-for-u-s-housing-says-shiller

http://www.cnbc.com/2016/12/21/americans-want-to-live-big-in-trump-era-nobel-prize-winner-says.html

https://www.bloomberg.com/news/articles/2016-12-27/home-prices-in-20-u-s-cities-increased-5-1-in-october

http://www.newsmax.com/Finance/Economy/robert-shiller-donald-trump-living-large/2016/12/24/id/765471/

US Luxury Homes Sales Rise Against Expectations

Against the expectations of observers, the higher-end of the real estate market has reported continued gains as sales of luxury homes rise, even as housing starts have grown to accommodated entry-level buyers. The Wall Street Journal has cited a survey by John Burns Real Estate Consulting showing that homes sales above $600,000 have risen in 37 of 43 counties, across 16 states.

Of the markets that were surveyed, luxury home sales grew by 10% in the last 12 months. Third quarter home sales in that price range only grew 5% year over year, however, sales increases were distributed throughout every price category, from the $600,000 to $1.5 million-plus price segments. The $1.1 million to $1.2 million segment experienced a 10% spike in sales, whereas the $1 million to $1.1 million category saw 4% growth. Whereas the luxury home starts priced at $1 million-plus fell precipitously by 41.6% to 1,762 last year, according to the National Association of Home Builders, that number is recovering along with the rest of the real estate market.

Toll Brothers, a US luxury home builder reported revenue growth for the fifth quarter in a row, with orders surging by 20.3% to 1,728 homes in the fourth quarter.

“We are encouraged as we look to FY 2017,” Toll Brothers Chief Executive Douglas Yearley said in a statement. “We are seeing positive demand trends in many regions.”

Higher home prices have also been an encouraging sign for luxury home builders. Toll Brothers reported that average price of homes sold grew to $834,000 during the fourth quarter, up from $789,700 a year earlier. Toll Brothers sold a total of 2,224 homes during that quarter, up from 1,820 a year prior, driving revenue increases of 29.1% to $1.86 billion. The company has forecast that it will build between 1,000 and 1,250 homes at the $750,000 to $780,000 price range during this quarter.

On the other hand, the ultra-high end of the luxury market has grown sluggish, according to Forbes, with the market for $100 million-plus homes softening, marking a reversal of the prevailing trend in recent years. Ultra-luxury home construction in New York and Miami have dwindled This may precipitate a belated focus on affordable and starter home building, given that the high-end market was the first to rebound after the recession.

References:

http://www.constructiondive.com/news/report-us-luxury-home-sales-continue-to-post-gains/432260/

http://www.wsj.com/articles/luxury-home-sales-in-u-s-continue-to-rise-1481292531

http://www.constructiondive.com/news/report-us-luxury-home-sales-continue-to-post-gains/432260/

http://www.cnbc.com/2016/12/06/pricier-home-prices-spark-surge-in-toll-brothers-revenue.html

US Housing Starts Spike 25.5% in October

Housing starts and new construction permit issuances rose significantly in October– a good sign that construction is ramping up to meet demand and alleviate the persistent US housing supply shortage that has put homeownership out of reach for many prospective buyers. It also suggests that builders are finally responding rising prices and demand for single family units in particular, as wage gains, employment growth, and attractive mortgages have driven sales of existing homes.

According to the Commerce Department, housing starts in October surged 25.5% to a seasonally adjusted rate of 1.323 million, a nine-year high, as builders broke ground on single and multifamily housing units. This was the highest pace the US has seen since August 2007, before the Great Recession. The percent increase was the largest since July 1982.

Single family housing starts, which accounts for the lion’s share of the residential housing market, rose 10.7% to 869,000, also the highest rate in nine years. Starts in multi-family housing, defined as structures with five or more units (e.g. apartments and condos), also rose dramatically by 74.5% to a 445,000 pace that month.

The gains were seen throughout all US regions and exceeded expectations. Economists had forecast 10.4% growth in housing starts to a rate of 1.156 million, with building permits falling 2.7% to 1.1193 million. While monthly housing numbers tend to be volatile and subject to revision, the rise suggests that the housing recovery has finally found steady footing following the recession. It “reaffirms our view that steady improvement in the housing market is likely to continue over the next two years,” said Rob Martin of Barclays Bank PLC to the Wall Street Journal.

Permit issuances, which had been forecast to drop, actually grew as well. Permits for privately owned housing inched forward by 0.3% compared to September to a seasonally adjusted rate of 1.229 million. Single family home permits, which account for the majority of permits, rose 2.7% to a rate of 762,000.

“Housing starts are being driven higher by improved household growth as the economy promotes further job and income gains,” said David Berson, chief economist at Nationwide, in a note. “With improved employment and income prospects, millennials are an expanding portion of housing demand as they move out of their parents’ homes – increasingly to form families.”

References:

http://www.businessinsider.com/housing-starts-and-building-permits-october-2016-2016-11

http://www.wsj.com/articles/u-s-housing-starts-rose-in-october-1479389564

http://www.cnbc.com/2016/11/17/us-housing-starts-oct-2016.html

The Trump Effect on Commercial Real Estate

Donald Trump has won the US presidency in a shocking upset. News of his victory coursed through global stock markets, causing them to briefly tumble, though they stabilized quickly thereafter. While Trump came to power by exploiting a surge of populist sentiment, there are many open questions as to what the real estate mogul’s presidency will look like for businesses, and commercial real estate (CRE) in particular.

Major Planks in Trump’s Economic Platform

“Despite all the noise, Trump in my mind won on a promise of growth,” said John Kevill, Avison Young principal and managing director for U.S. Capital Markets. “His proposed infrastructure spending, plans for lower taxes, moving jobs back and a target of 4% growth all speak to that. If it appears that things are starting to happen in that regard, expect CRE investment to follow as yield will look to be relatively attractive.”

Trump has, among many other things, run on a platform of protectionism, wall-building, and economic growth. If he succeeds in bringing manufacturing back to America and follows through on his vow to construct a US-Mexico barrier, it could portend a greater volume of construction, including factories, warehouses, and commercial offices– particularly in the Rust Belt. Yet there are also the negative feedback effects of protectionism to consider. For instance, while manufacturers stand to gain from such policies, developers who source construction materials may face higher prices born of decreased competition.

Trump has also vowed to boost defense spending and invest $1 trillion in infrastructure, which also presages a construction boom. Accordingly, Caterpillar’s stock, following his victory, surged 7.7%. Increased government spending in such sectors will likely lead to an expanding portfolio of properties owned by the government.

“We will more than likely see a significant increase in spending on real estate by the General Services Administration (GSA), government contractors, consultants, and, of course, lobbyists,” said John Kevill, Avison Young principal.

And, with the House and Senate firmly under Republican control, some are predicting reduced political gridlock and dysfunction, paving the way for Trump to follow through on his promises to pare back corporate and individual taxes as well as to roll back Dodd-Frank regulations. This also augurs well for CRE. In particular, Trump has proposed taxing long-term capital gains on real estate ownership and investment at a maximum rate of 20%, judiciously capping business interest expense deductibility, and taxing carried interest as ordinary income.

Luxury Real Estate

Despite the outstanding uncertainty surrounding the nature of, and policies proponed by a Trump presidency, some are confident that, given Trump’s background, he will be a champion for the luxury real estate sector in the US and abroad.

Trump’s win “will bring a property industry leader into the White House for the first time in American history. Without a doubt a Trump presidency will be pro-property and pro-real estate,” said Peter Wetherell, a London-based real estate broker and CEO of Wetherell.

References:
http://www.costar.com/News/Article/Economists-CRE-Industry-Begin-to-Assess-%E2%80%98Trump-Effect-on-Property-Markets/186466?rpt=1

http://www.mansionglobal.com/articles/45393-donald-trump-presidency-may-prove-beneficial-to-luxury-real-estate-market-globally

http://www.forbes.com/sites/elyrazin/2016/11/10/trump-has-real-estate-in-his-blood-how-will-his-presidency-affect-the-real-estate-industry/2/#2bc337818cee

http://www.businessinsider.com/trump-election-president-housing-market-2016-11