Monday night was election night, and Wednesday morning was the Bank of Canada’s announcement on the interest rate. It seemed inevitable that I would write something about either one of the two, but lo and behold, I decided to ambitiously tackle both topics simultaneously. Hurrah! Let’s go!
I typically write these Insight Articles early on in the week to get my creative juices flowing for the rest of the week. So as I currently write this (it’s Tuesday morning right now), one day in advance of the Bank of Canada’s interest rate announcement, I’m fairly confident that the rate will be going up [on Wednesday]. Thursday update: Unfortunately, the interest rate did indeed go up on Wednesday, as anticipated. Sometimes, being right sucks.
If you didn’t already hear, John Tory had a commanding win on Monday night as he was re-elected as the Mayor of Toronto.
So what does this all mean for the real estate market in the coming months?
Simply put, Toronto is not going to get more affordable any time soon. Let’s take a look at Tory’s platform as it relates to real estate. I’ll put my thoughts in italics for you.
1) Continue to keep property taxes low
Great – people who own properties are not impacted, and they likely won’t sell or move.
2) Create affordable housing
Tory plans to increase the number of homeless shelters. Great!
Tory also plans to build 40,000 affordable rental units over 12 years or 3,333 per year. To date, Tory has successfully created a combination of 2,465 “affordable” rental and home ownership units in his tenure in the last 4 years.
I’m not exactly sure how he’s going to hit 3,333 units per year when he has only successfully created 2,465 units over the past 4 years combined (none of these units are completed right now by the way). Furthermore, many are calling his “affordable” units still “unaffordable”. Many of these units are geared towards lower income families. He has not created any “affordable” housing to date for the middle-class average income earners.
Tory also hopes to attract “social impact investors” to create new affordable housing and appoint an “affordable housing secretariat”.
The keyword here is HOPE. The writing is on the walls for this one folks. It doesn’t sound like there isn’t any money or real, robust plan in place to make housing more affordable.
3) 200,000 tech, film and banking jobs created and he continues to increase the number by keeping commercial property taxes low.
Tory has actually done a great job in increasing the number of jobs, especially high income jobs. This means that there will be more money flowing into the real estate market, and as a result, real estate prices are likely going to keep increasing as well. So hopefully you can score one of these high paying jobs that Tory has created!
In a Nutshell – In short, there is really nothing in his campaign that will affect the real estate market substantially. I would have been delighted if he addressed the supply issue or reducing the red tape for development, but that was never even talked about. It sounds like he’s praying that money will come in to help build affordable homes, but other than that, he’ll just keep property taxes low in the hopes of keeping housing expenses where they are now.
For investors, this all sounds great because property taxes can stay low, thereby effectively keeping your cash flow high. Tory is also going to keep the push for increasing the number of high paying jobs, so as an investor, the pool of tenants will only get better. No need to worry as an investor under Tory’s reign, not one bit at all!
What About Those Interest Rates? Yes, the interest rate went up. If you’re worried about your payment, take a look at the chart below to see the increased mortgage payment you will be making if you’re on a variable interest rate mortgage.
Numbers above are based on 25-year amortization rate
It’s approximately $12.50/month for every $100,000 of mortgage that you owe.
My recommendation is still the same. If you plan to sell, refinance, upsize, or downsize your property in the near future, then do not lock in your mortgage to a fixed rate for of the sole reason of being scared of another interest rate increase. Go with a variable rate in this case. The penalty to break your fixed rate mortgage will far exceed the cost of an interest rate increase.
On the other hand, if you do not plan to do anything with your property in the next 5 years and the difference between the fixed and variable rates that you are being offered is less than 0.75%, then I would take the fixed rate mortgage. You’ll sleep easier at night. By the way, I suspect the fixed interest rate will be going up in the near future.
The Wrap – In summary, neither Tory’s continuing platform nor the interest rate increase will make owning real estate easier, for the average Torontonian. Do not pray for a hail Mary from the government to make home ownership easier – it’s simply just not going to happen, especially since qualifying for a mortgage will be more difficult now as well.
As a player in the real estate market, my suggestion here is to read this Insight Article, give it some thought, acknowledge it, and just carry on with your day. None of this changes the fact that if you can find a good cash flow positive property in the GTA, you will be in good shape. All of this media coverage is just white noise. If you’re looking to find your next positive cash flow investment in Toronto, we can help eliminate that white noise and guide you along the right path.