Against a backdrop of strong equity gains and lower interest rates, move-up buyers are once again set to ramp up their role in major Canadian housing markets.
That’s the key finding of the RE/MAX Move-Up Buyers Report 2013, which examined sales and trends at trade-up price points in 16 major centers throughout the country.
Serious equity gains remain the strongest catalyst in the Greater Toronto Area over the past 10 years, prompting healthy home buying activity in trade-up neighborhoods from Scarborough to Mississauga and all points north.
10-year appreciation—81 per cent (6.09 per cent annually)
Five-year appreciation—32 per cent (5.74 per cent annually)
Last year, sales of move-up product identified as single-family dwellings priced from $500,000 to $700,000—were up eight per cent over the previous year and represented 20 per cent (17,218) of the market. In 2011, 15,855 sales occurred at that price point, accounting for 18 per cent of overall home buying activity. The level of activity
in the move-up segment is expected to increase in the year ahead as first-time buyers take a backseat to more experienced move-up purchasers. Supported by higher down payments as a result of solid price appreciation in recent years and augmented by today’s low interest rate environment, the timing is ideal for many to trade-up to larger homes and better neighborhoods, or make lateral moves to condominium product in the downtown core. To illustrate, homeowners who bought homes in 2002 at an average price of $275,231 typically sold in 2012 for an average of $497,298—a percentage increase of 81 per cent over the past decade representing an annually compounded rate of return at 6.09 per cent. Even those buyers that purchased just five years ago have realized a 32 per cent increase on their original investment. Singles, semi-detached, and towns/row houses have been most popular with move-up buyers, with almost 90 per cent of sales in the price range involving a freehold home. Just 10 per cent of sales involved a condominium at that price point. Inventory levels remain a challenge within Toronto proper—with fewer than 300 single-detached homes currently listed for sale in the $500,000 to $700,000 price range from Victoria Park to Islington, north to Steeles Ave.
While the arrival of the traditional spring market should prompt an influx of new product to the marketplace, the number of homebuyers is also expected to climb. On the other
hand, supply in peripheral areas the 905 suburban markets has increased, allowing purchasers the luxury of time and choice. Property types in markets like Thornhill, Maple, Richmond Hill, Markham, Brampton, Mississauga, Whitby and Ajax run the gamut, with both older and newer product available from $500,000 to $700.000. Not surprisingly, purchasers in outlying areas tend to prefer turnkey properties requiring little or no renovation whereas buyers in more established areas within Toronto proper are more willing to undertake renovations to improve accommodations. Given the city’s solid economic footing and positive employment picture, demand for residential real estate is expected to continue at a healthy pace throughout 2013, with sales on par with last year’s levels.
There’s no question that the equity position of Canadians has been remarkable. Yet, gains remain well outside of bubble territory, particularly in the often-cited markets of Vancouver and Toronto. Overall, healthy fundamentals remain in place, as enthusiasm climbs among experienced home purchasers.
In fact, the report also noted that the time between moves has actually decreased among move-up buyers, with most now prepared to move within four to seven years of their original purchase. Why such confidence? The move simply makes sense. With today’s rock bottom mortgage rates, many are able to secure a larger home and/or better neighborhood, while taking on carrying costs just slightly higher than their original payment.
Tight inventory levels, meanwhile, are hampering activity to some extent in Edmonton, Calgary, Regina, Saskatoon, Winnipeg, Toronto proper, Hamilton-Burlington and pockets of St. John’s. Unless conditions improve, continued upward pressure on pricing is expected in the months ahead, but even that is prompting some to act sooner rather than later.
The supply crunch has created a bit of a catch-22 in some markets, as homeowners hold off listing their current home, concerned they won’t find an ideal home to trade up to, ultimately exacerbating the inventory issue.
Yet, on the whole, the outlook remains positive with Greater Toronto Area demonstrating solid move-up activity out of the gate in 2013. Move-up buyers remain firm in their belief that home ownership is a sound investment. Most realize that very few financial vehicles provide the security and dual purpose that home ownership affords. They also realize that opportunity is not finite—one reason that move-up markets remain well-positioned for the year ahead.