How does the real estate picture look for 2023? Steve Tabrizi, Chief Operating Officer and partner at the RE/MAX Hallmark Group of Companies, recently shared his unique perspective with our clients and friends.

Tabrizi is a seasoned real estate investor and co-founder of the largest independent RE/MAX operation in the world. His team of over 1,900 agents close a sale every 18 minutes, and did more than $19 billion in transactions in 2021. Needless to say, he has seen a lot of real estate deals come across his desk.

As in previous visits to Cumberland, Steve presented a flurry of facts, anecdotes, insights and opinions about Canadian housing and the many economic, social, and political factors that shape its trajectory.

Here are some of his most memorable points:

Activity is returning. In May of 2023, the number of real estate units changing hands rose almost 25% versus May of 2022. Along with that, prices rebounded, with the average detached home now changing hands just below the price of one year ago, and almost 8% higher than in May 2021. The one area of weakness is new listings, which dropped 19% in May 2023 vs. May 2022, likely reflecting a reluctance of many buyers and sellers to transact in today’s environment of higher interest rates.

Buyers and sellers are uncertain. On the evening of Steve’s presentation, the Bank of Canada rate stood at 4.75% and, as he predicted, it rose to 5% the very next day. He shared survey results showing that 65% of Canadians have concerns about buying a home right now. They worry about paying too much (60%), unforeseen costs (54%), and living with post-home buying costs (51%). Despite these concerns, 44% of recent buyers were involved in a bidding war and 35% paid more than they had planned.

Renting will increase. Steve shared an anecdote about a professional couple who are renting a home in the upper beaches for $5,900/month. Why would they pay such high rent rather than buy? Because, even with two six-figure salaries and disciplined savings, it will take them years to accumulate a reasonable downpayment for an equivalent home. He remarked that Canada will likely become increasingly like Europe, where home ownership is not as attainable and renting will be more common, particularly among those who cannot turn to “the bank of mom and dad” for home financing.

Population growth is fuelling the market. Steve provided a deep dive into the impact of record-high immigration on housing, the economy and our infrastructure. In 2022, Canada processed 5.2 million applications for permanent residence, temporary residence and citizenship, and welcomed one million new Canadians. Meanwhile, real estate listings are at record lows and Toronto built less than five new housing units per 1,000 residents in 2022, with the rate of building only slightly higher in other cities. Steve concurs with the general view that immigration will continue to stress the housing supply, with long-term upward pressure on rents and prices, particularly in places with transit access to major job markets.

Condos may offer opportunities. In 2020, 60% of rental condos were cash flow positive for the landlord. In 2022, that number dropped to 48%. Still, with the coming stream of immigrants and continuing economic barriers to home ownership, Steve believes that selected condos may be the best investment housing unit for landlords in the GTA, with the average two-bedroom condo now commanding $3,300 per month in rent. Steve also commented that there may be a specific pocket of opportunity in instances where an owner purchased a condo on a pre-construction basis and it is now being offered as an assignment sale because they were unable to finance the closing costs.

The housing shortage needs new solutions. Steve believes that radical policy changes are needed to increase the housing stock in Canada, including finding ways to align federal, provincial and city policies. Some examples he gave were tying federal transit funding to housing completions, permitting temporary foreign construction workers to increase the speed at which building can happen, selling federal buildings to private housing developers, and giving financial bonuses to cities that encourage housing. He also shared the example of Dallas, Texas, which has used economic incentives to attract non-oil industry employers and expand the diversity of its workforce. He posited that smaller Canadian cities could benefit from similar strategies to spur growth, attract immigrants, and ease the pressure on housing in our handful of major employment centres.

As always, Steve shared far too many pertinent observations and interesting data points to capture in this brief summary. To learn more, we are pleased to share a copy of Steve’s slide presentation, and to address any questions that you may have. Please contact your Cumberland Portfolio Manager at any time.