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RE/MAX First Wave report findings

Alexander also predicted in the report, “Baby boomers are going to blow the roof off retirement living. The sedentary lifestyle, retirement homes, the desire to move all worldly possessions to small rural communities – the time has come and gone for these concepts. The new retirement will encompass today’s active lifestyles, with all future movement driven by preference, not by lifecycle events.”

Highlights of the RE/MAX First Wave Report:

Luxury condominiums, golf and adult lifestyle communities, secondary residences, and smaller homes in better areas are attracting this powerful age group.
Aging baby boomers are moving into major centres to be close to family, friends, cultural activities and health care services.
Not surprisingly, bells and whistles are extremely popular with this segment of the market - a trend most evident in the renovation and restoration boom currently underway.
Warmer communities are luring aging baby boomers with milder climates - Victoria, Kelowna, Niagara, and Halifax.
Investment in U.S. real estate (ie. condominiums in Florida, Arizona, and California) has lost some of its appeal due to the high cost of health insurance and the rate of exchange.

TO R O N TO ONTARIO HOUSING OVERVIEW

In spite of what feels like the ride of a lifetime, the average price for residential properties in Toronto has been relatively consistent, with values rising steadily from 1966 to 1989, and again from 1996 to the present.

Market resistance to over-valued properties caused housing values to soften during the early 1990s — following a five-year run that brought average price $273,698 in 1989.

Looking back to the mid-seventies, the speculation tax levied on consumers took the wind out of the sails of the housing market. But by 1979, the market was percolating once again, setting up for a three-year run that saw prices jump 27 per cent from $70,830 to $90,203 in 1981. Interest rate levels in excess of 20 per cent prompted many vendors to offer vendor take back financing in an effort to encourage the sale of their properties.

A quick buck was the name of the game in the 1980s, when the real estate market was characterized by rampant speculation. Land values rose unabated. Condominium units came on-stream in abundance and became the speculation vehicle of choice for many. New home construction was also attractive, allowing speculators to "flip" paper as opposed to product. Although the government did step in to some degree, speculation continued to escalate until March 1989 when the bottom fell out of the market.

The early 1990s proved challenging for the housing market. In spite of government incentive programs introduced to re-invigorate the housing market and record low interest rates, sales and price activity remained stagnant. After a false start in 1994, the housing market began its long journey to recovery in late1996.

CURRENT MARKET CONDITIONS

Today, housing market activity in the central core of the city continues to be heated. Fringe areas to the east, west, and north have softened somewhat over the past few months but with the advent of the traditional spring market, should gain momentum. Average price currently sits at about $245,000, up significantly from 1975 when prices hovered at $57,000. Affordability continues to be of great concern in the GTA. In 1996, housing was at its most affordable level in many years. Price appreciation coupled with increased interest rates in recent years have made home ownership less attainable, although alternative forms of housing such as condominium apartments and townhouses, are providing some relief. The "Golden Horseshoe" is expected to be one of the fastest growing areas in North America in coming years and as a result, the housing market in Greater Toronto Area will greatly benefit. The influx of more people and business to the GTA will ensure steady appreciation for our greatest asset, the roof over our head.

COMPARISON TO TORONTO STOCK EXCHANGE

Over the past 34 years, the TSE 300 Index has increased at an annual average rate of 7.4% (identical to the rate of house price growth). The TSE Index rose in 22 years and fell in 12 (double the number of such years for house prices). Over the last 20 years, the TSE 300 increased at an average of 7.1% per year – slightly greater than the growth rate for house prices, which averaged 6.0% per year.

THE FINDINGS

Although the stock index is expected to rise more quickly than the average house price and average rental costs are almost 40% less compared to home ownership at the beginning of the report, buying (and living in) a home is far superior (financially) to renting in Toronto. The analysis covers 25-years.

The table summarizes the results, at five-year intervals:

—• The monthly cost of home ownership exceeds the monthly rent, until the end of 2025. Once the mortgage is retired at the end of 2025, the cost of ownership is much less (about $900 per month) than the monthly rent.

—• The tenant accumulates a rather large portfolio. Even after accounting for capital gains tax, which will be paid sometime in the future, the portfolio is substantial. At the end of 25 years, it has an after tax value of $471,008.

—• The homeowner builds home equity very rapidly, due to (1) the growth in the value of the home and (2) the repayment of the mortgage principal. After 25 years, the homeowner’s equity is $1,040,000, more than double the value of the tenant’s portfolio.

—• For a brief period, the value of the tenant’s portfolio exceeds the homeowner’s equity (until December 2 0 01). From that point, the home equity permanently exceeds the tenant’s portfolio. * Source: Will Dunning Inc.

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