Canadian towns grapple with big-city-like real estate boom – ET RealEstate

OTTAWA: Small cities and cottage towns across Canada are grappling with the fallout of surging popularity amid the COVID-19 pandemic, as urbanites flock in, driving up home prices with big-city-style bidding wars and putting pressure on municipal services.

The growing demand has led to some small Canadian communities seeing house prices jump more than 75% in one year.

“The small towns are getting hit hard. They’re getting interest like they’ve never had before,” said Stephan Gauthier, an Ottawa real estate agent who is increasingly helping clients buy in villages well outside the city.

The eye-watering gains in Canada are mirroring similar trends in New Zealand, Australia and Britain, where rural home prices are accelerating faster than in cities as avid buyers rush to snatch up cheaper small-town properties and as white-collar workers bet on being able to work from home even after the pandemic ends.

The boom in Canada has builders flooding into smaller communities. More homes mean more demand for drinking water and wastewater treatment, forcing some towns to fast-track expensive infrastructure projects.

For locals, the influx of city people is a double-edged sword. New residents are breathing life and diversity into places where – before the pandemic – schools were closing and many businesses struggled through the winter.

But the soaring housing prices are locking locals out of the real estate market, and competition for rentals means many people can no longer afford to live locally, leaving small-business owners scrambling for staff.

Even existing homeowners, whose home values have risen sharply, are unable to move up the property ladder as the gap to the next rung widens past their means.

“You want people to come here and help build the community. But at what cost to the people who have been here for literally generations?” said Nancy Cherwinka, who lives in Prince Edward County, a peninsula in Lake Ontario known for its wineries and beaches.

Move to the country

Roughly 75,000 people left Toronto and Montreal – Canada’s two biggest cities and main COVID-19 hot spots – for other parts of their respective provinces of Ontario and Quebec in the year up to July 2020, the largest such migration since at least 2001, according to the latest Statistics Canada data.

For Prince Edward County, about 200 km (125 miles) east of Toronto, that migration has helped drive house prices up 78.5% on the year, putting ownership out of reach for many local residents. The average selling price of a home there in April was C$740,112 ($610,000).

“Now the rental market has gone nuts,” said Chuck Dowdall, executive director of the Prince Edward County Affordable Housing Corporation, with potential home buyers giving up on buying, and renting instead.

The rental crunch is making it difficult for small businesses to hire and retain staff, even if they pay above minimum wage.

It is a struggle that Samantha Parsons and her husband, owners of Parsons Brewing Company, know well. They built a small bunkhouse next to their brewery to house workers temporarily and have even had staff stay with them. This year, they arranged a lease for a three-bedroom home for employees.

“You have to be creative,” said Parsons, adding they still lose out on talent because of the housing challenge.

If you build it

To tackle the housing crisis, Prince Edward County is planning for more than 3,000 housing starts through 2026, including dozens of below-market rental units.

That boom is putting pressure on municipal services, notably aging water infrastructure. The region is hastening plans to spend C$68 million ($56.2 million) on its water and wastewater system, with developers on the hook for much of the bill.

New-home construction is also surging in other smaller centers across Canada, with rural starts in the first quarter of 2021 at their highest point since 2008.

In Collingwood, Ontario, a four-season resort town about 145 km (90 miles) northwest of Toronto, the population boom has forced the community to pause all new-home construction while it sorts out how to address its critical water shortage.

In Nelson, a former mining town in British Columbia’s Kootenay mountains, a pandemic-driven explosion of infill and coach housing is forcing the small city to expand its wastewater and water infrastructure sooner than planned.

“We were heading down that road anyway … but now it’s been accelerated. So that’s going to put us a little bit on our back foot,” said Mayor John Dooley, adding that the sewage treatment plant alone will cost about C$25 million.

Dooley said Nelson hoped to split the costs with the province and federal government.

Back in Prince Edward County, about half the children at a rural daycare are new to the community since the pandemic. At the sister daycare in town, a quarter of students are newcomers. Enrollment at local schools is also up, reversing a trend that had led to closures in previous years.

More young families living in the community will ultimately be beneficial, said Cherwinka, as long as they stick around once life goes back to normal.

“Hopefully they stay, hopefully it’s not just a pandemic solution,” she said. “Hopefully it’s long term.”

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Buyers find it hard to sell condos amid housing squeeze in Canada – ET RealEstate

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TORONTO | OTTAWA: Eager to move his young family into a house with a backyard amid the pandemic, Dale-Paul Jordan listed his Toronto condo for sale last month and prepared to start bidding on detached homes.

But the condo didn’t sell or get a single viewing. And when another seller in the building slashed their asking price, Jordan and his wife pulled the unit off the market and decided to delay their dream until spring at least.

“One of the things we’re handcuffed to is selling our condo to help with the downpayment,” Jordan said.

The couple are among a growing cohort of would-be buyers in Canada keen to move up the property ladder, but are trapped by a flood of condos in the Toronto and Vancouver markets. The situation is only expected to worsen with a near-record number of new condos under construction.

The COVID-19 pandemic has sped up a flight to the suburbs, with big-city condo dwellers trading up to detached homes with backyards and home offices, mirroring trends seen in cities like New York and London.

Their spending power has also been bolstered by record-low interest rates.

But as more people find themselves in the Jordans’ position, there will be fewer buyers for detached homes, real estate experts said, and that could have a trickle-down effect on the red-hot detached home market.

The cracks appearing in the condo market may well become the fault-line in Canada’s housing market. The average home price in Canada has climbed 17% since October 2019.

“Many buyers of single-family homes are move-up buyers who are relying on the sale of their condo in order to climb the property ladder,” said Vancouver agent and analyst Steve Saretsky in a note.

The average sale price of a detached home in the Toronto area is nearly 15% higher than a year ago, while condos have gained less than 1%. The widening gap is putting pressure on condo sellers trying to upgrade.

Indeed some agents say they have had clients on the brink of reneging on detached home offers, because of worries they won’t be able to sell their condo.

“We came very close a few times but we got the deal done,” said Thomas Mirkovich, a Toronto-based broker. “I had to have a lot of ‘come to Jesus’ moment conversations.”

Add in other pressures – Canada’s still-high unemployment rate, a sharp drop in immigration, and the winding down of mortgage deferral programs and emergency pandemic benefits – and conditions could be ripe for a reckoning.

“Now people can’t sell their condos downtown. Nobody wants to buy a condo,” Hilliard MacBeth, a portfolio manager and author of ‘When the Bubble Bursts,’ said in an interview.

“The government support means the real start of the recession has just been delayed.”

What goes up

Detached home sales in Toronto’s suburbs surged from a year ago, while active listings are at their lowest since 2016. But in the city center, a cliff is looming, with listings doubling as sales slide, and 22,434 new units set for completion in the Toronto area in 2021.

The surge in condos for sale is partly driven by investors facing a dearth of renters amid lower immigration, job losses and the evaporation of short-term rental demand due to pandemic-linked travel restrictions.

Condos for rent in the Toronto area doubled in the third quarter from a year ago and rents have plunged.

Prices are still up on the year, but falling by the month.

Toronto real estate agent Scott Ingram said he recently helped a couple who had bought a house outside the city sell their downtown condo.

When they first started talking, comparable units were selling for around C$700,000. By the time they listed six weeks later, they had to settle for C$641,000.

Moody’s Analytics forecasts that Canadian home prices will drop 7% in 2021, with both detached and condos falling. It sees Toronto area prices slipping to early 2017 levels and not fully recovering until mid-2023.

Ingram expects condo prices to continue to tumble as inventory piles up, and sellers who hold off may regret doing so.

“Today’s cut rate may be tomorrow’s good price,” he said.

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