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💰 GTA Condo Market Faces Cash Flow Crisis

🗽Canada-U.S. Migration Hits 10-Year High

😖 100,00 Canadian Homes Tied Up in Short-Term Rentals

📉 Toronto Sees Rent Decrease

💸 Developers Struggle to Lower Prices

🤔 WTF of The Week

Read Time: 4 minutes

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😖 GTA Condo Market Faces Cash Flow Crisis

• In 2023, 58% of newly completed condos used as rentals had a mortgage and were cash-flow-negative
• This trend worsened in the first half of 2024, with 81% of leveraged investors in a cash flow negative position
• Negative cash flow positions varied by lender type: -$359 for big 5 bank loans vs -$918 for other lenders
• Larger units had worse negative cash flow: studios were nearly neutral, while 3-bedroom units averaged -$866 per month
• Average monthly ownership costs rose 21% in 2023 to nearly $3,250, while average rents rose only 8% to about $2,700

Why This Matters: Negative cash flow positions increase the risk for investors, especially if they're relying on appreciation to offset losses. If the market stagnates or declines, investors could face significant financial difficulties. With ownership costs rising faster than rents, the profitability of condo investments is being squeezed.

🗽Canada-U.S. Migration Hits 10-Year High

• 126,340 people moved from Canada to the U.S. in 2022, a 70% increase compared to 2012
• The U.S. is the most common destination for Canadian emigrants, with about 800,000 Canadians living there as of 2020
• Reasons for moving include seeking a more affordable life and dissatisfaction with Canadian politics
• Housing costs in the U.S. are generally lower, with the average U.S. home price 20% lower than in Canada

Why This Matters: Popular destinations for Canadians (like Florida) may see increased demand, potentially driving up prices and creating investment opportunities. Real estate investors might consider expanding their portfolios to include properties in both countries to capitalize on this trend.

😖 100,000 Canadian Homes Tied up in Short-Term Rentals

• A Statistics Canada study found that 107,266 short-term rentals in Canada could have served as long-term housing in 2023.
• In 2017, there were 58,441 short-term rentals, which increased to 107,266 by 2023.
• This number is very high for a country where annual housing starts barely exceed 200,000

Why This Matters: The potential for other cities to adopt stricter short-term rental policies similar to Vancouver or Halifax is a significant consideration for real estate investors. Investors relying on short-term rental income might need to pivot to long-term rentals or sell properties.

📉 Toronto Sees Rent Decrease

• Condo apartment rentals in Q2 2024 increased by 25.2% compared to Q2 2023.
• Condo rental listings in Q2 2024 rose by 51.3% compared to the same period in 2023.
• Average rent for a one-bedroom condo apartment decreased by 3.1% to $2,452 in Q2 2024.
• Average rent for a two-bedroom condo apartment decreased by 1.9% to $3178 in Q2 2024.

💸 Developers Struggle to Lower Prices

• High development costs are preventing developers from lowering prices to attract investors back into the market.
• Municipal development charges are described as "ever-increasing" and contribute to keeping new condo prices high.
• The combination of still-elevated interest rates and high municipal development charges means new condo prices will likely remain sticky (resistant to decrease)

Why This Matters: This inability to lower prices is contributing to the standstill in the market, as prices are too high for investors relative to resale prices, rents, and interest rates

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