The "prosperity" in the real estate market is still ongoing. Not long ago, Condos encountered problems with difficult rentals and sales, and the lock boxes posted by real estate agents were densely packed. Now, single-family homes are also starting to face similar issues.
According to a May 28 report by The Globe and Mail, buyers of new residential properties are flooding into the real estate market. They are not looking to sell their homes at a loss but are instead entering the rental market with many brand-new single-family homes to cover their maintenance costs.
Source: Re/Max Experts
Buyers of pre-construction homes refuse to "sell at a loss" and are forced to rent out their new homes
Michael Waters, CEO of Minto Group, stated: "I believe that these emerging properties are not intentionally being invested for rental purposes but rather as a last resort."
He said that compared to the apartment market, the number of rental investors in the new single-family home market is much smaller based on previous experience. "I suspect that what we are seeing now are buyers who signed pre-construction contracts during the economic boom in early 2021 and 2022, and they are now listing their properties."
"At that time, they might have considered speculating in the secondary market, but now, the secondary market is bleak, and it's impossible for them to resell their new homes at a price higher than what they originally paid."
While some choose to sell immediately at a loss, a large number of buyers who are stuck are forced to rent out their new homes to alleviate the immense financial pressure from high mortgage payments.
Brandon Sage, property manager and real estate investment consultant at LandLord Property and Rental Management, stated that new residential areas are being affected by the previous wave of investment purchases.
"Back then, some builders offered incentives such as flexible down payment structures and legal basement secondary suites, making it easier for people to purchase homes. Many single-family homes were chosen as investment tools."
"Previously, most of the single-family homes we represented for rental purposes were owned by homeowners who moved to new areas for work but did not want to sell their old homes. However, now, the newly added single-family home rentals come from investors."
Sage mentioned that there are some newly developed communities in the Greater Toronto Area (GTA), usually located on the outskirts of rural areas. The supply of rental properties in these communities is nearing saturation. With so many rental properties competing with each other, it has become more difficult for each property to find suitable tenants and achieve high rents.
He said: "What investors didn't consider was that when you buy a house in this community, there are 50 other houses waiting to be rented here."
Sage pointed out that in addition to property taxes, insurance, utilities, and maintenance fees, the rent from most new homes is not enough to cover the monthly mortgage payments.
A massive increase in GTA rental listings over the past year
According to David Aizikov, product manager at Rentals.ca, the number of single-family homes (including townhouses, semi-detached, and detached homes) listed for rent on the website increased by 6% from March to April but surged by 29% compared to the same period last year.
Meanwhile, rental prices across the country are declining: in April, the average rent for detached homes and townhouses reached $2,166 CAD, a decrease of 6.8% compared to the previous year, which is even greater than the decline in apartments (-5.2%).
Notably, the current rental levels are still higher than before the pandemic.
If we narrow the scope to detached homes, the data on Rentals.ca becomes even more apparent: from 2023 to 2024, the number of detached home rental listings in the Golden Horseshoe region and the Greater Toronto Area (GTA) grew by 110%. Vaughan saw a 120% increase, Aurora a 111% increase, Markham a 104% increase, and Brampton a 75% increase. The number of listed rental properties increased by hundreds or even thousands of units. For example, in Toronto, the number of rental listings increased by 93%, with nearly 3,000 new listings entering the market in 2024.
According to Realtor.ca, there are currently more than 7,000 rental listings related to detached homes in the entire Greater Toronto Area (GTHA), including basement rentals, which are also considered detached home rentals.
Homeowners choosing to hold off on immediate "relocation" and waiting for the market to recover
In addition, a small portion of people are also affecting the rental market. They are not investors; after purchasing a second home, they do not sell their old homes but choose to rent them out. This "bottom fishing" approach can also be understood as buying during low prices and planning to sell during high prices. Ron Butler of Butler Mortgage said: "This practice was very popular before 2023. Usually, owners who had accumulated assets in their first homes would choose this option. They had the financial ability to cover loan costs. At that time, it was an era of ultra-low interest rates, with interest rates only at one or two points, but now, interest rates have risen to 4%, making this approach less appealing."
At the end, Sage explained: "Now, they are not selling their homes because the current housing prices are far below their previous peaks. They want to rent out their homes and wait for the market to improve. For them, this is actually a gamble."
Original article: https://www.toutiao.com/article/7509648851855295002/
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