Who’s Buying Condos?

Recent polls have proven what I’ve noticed for a while – that more and more Canadians are choosing condominiums for their homes. In some cities 35% of those polled said they were likely to purchase a condo, which is similar to my own client statistics.

So who’s looking for condos as their new home? Just about all walks of life are inclined to do so. First-time homebuyers are attracted to condos as a more affordable option that allows them to start building equity and to use that capital to move up into a single family home when the time comes. They often don’t have the expendable cash to spend on repairs and maintenance that comes with a freehold, like a new furnace in the middle of a cold February night.

Then there are the young professionals, men and women alike that need a maintenance-free property that allows them to pursue their favourite past times. Condos allow them time to relax or partake in sports and activities that would normally be spent mowing lawns, weeding, shovelling snow and repairing fences…and the list goes on! This demographic tends to need less room and is willing to live in the now.

We all know that Baby Boomers are a huge demographic in Canada and a lot of them are opting out of their big labour intensive homes and into condo-life. Many own multiple properties, including vacation homes that they like to frequently visit for extended periods of time. The luxury of leaving behind a home that will be protected and maintained without any effort on their part is very attractive, especially to “snowbirds“—Canadian retirees who winter in the Southern United States. Aging men, women and couples have also opted for homes that require less work so they can enjoy the comforts of retirement instead of continuously maintaining a large home.

As a realtor, I am always concerned about the potential resale value of the properties my clients purchase. Like condos, any property that has a growing buyer pool is likely to hold its value well.

Bedros Manikian is with CENTURY 21 Innovation Real Estate Agency in Montreal, QC.

Advantages of a Well Maintained Home

What are advantages of a well maintained home when selling?

  • Your home is more emotionally appealing in and out
  • You create a level playing field or advantage over competition
  • The home’s value is preserved, as inattention lead to costly repairs
  • Speaks of a safe and environmentally healthy home
  • Eliminates or lessens renegotiations due to deficiencies found
  • Results in a profitable net gain over time

What do maintenance, repairs and replacements cost?

Caulking windows, replacing a furnace filter, cleaning gutters and sealing an asphalt drive may only add up to a few hundred dollars a year and your time. At some point, replacing a new furnace, roof and central air can add up to thousands of dollars. Windows, kitchens and baths, flooring, and decorating eventually become worn and outdated, necessitating periodic and potentially costly remodeling.

Industry estimates on average annual cost over time

Industry estimates suggest that a homeowner should expect an average annual cost of 1% to 3% of the price paid for the home as a measure of anticipated cost for maintenance, repairs and replacements. A home’s age and condition at time of purchase can affect these averages.

How does overall maintenance and replacement affect value?

We certainly didn’t do an in depth study. For fun and as a small test, we looked at 8 mid-range homes, their initial price, the cost of maintenance over time, the homes age when purchased, length of ownership and selling price or appraised value. Here’s what we arrived at:

  • Homes new to 4 years old when purchased averaged an annual maintenance cost of $2,003 and 1.25% of initial purchase price. Their average length of ownership was 15 years and their average net gain in value after cost of maintenance was 3%.
  • A home 27 years old when purchased required updating and repairs. It had a length of ownership of 32 years and was 59 years old when sold. This home averaged maintenance and replacement costs of $2,891 per year or 8% of initial price and a net gain of 3.86% when sold.
  • Another home, 22 years old when purchased resulted in the following: Length of ownership was only 3 years, average annual maintenance/updating was $5,000 or 2.2% of initial price and net gain on sale was 3.2%.

The industry average of 1% to 3% annually for maintenance represents a good rule of thumb. As well, our little study produced a net gain of around 3% for average, mid-range homes.  

Eugen Pilato is with CENTURY 21 Today Realty Ltd. in Fort Erie, ON

Bank of Canada, Overnight Rate Target Announcement

Date: January 18, 2011

Bank of Canada, Overnight Rate Target Announcement

Source: Bank of Canada

Link to Release: http://www.bankofcanada.ca/en/fixed-dates/2011/rate_180111.html

Summary: At its January 2011 meeting, the Bank of Canada announced that it is maintaining its target for the overnight rate at one per cent, citing “elevated risks” to an economy that is growing slightly faster than predicted last October. The Bank gave no indication of when rate hikes might resume, instead noting that “any further reduction in monetary policy stimulus [i.e. interest rate hikes] would need to be carefully considered.”

Analysis: In its Monetary Policy Report (MPR) that followed the Bank’s January interest rate announcement, the Bank unveiled a slightly modified economic outlook, with the Canadian economy growing slightly faster 2011 than was previously forecast. While growth is expected to be more brisk in the coming year, the Bank also acknowledged that the gap between current economic output and potential output in Canada is wider than estimated in their October (MPR). This prompted the Bank to make a slight downward revision in their outlook for inflation. Against this backdrop, the consensus view of credit market participants is that we will see a resumption of interest rate hikes in the spring or summer to ensure that consumer spending does not grow so quickly as to push the growth rate of consumer prices beyond the Bank of Canada’s long-term target of two per cent. It is important to note that there are diverging views as to the timing of future interest rate hikes. Some commentators have suggested that hikes will not resume until the winter of 2011, whereas others were calling for a hike in January.

Source: Toronto Real Estate Board

Canadian Housing Starts, December 2010 Results

Release Date: January 11, 2010

Canadian Housing Starts, December 2010 Results

Source: Canada Mortgage and Housing Corporation (CMHC)

Link to Releases:

For CMHC’s GTA release: http://www.cmhc-schl.gc.ca/odpub/press/2010/2010_12_08_0815_EOT.pdf

For CMHC’s national release: http://www.cmhc-schl.gc.ca/en/corp/nero/nere/2011/2011-01-11-0815.cfm

Summary: In December, Canadian housing starts fell 13 per cent to a seasonally adjusted annual rate of 171,500 units from an upwardly revised November figure of 198,200 units. The drop was driven by a decline in the volatile multiple-family component, especially within Ontario, where the overall decline was 45 per cent. In Toronto, the annual rate of starts fell by 65 per cent to 17,800.

Analysis: We experienced a volatile end to 2010 home construction in the GTA. In the Toronto area, condominium apartments accounted for almost 40 per cent of total construction activity. The timing of condominium apartment starts is more erratic compared to low rise starts, which means that in some months GTA starts will spike well above trend and in other months the level of starts will move below trend. With this said, it is important to note that overall home construction was up in 2010 as a whole, making a positive contribution to the local, provincial and national economies. Looking forward through 2011, it appears that housing starts in the GTA will include an even larger share of condominium apartments, as new high-rise sales (as reported by RealNet Canada Inc.)

Source: Toronto Real Estate Board