Ottawa Housing Market Rings in 2018 With a Flourish, Even as New Mortgage Rules Take Effect

While some observers attribute the strong sales activity at the end of 2017 to buyers wishing to avoid the tougher mortgage rules, Patrick Morris says it is due to a combination of three reasons: buyers rushing to avert the new mortgage rules, continuing high demand, and a low inventory of resale homes on the market. Both the number of homes sold and the average sale price surged at the end of 2017.

2018_grpahic.jpgOttawa’s real estate market ended a solid 2017 with an excellent fourth quarter and toasted the New Year with continuing high demand, even as more stringent mortgage rules took effect. “2017 was strong, with tremendous demand and lower housing inventories than the past couple of years,” observes Rob Kearns, sales representative with The Morris Home Team. “Even if demand falls a bit due to the new mortgage rules, the drop will be from ‘very high’ to merely ‘high.’ Meanwhile, inventory is likely going to stay low this coming year.”

On January 1, 2018, Canada’s federal financial regulator put in place more rigorous mortgage rules; now, all prospective buyers, even those with a down payment of 20 per cent or more, will need to demonstrate that they could still afford their mortgage payments if interest rates were to increase. A mortgage “stress test” has already been in place since January 2017 for buyers with smaller down payments who require mortgage insurance.House_in_Winter_Cropped.jpg

While some observers attribute the strong sales activity at the end of 2017 to buyers wishing to avoid the tougher mortgage rules, Patrick Morris says it is due to a combination of three reasons: buyers rushing to avert the new mortgage rules, continuing high demand, and a low inventory of resale homes on the market. Both the number of homes sold and the average sale price surged at the end of 2017.

Members of the Ottawa Real Estate Board sold 771 homes through the Multiple Listing Service system in December (205 condos and 566 residential properties), compared with 711 in December 2016, for an increase of 8.4 per cent. The total number of homes sold in 2017 was 17,083, which is 10 per cent more than the 15,526 sold in 2016.

The average sale price for both residential and condo properties also increased year on year. In 2017, the average residential sale price rose to $425,063—an increase of 6.8 per cent over 2016—while the average sale price for condos rose to $269,903, an increase of 3.4 per cent over the previous year. Though average sale price shouldn’t be used as an indicator for specific properties, it can be useful for establishing trends over time.

The average cumulative days on market for residential properties fell almost 22 per cent from 2016 to 2017, dropping from 86 days to 67. For condo properties over the same period, the average cumulative days on market fell just over 10 per cent, from 113 days Year_over_Year_Chart.JPGto 101 days (see chart).

This, together with the fact that the total number of condo sales went up 22 per cent in 2017 over 2016, demonstrates the extent to which condominium sales have enjoyed a resurgence. Rob Kearns notes, “The condo market, which had been in the doldrums for several years, is a completely different animal these days. A lot of its strength is due to its affordability.”

The most active price point for condos was between $175,000 and $249,999. The question remains as to whether new condo construction will grow to meet (or exceed) demand. The most active price range for residential property sales continues to be between $300,000 and $499,999, accounting for more than half of residential property sales.

“Ottawa is fortunate to have a fairly stable job market and affordable housing, so migration to our city is continuing to rise,” says Patrick Morris. “The federal government reversed its hiring freeze, and we are seeing more jobs come through in the strong health and tech sectors. Ottawa is now attracting many Canadians from larger cities, because this city is simply more affordable for them. All of these factors will help keep the real estate market steady as she goes in 2018.” 

ASK PATRICK

What Do I Need to Know About Buying an Investment Property?

house_website_size.jpg

 

 

Many Canadians dream of owning a second property (or several properties) as an investment. Among the many options, you can invest in second homes, townhouses, condos, duplexes, rooming houses or multi-unit residential buildings. Renting space out can be a great source of income over time—if you do your homework first. There are many important considerations: financial, legal, and otherwise.

Get Your Financial Ducks in a Row
Before you go and buy that second condo, meet with a mortgage broker or an investment-friendly bank. Most buyers don’t realize that a 35 per cent down payment is required to purchase an income property. While it may be possible to finance your down payment by refinancing your current residence with a line of credit or other investment income, it’s wise to consult with your mortgage broker or bank; they may offer alternatives. Some buyers like to use private lenders or ask the owner(s) to hold a first or second mortgage known as a “vendor take back” (VTB). In all cases, gather the intel and study it carefully.

What Makes Your Property Attractive to Tenants?
Be familiar with the neighbourhood in which you’d like to buy your income property. Knowing what the nearby amenities are really helps sell your property to potential tenants, most of whom want to be able to reach public transportation and local services on foot.

It’s helpful to do your research online first, and then see potential investment properties in person. You’ll want to check each unit with a fine-tooth comb, especially if investing in multiple units. Align yourself with a real estate agent experienced in income properties to make this easier.

If you like what you see, make an offer conditional on: a building inspection; obtaining financing and mortgage appraisal; and reviewing the leases, income statements, expenses, fire retrofit certificate (if applicable), and any other items your agent will recommend. Single properties, at this time, do not require a fire retrofit certificate. The building inspection should focus on the structure, including the foundation, roof,

heating and ventilation systems, electrical, plumbing, windows, etc. If the structure has two or more units, the inspector will also concentrate on the fire retrofit requirements, including fire doors and fire escapes.

Is it a Good Investment?
Your real net income (which you get by subtracting the cost of all expenses, including mortgage costs, from the gross rental income) is what determines a good investment. If you’re investing in a multi-unit building, calculate the capitalization rate (cap rate). If you are not sure how to do this, your agent or mortgage broker will assist you. Essentially, the higher the cap rate, the better the investment for you.

Understand the Relevant Law
When buying a second property, you become a landlord. You’ll have extra responsibilities and must become familiar with the Residential Tenancies Act of Ontario. While you can hire a property manager to run the property from day to day, you’ll still need to understand and respect the RTA and updated legislation. n

HIGH NOTES FOR 2018

We are so excited to once again receive the National Chairman’s Club Award for 2017 for the 18th consecutive year representing the Top 1% of over 17,000 realtors across Royal LePage Canada! Additionally, we garnered the #1 position in Ottawa for Royal LePage Performance Realty. A huge and special thank you to our clients who have supported us all year long!

icon_1_in_ottawa.jpg

Patrick_and_Rob_side_by_side.JPG

Need Help Selling Your Home or Finding the Perfect House?

Call or email us!  You can rely on our intimate market knowledge and professional service!