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What’s Really Going on in the Toronto Real Estate Market in 2018?

What are the media headlines not telling you about the current state of the market? In this episode Andrew la Fleur talks to Jason Mercer – the director of Market Analysis for the Toronto Real Estate Board to get his take on the market. As one of Toronto’s foremost experts on the real estate market, discover what is the single most important statistic he tracks each month as well as the critical long term trends that he is following.


2:35 Tell us a little bit about your story and how did you get started in real estate.
4:35 How do you see your role or is it fair to have dual role?
6:12 Do you get involved when the government implemented changes?
8:30 Do you look at the stats daily or monthly tracking?
11:35 What’s the 1st number that you look at when you say take the month’s stat?
14:13 How’s the market?
16:45 We’ve got 2 months of data for 2018, is there anything that surprised you so far?
18:30 What are the current set of headlines that you’re seeing that is missing?
24:12 We need to look at the bigger diversity of supply.
28:50 Where do you see a great opportunity to buy right now if you want to invest?
31:50 Do you think the government in a way has screwed up the real estate market?
36:09 What are you tracking long term and what are you more interested at?
38:01 What’s your take on the rental market?

Click Here for Episode Transcript

Andrew la Fleur: What’s really going on in the Toronto real estate market today? Well, we’ll find out by talking to Jason Mercer, the director of market analysis for TREB on today’s episode. Stay tuned.

Speaker 2: Welcome to the True Condos podcast with Andrew La Fleur. The place to get the truth on the Toronto condo market and condo investing in Toronto.

Andrew la Fleur: Hi, welcome back to the show, very excited to present today’s episode to you. As I said in the intro, talking to Jason Mercer. And Jason Mercer is definitely one of the people who I’ve been hoping and trying to get on the show for quite a long time and I’m very excited that it’s finally happened. Jason is one of the top people to talk to in the industry when it comes to what’s happening in the real estate market, because he’s a director of market analysis for the Toronto Real Estate Board. Toronto Real Estate Board once again is the largest real estate board in North America, probably the world. As far as I know it’s over … There are over 50,000 real estate agents in the entire GTA.

And Jason’s been doing his job for a number of years now. He just got a tremendous level of insight into, not just the numbers but the story behind the numbers and that’s again one of the reasons why I started this podcast in the first place, almost four years ago now, believe it or not. Because I wanted to have more in-depth conversations with people like Jason and allow real estate investors and condo investors specifically to hear what’s going on for people who actually know what’s going on, instead of just getting little sound bites here and there, little quotes in the media that are often distorted or twisted or just misinterpreted to fit other agendas or other things. So without further ado, here it is my interview with Jason Mercer, enjoy.

All right, it’s my pleasure to welcome to the show for the very first time Jason Mercer. Jason is the director of market analysis for TREB. Jason, welcome to the show.

Jason Mercer: Thanks for the opportunity.

Andrew la Fleur: Yeah, great to have you on. I know we’ve been going back and forth for a little bit and I’m really excited to finally get a chance to sit down and chat with you. Obviously when it comes to looking at the market and analyzing the market, you’re certainly one of the top, top people in this industry to talk to. So really excited to have your time here today. What don’t you start by just telling us … I mean, I’m just meeting you also for the first time, and then people listening are hearing you for the first time on the show. Maybe you can start by just telling us a little bit about your story and how did you get started in real estate, and how did you come to sort of becoming the director of market analysis here at TREB?

Jason Mercer: Right. Well, I started TREB in the first working day of 2009, so we’re getting on a decade now with the Toronto Real Estate Board. Before that, I was with the Canada Mortgage and Housing Corporation for the better part of five years, most of which were spent sort of being their senior analyst covering off the Greater Toronto Area. And so, there was a lot of partnership between CMHC and real estate associations and boards, so that’s how I got to know board members and also staff here at TREB.

And certainly with that experience looking at both the resale side of the market and new homes, I’ve been happy over the last decade or so, that can bring that sort of expertise to bear on the marketplace and also help order membership. But I think it’s also been a two way street in the sense that from an analyst perspective … It’s always easier getting the numbers and sort of crunching through those in one way or another.

But what I really benefit from at TREB, over and above that is the fact that I can speak to our members who are day to day representing buyers and sellers in the marketplace. And so you can get a good feel, a qualitative feel if you will, for what’s going on and what buyers and sellers are saying, and the questions that they’re asking. And so that really helps when you’re thinking about, what’s happened in the marketplace and even more importantly what you think is going to happen moving forward.

Andrew la Fleur: Yeah, so what is your role exactly? What does it entail exactly? Because you touched on something there. You’re sort of representing the board to the public in a way and saying these are what the stats are and this is what they mean, but you’re also dealing directly with TREB members i.e., realtors such as myself. So how do you see your role or is fair like you have that dual role?

Jason Mercer: Yeah, I think it is. I wear two or three hats here at TREB. When I first started it was pure and simple, we wanted to build up the type of statistical reporting that we have now. We have a number of different reports, we’re pretty visible in the marketplace, we’re able to not only produce public reports, but also a reporting platform for our members. We’re also able to bring that to bear in sort of a policy debate at different levels of government.

So we’re involved on the government relations front as well. But also in the background, I’m responsible for a lot of both MLS products and third party data products, sort of from the actual backend technology out to members. So I’m not a server guy, sort of not suppose IT guy, but I’m certainly involved on a day to day basis with sort of the delivery of the finished product if you will.

So whether you’re talking about products that are associated directly with the MLS or most recently, we’ve announced for membership that we’ll be implementing new electronic forms of the signatures package and that kind of things. So I touch sort of that side of it as well. But all of that one way or the other is sort of data focused and [inaudible 00:05:56] in different ways for different uses.

Andrew la Fleur: Right. Curious like when the government … I mean there’s been a lot of government policy changes over the past year, so it’s affected the real estate markets. Do you get involved with that? When they’re making changes and things are you consulted on some of these things? I mean I would think, being in your position as the head of market analysis for the largest real estate board in possibly the world, certainly in Ontario, you’d be consulted when changes are coming down the pipe or when they’re thinking about doing this and that. Is that the case?

Jason Mercer: We are. I would say from the CEO through our chief cover relations officer and then into the market analysis side, we’ve been very involved at different levels of government over the past few years. And certainly that came to, I had after the announcement of the foreign buyers tax out in British Columbia. So it was sort of midway through 2016. And at that point there was a lot of questions being asked, “What’s the level of foreign buying activity in the GTA? Do we need a similar series of policy moves in the Ontario context?”

And that really did sort of kick start a real round of discussions both at the provincial level and at the local level. And we’re happy to take part. I mean we … There’s been a series of round tables that have been hosted by the provincial government, we’ve been consulted on more than one occasion also on the prospects of things like a vacancy tax or what have you, at the city of Toronto level.

And so we certainly do have, I would say a good relationship with the different levels of government. We don’t always see necessarily eye to eye on some of the policy moves and decisions but I think we do … I think from the perspective of TREB we do a good job of putting forth our message both from an organization to government level, but also from a public relations perspective as well. And I think that has fed through into that debate.

Andrew la Fleur: Do you track … I’m curious, do you … Like for me or for people just in the public or agents like when we are looking at this … Those of us who are interested in looking at the statistics, not everybody is but obviously a lot of people listening to this podcast are. We sort of look at the stats from month to month as they come out. I’m curious, are you looking at the stats like daily  tracking things? Do you have that ability or do you really take it as a month by month, kind of quarter by quarter basis when you’re looking at the stats yourself, and trying to understand and keep on top of the market and everything that’s happening? Is it a day to day thing for you or is it sort of you view the market on a month by month basis kind of thing?

Jason Mercer: I’ll look at both cases, because a day to day sort of helps me start to think about how the month’s progressing and especially if you look at it historically, you can tell you if things are sort of unfolding as you think or not. I mean an interesting period was when the Fair Housing Plan was announced by the province in, I believe was April 24th or 26 of 2017. And there was pretty quick-

Andrew la Fleur: Response?

Jason Mercer: A notable change in people. I’m not saying … Not necessarily in the course of days but certainly over a couple of weeks you started to see an impact in the marketplace. So it’s important to do both. You can … When the frequency increases in terms of what you’re watching, you also have to filter out the noise a little bit because I mean you can get deals done … A whole bunch of deals done in one day just for whatever reason and then you’ll come back down. So you always have to approach it that way too. I mean one of the things-

Andrew la Fleur: The sample size becomes very important.

Jason Mercer: Yeah, I mean, even in like a mature condo market like Toronto. Like from a new home perspective when I was at CMHC, this is even example where monthly data can sometimes get volatile, is that … If you had two or three large say 300, 400, 500 unit building start in one month-

Andrew la Fleur: Right, can throw things off.

Jason Mercer: You could see a huge spike, and you really have to sort of manage how [crosstalk 00:10:30]-

Andrew la Fleur: When you put that information out there. I mean that’s one of my biggest pet peeves, [inaudible 00:10:34] when you’re responsible for reporting on this on the data as it comes up from month to month. And put that information out there, if you’re CMHC or somebody like that. And then the media will you know immediately jump on that and say, “Whoa, there’s a huge up,” or, “whoa, there’s huge down.” And it just makes for a very easy headline, but it’s not an accurate depiction of what is actually happening in the market.

Jason Mercer: And I know our members too … I mean we have a lot of sort of data savvy members that are certainly looking at the system on a daily basis, and they’re certainly up to speed on what’s going on. If not the GTA as a whole but then certainly in their sort of market area of choice. And so it’s always interesting to have, as I said earlier a discussion with these individuals and get a sense as to what their interpretation of that is vis-a-vis what they’re hearing from their customers either on the buying side or selling side.

Andrew la Fleur: Right. I’m curious, what’s the first number that you look at? Like when you say, take the month stats. Is there one statistic that you always go back to? Your bread and butter. Is there one number that you’re always watching to get a quick sense of what the market is doing and what the market is like?

Jason Mercer: I would say … I don’t know if I can put my finger on one, but I’d say for me like if you’re talking about sort of the public release of housing market information, probably the most important number that people talk about is price. But for me, if I’m thinking about the story surrounding price, I’m thinking about some sort of metric that captures both supply and demand sort of in one shot. And I think probably the best indicator for that is months of inventory or you could turn it on its head, the recipricol of that is sales to active listings ratio. And if you look at those indicators relative to your price streams, they really do move in lockstep.

And it only takes a month or two if you see a change, say in months of inventory for that to feed through into price, because people know it. They’re working with their realtor, they’re going around the neighborhoods that they’d like to purchase a home, and they realize there’s more signs on the lawn or there’s not. And so they realize pretty quickly that there’s a little bit of choice here, so if I don’t get one, two, three Jones Street, maybe I’ll get four, five, six because they’re both on the market right now. But if there’s only one sign, then you’re seeing tighter market conditions not unlike what we saw through … all the way through 2016 and for the first quarter of 2017 when there just wasn’t a lot of choice for people out there.

Andrew la Fleur: Yeah. It’s interesting to hear and something I’ve talked about on this podcast for years now and I’ve always told people is, look at the sales to listing ratio exactly. For me it gives … For me the way I’ll describe it is, it gives you sort of the temperature of the market, is it hot? Is it cold? And also sort of the direction of the market, is it moving up towards … Is it a seller’s market direction or is it a buyer’s market direction? In other words, are the prices likely to move up or the prices likely the down or stay flat? So yeah, the sales to listing ratio is great. It’s interesting that you’re … That’s sort of how you look at it as well.

So let’s say you’re at a cocktail party or backyard barbecue or something, you must get this question probably more than anybody else in Toronto, how’s the market? Because everybody knows what you do for a living. How’s the market? How do you answer that question? I mean, are you just absolutely sick of that question? Probably, but I’m sure you’re polite guy, you’re going to answer the question. How do you approach that question or what is your answer at the backyard barbecue?

Jason Mercer: Like right now if I were to go in for an early spring barbecue, let’s say I mean I’d be … It would really depend on what people are looking for. If you’re looking for a condo, like if someone were saying, “My kids are looking to purchase a condo.” I would say, it’s pretty tight out there. Like despite what you’re hearing sort of in general about the changes in the real estate market in Toronto over the last year, year and a half, you’re still talking about double digit price growth in the condominium apartment market.

And I think that points to two things. Number one, despite … If we were having this conversation three years ago, we would’ve been saying, “What’s going to happen when all these units complete and they come to bear on the condo market? Are we going to see prices falling?” And that kind of thing. I like to turn that on its head now and say, “Well, what would happen if we hadn’t seen that level of construction?”

Andrew la Fleur: Wow, that’s a great point.

Jason Mercer: We wouldn’t be talking about 10% average price growth for condo apartments in February. We would have been talking in the 20s and even into the 30s, because there’s a ton of people pointed at that marketplace. So traditional buyers that … First time buyers looking to purchase their first home, they want to live in the city of Toronto or another condo node around the GTA, Mississauga, Markham what have you. But now you’re also … I think we’re hitting that inflection point just based on price level that people that may have been focused more so on the lower rise side of the market or pointed to either that condo segment a little bit more, or townhouse segment, whether you’re talking about freehold or condo towns.

We really have seen sort of a bifurcation of the market, where we’re still seeing strong price growth for towns and even more so condos, whereas we’ve seen a bit of a flat line and I would say for detached and semis. Now some of that is because we’re comparing it to what was a real spike in prices, at the beginning of 2017. And so, that’s going to come out in the wash a little bit too as you move into the second half of this year. And I’d say certainly as we move through the summer and into the fall, there’s a very good possibility that we’re talking about year over year price growth across the board. But regardless, it’s going to be stronger at that higher density side of the market versus a singles and semis.

Andrew la Fleur: Right. A tale of two markets for sure happening right. We’ve got two months of data now, January, February for 2018. Is there anything that has surprised you so far in 2018?

Jason Mercer: Not really. I mean I expected to see a relatively strong dip in sales. And I expected to see prices down compared to where we were last year just because we were at extremely strong record levels last year, both in terms of sales and price. And if you annualize, seasonally adjusted and annualized first quarter sales last year, we were in the 120,000 range. So if we had seen that in 2017 that would have been … Yeah, I mean that would have been a huge increase over the record year that we’d seen in 2016. Extremely strong and as a result, you’re seeing very tight market conditions. You were talking about months of inventory, you’re talking about weeks or days-

Andrew la Fleur: Days, yeah.

Jason Mercer: … Days of inventory. And so, you’re seeing 30 plus percent your price growth. And so, we’ve come off of that. And so it’s not surprising that a year hence, that the level of price is down. But if you look at it … And we have our sort of standard set of charts that are on our website, and you look at the overall average price. Sure it’s down from where we were last year, but if you look at that compared to say the trend that you saw leading up to say 2016, is not that dissimilar. And that’s why I say that, it comes out in the wash as move into the second half of this year.

Andrew la Fleur: You do a lot of media and just yesterday you’re on CB24, and you’re quoted obviously a lot. I’m sure you read all the headlines and see what the media is reporting on the market. What are the current set of headlines, the current narrative that you’re seeing out there right now, what is it missing? Would you say.

Jason Mercer: I think the thing that often gets missed the most is that there’s not one housing market per se in the city of Toronto or the broader GTA. There’s a reason why we’re seeing stronger price growth in some segments versus others. And if we’re talking about 10% plus price growth across the board, we’d be having discussions about, are things moving too quickly? Or what have you. Because it’s sort of in one segment of the market, the condominium apartment segment, where price growth is a little bit … or over price level is not quite as high, it doesn’t get as much attention.

But I’ll tell you the thing that’s getting missed the most, is that even though we’re seeing sales 20%, 30% down, compared to what we saw at the beginning of 2017 we’re still talking about two and a half three months worth of inventory, which at best would be characterized as a balanced market. And so, that tells me that there’s still a real supply problem. And as we start to see some buyers moving off the sidelines, this year or even more importantly next year, we could be talking about tightening market conditions again. The thing is that, changes in demand tend to mask supply.

And I guess my biggest warning is that, don’t forget about the fact that supply remains an issue. And it’s clear, remains an issue on the low rise front, but when I’m seeing double digit price growth in this marketplace today for condominium apartments, it also tells me that there’s a supply issue that could become more of an issue on that condominium apartment front as we move forward, as more people start to shift towards that housing type outside of say first time buyers and what have you.

Andrew la Fleur: Right. I mean anybody … Yeah, it’s just very easy right now if you’re just catching the headlines, if you’re just talking to people on the street so to speak, that you could fall into the fall under the impression that the market is bad or it’s slow or the sky is falling kind of thing, but you’re right. If you just scratch a little bit below the surface, and if you take a little bit of a step back and look at the bigger picture of the last five or 10 years, and you take into account something as simple as … Let’s say five years ago to today there’s approximately 500,000 people more living in the GTA. Again, than the 100,000 per year number of the GTA, you quickly realize yeah, like you said, like things are actually not that bad. The market is maybe balanced as you said at worst. Overall it’s not really characterized as a buyer’s market.

There’s pockets maybe where there’re buyer market pockets, but mostly it’s balanced or seller’s market territory. So yeah, you’re right. I mean once all these buyers that have been sitting on the sidelines for the past six to 12 months sort of waiting to see how things shake out, eventually those buyers are going to enter the market and say, “All right, I’ve been sitting around enough, I’m going to jump in now.” And when that happens, we could be very quickly like you said, second half of this year.

I think once the headlines start changing in the second half of this year, and I’ve been saying once the year over year numbers start getting compared to July, August, September numbers from 2017, compared to what’s coming up in 2018, and those headlines start going from sales down 30% to maybe sales up or prices up. Once those adjectives start changing, I think there could be a major shift in the market in the second half of the year.

Jason Mercer: I think it’s true. And I think the other thing is that, the mix of listings I think has changed this to a certain degree as well. So if you think of some neighborhoods within the city of Toronto or the surrounding regions, I think there’s a lot of people out there and I’d argue … I don’t think a lot of our members would disagree with me that they have clients that are looking sort of for a typical house in these neighborhoods.

And a lot of times you’re not seeing that sort of typical, like say in central Toronto a two story built in 1930s, 1940s. And someone wants to buy sort of their first foray into that sort of segment of the market. And those are still tough to find, because the other thing that we’ve seen is that, a lot of the owners of those homes are deciding not to list to move up, they’re deciding to renovate instead.

And I think that presents another issue on the supply front, is that as we see more and more people deciding to renovate it, does two things. Number one, the listing cycle changes, the time when people decide to list their home for sale to buy another one, that extends. Then number, you’re changing the stock forever. So what used to be, say an entry level semi or single, isn’t anymore. You’ve added another [crosstalk 00:23:49] $250,000, $300,000 in improvements you’ve made it bigger. And so, now it’s in between that sort of entry level and say new infill home.

And so, a lot of these neighborhoods change and they’re not necessarily as accessible, say for a second round buyer or what have you. And I think that gets to the notion that, we need to look at a greater diversity of supply, terms like [inaudible 00:24:14] are around a little bit more, as we’ve had this sort of housing supply debate. And I think that looking from a policy perspective, I think that’s something that’s going to be talked about a lot, is in existing neighborhoods and new neighborhoods, how are we going to, from a policy perspective allow for a greater I guess diversity of houses in stock?

Andrew la Fleur: Yeah. Even we’re seeing that in condos too. As the condo market is maturing, like you said now we’ve got healthy number of condos that are greater than say 20 years old. A lot of those condos are also being renovated and a lot of values being added to those. Like if you’re a buyer and you’re kind of looking for a pocket of affordability in the market, “Oh, I’ll go over here and I’ll buy an old house.” Well, he’s not selling that old house anymore or he will sell it next year, but after he renovates it and makes the price go way up. “Oh, I’ll buy this old condo over here because it’s so much cheaper than a new condo.” Well, same thing, they’ve renovated that condo and the price has gone way up there as well, Yeah, it’s interesting to see that side of the market and just looking at the different factors and things that are driving prices up.

Jason Mercer: No, I agree and I think that as we sort of … We’re at more of an inflection point similar to say we’re I would say Vancouver was eight, ten years ago where more and more people are looking towards those-

Andrew la Fleur: Do you watch the Vancouver market closely?

Jason Mercer: I do and I grew up in Vancouver. I moved out here in 2000 to go to school but I do. And I think that to a certain degree as an analyst, I’m lucky to have the Vancouver experience to look at, because if you’re thinking about for example the tax on foreign buyers that we saw, it provided a bit of a case study for us in the sense that we could see that it had a very immediate effect, but then the effect started to unwind to a certain degree to the point where it’s having now a negligible effect on the Vancouver market in terms of both sales and price growth. And I would argue that a similar track probably would have unfolded in the greater role in Horseshoe but for added policy moves particularly the new OSFI stress test.

And also just generally speaking we’ve seen we’ve seen borrowing cost edge upwards but [inaudible 00:26:47] we probably would have followed a similar path, because we really weren’t seeing a lot of foreign buying activity in Toronto. And whether it was TREB research, where we’re serving our own realtors … And again, I mean that’s an important point to make. Before there was really any information in the marketplace about foreign buying activity in the GTA, TREB actually hired IPSOS to survey our own membership. Asking them, “If you’re acting on behalf of a buyer over the last year, what percentage of those buyers were foreign?”

And the number we came up with is 4.9%. That was sort of the average that came out of that survey. And there was a lot of scoffing about, “Well, the number seems really low.” But then the provincial governor announced their tax and then a couple months later they released the initial sort of land registry data, that they’re now collecting. But that initial round of data was essentially deals that were grandfathered, because they were just disclosing in say May and June, so those were deals that likely were signed the majority of them before the tax came in.

And we’re talking about a similar number of foreign buyers. So somewhere if you say foreign buying activity was between say four and six or seven percent, that’s a pretty small number especially when you think about the notion that our population doesn’t grow but for immigration. And so, the fact of the matter is that a lot of people took a step back that were foreign buyers per se, they were just taking a step back to see how the market was going to respond, and then you start to see them come back into the market last fall. But then we have the distortion from the OSFI announcement and I think we’re still working our way through that now.

Andrew la Fleur: Right. Yeah, interesting, interesting. I wonder if you put on your … A lot of real estate investors, condo investors listen to this show. I don’t know if you’re an investor or not personally, but if you were to put on your investor hat, looking at the market and the stats that you seeing right now across the GTA, where do you see as sort of the greatest opportunity to buy right now if you’re looking to invest?

Jason Mercer: I think certainly right now … An investor has lots to think about right now, getting back to government policy first off. Number one, and I always make this point, investment especially in the condominium apartment space has been very important. Because you have individuals that have put money at risk, at the pre-construction stage of development. They purchase those units, they enter into an agreement to close, in a number of years when those units complete … And there’s different things that they can do. They can decide to sell that unit. They can decide to hold onto and rented out. And either way, those investors have ultimately provided dwellings for end users.

Whether they sold them to an end user, whether they decide to live in them themselves eventually or they decided to rent it out. And so just the nature of the development process where there has to a substantial, a very substantial share of units sold at the pre-construction sale center before finance it could come online and construction could start, the investor plays an important role in that overall development process and that overall supply of housing process over time. So thinking about … If I look at the condominium apartments space today and I’m seeing still double digit price growth, if I look at the rental market today and I’m seeing sub-one percent vacancy rates for condominium apartments, it would seem to me that there’s still room for more supply to be added in that space.

Now if you’re coming at it from a longer term standpoint, and this is a warning that TREB has certainly put out there. If you’re coming from a longer term perspective, looking to say rent a unit out, you’re probably looking at that a little bit more closely now, and now that you could be subject to rent control guidelines that were brought on by the province. Because if your costs can escalate at whatever level they escalate, for a sitting tenant and you can only raise rents by the rate of inflation, I think that will give some investors pause, who otherwise would have brought more rental supply into the marketplace. They may be thinking, “Well, if I’m subject to additional guidelines, additional constraints, maybe I’ll look elsewhere for a place to put my investment dollar.” And so I think there’s still certainly room for the investor in the marketplace whether they are looking to sell a unit or looking to rent a unit out. But I think the investor has more to think about now.

Andrew la Fleur: Yeah, certainly more variables than there were before.

Jason Mercer: Sure.

Andrew la Fleur: Thinking about all the government policies that have been put in place in the past year or so. And talking about how … Going back to the beginning the conversation we talked about sort of a tale of two markets. I’m curious what your opinion is, do you think that the government in a way has screwed up the real estate market? The policies have distorted or twisted the supply or the demand side of things?

Jason Mercer: I think distortion is the best word for it. Any time you see sort of a large scale policy come online, you always see a distortion. There’s always sort of an overreaction and then sort of a claw back. And we actually hit sort of a double whammy in the sense that we had the Fair Housing Plan at the beginning of 2017. And we saw that downwards distortion and then we started to see sort of claw back and come back the other way towards the end of the year. But then it was hard to measure the exact change because we then ran up against the OFSI stress test was announced to come into effect on January 1st, and so that also prompted people to move into the market probably quicker than they would.

Andrew la Fleur: Potential, yeah.

Jason Mercer: Yeah, so now you’re distorting the other way to the high side. And I think we’re still just working through that, because you essentially have two things at play now, I think that … Well, three things. I think the Fair Housing Plan, the effects of that are starting to wane. But at the same time you have people that are now coming to terms with the stress test. They’re also just coming to terms generally with higher borrowing costs. And so, what’s that going to do is … well a couple things.

It doesn’t necessarily have to be a binary decision, people aren’t necessary going to say, “Well, I was going to buy and now I’m not.” But there’s a lot of people, I would argue right now that are saying, “I was going to buy this but now I can’t. And so I got to figure out what and where I’m going to buy.” Because that’s the choice. I mean, when affordability becomes an issue for one segment of the market people then decide, “Well, maybe I’ll look further afield or maybe I’ll look at a different housing type or some combination.” And it’s a big decision so-

Andrew la Fleur: If somebody wants to buy, it’s very hard to tell them not to buy, isn’t it?

Jason Mercer: True. I agree. I mean-

Andrew la Fleur: I think that’s a big part of the thing that the government misses with all these policies is they’re trying to change behavior, but behavior doesn’t necessarily work like that. People want what they want.

Jason Mercer: You change how you act in a marketplace, and I think that’s ultimately what both higher borrowing costs and also the stress test guidelines will change. Behavior it won’t necessarily change. [crosstalk 00:34:19] wants to buy.

Andrew la Fleur: And that’s when the distortion kicks in. And when things start to get twisted and things start to get wacky and weird, that’s when you start to make arguments against governments intervening in markets, because it just makes things weird and distorts things and twist things. And then we have to unwind from that unintended consequences. It’s like whack-a-mole. You hit it one guy down over here and he pops up over there. You can’t buy this house anymore, buy this condo over there. You can’t buy in Toronto, buy in Mississauga.

Jason Mercer: It’s true. I mean nothing cause more distortion in the marketplace than either an actual changing over of policy or the potential for change. And sometimes the potential for change is even more interesting if you’re tracking a market because sort of people now are on the fence. And they’re thinking-

Andrew la Fleur: Yeah, indecision.

Jason Mercer: “Well, maybe I ought to wait, maybe I shouldn’t wait. Maybe I should speed up.” And so you see people sort of acting differently and a lot of times that can lead to indecision. And so it can lead to sort of a temporary lull in the marketplace. And to a certain degree, you’re seeing that now I would say. And with people saying, “Look I want to buy but I don’t really know what, I don’t really know where. Let’s kind of see how the market unfolds over the next couple months too.” And so, that’s why I’m saying that probably the first half of this year, you’re not going to see a stronger sales that you see in the second half, just because people are going through that discussion like Saturday morning, sitting around having a coffee and breakfast. I mean I would say that’s a pretty common discussion in a lot of households around the GTA.

Andrew la Fleur: Right, right. It’s easy to get caught up in the sort of month to month statistics and what happened this week or this month and you know jump to conclusions on that, but I’m curious, exuding out on the market, what are you tracking long term? Like what are you most interested in watching that other people are not watching in terms of, where is this market really going in five years, in seven years, in 10 years? What are watching or what are most interested in and curious about that other people are missing because they’re just obsessed with this month’s price or this month’s sales?

Jason Mercer: I think one of the interesting things to look at over the next couple of years will be sort of the makeup of the new condominium apartment lodgings, because I think that you’re … Whereas in the past, sort of larger family size units represented a very small share and were oftentimes the last units to be sold in a given pre-construction context. I think both builders and say investors who are taking a longer term view would be more confident I think in looking at sort of the larger size units. But it does represent a risk, on that front. So it’ll be interesting to see how quickly that comes on.

Again, I mean this is where we benefit from looking at the Vancouver experience too in the sense that now not only in the downtown core, but also in a lot of the suburban areas you have a larger, what would be arguably family size condominium apartments that sell very, very well, at the sales center either, end users purchasing at the sales center or investors purchasing at the sales center because they’re confident that there is going to be that family that wants to purchase that larger unit-

Andrew la Fleur: Or rent it.

Jason Mercer: Or rent it. And so … We haven’t seen a lot of that to date but I would argue in sort of the pattern of development, we’re probably about a decade behind what we saw in Vancouver. And so, we’re probably sort of on the vanguard of that here at the GTA. So it’ll be interesting to see. I think that would be one thing, is to look at sort of unit mix and sort of what the options are on that front.

Andrew la Fleur: Interesting. Talking about the rental market maybe as we’re getting to the end of time here, but I’d like to just hear your take on the rental market. We haven’t touched on it. But just the fact again that rental prices and you guys track this at TREB now with your rental reports. Rental prices just soaring in double digit rental increases in a lot of markets. Some markets of the GTA and condos especially. What’s your take on that? I mean what does that tell you? What story is that? What is that indicative of as you’re seeing this sort of unprecedented time where rents are growing huge, and in some pockets prices are also growing?

Jason Mercer: Yeah, I think number one it’s indicative of a strong regional economy, that you got people that want to move here and either buy a home or rental a home. That’s number one, it’s always a plus that you’re seeing that sort of demand. But on the downside, a vacancy rate of less than 1% isn’t sustainable if you want to say you have sort of a balanced rental market. And so it’s clear that we need more supply. And so, I think we are starting to move down the road to see more purpose built rental are being built by a larger scale investors.

And I’d argue that probably some of that at least is in doubt now given new rent control guidelines or at least it’s slowed down the process because now that discussions going to have to be had with the province and how can we get this done and have it make sense from a pro-forma perspective? But really where all the stock has been added, and if you look at the CMHC rental market report, where the track stock. Really where all the rental stock has been added, it’s been the condominium apartment front. In the sense that you have individual investors buying say, one or two units and they rent them out. And so, they too I think are going to be taking a closer look at things given [crosstalk 00:40:15]-

Andrew la Fleur: As you said before. Yeah.

Jason Mercer: That’s right and also given the fact that a condominium apartment investor, many of whom who have a quite a long term perspective are often viewed in a bad light. And I always come back to it that, you don’t see the supply of condominium apartments that we have today or the stock of condominium apartment today but for the investor. And you certainly don’t see the growth in rental condominium apartments but for the investor. And so, I think that, that’s something that we … Policymakers, different levels of government have to be mindful of. Is that without the investor, we have a tighter rental market today than we already have.

Andrew la Fleur: Yeah, yeah. It’s like you said earlier, three years ago so many of the conversations were around, “Oh, we’re building too many condos. Oh, what’s going to happen when we finish all these condos? We’re going to have a glut of condos.” Well, here we are today and rents and prices are soaring both. Obviously indicating an under-supplied market. So yeah, where would we be without all these investors? We need to encourage investment.

And many developers have been arguing this, we need to find ways to actively encourage investment in the rental stock, be it through the … what’s been the only source of new stock in the past 15, 20 years, which is individual condo investors buying condos and renting them out, or hopefully through more institutional investors building actual rental apartment buildings, which as you said is now … For a lot of them it’s really up in the air, because they’re saying, “Well, do I really want to go ahead and build … Even though the rental markets very stronger, do I want to go ahead and build and invest hundreds of millions of dollars into this asset when I can only increase rents by 1.8%. My costs are projected to increase by much more than that. So the how does that make sense anymore?”

Jason Mercer: That’s right. It adds another layer of risk. I mean anytime you’re investing there’s a certain level of risk, whether you’re an individual investor or an institutional investor. But if you add layer upon layer, you potentially start to look at other options. And I think … Speaking we have a great regional economy. We’ve got an unemployment rate that’s at the lowest level in many, many years. But if you talk about the long term competitiveness, the supply argument is paramount. Whether you’re talking about the supply of ownership housing or the supply of rental housing, because that’s something that companies look at, is there an adequate supply of housing for a reasonable cost? That …

Andrew la Fleur: Amazon.

Jason Mercer: That people can take advantage of, it’s important.

Andrew la Fleur: Did anyone from Amazon call you?

Jason Mercer: No.

Andrew la Fleur: Just curious. Maybe you had some inside information there, they want to get some stats from you or something. But yeah, I think most people would agree the chances of Amazon coming here is pretty low, but it’s nice to be nominated.

Jason Mercer: I think just to be … The fact that you talk about the Google project, you talk about Amazon it just speaks of where Toronto is globally in terms of a competitive center where people want to do business in and want to do business in sort of the high value added sectors of the economy.

Andrew la Fleur: Exactly, Jason it’s been awesome chatting with you, really appreciate your time today. Hopefully we can have you again on this show soon. If people want to get a hold of you, or read your reports, or learn more about the work that you’re doing, what’s the best way for people to do that?

Jason Mercer: All the reports, you can access at And certainly you can access me through there as well.

Andrew la Fleur: Great, We’ll include a link to that on the show notes for this episode. Thank you so much Jason.

Jason Mercer: You’re very welcome, thanks for having me.

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