Are Single Family Homes The Best Investment Right Now? | Real Estate In 2025 And Beyond

Happy holidays everyone. Hope you're taking some time off this holiday season to relax. So here we are, it's the end of the year, so we thought that now might be a good time for us to share with you our thoughts on where we think the market's going to be headed in the coming year and beyond. So let's get into it. Thanks for watching, this is Andy from Sweet Editions. If you're new here, we're an architectural design company helping homeowners and investors create more housing and generate wealth. Over the past decade or so, we've helped about 400 clients legally convert their single family homes to multiple units, boosting cash flow and increasing house value. Additionally, we've been involved with many projects ourselves doing small infill development projects and we also have a VIP investor community. If you're interested in being part of that, check it out with the link in the description below. Additionally, it would really help us out if you can give us a like and subscribe to this channel so that we can invest more into these videos and give you the information that you need. Okay, so before we get into it, of course, I'm going to give you a disclaimer that this is not investment advice. This is me looking at all the data and trying to extrapolate the important information and make educated decisions for myself for my own investment journey. I want to share that with you. Of course, you should do your own research and come to your own conclusions. So with that out of the way, let's get into it. Now, I've put together a video a few months ago with a few main points as to where I think the real estate market is headed in the long run with the context of the types of projects that we do, which are multiple unit conversions. Now, the long-term trajectory has not changed, but I am going to highlight those items. Additionally, I want to share with you a recent presentation that I did for our investor community, really focusing in on the value of single family homes in the greater Toronto area and Ontario and what that means going forward. Okay, so let's first recap some of the items that we discussed in that video from a few months ago. The first thing is that we all know interest rates are going down. As a matter of fact, the Bank of Canada just lowered their rates by 50 basis points a few weeks ago. Given the weak economy as well as the very weak Canadian dollar and the threat of tariffs in the United States, it seems like the government and the Bank of Canada is intent on keeping rates low to spur the economy. Even if the Bank of Canada rates are low, it may not necessarily mean the mortgage rates are going to be low as well because that's based on the bond market. Okay, so those are things that you want to keep an eye on. Now, the one thing that we talk a lot about and we feel that's very important in the grand scheme of things is the debt levels. Debt levels are very high on both sides of the border. In the United States, they recently surpassed $36 trillion in overall debt. In Canada, right now, I think it's $1.25 trillion. Now, it's important to know that these debt levels means that the government has to figure a way to monetize the debt. So, in the long run, we feel that there's going to be continued money printing as well as monetizing of that debt. And at very high interest rates, it's going to make it very difficult for them. Now, the other point is a reduction in immigration. Now, there's a lot of confusion with regards to immigration. A lot of that reduction is going to be for folks that are on temporary work visas. A lot of international students, there's going to be a reduction in that. But the overall target for permanent residents and citizens is still going to be relatively elevated. So, in the past several years, it's been about 500,000 and they've reduced that target in 2025 to 400,000. And so, we can expect that there's still going to be demand for desirable properties for these individuals. Of course, there's a slowdown in construction. So, earlier this year, Ben Rabideau put out a report that for every new single family home that was built, there's essentially 20 new Canadians. So, we know that there's not enough single family homes to support the growing population overall. And of course, the stalled condo market is another big factor in the overall real estate market. And this is something that's very interesting because even though right now we know that there's a high level of inventory in the condo side of things, there's actually not much new construction that's happening right now. So, there's a report that in 2028, there's going to be no new units that are going to be brought to the market because there really hasn't been much construction in the past couple of years. So, in the next few years, once these units get absorbed, there's going to be a real supply in all real estate condos and single family homes. But it's going to be more of an issue for single family homes. That's what we're going to get into. Let's talk about where we are in the current market. So, we're at the end of December right now. Obviously, we don't have the TREB data yet. But for November 2024, real estate sales have definitely picked up. And from a price perspective, it's gone up 2.6% year over year from November of 2023 to an average of 1.106 million. So, this is the average across all property types. So, we know that condos have come down significantly. So, basically, this data tells us that there are other real estate that is holding up or even increasing value. And that would be single family homes. So, what I want to say is that it's really hard to look at where things are going to be headed in the short term. It's very difficult for us to give a projection on what things are going to be like in the spring or even in 2025 because there are so many factors and there are so many potential fluctuations. Obviously, we know that interest rates are coming down with all of the new incentives from the government for mortgage insurance and things like that. That's probably going to prop up the market, but we can't say for sure. But what we're pretty comfortable with, what I'm pretty comfortable with, is looking at the long term and seeing where we think real estate prices are going to be in the long run. And we think that it's going to be either remain elevated or potentially go even higher. You know, a lot of those increases are going to be in nominal terms because of the weak Canadian dollar. So, that's for our group is called the Single Family Home Gold Rush. And at some point, I'm going to probably do a more detailed video for you guys. But I wanted to give you the main points so that you can take this and consider these things. And if it's something that makes sense for you this coming year. And, you know, these are thoughts that I've been having in my head for several months. And I really thought that it would be a good idea for me to put this together in a detailed presentation and share with the group. But I'm going to give you the highlights. Essentially, I feel that there's a small window of time in the next few years to still be able to acquire single family homes for many, many people. Obviously, for a lot of people, it's already out of reach. But for some people, you know, they may have the capital available or they may be able to work with family members. If you've been an investor for a while, you might be able to still do an acquisition. There's also incentives, as we mentioned earlier, from governments for first-time home purchasers. So if that's something that works with you and you could potentially work with a family member to get into the market, it might be a good time. So the the crux of this presentation is three things. The first thing is that the supply is dwindling. So there's going to be a reduction in supply. There is already a reduction in supply. At the same time, there's going to be an increase in demand. And then taking all of this information, what are some of the things that you can do to sort of take advantage of the overall conditions? So the first thing is let's get into the dwindling supply. First of all, it's really not feasible for many developers to build brand new single family homes. There's been a recent article which interviewed about a dozen prominent Ontario builders, and a lot of them were talking about really 2025 is just about survival. So essentially keeping the lights on, not thinking about huge growth or anything like that. There's been the lowest start of detached homes since 1955 in the past couple of years. And one of the factors that really pushed this is challenges for profitability for developers. Not just the rate environment that they've been faced with in the past couple of years, but also the development charges. So Mike Moffitt put out a report indicating that development charges have increased 6,000% in the past 25 years. So unless you're involved in the project where development charges are exempt, then a lot of times it just really doesn't make sense to build. It's not profitable. So that's why a lot of projects are just being shelved right now. The second factor for the dwindling supply is that cities simply cannot afford more suburban sprawl. So they've put out many reports indicating that we need to use the land more efficiently. The ongoing expenses for suburban subdivisions are a burden for the city finances. They're already having a lot of challenges with the existing suburban homes that were built in the past 50 to 70 years. And so they really can't afford to financially support more of this construction. Because a developer that builds this, they sell it to the homeowner and they're basically out of the picture. The homeowner obviously pays property taxes, but that's nowhere near enough of what's required for the city to essentially maintain that forever. Okay, so this segues us into some of the incentives for density. So this is happening at all levels of government, right? So we know about the Provincial Bill 23 mandating three units for every single family property. Many municipalities have gone above and beyond. So for example, the City of Toronto with their multiplex policy allowing four units plus a garden suite. And many other municipalities are starting to allow four units and some even allow two units in the detached ADU garden suite. From the federal level, we mentioned earlier that there's many incentives. And the big one I feel is going to be mortgage insurance for additional suites. That's going to be the one that is up to $2 million, 90% loan to value based on the value of a home with all of these additional suites that are added in. So you can see that the trend is really adding in these additional units. Now let's talk about the increase in demand. So while there's a reduction in supply, there's also going to be an increase in demand. And why is that? So the first thing is a lot of investors and developers that are going to be trying to properties. So a lot of the projects that we do with our clients, a lot of you folks out there want to be able to purchase a home, convert it into two, three, four units, garden suites, or potentially even doing something bigger like tearing down the property, severing it, build 10 units, for example. So there's going to be a lot of that going on. There's also multi-generational households that are going to want to reside in a single family property and potentially convert it to multiple units. So from 2011 to 2021, there's been a 15% increase of multi-generational households. And that's going to continue because there's going to be a lot of people that are going to have their elderly parents stay with them or their adult children stay with them. So we're going to see the demand from that side of things. And then of course, there's going to be affluent families that just want to purchase a single family home and live in it. As a matter of fact, a lot of newcomers that are in Canada, they have cash from their country that they're able to make purchases a lot of times with a very low mortgage or even without a mortgage. So there's always going to be that demand from people who have the means to be able to purchase a single family home. And then the last thing is there's going to be demand just from an inflation hedge. So I'm going to talk about that in a little bit. But now I'm going to talk about what are some of the things that you can do given the reduction in supply, given what's likely going to be an increase in demand. Of course, we talk about the max suite strategy, which is very simple. You take a single family property, convert it to multiple units, possibly having a garden suite ADU. If you want to go above and beyond that, there are infill opportunities where you can sever the lot, build more, or you can assemble a lot and build a big structure if you want to get into larger developments. And then you really want to take advantage of the overall policy shifts, any public funding and tools that are available. So I'll quickly share some of those with you right now. So what are some of the policies? We have the multiplex policy in Toronto, as we mentioned. As of right, four units. There's going to be what's called a major streets policy, allowing potentially up to 60 units on some lots that are in high-density areas. We're going to do a video going over a lot of these programs that are going to be coming up in 2025 and beyond. Of course, the mortgage rule changes from CMHC. There are many funding programs such as MLI Select and the low-interest secondary suite loans program also from the CMHC. There's going to be flexible financing options. A lot of the banks are going to be getting into it. We know that even RBC is going to be providing funding for additional suites. And then the other interesting thing from the federal government is the housing design catalog. Hopefully that's going to get issued this year and hopefully that's going to help alleviate some of the pains from the building permit process. So we've covered dwindling supply, increase in demand, and what are some of the things that you can do to sort of take advantage of the overall conditions. Okay, so I'm going to shift gears here a little bit and talk about some of the big picture macroeconomics that I feel will likely keep real estate prices elevated or significantly higher in the coming years. One chart that I really like to look at is the M2 money supply in Canada. Okay, so this is basically credit growth and this ties very closely with the growth in our real estate market. So if you look at this chart here, the M2 money supply in Canada was $479 billion in the year 2000 and in 2024 it's $2.6 trillion. Okay, so that's slightly over a 5x increase in the M2 money supply. Now if you overlay the price of real estate during the same period of time in the year 2000, the average home, so this is all properties, right? Condos, single family homes, everything. The average price of a and in 2024 it's $1.1 million. Okay, so this is also slightly 5x what it was. So this overlays perfectly. The average house price pretty much matches up with the M2 money supply. So people like to think of prices doubling but they don't really think about, you know, it's really the value of our dollar decreasing. I want to show you something here. For those of you who are old enough, this is a $50 bill from the 1980s. I don't know if they used this in the 1990s but this was from a friend whose parents, they're very old school and they like to keep a lot of cash and they've kept this from the 1980s. And, you know, the sad thing is that, you know, if they at least put this in the bank account they probably would have gotten, you know, 5% interest rates a year but they've really just kept this at home. And this probably will just purchase 10% of what they were able to purchase when they had these bills back in the 80s or 90s, right? And so it's worth noting that it's not really things going up in price but your value of your dollars going down. And so that's kind of what I'm thinking is the reason for the increase. At the same time, we're not getting the same amount of inflation in our wages which is why things feel so much more expensive. Now, if you look at the property that's, you know, increasing value from the year 2000 to 2024, going up five times, that's like a 7% annual rate of return. However, most people are not purchasing that property with cash. Most people are using a mortgage and, you know, assuming you're an investor you're probably putting 20% down. At 20% down over that period of time, your annual rate of return would have been over 30%. Okay, so that's something to also keep in mind. Now, is that going to happen going forward? You know, probably not. You know, you may not get 7%. Maybe overall it's going to be 5%, 4%, 3%. Even if it was at a lower level, because of that leverage, it really magnifies the gains. Now, that applies to all property types, okay? However, in addition to just purchasing single-family homes which we think are going to outperform the general market, there's additional things that you can do to add fuel to that rocket. And we did a video a while back called some of the location dynamics that you can use to find the right property. So, there's three location dynamics. The first one is at the municipal level. Is that city, does that city have the right fundamentals in terms of population growth, employment opportunities, and progressiveness towards housing policy? The second location dynamic was the neighborhood itself. Is it in a desirable neighborhood? Is it close to transit? Are there amenities close by? Are there other developers that have already gone ahead to establish that neighborhood? And then the final thing is looking at the property dynamics itself, that lot. Is it a large lot? Is it a corner lot? Is it something that you can subdivide or at least convert to multiple units in the ad suite? So, implementing those things is going to, I feel, allow you to outperform the market even more. So, that's really the idea of this presentation that I gave called the Single-Family Home Gold Rush. Think about, again, I'm going to qualify this by saying that this is not investment advice. Please do your own research. This is what I feel makes sense for me, and this is how I'm sort of allocating my investments accordingly. All right, so hopefully that was helpful. We will be doing more videos this coming year. I want to thank everyone for watching this channel, watching these videos. I really appreciate it. All the best. Happy New Year. All the best for 2025, and I hope to see you soon. As always, thanks for watching. See you in the next video. To learn more about the MaxSuite strategy, download our free guides at suiteeditions.com and get started. And if you enjoyed this video, here's another great one for you.