Ontario Profiles

Economic

Sector Overviews

ON is strong for manufacturing and business/financial services. ford, Chrysler, GM, Toyota, and Honda chose ON for manufacturer activities. However, declining market share for the big 3 (Ford, Chrysler, GM) will pose challenges in future. ON has the largest agriculture component of any other province. In addition, forest products and mining remain vital sectors in provincial economy. Also tourism. The housing market demonstrated continued strength (the past decade) both in residential and commercial segments.

Growth/Prosperity

Ontarians have enjoyed prosperity due to higher productivity and increased returns on investment, growth in personal income and gains in savings. Province GDP is 2-4% range (past 20 years).

Employment

4 out of 10 workers highly skilled over 60% completed post-secondary education.

Other Factors

The ON economy benefited from lower long-term interest rates. Certain factors can impact the long-term economic outlook, including:

the value of Canadian Dollar (rising can impact exports)
Interest Rates (increase negatively affects GDP)
the general economic climate in the US (90% exports)
Oil Price fluctuations (increase is negative factor for ON, the province imports oil and gas)

Demographic

Population/Immigration

ON has a population - 13 million (most populated province). 3 out of 10 Ontarians - foreign-born. 10% of population arrived in here within 15 years. During the past 20 years population grow 1.5% per year.

Growth Patterns

Population growth is not evenly distributed through the province. GTA is the most popular destination for immigrants (60% of all provincial growth). Most growth has occurred in urban areas (beyond GTA) - Central, Eastern, Southwestern ON.

Age Distribution/Dependency

55% - 25 to 64 age. 12.5% - 65+. Census - is a periodic count of the population by the gov. Full census - every 10 years, part census - every 5 years.

Geographic

Size/Boundaries (Границы)

ON is the 2 nd largest province after Quebec.

Cities/Towns

More than 88% of all Ontarians reside within major metropolitan centers. While the GTA is by far the largest, other cities provide diversified business opportunities and high standard living.

Demographics and The Real Estate Market

Population Size/Growth

Assuming current patterns continue, net migration will be the most significant factor in ON's population growth. Net migration is the difference between entering vs. leaving the province people within a specified period of time.

Real Estate Market Implications (Последствия)

Bew house construction is a major source of employment and is key in addressing pent-up demand. Home ownership is a high priority for the most Canadians with 2 out of 3 families owning own home. Population growth is now focused in Southern ON - Central, Southwestern, and GTA.

Population Composition

The 2nd key demographic factor impaction ON is aging of the population. More and more baby boomers enter 65+. The shift to an older population brings new demands for those involved in real estate. New retirement communities are appearing in many ON cities. This demographic change affects commercial real estate (clinics, healthcare support services etc.). Housing developments (stairless entries, elevators, wider halls etc.). Residential developments (security, fitness centers, social events etc.).

Understanding Value

Objective Value - the direct cost of creating.
Subjective Value - value that exists in the mind of buyer/seller.

Value in Exchange - the probable price at which a commodity trades in the free, competitive and open market.

Value in Use - involves the economic good to its owner, which is based on the productivity of economic good to a specific individual.

Market price is the price paid for a specific property, while market value is an estimate of value arising from many sales (market prices). Market value is based on judgment arising from various sales in the marketplace.

Investment Value - defined as the value of an investment property from the perspective of a specific investor.

Principles of Value

Anticipation (Предвкушение)

The value is created by the anticipation of benefits to be derived in the future. Value - present worth of future benefits.

Balance

The value of a property is governed by the balance found in the particular marketplace. Too much or too little of any one of the factors tends to reduce value.

Change

The principle of change is fundamentally the law of cause and effect. This principle illustrates the fact that a value estimate provided by an appraiser is only valid as of a specific time.

Competition

Excessive profits will tend to create competition that, in turn, has a negative impact on profits.

Conformity (Соответствие)

Stating that land must be utilized to reasonably conform with existing standards of the area in order to maintain max value.

Consistent Use

When improved land is in transition to another highest and best use, it cannot be appraised with one use allocated to the land and another to the building or other improvements.

Contribution

The value of any component of a property is measured by how much it adds to the net income, by reason of its presence, or deducts from the net income by reason of its absence.

Increasing and Decreasing Returns

When a successive increase of 1 or more factors of production is added to fixed amounts of the other factors, an initial improvement of income in dollars, benefits or amenities occurs, to a point of max return, followed by a decrease in incremental value in the relation of the value of the added factor.

Progression

In the case of dissimilar properties, the value of the poorer property will be affected positively by the presence of the higher value property.

Regression

Between dissimilar properties, the value of the better property will be affected disadvantageously by the presence of the poorer property.

Substitution

Buyers will consider the alternatives available to them, that they will act rationally, and that the time is not a significant factor.

Supply and Demand

If supply increases and demand stays the same - prices will decrease. If demand increases and supply stays the same - prices will increase. If both increase or decrease - prices will remain stable.

Surplus Productivity

The land is valuable according to the surplus productivity imputed to it (after all expenses necessary to the operation have been paid and the capital invested in improvements has been satisfied).

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Chapter 8: Mortgage Mathematics