photo by: Jorge Vasconez (@jorgeluis)

We're admittedly 1 week behind posting this information but we've got some excellent critical analysis of March's statistics...

We'll start with the video version. But if you're someone who prefers the written word, we've put the whole report below. 

In March the Toronto residential real estate market clearly demonstrated its resilience. Notwithstanding the provincial government’s attempt to engineer the market, it continues to respond to forces that have nothing to do with the Ontario Fair Housing Plan. That’s due primarily to the fact that the underlying basis for the province’s measures, namely foreign buyer speculation, were unfounded. Since the implementation of the Fair Housing Plan it has been demonstrated that less than 5 percent of all purchases of residential properties in the greater Toronto area involved foreign buyers.

The real and fundamental factors driving the Toronto and area marketplace have remained unchanged: low unemployment, rising wages, a growing (albeit modestly) economy, and most importantly, the combination of low supply and continuous immigration into the greater Toronto area. Ultimately what will control the Toronto residential marketplace is the market itself, specifically the cost of housing. The Fair Housing Plan, to its credit, did act as a wake up call to buyers, but ultimately it will be the cost of mortgage money, qualifying for mortgage financing, rising average sale prices (due primarily to a lack of supply) that will control and moderate
the residential resale market.

In March the lack of supply was clearly demonstrated by the rising average sale price. March saw an average sale price for all properties in the greater Toronto area of $784,558, an increase of 2.2 percent compared to January, and almost 7 percent higher than February’s average sale price. Demand was demonstrated by how quickly all listed properties sold in March. The average days on market was only 20. That is a pace consistent with the most aggressive seller’s market. In some areas of the market, particularly in the 416 region, the days on market was even lower.
All detached properties in the 416 region (City of Toronto) sold in only 17 days. All semi-detached properties sold in a shocking 13 days, and in only 11 days in Toronto’s eastern regions. All condominium apartments in the City of Toronto sold in only 17 days. As hard as this is to believe, this is a pace not that different from the delirious pace of the first four months of 2017.

When the market moves at the above-noted pace, it is not surprising to see average sale prices rising. In the City of Toronto all properties, including condominium apartments, sold for 101 percent of their asking prices, coming in at $817,642. All detached properties sold for 100 percent of their asking prices, coming in at almost $1,300,000. Unbelievably semi-detached properties sold for 107 percent of their asking prices, the average sale price exceeding $1,000,000. Even condominium apartments sold for 101 percent of their asking prices with an average sale price of $590,000. In Toronto’s central core, the average sale price for condominium apartments was $656,836, not that much less than average sale price for all property sales in the greater
Toronto area. Condominium apartment sales are now taking place at approximately $1,000 a square foot.

The ultimate reason for these incredible numbers is the lack of supply. Notwithstanding that the number of active listings in March (15,971) was 103 percent higher than the 7,865 properties available last year, the bulk of the available listings are located in the 905 region. Of the 15,971 available properties for sale, 75 percent are located in the 905 region. In the case of detached properties, 83 percent of all detached properties are located in the 905 region. The situation involving condominium apartments is reaching crisis proportions. In March 1,573 condominium apartments were reported sold. At the end of March there were only 1,854 condominium apartments available for sale, most of them in Toronto’s central core. If this rate of absorption
continues, there will be almost no product for buyers. This is particularly troubling because condominium apartments have been the only affordable housing type available to buyers.

Detached properties were the only housing type that continues to lag behind the rest of the Toronto market. Sales were off, year-over-year, by more than 40 percent, and average sale prices were off by almost 18 percent. The explanation is self evident. During last year’s delirious market, mortgage money was historically cheap, and relatively accessible. Since then not only has mortgage money become more expensive – three bank rate hikes in the last year – but new mortgage stress testing for conventional mortgages makes qualifying substantially more difficult. It should also be noted that during the January through April real estate madness
of last year’s average prices reached astronomical levels, levels that simply could not be sustained.

Going forward we are not likely to see much change in Toronto’s residential resale market. The key to change is more supply. There is no indication either at the provincial or municipal level that measures will be taken that would have a positive impact in this area. For political reasons governments may attempt further engineering, but any such actions will have a limited impact on the market, but are likely to have broader, negative economic impact. Without dramatic change to Toronto’s available supply, Toronto will become one of many other cities in the world that because of their political and financial stability where real estate ownership will not be
available to everyone. That begs another question: what about the rental supply?

The residential resale market in the first month of 2018 is, in a phrase, a tale of two markets. Actually, that is not entirely true. It is a tale of many markets, a fractured landscape that varies by housing type, and, importantly, by location.

The overall data for the greater Toronto area indicates that compared to January 2017 sales declined by 22 percent, from 5,155 last year to 4,019 this year. The average sale price also declined, from $768,351 last year to $736,783. A closer look at the data reveals that, except for detached properties, the decline in average sale prices was almost exclusively in the 905 regions. The 416 regions, or the City of Toronto, actually experienced price growth.

In January 2017 the average sale price for all properties sold, the bulk of which were in the 905 region, was $770,745. This year the average sale price declined to $736,783. Last year, the average sale price in the 416 region was $727,928. This January the average sale price increased to $766,616, an increase of 5.4 percent. So, whereas prices are declining in Toronto’s outlying areas, within the city itself, they continue to increase.

The only housing type in the 416 region that saw price reductions was detached properties. The decline was modest at 3.9 percent. There is no surprise in this decline. Detached properties in Toronto in early 2017 had become exceedingly expensive. Detached properties continue to be expensive, the average sale price coming in in January at $1,283,981. The high end of luxury properties sales had an overall decline in January. Last year 166 properties were reported sold having a sale price of $2 million or more. This year that number dropped to only 90.

There are a number of factors responsible for this decline. Firstly, the run up of prices in early 2017 for detached properties, particularly in the City of Toronto, was simply unsustainable. Secondly, we were greeted with new mortgage stress testing rules in 2018 for conventional mortgages (all sales over $1 Million must be conventional – that is the minimum deposit required by buyers is 20 percent of the purchase price). Early indications are that the new mortgage stress tests reduce the purchasing horizon of buyers by about 15 percent. That means that buyers will either buy lower priced properties, or pay less than they could have before the new stress testing. Lastly, there is an uncertainty in the market place that is resulting in hesitancy. There is a belief that prices may continue to decline, so why buy now.

Active listings are also up substantially in early 2018. Last year at this time there were only 5,034 available properties for sale, less than the total number of sales that were achieved in January 2017. Active listings this year have increased by 136 percent, to 11,894. Interestingly, the increase in active listings is heavily concentrated in the 905 region.

For example, last year there were 211 semi-detached properties for sale in the greater Toronto area. This year that number has jumped to 765, an increase of 262 percent. By comparison, in the City of Toronto last year there were 102 semi-detached properties for sale, and this year there are 219, an increase of 115 percent, substantially less than the increase in the 905 region. In fact, in the case of semi-detached properties in Toronto, even with the increase we have experienced, the supply remains insufficient to meet demand. It is for this reason that in Toronto’s popular eastern districts (Riverdale, Leslieville, Beaches) sales continued to take place at more than 105 percent of asking prices, and on average in only 16 days. Sales in the Greater Toronto market place took place on average in 32 days, 68 percent longer.

As has been the case for a number of months, condominium apartments sales continue at a blistering pace, albeit not quite as fast as last year. Sale prices have been sky rocketing. Last year the average sale price for condominium apartments in the Greater Toronto area was only $442,598. This year it is $507,492. In the City of Toronto the average sale price has jumped from $471,409 to $543.279. Prices have reached challenging levels in Toronto’s central districts. Last year the average sale price was $529,000. That same condominium apartment will now cost you $616,322, almost 17 percent more than last year.

As we move into February the resale landscape remains fractured. It will continue to remain in this strange state until May, when comparisons on a year over year basis become more balanced. Until then comparisons will be made with the first few months of 2017, the most incredible months in Toronto’s resale market history, and unless the various markets in Toronto’s overall landscape are examined, the variances will appear very negative. It’s that psychology that will be at play for the next few months.

Prepared by: Chris Kapches, LLB, President and CEO, Broker

Due to the team being sick this week and an unforeseen audio glitch that's prevented us from reviewing this week's meeting, we are unable to bring you the regular weekly meeting recap. We do however have the latest infographic for November's numbers along with Chris Kapches' analysis. We hope that will suffice until next week's meeting. 

As always, please feel free to leave a comment below or get in touch with us directly. 

November finished strong but in a fractured fashion. To use a cliché, not all markets were equal in November.

The City of Toronto (area code 416) continues to strengthen, following the market declines after the province’s announcement of the Ontario Fair Market Plan and in particular a 15 percent tax imposed on foreign buyers in late April. In the City of Toronto, where generally there was much less foreign buyer activity than in the 905 region, the shock of the foreign buyers tax has been absorbed. The impact of the tax in the 905 region continues to negatively impact that residential resale market.

The only drag on the City of Toronto’s residential resale market is the sale of detached properties.

Detached property sales in the City of Toronto were off by 19 percent compared to November 2016. Sale prices faired more favourably. Compared to the same period last year they declined by only 5 percent, a clear indication that the market is further stabilizing.

Semi-detached and condominium apartments in the City of Toronto produced very strong results. Semi-detached property sales were only off by 4 percent compared to last year, and impressively prices were flat compared to November 2016. Condominium apartments provided even more remarkable results. Sales were up by almost 18 percent compared to last year, and sale prices declined by only 6 percent. This data makes it clear that the residential resale market has almost returned to where it was a year ago, which was the beginning of the irrational market runup that began in January of this year and was crushed by the provincial Fair Market Plan.

Although the market will continue to recover into 2018, it is not anticipated that it will parallel the Vancouver phenomenon after the British Colombia government promulgated a foreign buyers tax in that province in 2016. Since then we have seen two quarter point interest rate hikes by the Bank of Canada and the announcement by the Office of the Superintendent of Financial Institutions that commencing in January 2018, uninsured borrowers (borrowers who put down more than 20 percent of the purchase price of a property) will have to demonstrate that they can afford their mortgage payments at either the five-year average rate noted by the Bank of Canada or two percentage points higher than whatever rate they were able to negotiate with their bank. Simply stated, borrowers will have to show more income to qualify for a mortgage than they did in 2017.

Overall sales of residential resale properties have shown an impressive improvement compared to the months following the Fair Housing Plan announcement. There were 7,374 properties reported sold in the Greater Toronto area. This compares to 8,503 properties reported sold in November last year, a decline of only 13 percent. Notwithstanding this negative variance, it compares very favorably to the massive negative variances in June, July, August and September. Another positive sign of market recovery. Although sales were not occurring as quickly as they were last year at this time, at only 24 days on market, sales were brisk by historical standards.

The large negative variances in sales in the months mentioned above, (June, July, August and September) and an increased number of properties coming to market have increased the supply of properties available to buyers, with the exception of condominium apartments. Due to their price point, condominium apartment demand has remained strong, resulting in tight inventory. At the end of November, there were 18,197 properties of all types available to buyers in the Greater Toronto Area. This compares with only 8,639 last year, an increase of 110 percent. It should be remembered that the 8,639 properties available last year was a critically and dangerously low supply. That was made evident by the explosion of the irrational resale market that we experienced between January and April 20th of this year. In November, 14,349 new listings came to market, a 37 percent increase compared to the 10,456 new listings that came to market in 2016. There is no question that buyers have considerable choice compared to last year. This is another factor that mitigates against a repetition of what occurred in Vancouver, here in Toronto.

For the first time in years on a month-over-month, year-over-year comparison, the average sale price declined. Last year the average sale price came in at $777,091. This November it came in at $761,091, a decline of 2 percent. The decline was primarily due to the decline in the average sale price of detached properties in the 905 region. There were 2,319 detached properties sold in the 905 region in November. Their average sale price came in at only $898,605. By comparison, the average sale price of detached properties in Toronto (416 region) was a staggering $1,276,184. Unfortunately, there were only 812 properties in this category, not enough to have a significant impact on the overall average sale price.

Going forward, what we do not need is any further government intervention in the market place, unless it is designed to stimulate the supply of housing, particularly purpose built rental units. The provincial government’s politically motivated decision to move to universal rent controls in Ontario may win the liberals the next election, but it will have a devastating impact on the rental housing market and will only hurt those it was “designed” to help – tenants. The market has moved into balance, with more choice for buyers, and price increases now consistent with inflation and wage growth. A balance that will be further stabilized by the new mortgage stress testing. Government should let market forces control the residential resale market, just help with supply.

Prepared by:Chris Kapches, LLB, President and CEO, Broker