A lack of homes with for-sale signs in their front yards and tight competition among buyers do not make buying a house in Toronto easy. As the Toronto Real Estate Board reported, GTA home sales went down, but bidding wars over under-supplied inventory resulted in prices surging year-over-year in January 2014. TREB adds that home ownership in the GTA remains affordable and many people are looking to purchase a home despite increasing prices.
As the figures of Greater Toronto Area REALTORS® show, 4,135 homes traded hands in January 2014, which represents a 2.2 per cent decline compared to the 4,229 units sold in January 2013. The number of new listings entered into the TorontoMLS system last month went down by 16.6 per cent, settling at 8,822.
The shortage of low-rise inventory was reflected in declining sales for detached and semi-detached homes in the GTA, which were down 6.0 per cent and 7.7 per cent, respectively. The number of townhouses sold in the GTA in January 2014 went up by 1.8 per cent on a year-over-year basis. Condo apartments saw an increase of 5.6 per cent in the GTA, with sales in Toronto’s 416 area code up 7.4 per cent and a 1.6 per cent increase in the suburban 905 area code. Dianne Usher, Toronto Real Estate Board president, noted:
Looking forward, it is possible that strong price growth, and therefore an increase in home equity, will act as a trigger for more households to list their homes for sale. This is especially the case for households whose life styles are changing, including those with an expanding family looking for a larger home or empty nesters looking to downsize.
The average price of a home sold in the GTA in January 2014 was $526,528, representing an increase of more than 9 per cent compared to $482,080 in January 2013. Also, the MLS® Home Price Index (HPI) Composite Benchmark, which adjusts for changes in the types of houses selling, rose 7.1 per cent year over year.
Even though TREB claimed buying a home in Toronto is still affordable, market observers suggest that this affordability is becoming somewhat stretched. The situation is not worrisome, but as RBC economists pointed out, housing in the GTA is certainly not cheap. Rising prices might increase demand for condos in Toronto, as more and more first-time home buyers won’t be able to afford a single-family dwelling.
The price of an average detached home in the GTA rose 12.0 per cent year over year, hitting $686,688 in January 2014. Semi-detached homes in the GTA sold on average for $481,970, rising 6.6 per cent from January 2013. The average selling price of townhouses in the GTA was $407,393, representing a 9.0 per cent increase. Resale condos experienced price gains as well, with the average sale price settling at $346,369. This is 8.7 per cent more than the average price of a condo in January 2013. Condo prices in the city went up 7.6 per cent, with an average of $366,020, while the price of an average condo apartment in the GTA rose a surprising 11.2 per cent, with an average of $299,118. Jason Mercer, TREB’s senior manager of market analysis, remarked:
The pace of price growth will remain strong in 2014. Similar to last year, competition between buyers for singles, semis and town homes in the City of Toronto and surrounding regions will continue to exert upward pressure on selling prices. At the same time, mortgage rates will remain near historic lows, so despite strong price growth, home ownership will remain affordable for the average household in the GTA.
Growing prices in the Toronto real estate market raised concerns about an overpriced market and a housing bubble. The "Quarterly Regional Housing Report" released by TD Economics on February 3, 2014, warns that the Toronto housing market is overpriced by at least 10 per cent. Economists from Toronto Dominion Bank suggested that a steep increase in interest rates or a negative economic shock could send resale home prices down 25 per cent. However, the report doesn't take into account prices around the world and the influx of foreign money looking for a safe haven in North America. Moreover, the report only points to interest rate adjustments and doesn't consider the cash of buyers who don't need financing — including some Canadian youth gifted with money from their families.
Title Photo by John Vetterli