TREB’s Year in Review and Outlook Report for 2018 Analysis

TREB’s Year in Review and Outlook Report for 2018 Analysis

TREB just released their Market Year in Review and Outlook Report for 2018. In compiling and analyzing the data, TREB worked with Ipsos, Altus Group, C.D. Howe Institue, Toronto Region Board of Trade and Canadian Centre for Economic Analysis.

We had a look at TREB’s stats with Jim Burtnick, Broker, SVP-Sales at Sotheby’s International Realty Canada and Rizwan Malik, Sales Representative at Sotheby’s International Realty Canada. Here is our review of the 2017 Toronto Real Estate Market and predictions and expectations for 2018.

Looking back to 2017

In 2017, the total number of sales reported through TREB’s MLS System was 92,394—which represents an 18.3 per cent drop compared to the record set in 2016. The average selling price of $822,681 in 2017 was a 12.7 per cent increase compared to 2016.

During the last two-thirds of 2017, the prices started to drop as the number of listings increased. The total number of new listings in 2017 was 178,489—up 15.7 per cent compared to 2016.

In the first quarter of 2017, home sales were up by 11.5 per cent compared to the same period in 2016. The inventory was low, especially in the detached segment, which has lead to the accelerating pace of growth in average price, peaking in March 2017 at 30 per cent compared to the same period in 2016. At the time, the average price was $916,567.

torontoism treb year in report-2017

In April, after the Ontario government announced the Ontario Fair Housing Plan (OFHP) with its rent controls and Foreign Buyer Tax, the market has slowed down. However, this wasn’t due to high foreign buyers activity. Multiple sources confirmed that the foreign buying activity was low before OFHP and remained low afterwards. An Ipsos survey has shown the foreign buyer share to be 4.9 per cent (plus/minus two percentage points). Studies by Statistics Canada and land registry estimates released by the Ontario government were also in this range. The drop in sales after the announcement of OFHP was indeed affected by the OFHP, but analysts agree the impact was only psychological, with many would-be home buyers deciding to wait and see what happens to the market.

Jim Burtnick, Broker, SVP at Sotheby’s International Realty Canada also agrees that the Foreign Buyer Tax (FBT) effect was entirely psychological:

I felt this way when it was implemented and I feel the same way today. Whenever there is government interference into a free marketplace, buyers and sellers step back to see what effect this government disruption will cause. It is to be expected anytime this type of intervention occurs. Add to that the “perceived boogeyman” of foreign buyers that the press has blamed for increasing prices and well, you get a psychological overreaction to the FBT. The same thing occurred in Vancouver when they implemented their FBT and its effects eventually waned too.

The FHP effect was one of the reasons behind the lower number of sales and the higher number of listings on the market at that point in 2017. But if you expected the prices to drastically go down, you were wrong. Although the buyers had more choice, with more listings on the market from a historical perspective, that didn’t affect the home prices as much. The always more expensive detached home segment experienced a slower price growth, but the prices were still growing towards the end of the year. The condo segment prices, however, continued to experience double-digit growth rates throughout 2017, with more buyers opting for condos.

Rizwan Malik says that it wasn’t OFHP that slowed down the market and agrees that the plan had a psychological effect only:

Once the new rules, aimed at targeting foreign buyers, were announced in April 2017 it was as if the real estate tap turned off. Buyers almost used it as an excuse to halt immediately and to see what would happen to the market. Since foreign buyers accounted for less than 5 per cent of the pie, the market started to pick back up again. I do not believe that the OFHP cooled the market, people’s perception and expectation did. However, once they realized that the market was picking back up again it was business as usual and buyers started offering again, but with a little more caution.

As the Foreign Buyer’s Tax effect started to wane, the market picked up significantly. It was also the announcement of the OSFI mortgage stress test, which means that borrowers will now have to qualify for their mortgage at the greater of their contract rate plus two percentage point, or the posted five-year fixed rate as reported by the Bank of Canada (5.14 per cent at the time when this report was published) that helped the situation. Buyers rushed to close deals before January 1st when the new mortgage rules were to come into effect.

Rizwan says he had clients who wanted to close before December 31st, but it wasn’t a deal-breaker for them:

They all still wanted the “right house for their needs” rather than a last-minute scramble to settle for anything.

Jim says he noticed that it was mostly first time buyers who were in a hurry to close deals before the year’s end:

I would not say I had a “lot” of buyers in the fall trying to take advantage of mortgages before the OFSI stress test kicked in. However, anecdotally I would say that I noticed that there were more first time buyers trying to make a deal before the year ended. And if they did not make a deal by then, they were sure to get their mortgage pre-approval commitment letter extended into the new year to give them some additional time to make a deal before having to qualify under the new OFSI stress test rules.

The Rental Market

While the homeownership market has experienced some relief in terms of supply, the opposite was true for the rental market. Every year CMHC publishes the vacancy rate for purpose-built rental apartments and investor-held condominiums. For both of these markets, the vacancy rates were down in 2017 compared to the same period in 2016. While purpose-built rental apartments dropped from 1.4 per cent year-over-year to 1.1 per cent, the condo apartment vacancy dropped from 1.1 per cent to 0.7 per cent year over year. The low supply combined with strong demand resulted in double-digit annual rates of growth for the average price of rent in 2017.

torontoism treb year in report-rental

Rizwan remembered the bidding wars on rental properties that Toronto has experienced last year:

There is a very low vacancy rate in both the condominium market and the purpose-built market. This was especially evident this year when there were bidding wars on rental properties. I think as a bigger picture, Toronto is becoming like other large metropolitan cities. People will gravitate towards renting downtown and buying properties in the country. It will take us a while to get there but I feel we are on our way.

According to TREB’s Rental Market Report, the average rent for a one bedroom apartment in the GTA increased from 7.8 per cent in the first quarter of 2017 to 10.9 per cent in the 4th quarter in a year-over-year comparison, amounting to $1,970 at the end of the year. The average rent for a two-bedroom apartment increased from an annual rate of approximately 7 per cent in the first quarter of 2017 to almost 9 per cent in the fourth quarter, resulting in $2,627 on average in the fourth quarter of 2017.

The Ontario Fair Housing Plan also addressed the problems of the rental market, as one of its points was installing rent controls again, but TREB reminds, as we did in one of our recent articles, that this could have unintended negative consequences. Rent controls could help further constrain the supply of rental units, pushing the vacancy rates to even lower numbers.

Jim agrees with TREB:

I agree wholeheartedly that OFHP rent control rules will indeed have the opposite effect. It will cause vacancy rate to go even lower than its already too low rate, drive up new rents well above inflation, and cause tenants to stay longer in one place. They will also force landlords out of the market—which will result in even less rental inventory—because their controlled rents are in fact causing them to lose more and more money every year as costs (maintenance fees, taxes and mortgage payments) continue to increase well above the amount that the OFHP will allow them to raise rents.

If an investor is faced with a limit on rent increases but with no limits on annual cost growth, they may be less likely to invest in rental properties and could look elsewhere for returns on their money. Furthermore, when it comes to investor-held condo rentals, if the condo owners choose to take advantage of significant double-digit increases in condo prices over the last year and sell their properties rather than rent them out, we could soon be facing even worse inventory levels. Jim Burtnick predicts there is trouble on the horizon:

This was really the worse aspect of the OFHP and in my opinion, it was just added because the current government has an election coming up this spring and there are far more tenant voters than landlord voters. But mark my words, this aspect alone will cause an already serious vacancy issue into a full-blown crisis.

Was Ontario’s Fair Housing Plan a good idea?

Looking back at the announcement of OFHP in April 2017, it doesn’t seem it has made a lot of difference in Toronto’s real estate market. Toronto is still facing low home affordability, low inventory and the government’s plan didn’t bring any relief. If anything, it brought a lot of confusion and yes it has slowed down the market activity, but it was about to slow down anyway, says Jim:

The market was already beginning to cool when the OFHP was announced on April 20, 2017. March numbers were unsustainable and the marketplace was naturally reacting by slowing down. All the OFHP did was quicken that dampening for reasons stated above.

He also expects the said effects of the OFHP to wear down very soon:

The OFHP was an effort by the current government to be seen doing something (especially slaying the foreign buyers’ bogeyman which never existed). It was simply optics and just like the Foreign Buyer’s Tax put in place in Vancouver. The psychological effects will wear off in about a year since the plan was announced in April 2017.

In their report, TREB also says the impact is only temporary and when it fades, we’ll be left to face the real problems of the market—the supply, both in the ownership and the rental market:

Senior government officials have acknowledged publicly that the impact of the OFHP was psychological. When the short-term effects of the OFHP recede, just as the effects of the foreign buyer tax did in BC, we will still be left with a supply problem in the GTA—for both ownership and rental housing.

Predictions for 2018

According to Ipsos Home Buyer Survey conducted in November 2017, 26 per cent of responders indicated that they were very likely or somewhat likely to buy a home in 2018. One-quarter of respondents felt that they would not qualify for a mortgage if their qualifying rate increased by two percentage points, which also explains the fact that the drop in buying intention was most significant among first-time buyers. In the fall of 2016 more than a half of intending home buyers were first-time buyers.


TREB estimates that under new mortgage stress rules, borrowers would have to qualify at $450 over $950 more per month than their actual payment, depending on the home type, “with the upper end of the scale in the detached market segment and the lower end for condominium apartments”. This doesn’t mean that people will stop buying. Some of them will, but others will choose to buy in a less expensive neighbourhood and perhaps buy a condo instead of a house.


First-time buyers have already recognized condos as a better choice—due to lower prices, low-maintenance, proximity to work and entertainment and lower living costs—and that will not change anytime soon, says Jim:

Condos are the most affordable category of housing available. First-time buyers generally do not want to commute long distances from home to work and will seek housing in close proximity to their jobs.

The New Mortgage Stress Test Effects

Other than the increased market activity at the end of 2017, we still haven’t really seen all of the effects the new mortgage stress test will have on Toronto. Jim Burtnick expects a few effects of them to come into force in the second quarter of 2018:

The effects will include about 20 per cent less borrowing power for mortgagees using the five big banks to finance their purchases and it will generally affect first-time buyers the most. Most upsize/downsize buyers have considerable equity in their homes already. We’ll also see more buyers using credit unions and private lenders for mortgages as they are not subject to the OFSI stress test rule.

This will change the nature of the market as well, with fewer people able to buy and looking for different solutions for their housing situation, but Jim sees it as a positive change for the consumers:

We’ll see more people staying in their houses longer and choosing to do renovations and/or additions instead of moving. (This also avoids the two Land Transfer Taxes). Overall, I think the new stress test rules will give more stability to the residential real estate market as we move away from the record low-interest rates than some might argue consumers have gotten too comfortable with.

Rizwan predicts that the new mortgage stress rules will also have only a psychological effect on the market:

The new mortgage stress test will definitely impact the market as the OFHP did, but again it will all be psychological. I predict that by the third quarter it will be business as usual and these new lending policies will be the new norm.

Sales & Average Price 2018 Forecast

The strong Canadian economy, income growth above the rate of inflation combined with an increased immigration target will help the demand in 2018, but TREB says this will still be affected by the impact of government’s policies and higher borrowing costs:

When we consider the combination of solid demographic and economic conditions versus the impact of higher borrowing costs and various government policies, the latter will win out in the short term.

TREB predicts between 85,000 and 95,000 transactions for 2018. The inventory will stay between 2.5 and three months over the course of 2018—up from 2016 and first quarter of 2017, and in line with the second half of 2017.

The balanced market conditions are expected to result in mid-single digit increases in the average price, which TREB expects to accelerate in the second half of 2018. The forecast range for the overall average selling price is between $800,000 and $850,000.


Rizwan predicts:

I think we will be closer to the lower estimate that TREB put out for the number of transactions in 2018. I think this will be a strong year but not a record-breaking year!

Jim adds that we’ll see the most action in the centre of Toronto:

I agree with TREB’s forecast overall. When you drill down into the micro level, I foresee the 416 area outperforming the entire GTA. Proximity to public transit, work, schools and local amenities like shopping, restaurants and community centres will become more and more desirable and therefore sell at a premium above these predictions. Location, Location, Location to the city centre will be the name of the game.

With the market changing and the buyers’ attention shifting from detached homes to more affordable alternatives, it’s time to once again have a look at Toronto’s issue with the lack of middle housing options.

The Missing Middle

According to the Missing Middle research by The Canadian Centre for Economic Analysis (CANCEA) Toronto has a problem with people living in inadequate housing. At the moment there are over 5 million spare bedrooms in Ontario, which represents 25 years worth of construction. Over 400,000 homes in Ontario have three or more empty bedrooms, representing almost 1.3 million empty bedrooms in family-sized homes.

In the whole of GTA, approximately 45 per cent of all housing types are single-detached homes and 35 per cent are apartment buildings. The “missing middle” housing makes 20 per cent of the whole market.

The “missing middle” segment includes semi-detached homes, row homes, townhomes, multiplexes and courtyard apartment. This type of housing presents a more affordable ground-level (or almost ground-level) housing, without having to live in small, family unfriendly condos in a high-storey building.

CANCEA research shows that the housing affordability in Toronto could improve over the next 15 years by steering people to right-size and make developers build adequately-sized units. CANCEA predicts that if this would happen, the sales in the region “would grow by 67,500 to 94,500 over ten years”, representing an annual increase of 7.1 per cent to 10.1 percent in sales.


For this to happen, more “missing middle” housing types need to be built. At the moment a significant portion of the city only allows detached homes. Approximately 40 per cent of the city is zoned this way.

Toronto is a very diverse city, if not the most diverse city in the world. Jim Burtnick adds it’s time for its housing stock to become more diverse as well:

One part of the solution that has been talked about for some time is allowing laneway housing in Toronto. All the infrastructure is already there. Stop talking about it and allow it to happen already! Another quick remedy would be to allow a certain percentage of duplexes, triplexes and multiplexes into detached single-family neighbourhoods. Again, all the infrastructure and services are already in place. These areas just need to become a little more heterogeneous (like our City).


Right-sizing would also help buyers get out of “over-housing”, which happens when people are living in much bigger homes than they actually need, cutting the access to good housing options for bigger families.

CANCEA estimates that at the moment, 30 per cent of all households in the GTA are either under-housed or nearly-underhoused. Of the under-housed, they are “short” by nearly half a million bedrooms; at current construction rates, it would take over two years to construct the housing to accommodate these families. As we already mentioned, nearly two-thirds of Ontario homes are over-housed, holding 5 million spare bedrooms, which represents 10.5 times the number of bedrooms the under-housed are short.

A solution, which would help solve the problem and help improve housing affordability, would be building more appropriately sized housing—the missing middle, and encouraging current households to right-size to more appropriate housing. Toronto is changing and its citizens are leading very different lives today than they’ve lead a few decades ago. The city needs to finally adapt to the people, instead of having people adapt to the city and housing is a big part of that change:

People do not spend as much time at home as they once did and do not require big detached houses like they once did. Let’s adapt our housing inventory to reflect these societal changes too.

What are your expectations for 2018? Are they different from what we’ve written in this article? Let us know in the comments below.

And if you need help navigating the market and you have questions you can’t find answers to, contact us at, we’d be happy to help you!

One Reply to “TREB’s Year in Review and Outlook Report for 2018 Analysis”

  1. Personally I think that in 2018 the market will start to stabilize! Most people have already bought a house if they need one meaning that costs will remain stable since the demand has dropped a little.

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