Toronto December Market Report + 2018 Summary

Toronto December Market Report + 2018 Summary

Traditionally with the start of a new year, we often look at the old one and analyze the way we can optimize our strategies for the next one to be even better. This way, we are able to create more effective solutions for our clients. But this period of reflection also serves a bigger picture of the market. So here's our take on last year in numbers:

December Numbers

There were 3,781 sales reported into TREB’s MLS® System in December, which is 22.5 per cent less than last year. Both new and active listings were down, by 31.5 and 11.6 per cent respectively. This short supply crisis that's been hanging on over the market for some time now might be the sole reason why the average price for GTA has gone up by 2.1 per cent. Average home now sells for $750,180. Interesting to note is the fact that the average price has been rising across all segments except in the detached home market. There, the average price went down by 4.4 per cent. The biggest -8 per cent change has been recorded in the 416 area. 905 went down only by 2.2 per cent.

This might be some good news for future home buyers still hung up on that white picked fence home dream. The crazy prices for detached homes might normalize despite the lack of listings on the market. On the other hand, the condominium segment prices rose again by 9.9 per cent in year-over-year comparison. This might not be a huge change in the actual price but makes for a steep price rise if this trend would continue. But despite the rising prices, it appears that the condominium market remains healthy, with new developments supplying some rental units on the side. The new demand in condo apartments only marks the shift towards more a more urban way of living right in the pulsating heart of our city.

2018 Numbers Summarized

The year 2018 has been marked by two big government regulations which had a big effect on the market. The foreign buyer tax that came into effect in the second half of 2017 and the OSFI mandated mortgage stress test that became relevant at the beginning of this year. But the market appeared to shake off all the remaining anxiety about the changes and buyers are slowly coming back to the picture with new strategies.

According to TREB, there have been 77,426 residential transactions reported in the Greater Toronto Area over the course of this past year. This makes only 16.1 per cent decline compared to previous year despite 2017 being a crazy record-breaking real-estate year for Toronto. Total new listings entered into TREB's MLS® System were down by 12.7 per cent, which only attests to the ongoing problem with inventory Toronto is having. The average price for all the home types combined was $787,300, down by 4.3 per cent year-over-year. According to TREB's report, home prices were slightly higher in the City of Toronto and down in the remaining GTA.

Seems like the condominium market was the star of the show this year, driving both the price and the sales up in the City of Toronto. Just to illustrate, the average price for a condo in 416 back in January 2018 has been $543,279. The December average price in the same area is now $594,381.

Richard Silver, Sales Representative, SVP-Sales

TREB has published its Market Report and the most pertinent comment is in the third paragraph:

Home prices were up very slightly in the City of Toronto and down in the surrounding GTA regions. This dichotomy reflects the fact that the condominium apartment segment, which accounted for a large proportion of sales in the City of Toronto, performed better from a pricing perspective than the detached market segment. The average price for condominium apartment sales across the TREB market area was up by 7.8 per cent year-over-year.

Again we have a tale of many markets: the City of Toronto is strong with the largest issue being lack of product, the 905 is suffering with the main issue being the "Foreign Buyer Sales Tax" and how it has affected confidence in a largely new Canadian buyer location and last but not least, is the Condo market which continues to outpace any of our predictions. It has become the first-time buyer's hotspot as well as those wanting to sell and downsize or right size.

If a tough year is ahead then sellers should take advantage of the lack of inventory in the 416 and bring their homes to the market soon, even if it means renting in the short term. Buyers should focus as always on whether the house is a fit for their lifestyle and needs. The "best buy" has always been the best house for you, whether you are driven by location, view, schools or a myriad of other factors.

Geoff Joyner, Sales Representative

There continues to be a concern in some quarters, that the condominium market may be overpriced and heading for a bursting bubble price correction. Those concerned, point to the number of new building projects at various stages of completion and wonder how it is possible that all of these apartments will be absorbed into the marketplace. Surely all of this supply will cause prices to fall!

However, there are several market factors at work that lead us to believe that the condo market continues to be healthy. First, the condominium market is not only supplying buyers who intend to live in the suites they buy but is also supplying units which will be provided to the market as rental units. Given the projected increase in rental rates for the Toronto market, demand from investors for condominiums to rent is expected to remain very strong. Within the segment of purchasers who plan on occupying their condo suite, there are several demographic groups competing for this type of housing.

Condominiums have become the first time buyers marketplace and new households that are forming have concentrated on this home type. As condo owners move up the property ladder, we see many that are holding onto their first condo and are becoming landlords meaning that this unit is not entering the market as a re-sale unit.

At the same time we are seeing increasing demand for condos from empty nesters who are selling family houses. In addition, we are also seeing those who have been living outside the city returning and seeking centrally located condominiums.

Additional demand is provided by families purchasing units for their children while at university and then continuing as first homes for their graduating children. Adding to the overall demand is the impact of short term vacation rentals which take potential long term rental units or owner occupied units, out of the market. Toronto continues to be a key destination for immigration and investment, and so demand for condominiums is expected to remain strong, Remember too, that every building that breaks ground has been extensively pre-sold. Based on these factors, the condominium market is expected to remain buoyant.

Jim Burtnick, Broker, SVP-Sales

What strikes me about the results of the 2018 residential real estate market is just how precisely they were predicted by TREB at the start of 2018.  It is not often that these forecasts end up being in lockstep with the actual outcome given all the unforeseen factors that can affect a free marketplace. And that is where I think is the "rub" and why TREB was able to so accurately predict the way the real estate market would play out - because there was government interference in the "free marketplace" in 2018.

Everyone knew coming into 2018 that there were 2 levels of government intervention into the GTA residential real estate market:

  1. The first one was when former Ontario Premier Kathleen Wynn introduced her government's "Fair Housing Plan" in the spring of 2017. Most notably was the implementation of a Foreign Buyers' Tax and the re-introduction of Rent Controls on units built after 1991. This alone caused an immediate effect on the marketplace given that it was a surprise/unexpected new policy. Any immediate and unexpected intervention into a "free" marketplace is bound to rattle market players be they buyers, sellers or service providers to this significant segment of the overall marketplace. These effects were immediate and carried on into 2018.
  2. The second one was the federal government's implementation (via the Office of Financial Institutions - OFSI) new "Stress Test" rules on residential mortgages which took effect on January 1, 2018. Although this was known and expected, it did cause a sudden "rush" of residential transactions to take place before January 1, 2018, so buyers could qualify for higher mortgage amounts. However, once this came into effect, it caused an immediate slow down in the number of transactions taking place as both buyers and sellers waited on the sidelines to see what effect this rule change would have on the residential market.

As time went on and people saw that the "sky was not falling", they adjusted to these changes (much like they did when Toronto implemented its own Land Transfer Tax), they came back into the marketplace. People by nature follow in herds so-to-speak. And given this knowledge, TREB was able to rightly predict what was going to happen to residential real estate in 2018.

Want to know what to expect in 2019? As long as the government stays out with no surprise new policies, we expect things to continue to grow in a moderate fashion. "Not too hot, not too cold"

Leave a Reply

Your email address will not be published. Required fields are marked *