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Toronto Real Estate Market Update: February 2017

Toronto Real Estate Market Update: February 2017

Author: Tracy Ruddell

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The Toronto Real Estate Board (TREB) released sales data today for February 2017. Let’s take a look at how the numbers played out and what may be behind the seemingly never-ending rise in prices of Toronto homes for sale.

 

Toronto Real Estate Market on Fire Through Cold, Winter Months

This was, hands-down, the craziest February market we've ever seen. Here are the sales stats and year-over-year growth rates for all property types, in both Toronto proper and the 905.

 

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The big news story is the price gains. I don't think anyone can ignore the fact that the average cost of a detached home in Toronto has now hit $1,573,622. AVERAGE. But let's start with a look at sales. Despite this February having one less day than February 2016, sales were up 5.7% across the GTA.

Toronto Real Estate Board President, Larry Cerqua, says that:

“The February statistics tell me that many Greater Toronto Area households continue to view home ownership as a great long-term investment. The high demand for ownership housing we’re seeing is broad-based, with strong sales growth for most low-rise home types and condominium apartments.”

You’ll hear people talk about how supply is the #1 issue we’re facing and the only measure that will re-balance the market in a positive way, without alienating first-time buyers and struggling families but at face value, the data doesn’t seem to jive. How can we have more properties sold than ever before and still be under a major listings shortage? When trying to come to grips with the increase in sales during a Toronto listings shortage there are several things you need to keep in mind:

 

#1 Dramatic Rise in First-Time Buyers

There are more first-time buyers than we’ve ever seen due a combination of low mortgage rates pushing up against skyrocketing rents and the incredible power of appreciation of Toronto Real Estate (making the value of home ownership a no-brainer for most first-time buyers, providing they’re able to cobble together the down payment).

A recent Ipsos survey commissioned by TREB underscored the continued strength of the first-time buyer market which accounts for over half of active buyers across the GTA. In Toronto, first-time buyer intentions are up over last year with an incredible 64% of renters surveyed saying they intend on buying this year; the higher percentage of first-time buyers in Toronto is likely due to the prevalence of condos and desire of young people for an active, urban lifestyle.

 

#2 Increase in Foreign Buyers

There has almost certainly been an increase in foreign buyers in some aspects of the Toronto Real Estate market such as pre-construction condos and in the freehold market in some areas. Although there are no stats to concretely prove this, most REALTORs® can tell you this is true. Now, what the actual numbers are are still anyone's guess. We've felt until recently that foreign ownership was likely between 5-8% of all GTA properties but what we're seeing in the condo market right now has us questionning whether the actual numbers are higher (particularly considering the % of total home sales that condos account for currently).

How many foreign buyers are too many? A balanced Toronto market would probably always have around 3-4% foreign transactions but 1% may be considered too high right now, given the glut of supply for local buyers. A tax may help alleviate some of the pressure and will certainly raise funds to help address affordability in other ways. If a foreign tax were to pass in the GTA, we'd love to see this money funelled towards things like builder incentives, to build more family-sized condos and townhomes in urban centres. But of course, Government budgets don't always work that way (i.e. it's likely wishful thinking to simplify it as raising Real Estate funds in one area in order to support Real Estate development in another).

 

#3 Lack of Family-Sized Properties & Trend Towards City-Living for Growing Families

There is a major listings shortage in decent, freehold homes and larger condos in Toronto and surrounding areas. If you look at the break down of sales by property type, you’ll see that both in Toronto and the 905, condo sales (and to a lesser degree, townhomes) are the swelling force behind the growth in year-over-year sales stats. Supply of homes is falling critically short of demand, particularly in the family segment for those looking <$1M.

 

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Foreign Buyers Believed to be an Issue but Solid Data Still Not Available

We don’t believe foreign ownership is the only issue impacting housing affordability across the GTA nor is it likely the biggest issue. It is, however, a major issue in the condo market, especially the pre-construction condo market, and it does need to be addressed. Stat.

We'll give you a word-of-mouth example of what's been happening over the last decade. Our partners at Condos.ca recently hired Goran Alexander who previously worked for a number of large, Toronto condo developers. He tells us of one downtown development where an estimated 70% of the units sold to foreign investors during the pre-con period. Now, he cautions that this particular development had a higher ratio of foreign to local investors / end-user buyers but that the average is still jaw-dropping. Goran feels that around 40% of all pre-con Toronto condo units are being snapped up by foreign buyers and that that trend has been in place for many years now.

Buying one unit as an investment isn't even the issue. The issue is when you have wealthy foreign investors buying 50 units or whole floors and completely blockading the local market. Because of this, we agree with critics that foreign taxation on Toronto properties is prudent. We didn't always feel this way (and not everyone on our team agrees, to be honest) but the market is just that insane right now that something needs to be done. What makes the most sense is to have a rolling scale of taxation that increases with each additional investment property purchased and that's something that could be investigated for local investors, also.

Saying this, the correct order of action is to get the data and then base decisions on real information. We hope the Government of Canada is putting pedal to the metal on their directive for StatsCan to monitor foreign ownership. For what was promised, see our partner's coverage of Budget 2016. If we don't move quickly, we could have a critical situation on our hands by this time next year as Vancouver's problem has rolled over to Toronto.

Do we think we're at critical levels now? In some areas, like the aforementioned pre-construction condo market, yes, but one fact we'll never get away from is that Toronto was very likely under-valued for decades and now playing catch-up with other leading, international cities. Where else can a middle-income urbanite afford to buy a waterfront property in a city of Toronto's calibre?

What's tragic is that this Toronto market catch-up - if you believe that's what it is - has been compacted into such a short timeframe, wage increases are not keeping up with the dramatic rises in cost of living. This is why we support the Government stepping in to regulate Toronto Real Estate. Under normal conditions, we'd say "let the free market run free" but these are not normal conditions.

 

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All of that said, is this one action alone (foreign taxation) going to correct the GTA market if it were to move ahead? Of course not. In fact, TREB's findings through Ipsos (you can read about the findings here) are meant as a cautionary tale, suggesting that only about 5% of the overall GTA market (which, of course, condos are just one segment) is foreign-owned. UPDATE March 8/17: Sotheby's recent study appears to back this up, showing that just 4.9% of GTA Real Estate transactions last year involved foreign buyers.

Larry Cerqua says:

“There has also been much speculation, both in the media and among government policymakers, about the amount of foreign buying activity in the GTA. A recent Ipsos survey of the TREB membership on foreign buying activity suggests that the impact of foreign buyers in the GTA marketplace has been somewhat overblown. GTA-wide, the number of transactions accounted for by foreign buyers was less than five per cent. Furthermore, the great majority–80 per cent, to be exact–of foreign buyers were purchasing a home as a primary residence, a home for another family member to live in, or as an investment to rent out to a tenant, which is helpful in a tight rental market.”

And this is a really critical point to remember. A lot of foreigners are buying a single condo for their child who is here studying at University for the next four years because it’s a great investment for them and it gives their kid a place to live. These residents need a place to live regardless so if they’re not buying, they’re renting and contributing to skyrocketing rents. It’s not all speculation and empty units but where that is happening, it needs to be cracked down on.

To be fair to the critics, this TREB report is an industry study interviewing agents, not looking at hard numbers and contracts. The margin of error here must be significant as it relies on word-of-mouth and the honesty of particpants. The problem is that we don't track foreign buyer data like other countries do and that definitely needs to change. But it's not going to change before action must be taken and so we're going to have to rely on whatever information StatsCan and industry players like TREB are able to glean.

 

Both Consumers & REALTORS® Reeling in Face of Dwindling Supply

While sales were through the roof in February, the number of new listings was actually down a significant -12.5% over the same period last year and active listings were down -50.5%; homes are selling faster: on average, in 13 days in February 2017 versus 21 days in February 2016. This was the same pattern we saw happening in 2016 so this is a multi-year trend of listings drying up.

There’s no doubt that this listings shortage–particularly of freehold homes within a short commute to downtown–is the #1 reason behind the double-digit growth in prices we’re seeing. Prices in February 2017 were up a staggering 27.7% over February 2016 across the GTA.

Remember last year when we all thought that the 20% or 25% year-over-year price growths we were seeing in any given month were not sustainable? Well, here we are, breaking records again. We pride ourselves in our industry projections but even we had it wrong when we gave you our 2017 Toronto Real Estate Market Predictions; we thought we'd see home price gains moderate to around +12% this year. While we may see some moderation by year's end (depending on where the Bank of Canada goes with its key interest rate and any new measures introduced by the Government to cool the market), it's going to take a lot to slow down these runaway Toronto Real Estate prices.

A quick note for our non-REALTOR® readers. We had to laugh at the quote in this Financial Post piece from the Chief Economist of BMO saying that no one is cheering except for REALTORs®. NO ONE is rejoicing in this market other than sellers and that feeling is very short-lived if they’re buying in the same market.

With over 80 REALTORS® at time of publishing (and growing every month) and we can tell you that every single one of team is working much harder than they’ve ever had to to make the same money. No matter how savvy the agent, everyone is losing on bids. Everyone is having to wait months instead of weeks for decent listings to come up to show their clients. What used to take 3-6 months to find a buyer a home is now taking a year or longer. We are all feeling the heat.

It’s not a sob story. This is a great profession and a great time to be a REALTOR® but there’s a reason why the bulk of GTA REALTORS® make less than most traditional office-based jobs–you can’t be a weekend warrior who practices Real Estate as a second, part-time business and thrive in this market. You need to be committed to your craft and your clients, work your butt off and then, you can do well. But like every service profession out there, there is no free lunch (well, maybe save for caterers).

Are there some, shady agents who are cashing in on the backs of their clients? Absolutely. And they're giving the rest of the profession a bad name. Have a read of our previous posts on Real Estate Lies Part 1 and Part 2 and the Dangers of Double-Ending to learn how to spot the snakes.

 

So, What’s a Buyer to do?

The WORST thing you can do is not get into the market as a first-time buyer or, as a move-up buyer, let fear paralyze you into inaction. Real Estate is still the best way to grow your personal wealth.

 

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Our best advice to traverse a difficult market is to find an expert REALTOR® and by that we mean an agent who specializes not only in the neighbourhood you’re looking to purchase in but in the specific property type. At Property.ca, we have three teams that specialize in either freehold houses, condos or lofts with Neighbourhood Experts within each team. But whether it’s with us or another team, make sure to interview several agents–don’t just hire a family-friend or the person who sold you your current house. This is likely the biggest transaction of your life. Don’t do anyone any favours by throwing them your business unless they are the best fit.

Also, READ READ READ. Keep reading our blog and our partner’s at Condos.ca/blog and absorb all of the trusted information sources you can. Educated buyers and sellers make smart moves.

 

 

Images featured throughout from one of our hot new listings in the Upper Beaches, available at time of publishing. For further information, please contact the listings agent for this property: Alexia at alexia@property.ca