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Toronto Real Estate Market Update: March 2017

Toronto Real Estate Market Update: March 2017

We may have seen our fair share of late winter snowfall in March but last month was red-hot from a Toronto Real Estate perspective. March saw an incredible year-over-year home price increase of 33% on average across the GTA, beating out the 27.7% price gains we saw in February.

Let's take a look at the latest figures just released from the Toronto Real Estate Board (TREB).


Toronto Real Estate Prices Hot in March but it's the 905 That's Sizzling

Price increases remain the big story here with yet another record-breaking month. We mentioned the GTA-wide, average home price increase of 33% year-over-year but the figures are even more staggering when you isolate certain pockets of the GTA. Canadian Real Estate is no longer a tale of two cities: Vancouver and Toronto. Home price gains in the 905 are actually outpacing Toronto-proper, as you can see in the chart below.


The story is even more dramatic when you isolate the hottest pockets. Take the average price of Oshawa homes for sale as an example; Oshawa has been identified as one of the fastest growing markets in the GTA. In March 2017, the average price of a home in Oshawa was $603,689 versus in March 2016 when it was just $401,339; more than a 50% increase! Also, the average days on market is shorter now in the Durham Region than Toronto; in March, it was just 7 DOM versus 11 (average of all home types). This is just one GTA city comparison but the message here is that, although there's still value to be had in the suburbs in terms of bang for your property buck, don't expect an absence of bidding wars and properties that sell for well-above list when you leave the 416.



New Listings This Winter Can't Keep Pace With Demand

When it comes to volume of sale, GTA home sales were up 17.7% last month over the same period last year. The number of new listings also increased on a year-over-year basis–a 15.2% increase compared to March 2016 with the strongest growth coming from the detached home segment. The growth of new listings isn't keeping pace with the growth in sales, however, and so the conditions are still constrained for buyers. We think there's still a lot of pent up demand from buyers who lost out in last year's market and are getting a jump on the spring market in an attempt to avoid bidding wars (sadly for buyers, it's been tougher than ever). This is one of the reasons why we're seeing price growth continue to outpace traditional levels.

As you can see from the second chart, below, much of the sales growth in Toronto was fuelled by condos where prices have gone insane. Detached homes also saw a staggering jump in sales in both Toronto and the 905 but interestingly, we didn't see a huge discrepency in year-over-year price increases between detached homes for sale and other property types, like we have in previous months. In other words, if you're a buyer, you're likely facing challenges at any price point, with any property type.


That said, as evidenced by strong sales results, transactions are happening at record numbers and there's no reason you can't be one of those successful buyers if you go into this market with eyes wide open and have a reasonable budget. It's about being flexible (you're likely not getting everything you want, particularly if you're a first-time buyer), being prepared (don't even think about starting to look at properties without mortgage pre-approval, folks!) and being realistic (particularly about what your budget will afford you; have a read of our post on under-listing). It's also about hiring a Toronto REALTOR® who really knows their stuff and whom you trust. Things happen fast on offer night and that means you're going to have to act fast to win, trusting the advice of your REALTOR®. Offer night is not the time for second-guessing so get all of your research, budgeting and Q&As with your REALTOR® sorted beforehand.

So, is there any relief in sight for frustrated buyers, especially those looking for Toronto homes for sale under the $1M mark? Yes and no. Relief measures are no doubt coming soon but it will likely take years to slowly cool the market if done prudently. Be careful what you wish for - a market crash brought on by too many new policies that over-correct conditions is not what we want.


Government Measures Coming to Cool the Market, What & When Still Unclear

We have no doubt that new policies are coming that will attempt to re-shape the market. As we talked about last week in our post on how to cool speculation, the key is to not over-correct and to ensure any new rules are focused on the biggest problem areas, not just appeasing to fear-mongerers. Larry Cerqua, President of the Toronto Real Estate Board, says that:

“It has been encouraging to see that policymakers have not implemented any knee-jerk policies regarding the GTA housing market. Different levels of government are holding consultations with market stakeholders and TREB has participated and will continue to participate in these discussions. Policy makers must remember that it is the interplay between the demand for and supply of listings that influences price growth."

He's no doubt pointing to the fact that a foreign tax has not yet been implemented in Toronto as it has in Vancouver; TREB has made no bones about the fact that they're against it and don't see foreign buyers as the problem here. Their latest research shows foreign ownership to be only around the 5% mark. Our opinion? We believe it is a problem in a few property segments (particularly, the pre-construction condo market) and that it's just now beginning to spill over to the larger GTA freehold market due to supply constraints. Because of this, we're "for" a foreign buyer tax (although we stand in the minority on this in the Real Estate sector). That said, it's not enough in isolation to cool the market.

Encouraging a thoughtful approach by our leaders, Jason Mercer, TREB's Director of Market Analysis says that:

“Annual rates of price growth continued to accelerate in March as growth in sales outstripped growth in listings. A substantial period of months in which listings growth is greater than sales growth will be required to bring the GTA housing market back into balance. As policy makers seek to achieve this balance, it is important that an evidence-based approach is followed.”

We couldn't agree more - a knee-jerk reaction based on people's fear of the market is never a good approach. The problem, however, is that we just don't have the data to analyze and make researched decisions against. We don't track foreign buyer data in this country, for example (although we suspect that will change). TREB hired Ipsos Reid for an industry study (you can read the results in their Year in Review & Market Outlook summary report) and that information certainly helps but no doubt the Federal, Provincial and Municipal Governments do not want to rely solely on research from within the industry - the people polled were all REALTORs®.

At the end of the day, policy makers are going to have to make reasonable assumptions based on what they're hearing from sources within the Real Estate industry and outside of it (e.g. economic advisors) because they just can't wait another year or two to collect all of the necessary data. We suspect we'll see a few things coming down the pike shortly; namely, a further tightening of lending policies, particularly with non-conforming mortgages, and some sort of vacancy tax at a provincial or municipal level. A vacancy tax is good way to crack down on speculators who buy up homes and sit on them versus a more blanket approach like a change to capital gains tax which would also harm investors who buy income properties to rent out. We don't necessarily want to discourage investment buyers as the Toronto rental market is also crazy; we need more, reasonably-priced Toronto apartments for rent and taxing investors will only lead to increasing of rents as they anticipate greater costs come re-sale.

As to higher mortgage rates? We don't think this will happen this year but it's tough to say with certainty. The Bank of Canada's next key interest rate annoucement is on April 12, followed by May 24, so we'll see what happens but certainly no one is expecting a rate change just yet. It will come eventually though. While brokers were screaming "variable" for years, fixed-rate mortgages are looking pretty attractive, now.


All charts courtesy of the Toronto Real Estate Board. Lead image of Downtown Oshawa, photo by P199, from wikimedia, CC BY-SA 3.0.