Toronto Real Estate Market Update: May 2017
Author: Tracy Ruddell
The results are in for May. As suspected, we saw a dip in the number of home sales in the GTA but a rise in prices year-over-year. The rate of price appreciation is starting to moderate, however, as buyers are presented with more choice. A surprise to some is that condominiums continue to soar as the freehold market slows down.
Let’s take a look at how the numbers played out last month and what it may mean for buyers and sellers moving forward through the summer market.
May certainly was a funny month for Toronto Real Estate at face value. Listings are up but sales are down. Doesn’t make sense if the market has all of this supposed pent-up demand, does it? And supply is through the roof but prices are still up significantly on a year-over-year basis. Shouldn't prices go down as supply increases? Where are the laws of supply and demand, I ask you?!
Well, prices are being impacted. Specifically, the rate of annual price appreciation is slowing way down. This doesn't always translate to lower prices, however, and understanding that difference is critical for buyers. Prices are down in May versus April, however, and so it really depends on what number you're comparing against. Make no mistake, though, we still have affordability issues but that may just be part and parcel of becoming an Alpha city on the international stage that Toronto's on course to becoming. So, prices are both up and down, depending on which figures you're comparing. Clear as mud, right?! What is a clear win for frustrated buyers right now is that they have more time and more choice when it comes to buying a home.
As our President Mark McLean explained on BNN this morning (you can watch the segment here), an increase in listings gives buyers more choice and they’re exercising they’re right to take their time while choosing. Nobody wants to make the biggest purchase of their life with a gun to their head but that’s how a lot of buyers have been feeling when shopping for houses for sale in Toronto–that they're being forced to make aggressive, no condition, firm offers on offer night or continually lose out on homes. Thankfully, some of that pressure is easing off.
The Average Days on Market (DOM) appears to be quite tight still at 11 days in May 2017 as reported by the Toronto Real Estate Board (compared to 15 days in May 2016) but we think that's a misleading figure; we're seeing a lot of low-rise homes take longer than this to move. Remember, the average DOM's doesn't include terminated listings and there were a lot of re-lists throughout April and May. As such, the true, average DOM in May was almost certainly higher than 11 days. We're working on new data and trends for our Property.ca INSIDERS and this is one of the data sets we're hoping to bring you with our new site, currently in the works; right now, there's nowhere for non-REALTORS® to see if listings have been previously terminated and how long it really takes for homes to sell. All of this isn't to say that there aren't still homes selling to multiple offers on a set offer night (usually on day 6, 7 or 8 of list), just that it's not the norm right now with so many homes on the market.
So, there’s more competition for sellers (which translates to more choice for buyers) and homes are taking longer to sell. Sellers are still getting really strong prices for their homes, though; well above last year’s sales prices. It’s just that most homes are taking longer to sell than the 6-8 day “norm” we’ve come to expect in the GTA.
Larry Cerqua, President of the Toronto Real Estate Board, had this to say about May’s results:
“Home buyers definitely benefitted from a better supplied market in May, both in comparison to the same time last year and to the first four months of 2017. However, even with the robust increase in active listings, inventory levels remain low. At the end of May, we had less than two months of inventory. This is why we continued to see very strong annual rates of price growth, albeit lower than the peak growth rates earlier this year.”.
If you’re a buyer, this all sounds like reason to celebrate but don’t think that you’ll get a steal; home prices are still up significantly year-over-year as the chart below shows:
Buyers have seen some relief from the insanity of the winter and early spring, however. The average sales price of a GTA home in May was $863,910 versus $920,791 in April and $916,567 in March. Yet, when we compare May's average price to the average price of a GTA home sold in 2016, which was $729,922, we see that prices are still incredibly strong. The question is, will the month-to-month dip we saw from April to May continue as a trend or is it a small blip due to public uncertainty?
As you can also see above, sales are down in every property category both in Toronto-proper and the rest of the GTA. These are averages, however, and there are smaller pockets within cities and towns where sales are in fact up. The increase in listings and decrease in sales hasn't translated to massive price savings on the average home purchase, however. What is down is the rate of appreciation; compare May's average, year-over-year price gain of +14.9% (average of all property types) to the average, annual gains of +33.2% we saw at our high in March and +27.7% in February and you can see that moderation is indeed creeping in:
If you’re a seller, don’t panic. These market shifts simply mean you’ll have to adjust your sales strategy. Like we talked about in last month’s market review, it’s probably not wise to under-list nor hold for offers on a set offer night (the two tactics go hand-in-hand). We’re advising most of our clients to list at market value and accept offers anytime but factor in a minimum 24-hour irrevocable clause (48-hours if your agent can manage to get it); this leaves your agent time to inform any other interested parties, including everyone who’s booked a viewing (even if they haven’t see the house yet). If you were going to get a bidding war, you’ll likely still have it with this strategy but it avoids the stigma of having an offer night come and go with no offers. It also avoids the dreaded re-list if you listed for hundreds of thousands less and didn’t get a good offer (or indeed, any offer at all).
Condos are once again king, leading the property mix in terms of year-over-year price growth at an astonishing +27.7% in Toronto and +29% in the 905. Condos also experienced a reduction in volume sales over May 2016 but that drop was not as dramatic as other property categories. Sales of detached homes in the GTA were down by -26.3% last month over May 2016, for example, while wales of condominium apartments were down by just -6.4%.
Part of the reason for this is affordability. Over half of the Toronto market is first-time buyers currently and condos offer a great rental alternative and a firm step onto the property ladder. First-time buyers are seeing the value appreciation of condos in Toronto versus skyrocketing rents and, providing they have a down payment and qualify for a mortgage, buying a condo versus continuing to rent is often a no-brainer. We’re also seeing strong sales in other categories such as luxury condominiums with a lot of urban executives and financially-secure, empty-nesters looking for a turn-key lifestyle.
The other reason why condos’ price growth is now outpacing the low-rise segment is supply. We haven’t seen the dramatic increase in listings with Toronto and GTA condos that we have with, say, detached Toronto homes. The condo market has been steadier this spring in that sense and that means there's still a lot of buyer competition for hot condos in good buildings.
This is a question a lot of our clients are asking. Should I wait to sell and see how this all plays out? There is a feeling (and we share it) that at least some of what’s happening right now is an emotional reaction to all of the dramatic media headlines and Wynne’s Fair Housing Plan announcement. There hasn’t been enough time for any real and sustainable change to occur; we saw showings slow to a standstill in the week post-announcement in what was clearly reactionary as buyers were spooked. But we can't explain away all of the shifts we're seeing as "emotional" or "reactionary", implying that they're temporary. For the record, we at Property.ca do think that our market dynamics are changing but that we're very unlikely to see prices drop; what we should see is continued moderation in the rate of price growth until we get back to more traditional ranges.
The hard fact is, however, that no one has a crystal ball. No one can tell you with absolute certainly what the market is going to do. As such, you need to make your Real Estate moves when it benefits you to do so. The best time to buy or sell is when you're truly ready and able. Outside of staying away from listing on holiday weekends and that sort of thing, don’t try to time the market. It’s too unpredictable. Even if you can time certain aspects (for example, listing a family home in a great school district 3-4 months before the start of the new school year), you’ll never be able to anticipate all of the external factors that influence your final sales price like competition. Instead, find a Toronto REALTOR® whom you trust and who really knows their stuff and together, develop a buying and/or selling strategy that fits your goals, schedule, budget and lifestyle.
In other words, don’t let media headlines scare you into moving at any other speed than what’s right for you.
Lead photo, view from Merchandise Lofts' rooftop, courtesy of our partners at Condos.ca, Toronto's best condominium information site. All charts courtesy of the Toronto Real Estate Board.