Toronto condos make up over 50% of residential resale sales and are quickly becoming the go to option for Buyers looking in this city. They showed strong resilience last year while the rest of the market dropped, and their strength in regards to price growth has continued into 2018. The average purchase price for a condo in the City of Toronto crossed the $600,000 threshold last month, up10% from the start of 2018.

It’s pretty incredible to think that just two years ago the majority (61%) of condos in the Greater Toronto Area were selling for below $400,000 and 23% were selling for less than $300,000. Currently just 24% of condos sell below $400,000, a meager 4% sell for under $300,000, approximately half of the condos bought last month cost more than $500,000.

The large jump in prices in the condo market could be one of the main reasons sales hit a 15 year low in the month of April. With the median household income in Toronto coming in around $80,000/year and new stress test rules, Buyers once able to look to condos for an affordable purchase seem to have little to choose from now.

Price increases for condos on both a month/month and year/year basis have finally begun to flatten this year. Year over year appreciation went from 15% in January to 3% in April. There are reasons to continue to anticipate further price appreciation this year given current supply levels and a tight rental market. However, investors have become more hesitant to leverage themselves as interest rates continue to climb. Parents who have been investing with their kids have likely also become more hesitant, given their home values have been negatively impacted for the first time in a long time. April statistics show the average home across the GTA dropped 12% from this time last year, the third month in a row of double digit depreciation.

If investors are taking a pause, that means the market is relying more on end users, and affordability will be an ongoing talking point for some time in this city.

April Highlights

Sales in April were low. There were just 7,800 sales in April, even those slow down years in 2008 (8,800) and 2009 (8,100) had more April sales. The last times sales were below 8,000 units was 2003.

The squeeze continues….Sales were down in all segments and product types in April, but it’s worth noting that sales for $1M+ were seeing sales decline in the 40-50% range while most lower price points were seeing sales drop 20-30%.

Historically Sellers have been pretty resilient avoiding listing when the market has cooled. It might be why new listings dropped 25% from last April. The 16,000 new listings we did see is a fairly typical range for April.  The low demand has caused the Months of Inventory (MOI) in the GTA to tick up from an ultra low level of 1 in May 2017 to 2.2 in April 2018. This is still a relatively low number for months of inventory and Buyers will still see stiff competition in many areas across the GTA. York Region continues to be the exception as MOI jumped to 4.1 months in April as  Buyers seem to feel that area may have been overvalued in recent years.

What to look for going forward:

While I’m expecting demand to increase at some point this year, if it doesn’t happen soon we should see more favorable Buying conditions round out the spring and into the summer months as the number of active listings and MOI increases.

With just over 10% of condos selling for over $800,000 in April, you can expect this number to start to push higher given the current level of demand and lack of listings.  This is particularly true for larger units close to downtown.

Larger condos and condo towns in affordable price points often found in suburban areas, will continue to be in high demand. Under current supply levels, Buyers with tight budgets will be forced outside the core as prices appreciate beyond affordability.

Buyer’s market will continue in higher price points as demand has continued to drop. What is considered a higher price point will be area dependent.

Toronto condo Buyers should proceed cautiously; this market segment is still showing strong price growth. However, many home Buyers from this time last year can attest to how excessive exuberance followed by a jump in inventory, leads to negative equity situations.

TREB’s Sales Statistics for the Greater Toronto Area were released this week, and well many are hoping for some clarity on what the market may be doing, looking at the headlines may cause your head to spin even more.  

The Globe and Mail’s Janet McFarland took a very positive spin on market conditions indicating that prices are climbing despite tougher mortgage rules. Conversely, articles from the Toronto Star and Maclean’s had a completely different take on the recently released stats.

So are home prices rising, or is this a crash in the making?!

It’s interesting that such different headlines can be created from the same report, but we aren’t supposed to believe anything we read these days, right? Here is what I think you should take away from the recently released stats:

• Demand is down and not just compared to last year. Sales are down 35% from 2017, 32% from 2016, and 17% from 2015.  
• Supply is up. Active listings are up 147% from February 2017. A dramatic number caused by an inventory drought that took place from January to March of 2017. This number is less significant when compared to +23% from February 2016, and +4% from February 2015
• Prices are up and down: The Home Price Index indicates prices in the GTA are up 3.2% year/year. However, this index often seems to trail reality, and for many home types and areas you are paying less now that you would have paid in February 2018. This is reflected in the fact the average year/year sale price was down 12% from last year.
• Affordability continues to drive the market. Rates have increased; however, the price drop has made it cheaper to service a mortgage for an average priced property. Tighter mortgage regulations are pushing Buyers to more affordable options.   This has kept competitive Sellers market in lower price points, and created Buyers markets in higher price points.  This squeeze taking place in the market was discussed in my November post.   As a result, Toronto’s condo market is very competitive, with double digit price appreciation.
• Many areas that saw more dramatic price increases in recent years are also seeing more dramatic decreases. York region has been hit particularly hard. Months of Inventory in York rose from 1 in February 2017 to 3.3 in February 2018 forcing Sellers to re-think their price expectations.   

Will I pay less for a home now than I did at this time last year?  

Those looking to up-size from a Condo to a Detached  home have benefited the most this past year. The average GTA condo has jumped from $481,000 to $530,000 while the average Detached home has dropped from $1,200,000 to $1,000,000. It’s unlikely these will trend in opposite directions for too much longer. So any condo buyers out there thinking of moving to a freehold, now might be the time!

The reality is an increase in supply and a drop in demand should continue to put downward pressure on prices. Many Buyers will be able to pay less for a home now than they did at this time last year; however, this is really product and location dependent. The media will likely have negative year/year average price decreases to report on until June. This reporting is likely to negatively impact Buyer’s and Seller’s confidence in the market. We have started the year with rather low demand unlike the unbridled enthusiasm seen in 2017.

Based on historic numbers we can expect a jump in demand, maybe as early as this spring, but so far this year Buyers coming to the table are looking for more affordable options. 

When Buying or Selling Toronto Real Estate, it’s important to look past the headlines to better understand what’s actually taking place. Real Estate performance can often be quite localized. Drilling down to see what is happening in your neighbourhood is essential, but so is having a broader understanding of the market. Knowing how the market is behaving overall can give you insight as to how your neighbourhood might perform. We discovered some significant variances in how the GTA’s market is performing in different price segments. The chart below highlights this by showing supply (Active Listings in mid November), demand (Sales in October) and who has the upper hand in each price segment.

While it’s common to have a higher number of listings and months of inventory (MOI) in higher price points, the difference we are seeing this fall is worth noting. Currently, properties priced under $800,000 make up 52% of the listings, but account for a 67% share of the sales taking place. For those of you searching for a property under $800,000, overall supply in the GTA is tight. Although, not as tight as this time last year when the MOI for most Toronto neighbourhoods was below 2.

The price point between $800,000 – $1M currently makes up 15% of the listings while accounting for a similar number of sales. This price point remains competitive and in the Seller’s favour. For most neighbouhoods, the closer you are to downtown the more it seems to be tilting in the Seller’s favour.   

As you enter the price points above $1M, things start to change. The percent of sales no longer corresponds to the number of active listings, and the MOI shoots above 4. Buyers looking in the $1-1.5M range can expect fairly balanced conditions. A breath of fresh air for Buyers in comparison to the drum tight supply constraints we saw early in 2017. Those looking above $1.5 Million are seeing very favourable conditions for Buyers. The fact is that the GTA seems to be oversupplied with high priced properties, and continues to be short supplied when it comes to more affordable options.

The Squeeze is on…

With the new stress test regulations becoming a reality in January, we should see these trends among price segments continue into the New Year. As Buyers purchasing power is reduced, more Buyers will have to consider lower priced options. We expect to see even more Buyers forced to crowd into the lower price segment. If supply doesn’t match the increase in demand in this segment, Buyers will head to the sidelines and either rent or look outside the GTA.

Higher price segments need to see a large uptick in demand to deplete current inventory levels. Otherwise price drops in these segments should be expected as Sellers compete for the available shoppers. This could create more attractive purchasing conditions for Buyers looking to move up the property ladder, but not so great for those retiring Baby Boomers with large homes to sell.

Where do you think the Toronto Real Estate market is going? Any questions or comments, shoot me an email at andrew@relativerealty.com!

Toronto’s Real Estate Market remains in a state of flux since its spring shake-up following an incredible first quarter of the year. This has left many on edge, contemplating a purchase or sale and questioning whether Toronto Real Estate is crashing or rebounding. Here’s what the bulls and bears are saying on Toronto’s market.

What the Bulls are saying:

• Prices are up 6% from August to September, the first month/month price increase since April.
• The rental market remains incredibly hot. With low vacancy and prices on the rise, finding a rental in Toronto is no easy feat.
• Toronto is likely to follow Vancouver’s foot steps, that is, to rebound shortly after the introduction of the Foreign Buyer Tax and to continue to see the condo market surge.
• New stress tests and mortgage regulations introduced in November 2016 failed to cool the market. Why would the most recent announcement be different?
• Toronto’s employment is high and economy is strong.
• Interest rates remain low and have simply returned to 2014 levels.

What the Bears are saying:

• Further stress measures were just introduced and will take effect on January 1, 2018. This new stress test will reduce uninsured Buyers (those purchasing with more than 20%) purchasing power.
• Interest Rates have increased 0.5% and most are predicting another 0.5% in 2018. Further reducing Buyers affordability.
• New listings are up 9.4% as of September. Active listings are up 69% from the same time in 2016, meaning there is more supply which makes for a less competitive market.
• September sales were down 35% from 2016, and so far in October, we are trending toward similar numbers.
• Days on Market are up 50% from last year.

What to conclude:

It’s true that we have seen a rebound in prices in September and so far in October. Even though much of this increase can be attributed to a typical seasonal adjustment, the fact that Buyers are willing to pay more in the fall then the summer was an important signal. While the decline experienced since March has flattened significantly, overall the Greater Toronto Area still seems to be in a declining trend. This is because of how much prices rose in the first quarter of 2017. Prices in the GTA were up a whopping 33% on a year/year basis in March while that year/year appreciation has since flattened to a “measly” 2.8%.

We have yet to see prices fall on year/year basis. However that is likely still to come, given the new headwinds on demand and the continuous supply that has been coming to market. Prices need to increase by 12.8% from now to February to avoid year over year depreciation. This increase would be a few percentage points above what is typical and seems unlikely given current levels of supply and demand. In fact, there is a chance that prices in November could show negative year/year results – a headline that will certainly impact Buyers and Sellers psyche.

Some things to consider going forward:

• While year over year appreciation is flattening, TREBs Home Price index (HPI) is still coming in at 12.2% for September. Indicating you can still expect to spend 12% more for the same home today than you were a year ago.
• Considering Selling in 2018? Don’t simply wait until the spring to list your home! Get your home sale ready now. Try to put your home on the market when you are “comparatively attractive” with minimal competition.
• The new stress test could actually increase demand for the next couple of months.  But it’s anticipated to have a significant impact on Buyers purchasing power once it takes effect.
• Condos will continue to outperform freehold properties in 2018, as Buyers are forced to more affordable housing options.
• After some recent years of the reverse, it’s likely the 416 will outperform the 905 in 2018. More supply and less competition will allow Buyers to reconsider what location works best for them (For Globe Subscribers).
• Media coverage could get ugly in 2018. Negative year/year price reporting isn’t something that’s happened for some time. If we don’t see a surge in demand or drop in supply, it could be the story dominating Toronto’s headlines heading into the 2018 spring market. Negative media often discourages Sellers from coming to market, leading to an overall reduction in the number of sales. It also greatly impacts Buyers psyche. Adjusting your pricing and negotiating tactics accordingly will prove important.
• Demand for homes within a median income budget will be the most competitive segment especially given how tight the rental market is.

Summer is here, and the second quarter of 2017 is just about complete! Many are wondering what’s next for the GTA Real Estate market. To bring some perspective back to where things currently stand, I thought it might be a great time to do a new rent vs buy analysis. Before digging into this, let’s do a quick recap of what’s happened to Toronto Real Estate over the last few months to bring us here.

Prices increased substantially in January, February, and again in March, when we were seeing close 30% year/year appreciation. In April, the Ontario Government announced new measures to cool the market causing a rise in new and active listings. This was the most significant shift in market conditions we have seen since 2008.  Providing a more balanced market and one that favours Buyers in some GTA neighbourhoods. Prices have retreated from the highs reached in Q1. The most recent stats for mid June indicate prices are up 6% on year/year basis, but down about 13.5% from March. Keep in mind this is based on the average price for the GTA and may or may not be representative of your specific situation.  

Many Home Buyers who aren’t used to having this much clout are now sitting back and waiting to see what happens next. This article indicates that first-time buyers planning to buy a home in the next year comprise only 40 per cent of anticipated purchases, down from 53 per cent in a November survey. First Time Buyers often drive the market and can have a domino effect on other Buyers/Sellers ability to make a move. While Buyers are taking a pause, in comes moneybags Warren Buffet. Buffet’s most recent investment in Home Capital shows he is confident that a Canadian housing crash is not imminent.  

Investor purchases aside, I thought it would be a good time to step back and take a look at things with a rent vs buy approach. This analysis should help those renting decide if they should be taking advantage of current conditions.

What we found is that whether to rent or buy might not be the right question. Where to rent and where to buy is more telling. The results provide some insight in what areas and housing type are likely to see further price drops, and what segments are more likely to see a more rapid rebound.  

Appealing…

High Park North – 3 Bed 2 Bath Home | Rent – $3,500 | Purchase – $1,000,000

Many Buyers in areas across the city like High Park North are seeing significant discounts from the early spring. Finding a Freehold for $150,000 less than you were paying a few months back has been a reality this June. However, Buyers should be cautious not to overplay their hand. If all things remain the same, waiting too long for a further price drop could backfire, as inventory may begin to tighten again. As Sellers adjust to the new pricing realities less homes are likely to come to market in Toronto’s popular neighbourhoods.

Check out our analysis below to see how renting that Million dollar house in High Park North might end up costing you more in the long run as you factor in equity gained through ownership. Now if you are certain prices are going to drop further or anticipate a large interest rate increase, not Buying is an easy decision. But if you think the market is likely to level off with potential for small gains going forward, a purchase can make sense.  Unless of course you know of a more stable investment that you feel is certain to outperform your 200k downpayment.  

Debatable?

King East-Rivertowne Condo | Rent – $1,675 | Purchase – $430,000

Like most downtown condos King East saw prices surge in the first quarter of 2017. Condos in the core didn’t experience the same decrease in prices that most freeholds saw in May, we are seeing more of a pull back in June. The supply has been so low for most of 2017 that we could see a further injection in listings at some point this year similar to what the freehold market experienced in May. However, rental rates have also risen and the rental market remains tight and always seems to get tighter in the fall.  When you factor in the equity gained, Buying can still make sense, but the lines start to get more blurred with a lower downpayment.  If Buying with less than 20% down you need to recoup the premium you paid for mortgage insurance.

Yikes

Richmond Hill Crosby – 3 Bed Bungalow | Rent – $1,900 | Purchase – $1,250,000

Is there more pain to come? As you can see from our rent vs buy analysis in Richmond Hill Crosby neighbourhood, speculation is rampant. Three Bedroom Bungalows that tend to rent for as little as $1800-1900 are selling for $1.25M. These speculative purchases are more susceptible to price decreases as the numbers don’t add up. Buyers here are paying $4,000 more a month for the privilege to own, when you subtract the equity they will gain they are still $2,000/month worse off. People are Buying here with the intention to build or simply because they think prices will increase which could prove to be a risky proposition.

Toronto’s Real Estate Market could be in for some negative headlines this week as May’s statistics are released. After a wild start to the year where Buyers were willing to trade their first born and a pile of money for a home in the GTA, we are finally seeing a change in what’s been a pretty mental market. May is typically a month that attracts the highest average price for the year, but this year is a bit different.

What has changed?

A lot more listings and a little less demand. The number of active listings has changed fairly substantially, up over 50% in many areas across the GTA from May 2016, and up about 50% from March and April of this year. The number of sales has actually dropped about 5% from April, 7% from March and about 15% from May 2016.

How big is this change?

This feels like the biggest shift in market conditions experienced since the Fall of 2008 when the market experienced a downturn caused by the economic crisis at that time. However, that change was prompted by a reduction in demand due to consumer confidence, where this change is being fuelled by an increase in supply. It’s not unusual to see these types of conditions occur in individual neighbourhoods as we head to the end of spring, but the scale and impact seems to be larger this year. The increase in supply could also be short lived as many Sellers unable to achieve their anticipated price are likely to pull their homes off the market heading into summer.

What caused the change?

The fall of Home Capital and the Government of Ontario’s introduction of a Speculator/Foreign Buyer Tax has certainly suppressed demand and stopped the unsustainable appreciation levels that we were seeing earlier this year; however, these changes wouldn’t be a reason for Sellers to list their homes. Sellers would have been smart to rush to list their property prior to the announcement. It’s the number of active listings that is driving the change in market conditions.

The increase in the number of listings could be seen as a natural occurrence caused by the fact that new listings were down and sales were up for 4 straight months from December to March. The bump in listings was likely to occur at some point, given that we were short changed early in the year. As word got out about what your neighbour down the street was able to sell their home for, even more Sellers came to market that may not have been planning on selling this spring.

I can’t tell you the number of people I talk to who say they will just list in the spring because that is the best time to sell your house, and articles like these don’t help this line of thinking. Getting caught up in the timing of the market can sometimes be misguided, but understanding supply levels and demand triggers is proving to be more and more important.

What to consider going forward.

Price appreciation on a year/year basis is still likely to finish the year quite strong. It’s the benchmark set in March that we are seeing some retraction from.

Total Sales on a year to date basis are strong and remain above 2016 levels. If the number of sales remains similar to 2016 and the number of new listings coming to market go back to normal levels conditions will start tightening again and head back in Sellers favour.

The number of Buyers not able to close on their purchase has increased as some Buyers who chose to buy first and sell second are not able to sell for what they expected/needed.

The impact on the downtown core and some of the condo market has been more muted. Perhaps because of Buyers limited affordability they are being pushed from Freehold to Condos. This was discussed in this previous post. However, the Ontario Government’s April announcement expanding rent controls to all private rental units is going to have an impact on condo investors’ bottom line. Rent increases will be limited to 2.5%. Given this new provision, the price you get when finding a new tenant could prove very important and may increase the amount of downtime between tenants.

While some properties are still fetching top dollar, Buyers who have been waiting for a change to market conditions should start looking for opportunities. First Time Buyers, Move up Buyers and some investors may see new opportunities emerge.

Sellers should pay close attention to inventory levels in their area and have their home market ready, but wait to list at a time when inventory levels are lower. Have a backup plan in place in case their original selling strategy is unsuccessful.

Be cautious of things that could further impact demand, like an increase in interest rates or unemployment, and take a long term approach to your Real Estate decisions.

Have you ever sat back and thought if I could get $2 Million Dollars [or insert your crazy number here] for my house, I would sell it tomorrow? This wishful thinking has become a reality for some Toronto Real Estate owners. Price appreciation across the GTA set new records for the first quarter of 2017 with year/year appreciation coming in at the 20-30% range. The Real Estate frenzy has spread from Toronto, to the GTA, and across Southern Ontario prompting the Ontario Government to finally step in to attempt to cool things off. Last week’s headlines of alternative lender Home Capital’s shenanigans are sure to add an extra layer of uncertainty in terms of how the market will respond. We will touch on the Ontario government’s changes in a future posts, but for now, we spent a bit of time talking to GTA homeowners about whether they plan to stay in the city or take the money and run.

Many Toronto residents are very much in the middle of their lives here. They work in the city, their kids go to school down the street, their friends and community are all close by. Toronto is home. So while crazy jumps in appreciation are exciting for these homeowners, it’s not going to prompt them to sell. They’re in it for the long haul, and fluctuations in the market today are unlikely to negatively affect them in the future. But for those who are no longer tied to the city, and/or have a move on their radar in the next 5 years or so, I was curious about a couple things: 1/ Is there any fear of a market correction and possibly losing money if they don’t cash out now?, and 2/ Do they have a magic number that would persuade them sell without hesitation?  Here is what people are saying…

Toronto homeowners remain fairly bullish on the market; would-be Sellers I spoke with are not expecting prices to pull back, though about half do expect appreciation to cool. As for that magic number, it seems that recent appreciation is more of an afterthought when deciding whether or not to sell their home (maybe this would change in a different market). On average, it seems about 30% above current market value would be enough to tempt most people to sell ahead of expectation.  

Money isn’t everything: Community, family and lifestyle are bigger drivers than money which is why many choose not to sell as they ease into retirement. Take Ann for instance: Ann is a single women in Leslieville who lives in 2 story Detached home with her dog, Freddie. She’s been retired for 5 years now, but selling isn’t on her radar. She expects this to be at least 10 years down the road, and really depends on whether she finds the maintenance of her home manageable. People like Ann have seen the community grow and improve, and have ties that keep her in the area. Ann isn’t the only person I spoke with who indicated that their community plays a large role in their decision. Sports groups, neighbours, and proximity to family are often bigger influences than sale price when deciding whether or not to sell their current home.  

Where the heck do we go: Yes, Toronto’s house prices have been raging, but so have the GTA’s as well as most Southern Ontario communities, which has would-be Sellers asking: where do we go? The thought of moving can be daunting, and the thought of moving in today’s market can be downright overwhelming. Bidding wars, less home for your buck, foregoing proper due diligence just to secure a property make staying where they are far more appealing for some.

Millennials cramping your style: While most retirees welcome the home equity gained from recent home appreciation, this is a double edge sword: these gains are making the housing and rental market unaffordable for millennials which means parents may not be empty nesters for a while yet. John and Lynn have already purchased their home in Honduras where they plan on spending part of their retirement, but will hang on to their GTA home until their children – all in their early 20’s – have launched their careers.

Condo’s aren’t for everyone: Many potential downsizers would be open to a smaller house, but are not keen on a condo. Chalene and her husband are both retired and own a 2200 sqft 2 story home in Pickering, and like most of her friends, would love to downsize to a bungalow. But if they plan to stay in the same community, the numbers just don’t add up.  

The market is crazy, without a doubt, but residents I spoke to love their city and have faith the market will continue to grow, even if the appreciation rates fall to a more reasonable pace. Many homeowners that could cash out (ka-ching!) are finding that the reasons to stay far outweigh any amount of money to go. It will be interesting to see how the market is performing in a year from now and if this sentiment remains true.

Comments or questions? Shoot me an email at andrew@relativerealty.com.