Canada's Condominium Magazine

Downturn or breather in housing market? Demographics, inventory, history, and new-build sales trends suggest the market in fall will sharply bounce back

Price pressure and inventory-shortage argue against characterizing the current summer market as a “downturn” — versus a short lull — in the market. While this may dash the hopes of struggling first-time buyers, demographics and listing supply make it highly unlikely that the market will downturn past the summer months. At most, the lull would last 5 months, as it did in Vancouver, but it is likely that demand and short supply will snap the market upwards in the fall — typically a hot season in real-estate. [For some detailed statistical reasons, see below.]

 

Five key pressures on the market will likely result in another busy fall real estate season.

 

Long term stability can only come from an increase in supply. Fortunately, a return to wild price-increases is unlikely. Long term, the only way to modulate the market is a concerted effort to build new inventory and improvements to commuting infrastructures.

New condominium upsurge

The market is ripe especially for new condominium developments, due to the change in preference of young families towards “vertical living.” This trend is seen mostly in the larger multi-bedroom units that will suit couples planning a family or young families, or down-sizing baby boomers. The market will still be strong in smaller units, especially new-build, but the highest growth is anticipated to come from young families and down-sizing boomers. [The last reported numbers from BILD show sharp increases in new-build condominium sales and a dropping inventory supply. See our previous story>>]

 

Millennials are very motivated to enter “vertical living” home market in urban areas.

 

Lack of inventory and affordability are the key reasons buyers are adjusting preferences to new-build condominiums. New condominiums tend to have lower maintenance fees and more amenities — increasingly family-friendly common elements. Older condominium resales will likely remain strong as well, especially among new buyers ready to move this year.

 

Demographics will keep the pressure on the markets, increasing demand against a short supply of homes. Millenials are working hard to enter the market, while Baby Boomers are looking to downsize as they empty their nests. Meanwhile, the majority of immigrants settle in the GTA.

 

Five pressures on market

Young families put demands on a market with a short supply of inventory. Many young families are opting for condominium high-rise living.

The five pressures on the market make it unlikely we are in any kind of sustained downturn:

  • Demographics and immigration: the majority of immigrants still settle in the GTA and, demographically, young families are coming into the market. Also, as numbers from the Ontario government indicated, the target of the recent Ontario Fair Housing
  • Location relative to employment: with the majority of available employment found in the GTA area — and with long commute times in increasingly congested road systems — it is unlikely buyers will focus on less-expensive markets.
  • Inventory: with an ongoing short supply, the long-term outlook can only improve with new development, making it likely the market will rebound by fall.
  • History: markets always increase, historically, and even government interventions — such as seen in Vancouver (which only pulled down the market for five months) — are unlikely to have any sustained impact.
  • Change in preferences: the new preference for a high-rise with good location will pressure new condominium sales and condo resales upwards.

 

Despite the lulls, population growth, changing lifestyles, millennials with new families and the GTA’s prime location will likely result in a renewed climb — albeit modulated — in fall of 2017.

 

History: Vancouver example

The B.C. government led the way for Ontario, with interventions designed to discourage foreign national investment. Ontario followed with similar rules.

The prices did drop in Vancouver, from an average of $933,100 (all housing types) versus January 2017 at four-percent less, or $896,000. Then, pressured by short supply and high demand, the market surged back by July of 2017 to $1.02 million (rounded) — an increase of 8.7 percent.

The other lesson from history is that real estate — especially urban — will always increase, except in the short term, even after significant events (for example, wars, depressions, recessions).

 

It’s a cliche, but real estate is — and always will be — about location, location, location. People choose the GTA to minimize long commutes and maximize lifestyle choices.

 

Demographics: Toronto to grow at least 1.6% each year

From now until 2019, most experts agree that the population in Toronto area will grow annually by about 109,000 (rounded) or 1.6 percent. By 2019, the population should reach 7.1 million.

Additional pressures come from the demographics of age. The median age in the last census was 39.2 years. With delayed buying by Millennials, and increased buying pressure from down-sizing boomers — demand will continue to outpace supply.[1]

 

Young couples and families are highly motivated to enter the condo market.

 

Demand and price pressure

The numbers are already in for summer, and although they clearly show a strong pull back on sales, price pressures continued. Prices still jumped up, especially for new condominiums. New condominiums also showed strong sales. The MLS Home Index Price Composite soared by 18 percent July 2017 over July 2016, although it was down 4.6 percent month over month.

 

TREB summary of re-sales and pricing for the 416 and the 905 in the GTA for July 2017.

 

 

NOTES

[1] Toronto Foundation: http://torontosvitalsigns.ca/main-sections/demographics/

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