Canada's Condominium Magazine
Somehow, even though the number of new listings of homes for sale is shrinking, more people than ever continue to find something to buy in Toronto’s relentlessly busy real estate market. The month of May just set new records for sales and for prices, as nearly 13,000 homes changed owners, an increase of 10.6 per cent over the previous year. This despite 6.4 per cent fewer new listings to choose from. No wonder prices are rising so fast, the average selling price for all types of homes up 15.7 per cent compared to a year ago. The average price of a detached home in the 905 was up an astonishing 21.2 per cent. Not a bad return on investment, most would agree.
Mark McLean, president of the Toronto Real Estate Board (TREB), commented that “there is no shortage of buyers” in the marketplace, though the strong sales activity “masks” the larger story, the shortage of listings. And that is causing “widespread competition” among buyers of every home type, though sales of semi-detached homes in the 416 area were down 13.8 per cent, and grew only slightly (0.5 per cent) in the 905 area.
Condominium sales right across the GTA were up sharply, with a 21.9 per cent year-over-year rise. Condo sales in the 416 were nearly equal to sales of all other home types combined in May. TREB analyst Jason Mercer noted that market conditions in the generally well-supplied condo segment were “tighter,” and this has driven price growth significantly above the rate of inflation. The average price of a condo in the GTA rose 5.9 per cent over one year ago.
Whether we’re talking about existing homeowners or people looking to purchase for the first time, there is no shortage of buyers in the marketplace today. So, while the record number of home sales through the first five months of 2016 is not necessarily surprising, it does sometimes mask the larger story in the GTA: the shortage of listings, which has resulted in strong upward pressure on home prices.
The apparently unstoppable market in Toronto has provoked more calls for government intervention. The OECD earlier this week warned, not for the first time, that a market correction in Toronto or Vancouver could threaten the country’s financial stability. Various market-cooling measures have already been introduced by the federal government, including most recently an increase in the down payment on a home costing more than $500,000.
But, as CIBC economist Benjamin Tal pointed out (even before today’s numbers for May sales and prices came out), these measures have had little effect on the market. Sales and prices continue to rise. One reason the new stricter down payment rule isn’t slowing the market is that it applies only to the insured market—buyers with less than a 20 per cent down payment must have CMHC or other mortgage insurance. But buyers in the upper end aren’t affected because you can’t buy a $1 million home without having 20 per cent down payment, and insurance is not required. The average price of a detached home in the 416 reached $1,285,693 in May.
Outside observers like the International Monetary Fund have previously expressed concern that a high proportion of un-insured mortgages on highly priced properties in markets like Toronto and Vancouver presents a risk to the financial system. If interest rates were to rise, and if the market were to correct sharply, lenders could be left holding many bad mortgages. But the government must be careful, according to Tal, in how it deals with the uninsured market. Many buyers in the upper end are foreign-based, and the government does not want to signal that Canada is not open to foreign investment.