Monthly Archives: December 2015

Trends to Look Out For in 2016

2015 was a record breaking year for the Toronto real estate market. The city is growing in population, foreign investment is pouring in, and the demand for new homes has never been stronger, with the annual record for total home sales in the GTA being broken with over a month to go left in the year. The construction of new condos had no issue meeting the demand for such units in the city, but the same could not be said for other housing type categories and detached and semi-detached homes. The lack of supply and the staggering demand sent house prices soaring, with detached homes reaching an average selling price of $1M by the spring.

John Pasalis of Move Smartly provides a detailed overview of the Toronto real estate market in 2015, identifying four major areas: record sales, lack of supply, strong demand for condominiums, and mortgage rule changes. Here is a point form breakdown of the big highlights of 2015, as identified by Pasalis.

Record Sales

  • Home sales were up every month in 2015 when compared to 2014.
  • Annual sales up 9% in 2015 versus 2014.
  • The annual record for home sales was broken by November, with 96,901 homes sold in the GTA up to that point (beating the previous record of 95,223 homes sold, which was set back in 2007).

TorontoLack of Supply

  • Certain key figures illustrate that the demand for new homes far outweighed the supply. The number of new listings (homes for sale) increased by 2.7% in 2015, while the number of sales was up by just over 9%.
  • This discrepancy is exactly what many analysts agree accounts for the increase in house prices seen last year. Prices for homes went up 10% when compared to 2014.
  • Every month in 2015 saw fewer houses available for sale when compared to 2013 and 2014.

Strong Demand for Condos

  • To understand just how strong the demand for condos was last year, supply and sales figures for condominiums needs to be compared to that of detached homes, arguably the most sought after house type by potential new homebuyers.
  • Sales of detached homes went up 8% in 2015 with practically no increase in the number of new listings. Condo sales went up by 13% in 2015, while new listings increased by 6% compared to a year prior.

“When we look at the absolute numbers both sales and new listings [for condos] were up by just over 2,600 units which means that all of the increase in supply was absorbed. More condos get listed for sale than actually sell which is why the percentage change for new listings is lower even though both saw a similar absolute increase.”

Mortgage Rule Changes

  • Late into 2015, the federal government changed the mortgage rules for insured mortgages by introducing a tiered down payment system, increasing the down payment requirement from 5% to 10% for any portion of a home’s price above $500K. A minimum 20% down payment is now required for homes priced over $1M (prior to this, buyers could buy a $1M+ home with just 5% down).
  • The effect these rule changes will have in the housing market in 2016 is still unknown.
CMHC

Canada’s New Mortgage Rules and Their Possible Outcomes

The newly elected Liberal federal government is wasting any time attempting to remedy what many fear is a nationwide housing market bubble. It’s been a noteworthy week and a half in the ongoing story that is the Canadian real estate market in 2015. As Adam Chambers of The Globe and Mail notes, first, the Bank of Canada announced that it would consider moving to negative interest rates should the economic conditions warrant the need to do so. And second, the Department of Finance, the Canada Mortgage and Housing Corp. (CMHC) and the Office of the Superintendent of Financial Institutions (OSFI) came to a consensus regarding measures geared at slowing down the market. The resulting measure will increase the minimum down payment for new insured mortgages over $500,000 to 10% from 5%, as well as future changes to be made to the amount of capital that banks must hold against residential mortgages.

The logic behind the rule change is sound, in theory. The rules are structured so minimum down payments begin to rise gradually as the selling price moves above that point. But, as is the case when putting any codified policy into practice, the only way to know whether or not its working is to give it time, followed by an evaluation of its effects.

Don Pittis of CBC breaks down what the possible consequences the increase to down payments might have, breaking it down into two scenarios:

“Is it too much? Enough to pop the bubble that so many people have identified? Or, at the other end of the spectrum, will it be too little to have any serious impact on a mortgage market that is constantly finding fresh ways to entice new buyers?”

Pittis goes on to make an interesting observation, noting that the new rules instituted by Bill Morneau, atleast at first glance, appears to target the richer segment of the market, seeing as how homes that are under $500,000 will remain unaffected by the change. The effects of the new rules

are likely to be restricted to the margins. Since the rules apply across Canada, cities such as Calgary, with traditionally lower minimum down payments, will have to bare the brunt of the changes.

But, when one factors the record breaking increase in housing prices in Canada’s two largest markets, Toronto, and Vancouver, you quickly realize that $500,000 doesn’t exactly constitute “rich” anymore. The majority of first time homebuyers in Toronto, if they opt not to purchase a condo, are looking at a home priced anywhere between $500,000 and $1M. Craig Alexander, an economist for the C.D. Howe Institute, a Canadian economic think-tank, commented on the state of first time homebuyers, arguing that many have to overextend their budgets and income in order to purchase a home, which forces them into a precarious financial situation that can become disastrous very quickly.

“The share of households that have no financial buffer has been going up. There’s more financial vulnerability now than there was before.”

Toronto real estate

Toronto Home Sales & Prices for the Month of November

The big news coming out of the Toronto real estate market by the end of November is that the city has already broken its all time annual sales record, and there is still an entire month to go. Sales have not been this good in Toronto and the GTA since before the big housing crash and recession of 2008. Mark McLean, the board’s president, could barely contain his excitement in a published statement:

“Not only did we see a record sales result for November, but with one month left to go in 2015, we have already set a new calendar year record for home sales in the TREB market area, eclipsing the previous record set in 2007. Sales were up on a year-over-year basis for all major home types, both in the city of Toronto and surrounding regions.”

Here are some of the major highlights of TREB’s latest report:

  • 7,385 homes (including all housing and condominium unit types) were sold in November, up 14% year over year.
  • The average sale price of a home (including all housing and condominium unit types) increased to $632,685 in November, up 9.6% year over year. The MLS composite benchmark price, which factors out sales at the extreme ends of the spectrum, climbed by 10.3% from this time last year.
  • Total sales for the year so far (as of December 1) is 96,401 homes across the GTA —breaking the previous sales record of 93,193 set in 2007.
  • The number of new listings went from 8,716 in November of 2014, to 9,609 properties last month, up 10.2%. Interestingly enough, the total number of homes for sale, known as “active listings,” were actually down 8.6% year over year.
  • Sales and price figures for Semi-detached homes had the greatest increase of all unit types last month, with sales up 18.3% year over year, and prices up 11.8% (average price of a semi-detached house is $750,608 in the City of Toronto and $504,928 in the 905 regions).
  • )Semi-detached homes still constitute one of the best entry points in the market for first-time buyers and condo dwellers looking to purchase their first home.
  • Second in popularity to semi-detached homes were condos. Sales of condos went up 16% in November over a year ago. The average sale price went up 5.4% in the City of Toronto to $415,316 and up 1.5% in the 905 regions to $315,223.
  • Townhouse sales were up by 14.6% across the GTA, bringing the average price to $549,649 in the city (up 9.1% year over year) and to $460,274 in the 905 regions (up 12% year over year).
  • Detached houses in the City of Toronto are still well over the $1 million-plus range, with sales in the city up 0.7%, and an incredible 18.5% in the 905 regions. The average price of a detached house in the City of Toronto was $1.019 million in November, compared to $762,326 in the 905 regions.

According to Jason Mercer, TREB’s Director of market analysis:

“Demand for ownership housing has remained strong in the GTA throughout 2015, with sales generally increasing at a greater annual rate compared to new listings. This means that competition between buyers has strengthened in many neighbourhoods in the City of Toronto and surrounding regions. The end result has been upward pressure on home prices well above the rate of inflation in most cases.”