Sarah-Joyce Battersby of The Toronto Star, stated that single-detached homes are becoming a “luxury item” in the city of Toronto, especially for first-time buyers. But is it true? Are single family detached homes becoming so expensive that they can only be considered a luxury item? Available only to a select few? Examining the numbers and considering what some analysts have to say about the current and future condition of the Toronto real estate market sheds light on whether “luxury item” can accurately characterize detached homes in this city.
The most recent statistics published by the Toronto Real Estate Board show a familiar trend we’ve witnessed over the past year: record setting price and sales figures. There were a record number of transactions last month, over 7,000, up a whopping 21.1% compared with February 2015. The average home price in the Toronto area climbed almost 15% to $685,278, while the MLS home price index, an alternative (and what many deem a better measure), showed a gain of 11.3%. With regards to detached homes specifically, the average price in the 416 region is close to $1.2-million (up 16.3 per cent since this time last year), while in the surrounding 905 area, it’s now $816,705.
The number of new listings also rose, up 8.2% year over year. But even that, combined with new mortgage restrictions introduced in the middle of the month, has done little to slow down demand, which is what’s driving up prices, among other things. Garry Marr of The Financial Post commented on this, stating that the “initiative to increase the minimum down payment needed to buy a home has done little to slow the market.” It’s become evident to anyone examining the market that supply simply can’t keep up with the blistering demand. And a few reasons are cited to account for this.
Both John Pasalis and David Fleming, two seasoned Toronto real estate agents who spoke with the Toronto Star, argue that the demand for homes in Toronto has become insatiable and insanely competitive. Buyers looking to purchase any kind of unit can expect to compete with multiple offers, from buyers both domestically and internationally. Buyers can be split into two categories, those on a budget who have a max price ceiling they can consider, and those with money to burn. Part of the problem is that latter can “bully” the former out of the running for most homes by placing a bid far above the asking price, effectively muscling potentially buyers out of the running for their dream home. And with the Canadian dollar being relatively low compared to foreign currencies, international interest in Canadian real estate is booming. Even foreign buyers who are poised to only spend $1 million can realistically spend $1.2-$1.3 million after conversion.
Robert Hogue, a senior economist with RBC., makes a very interesting point when it comes to housing affordability, stating that, “There’s no hard-and-fast rule for what’s affordable and what’s not affordable.” The only way to truly know how bad affordability has gotten is after a crash or market correction, which is dependent on employment rates. For now, everyone involved or interested in the Toronto real estate market will have to adopt a wait-and-see attitude.