Toronto house prices are correcting a bit, while condos are still performing well. Listing inventory is very slowly creeping towards a more balanced level. I discuss why buyers and sellers need to watch out for more mortgage rule changes coming from the feds.
And there was a giant rubber duck floating at Harbourfront, so of course I had to make a strained analogy to the Toronto real estate market.
If you are wondering how this market report affects your situation, connect with me at 416.357.1059
Today I'm in HTO Park at Harbourfront. A few weekends ago this was the place to be. Thousands of visitors came to see the giant rubber duck that was floating right here. Now that the much-hyped duck is deflated, packed up, and shipped away, is it a metaphor for the Toronto real estate market?
Hi, I'm Rebecca Laing, Toronto Real Estate Broker, and welcome to my Toronto Real Estate market update for the month of July. In the City of Toronto we are seeing market activity continuing to take a bit of a summer holiday, resulting in further month-over-month price softening. And while the number of listings is up a bit, it's largely a story of weakened buyer psychology that’s driving lower demand, and fewer transactions. Still, there are thousands of transactions happening, and prices are up from one year ago. If we all just pretend that January to April didn’t happen in 2017, I think there would be less angst about our current transition towards a balanced market. I’ll show you in a second the most recent stats, and then afterwards talk about a very important change to mortgages that could be coming down the pipe. And no, this isn’t the Bank of Canada rate hike that I’m talking about, although I will touch on that as well.
Diving into the stats, let’s start by looking the average sale price for all homes types in the city of Toronto. In June, it was $829,479, which is down 8% compared to May, and up 7% compared to June of last year. These average numbers are definitely being skewed by the relatively higher strength of the more entry level price points and condos, so let’s look at the Home Price Index in order to strip away some of those effects. The composite Home Price Index for the City of Toronto is up 24.2% compared to last year, and is virtually flat compared to May of this year. Moving on to the number of active listings in the city of Toronto at the end of June, we have 6000, compared to 5552 in June 2016. This represents 1.9 months of inventory for June 2017, compared to 1.2 months of inventory for June 2016. “Months of inventory” is the theoretical time it would take to sell every home that is currently on the market, without any new listings coming for sale. Traditionally it is viewed that 4-6 months of inventory is a balanced market, so at 1.9 we are still well within the range of a seller’s market. Let’s get into the Toronto average selling prices for each category of home. For detached houses, the average was $1,386,524, which is a 10.1% increase compared to last year. For semi-detached, the average was $987,404, up 8.1% over last year. Condo townhouses were at $606,079, which is up 13.4%. And finally, the average for condo apartments was at $552,679, which is a gain of 23.2%.
As you can see, we once again have a month with condo apartments leading the market in activity and gains in sale price. In addition to this, condo apartments are also experiencing tremendous demand for rentals, especially throughout the downtown core, and anywhere close to the subway. This is seasonally a hot time for rental demand, but this year definitely feels more intense, and offer dates for condo rentals are actually now a thing. Despite several of the Fair Housing Act rules from April that are negative towards condo investors, they are instead benefiting from increased demand on both the rental and the sales side.
Looking forward, current condo owners may benefit further from increased demand thanks to the pending mortgage rule changes that I hinted at earlier. In regards to mortgages, of course the big headline of the week is that the Bank of Canada finally raised its benchmark rate by a quarter percentage point. This increase results in approximately $60 per month higher payments on a half million dollar variable mortgage. Any effect of this will be largely psychological, as these sorts of dollar amounts in themselves do not typically sway buyers’ purchasing decision. What will have a much more substantive effect is the potential expansion of the mortgage stress test. Late in 2016, the federal government introduced a stress test for those with less than 20% down payment, which entailed mortgage qualifying based on an interest rate that is higher than the actual rate they will be paying. Many of those affected by this rule found ways around it through alternative lenders, or by having parents help them boost their down payments. However, right now the feds are floating a proposal to impose a new stress test on all mortgage borrowers, including refinancers seeking home equity lines of credit, where they will be required to qualify on a rate that is 2% higher than the actual rate they will be paying. This will have a tremendous effect on homebuyers’ purchasing power. For an example, let’s look at an individual who has a $100,000 annual income and a 20% down payment. With the new stress test, their purchasing power drops by $100,000. In addition to this, there’s a further proposal to make qualifying more difficult in certain markets, namely Toronto, that would further lower the maximum mortgage a buyer could obtain based on their income. Should these measures be approved, we are likely to see another rush of buyers to qualify under the current rules, as has happened in the past. Going forward, the diminished purchasing power of buyers will keep the demand for condos high, as some buyers are forced to rent, or are limited to purchasing only at entry level price points in the market.
This proposal by the feds is just one of several market influences at play to watch for in the coming months. If you would like clarification or more information on how all of this applies to you, please call or text me at 416-357-1059, or connect with me through rebeccalaing.ca Thank you for watching, and I hope that everyone gets out to enjoy our waterfront, even without the giant duck. Until next time, I'm Rebecca Laing, Toronto Real Estate Broker.