Below is my latest Toronto real estate market update video for November 2017,
The market continues to find balance, with downtown Toronto condos continuing to show particular strength. Now that we know for sure that there will be an expanded stress test, is it something to get stressed about? And is there a flood of buyers racing to beat the rule change?
If you are wondering what impact this month's trends in the market have on your situation, please don't hesitate to get in contact with me at 416.357.1059 Please don't forget to like and comment; the interaction is always truly appreciated!
Full transcript: Hi, I'm Rebecca Laing, Toronto Real Estate Broker, and welcome to my November market update for the City of Toronto. As has become the trend of late, there is activity afoot that is sure to satisfy both the Toronto real estate optimists, and the negative Nancies out there. The month of October finished with results that appear to show a market that is continuing to stabilize. As is traditionally expected, the number of transactions in October bumped up compared to the previous month, and in fact, the percentage by which these sales volumes increased was a bit higher than typical. The overall average selling price was up over September, and the number of active listings was down, resulting in a decline in the months of inventory. These are all pretty positive signs, right?
Well on the flipside, the negative Nancies will be quick to point out that year over year, the number of listings is still way up compared to last year, overall sales volumes are way lower, and we are now starting to see year-over-year price declines show up in some stats. This last point is notable, because while naysayers have been emphasizing how much prices have dropped since our springtime market highs, market optimists have been counteracting this by saying that you need to dismiss early 2017 as an aberration, and look to the year over year price numbers, which have of course remained positive. Now however, we have a month where the average selling price of detached Toronto homes is actually down compared to last year. As we proceed into the winter and early spring market, which encompass the same months when the exuberance really began to take hold in late 2016 and early 2017, these year-over-year price declines are almost sure to become a trend, even if we have month-over-month stability. Some are warning that seeing negative year-over-year results in news headlines will somehow be particularly damaging to market psychology. Personally, I am of the mind that by now, the market is already conditioned to realizing and accepting the amount by which we are off the 2017 peak. In essence, it’s old news. And besides, for now at least I still have the home price index to cling to, which is still showing a year-over-year increase for detached homes.
In this optimist-pessimist comparison, I haven’t mentioned the OSFI’s expanded stress test. In case you haven’t heard about it by now, coming soon, everyone borrowing from a federally regulated lender will need to qualify for their mortgage based on a rate that is higher than the actual rate they will be paying. This would undercut a borrower’s maximum mortgage amount, and hence their buying power, regardless of how small their mortgage is going to be. There aren’t really ways around it either. Choosing a longer amortization could help mitigate some of the effect on purchasing power, but it won’t fully offset it. Using a non-federally regulated lender isn’t really a solution either, as you will likely face higher interest rates, and in the case of credit unions, a lot of them are looking to implement the same stress test even though they are not required to. Finding a side hustle or some other way to make more money could help a bit, but keep in mind that these days lenders are not as kind to the self-employed and other folks with income that is not from a traditional long-term 40 hours a week employee-type relationship. Finding a mortgage co-signer is probably the best work-around, so it might be a good time to sign up for Lifemates instead of Tinder, and getting a head start on a Christmas wish list that includes “mortgage guarantor” as the only item. The worst part about the expanded stress test is the impact that will be felt at mortgage renewal time, when increasing numbers of borrowers won’t be able to shop around, and end up being forced to remain with the same lender. As you can see, I’m not too enthralled by these rule changes, and other than potentially preventing a very small proportion of borrowers from getting in over their heads in debt, and maybe higher profits for the big Banks that result in higher dividend yields on my bank stocks, I don’t see anything that positive coming from them.
In terms of an immediate market response, there was recent speculation that buyers who were thinking of buying in the new year would accelerate their plans and try to purchase in November or December before the rules come into effect. This has been the traditional market response when the government has announced mortgage changes in the past, but so far this time, I’m not witnessing such a rush out in the field, and the early November sales stats aren’t supporting this theory either. It appears that at least some sellers did subscribe to this flood of hurried buyers theory, as I am seeing a larger than normal swell of new listings since Halloween. It’s not quite a surge, but it will likely be enough to push up the months of inventory on the market by the end of November. All of that said, while I disapprove of the timing and some of the details of the rule changes, I am becoming a bit more hopeful that the expanded stress test won’t be as devastating as some fear. After all, there already has been a stress test in place for the past year for those purchasing with less than 20% down payment, and those choosing either variable rate mortgages or fixed terms of less than 5 years. It’s only the 5-year fixed-term borrowing segment who have been getting away without the stress test. Furthermore, it’s not like all home buyers have been borrowing to their max limit. Most of my buyer clients have a psychological limit that is much lower than what lenders offer, usually because they want to keep their monthly payments in check so they can still afford to pay for expenses like daycare, or the occasional vacation. If their borrowing limit is cut by 20% thanks to the stress test, it’s not like they are going to spend 20% less on a home. And it certainly doesn’t follow that there will be a 20% decrease in home prices as a result. Time will tell, and there will be an adjustment period, but like I said, I’m far from panicked by this change.
Before I move on from the stress test, I just want to give out some pragmatic advice to those who are actively house shopping now, or who have already purchased but not closed, or even those who have a mortgage coming up for renewal soon. Don’t assume that you actually have until January 1st to avoid the new stress test. Some lenders are implementing the changes sooner, and every lender is different. Furthermore, the lender needs to have fully underwritten and approved your new mortgage by their respective deadline. A pre-approval does not count, even if it is still valid for 3 more months. If you need help with figuring out what the deadline is for your situation, get in touch with your lender, or if you don’t have one, then I have a number of excellent mortgage professionals I can put you in touch with. Please get in touch and I would be happy to refer you based on your situation.
Moving on to the market stats, October ended with 5681 active listings, which is down ever so slightly from September’s 5732, and up 28% compared to last year’s undersupplied level of 4438. This October ended with 1.97 months of inventory, which is down from the 2.5 months of inventory in September, effectively shifting the market even more in favour of sellers. I mentioned earlier that November listings are thus far trending upwards, but not enough to push us outside the range our current moderate sellers’ market. For the average sale price for all homes types in the city of Toronto, it was $818201, which is up 6.2% compared to October of last year, and up 1% compared to September. For detached homes, the average sale price was $1,287,765 which is down 1.2% compared to last year, and down 5% compared to September. The Home Price Index shows puts detached homes at a 3.9% increase over last year, and pretty much flat compared to September. Whichever way you look at it, detached home values in the city were not very strong in October, despite the increase in their sales activity. Moving on to semi-detached homes, the average was $948,309 up 5.1% over last year. Condo townhouses were at $636,934, which is up 8.9% compared to 2016. And finally, the average for condo apartments was at $555,004, which is yet another big increase over last year, up 20.9%. Condos are still leading the way in our market, and in particular, downtown. In my last couple of videos I have mentioned how the average downtown condo is up over $120,000 compared to last year, and that amount is still holding. Downtown condo listings are also still down compared to last year, and the inventory levels are keeping this segment in a fairly strong sellers’ market. It’s definitely still a great time to be a downtown condo owner, and given the convergence in pricing between condos and freehold homes, it’s an opportune time for condo dwellers to make the move to freehold. Get in touch with me if this is something you would like to explore, and as always feel free to contact me with any of your real estate questions. You can call or text me directly at 416.357.1059, or connect with me through rebeccalaing.ca.
That wraps things up for this month. If you are watching on Youtube and enjoyed the video, please please give it a thumbs up, leave me a comment, and subscribe if you haven’t already. Thanks again for watching, and until next time, I'm Rebecca Laing, Toronto Real Estate Broker.