The Toronto Real Estate Board (TREB) has declared the rollicking real estate ride of the last two years to be officially at an end. Its annual outlook predicts only a slight increase, at best, this year over last year’s average home price of $822,681.
Prices are expected to end the year in the range of $800,000 and $850,000 on average across all home types.
It’s inevitable that sales and prices will look poor in comparison to the first half of 2016, when year over year price growth peaked at over 30 per cent, said Jason Mercer, TREB’s director of market analysis.
As the psychological impact of last year’s Ontario Fair Housing Plan wanes, home buyers will feel the effects of the new mortgage stress testing that took effect on Jan. 1, and of higher borrowing costs generally, he said at the board’s annual outlook conference on Tuesday.
But there should be an uptick of prices in the mid-single digits in the second half of the year, said Mercer.
Policies such as Ontario’s cooling measures, which included a foreign buyers tax and new mortgage stress tests, don’t necessarily drive consumers out of the housing market, he said. Sometimes those buyers just amend their purchase.
“People change up in terms of what they’re going to buy, what price point and certainly the geography in the Greater Toronto Area,” he said.
TREB expects sales volumes to drop for a second consecutive year or remain flat, although Mercer says the number of transactions will likely also trend up in the latter half of 2018.
The 92,394 re-sale home transactions last year was down 18 per cent compared to 2016. This year, the board expects 85,000 to 95,000 sales across all categories, from detached houses to condo apartments.
TREB’s forecast is based in part on consumer research showing fewer people, particularly first-time buyers, anticipate a home purchase this year.
An Ipsos survey of 2,500 Toronto home buyers shows 26 per cent of respondents overall said they were likely to buy a home in the next year, compared to 28 per cent last year.
About half of those who expected to buy, 47 per cent, expect to buy a detached house — 54 per cent in the City of Toronto, compared to 39 per cent in the surrounding 905 areas. Twenty-two per cent region-wide expect to buy a condo — 27 per cent in the city and 18 per cent in the surrounding communities.
The number of first-time buyers dropped dramatically after the government introduced its market-cooling measures in April. Even though there was a slight rebound of first-time buyers by November, overall only 46 per cent of those who expected to buy a home in the City of Toronto this year were first-time buyers. That’s down from 60 per cent last year.
“It wasn’t a blip. It’s a new reality, where fewer transactions involve first-time home buyers, likely because they weren’t able to qualify or afford the home they maybe would have even just a couple of years ago,” said Ipsos vice-president of public affairs Sean Simpson.
The forecast inventory levels don’t portend 30 per cent price growth such as the GTA saw last year, said Mercer. “But it’s certainly not speaking to price declines either,” he said.
Most people planning to list their homes are motivated by personal reasons, but the number planning to do it for financial benefit rose to 28 per cent in November, from 22 per cent in May.
Sellers are thinking, “The bottom didn’t fall out in May, so now may actually be a good time to capitalize on that investment,” said Simpson.
That may be the biggest impact of last year’s housing policy changes, he said: “Not on people necessarily staying on the sidelines, not on people necessarily buying a home, but on people’s calculus on whether or not now’s a good time to sell.”
Even though housing prices have risen in the Toronto region, the research shows that a 29 per cent down payment was average among recent home buyers.
Some housing categories, notably condos, are expected to perform better than others this year. The high demand for more affordable housing could result in double-digit price growth in apartments compared with more expensive detached houses, says TREB’s outlook report.
Expanded rent controls, part of the province’s new housing policies, could impede the supply of rentals on the market and push rent increases above the rate of inflation, said TREB’s director of market analysis, Jason Mercer.
Each Ontario home sale results in $68,275 in spin-off spending — the equivalent of about $7 billion a year, according to Altus group research, quoted by the real estate board.
- 65% - Percentage of home buyers who preferred a fixed-rate mortgage
- 2% to 2.99% - Most common mortgage rate among recent home buyers
- 84% - Home buyers who say they are confident they could still afford their mortgage if interest rates rise 2%
- 42% - Home owners who expected to spend at least $24,000 this year on renovations
- 31% - Recent home buyers who said the largest portion of their down payment came from savings outside their RRSP