Toronto Market Finds a New Pricing Floor in June 2018

By
Commercial Real Estate Agent with RE/MAX West Realty Inc., Brokerage (Toronto)

Toronto Market Finds a New Pricing Floor in June 2018

This is the report from the Toronto Real Estate Board on 5 July 2018:

Toronto Real Estate Board President Garry Bhaura, in his first market release as TREB President, is pleased to announce some positive signs with respect to the housing market. Greater Toronto Area REALTORS® reported 8,082 home sales through TREB’s MLS® System in June 2018 – up 2.4 per cent compared to the low June 2017 result.

After preliminary seasonal adjustment, sales were also up 17.6 per cent on a monthly basis between May 2018 and June 2018, continuing the trend of somewhat volatile month-over-month changes over the past year as home buyers reacted to various policy changes impacting the market.

“Home ownership has proven to be a positive long-term investment. After some adjustment to the Fair Housing Plan, the new Office of The Superintendent of Financial Institutions (OSFI) stress test requirement and generally higher borrowing costs, home buyers are starting to move back into the market, with sales trending up from last year’s lows. Market conditions appear to be tightening, with sales accounting for a greater share of listings, as new listings have dropped compared to last year,”

said Mr. Bhaura.

The average selling price edged up by two per cent on a year-over-year basis to $807,871 in June 2018. After preliminary seasonal adjustment, the average selling price was also up by 3.3 per cent month-over-month between May 2018 and June 2018. The MLS® Home Price Index (HPI) was down by 4.8 per cent on a year-over-year basis, but remained basically flat month-over-month.

The difference in the year-over-year rates of change between the average price and the MLS® HPI was likely due, at least in part, to a change in the mix of properties sold in June 2018 compared to June 2017, with low-rise home types accounting for a greater share of sales in June 2018.

 “The expectation is to see improvement in sales over the next year. Over the same period, however, it is likely that issues surrounding the supply of listings will persist. This suggests that competition between buyers could increase, exerting increased upward pressure on home prices. With a new provincial government in place and municipal elections on the horizon, housing supply should be top-of-mind for policy makers,”

said Jason Mercer, TREB’s Director of Market Analysis

COMMENT

Here are the average sale prices as reported by TREB for single family homes of all types in the GTA, including houses, townhouses and apartments:

 

Average Prices              Month

2017

$730,124                       January 1st

$768,351                       January 31st

$876,363                       February

$915,126                       March

$918,170                       April

$862,149                       May

$791,987                       June

$745,896                       July

$730,907                       August

$774,705                       September

$780,652                       October

$761,397                       November

$734,824                       December

2018

$734,824                       January 1st

$735,793                       January 31st

$767,763                       February

$784,568                       March

$804,842                       April

$803,681                       May

$807,871                       June

 

Comment

Average Prices

The average price has risen from $734,824 at the beginning of the year to $807,871, that’s an increase of $73,047, which is a 9.94% increase in the six month period. If that were to continue (which is entirely speculative), it would be 19.88% over a one year period.

However, the percentage increase is usually half. The reason being, the last six months do not see an increase at all. At least, that’s what happens most of the time.

Maybe we should go back a full 18 months and see what those numbers show?

The average price would have risen from $730,124 to $807,871, that’s an increase of $77,747 or 10.65% over the full 18 month period, or expressed annually as 7.09%. That’s important since if we were simply to calculate on a straight line basis, market performance for the last 18 months, we come up with 7.09%.

Naturally, the 7.09% completely removes the Spring of 2017, February, March, April and May from the equation. We are simply asking the question: “how has the market performed since the beginning of 2017”?

Here are the recent numbers: $804,842 , $803,681, $807,871 over the last three months, basically holding steady, no serious ups or downs. What that means is that we have found a new floor. The prices are not going any lower than they are right now.

If you are selling, you can appreciate some relief, and if you are buying, then “the sooner the better” because we are likely to see some escalation from here on.

Our normal expectation would be to see a market decline in June, again in July and again in August. We would then expect a reversal to a slight increase in September and October followed by declines in both November and December. That’s the normal pattern.

But, at the moment we are experiencing a recovery from the high numbers we saw in the Spring of 2017. We have now found a new floor. That stability we might reasonably expect over the summer, with higher prices in the Fall.

Volume of Transactions

This is what happened in 2017:

Sales                     Month

5,154                    January

7,955                    February

11,953                  March

11,466                  April

10,066                  May

7,893                    June

5,870                    July

6,308                    August

6,334                    September

7,070                    October

7,327                     November

4,877                     December

 

2018

3,989                             January

5,151                             February

7,194                             March

7,763                             April

7,743                             May

8,082                             June

39,992                  total for six months

Previous Years

92,273                  all of 2017

113,040                all of 2016

101,213                all of 2015

92,782                  all of 2014

Interesting to see what has happened to all the buyers! Where have they gone? Are they still interested? Will they come back to the market?

Let’s not compare volumes to 2017; we had a number of extra buyers in the Spring. However, in both 2015 and 2016 we had more than 100,000 transactions. In 2017 and 2014, we had over 92,000 in each year.

This year, so far we have 39,992. If we doubled that for the full year we would have 79,844 transactions in 2018, that’s still about 12,000 short of where we ought to be at the low end of the marketplace.

If we had 12,000 more Buyers surface in 2018 to compete for deals, what do you think will happen to the average price?

Naturally, there are other market factors too. The new test for mortgage qualification removed almost 25% of the purchasing power from Buyers who require mortgage financing. That’s already factored in. Mortgage rates went up one quarter of one per cent yesterday, at least in terms of the Bank of Canada rate, but who really borrows from the Bank of Canada: NOBODY. The Schedule “A” Banks in Canada have already increased their rates.

The real estate market is always interesting. If you would like to discuss the market generally, give me a call at 416-745-2300.

Brian Madigan LL.B., Broker

www.iSourceRealEstate.com

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