Prices Surge Upward in May

http://www.dreamstime.com/royalty-free-stock-image-property-prices-rising-image28671636Toronto area prices spiked sharply upward in the first two weeks of May, and were 5.4% higher than during the same two week period last year (and last year was no slouch). This was despite 9.7% fewer sales than last May, and is the result of a continuing imbalance between sellers (too few) and buyers (too many).  Even the condo market continues to be surprisingly strong: prices are roughly even with last year despite a high inventory of units for sale (over 4 months supply).

Bidding wars remain very common in the prime areas, but they are becoming ever more capricious and unpredictable. In some cases there are unexpectedly large numbers of offers and jaw-dropping selling prices; but in other cases there are no offers on apparently underpriced properties. It’s always a gamble for a seller to set the asking price aggressively low and hope for multiple offers, but the rewards are significant and it still works more often than not.

Prices Mid May 3012

The most recent Bank of Canada announcement makes it clear that interest rates are not likely to move any time soon. Despite the warnings of future rate hikes, it seems more likely that interest rates will move rather than up over the next year or so. This, combined with continued (albeit slow) growth in household incomes suggests that, absent some sort of economic catastrophe in the world, there is nothing to prevent prices from continuing their upward march for at least another year.

In his most recent quarterly report on the Toronto real estate market, the Toronto Real Estate Board’s Senior Manager for Market Analysis, Jason Mercer, says that affordability (basically the ratio of major housing costs such as mortgage payments, taxes and utilities to household income) is being eroded somewhat as house prices have increased, but still remains strong. He is forecasting that prices will increase by 3-5% this year, and by about 2% in 2014. In other words, prices will keep going up, but more slowly, while the balance of buyers to sellers will even out somewhat –  a perfect soft landing for the market. Let’s hope he’s right, we need the market to cool down!