Toronto Market Soars Ever Higher

Following an exceptionally strong January, the GTA market has accelerated even further in February, with the average selling price across all GTA areas and all types of real estate almost 28% higher than last February. The last time we had year-over-year price increases like this was in the late 1980′s, when prices rose by an average of 26%/year for four straight years, a bona fide bubble that ended abruptly in 1989 and was followed by 6 years of falling prices.

The “B Word” is showing up everywhere in the media and, while it’s pretty clear that the rapid increase in prices cannot be supported by economic fundamentals, history teaches us that this sort of imbalance can continue much longer than you would think possible before the correction finally comes. So, is a market crash around the corner, or will this continue for another year, or two, or three  or more years? I’ll leave that sort of crystal ball gazing to the ‘experts’; in my view the timing is completely unpredictable, as is the eventual trigger (if any) that will signal the turning point.

Prices_Feb_2017

Along with the rapid increase in prices has come a significant reduction in inventory, which in February was less than one month’s supply of homes & condos for sale. The paucity of listings is driving frenzied and ferocious bidding wars all across the GTA and is a principal reason for the acceleration in prices, as eager buyers compete for fewer and fewer homes.

You would think that more and more sellers would be encouraged to put their homes up for sale to take advantage of this hot market, but that isn’t happening. Why not? Because most potential sellers, realizing how hard it is to buy, won’t list their homes for sale until they find something, and in this way the trend to lower inventory has become self-reinforcing.

Inventory_Feb_2017

A  by-product of the rapid escalation in prices has been a huge change in the condo apartment market in the City of Toronto. Higher prices and, more recently, new mortgage qualification rules, have made it extremely difficult for first time buyers to purchase freehold (detached, semi-detached or townhouse) homes and so they have shifted radically toward condo apartments instead. Here’s a summary of sales and prices for detached homes vs condos that will illustrate the trend:

2016_2017_Year_over_Year_Changes

The trend is quite clear:

  • Year-over-year sales of detached homes have increased less quickly over the past year and have actually contracted so far this year, while prices have soared; and
  • Year-over-year sales and prices of condo apartments have increased dramatically.

It was only a few years ago that the condo market was considered grossly oversupplied and that a major correction was imminent. Well, that’s hardly the case any more, with prices now running 15% ahead of last year and condo bidding wars becoming rampant. The inventory of condos for sale has also dropped significantly, from 4-5 months just a couple of years ago to less than 1 month at present – virtually identical to the inventory of detached homes! The shift toward condos has slowed the sales of detached homes, but certainly hasn’t hurt detached prices, as supply has fallen even faster.

It will be an interesting spring market this year…