Toronto Real Estate Market Still Going Strong

Late last year, the consensus view was that the Toronto real estate market would slow down in 2011 and that prices, while continuing to rise, would do so more modestly. There were even some that expected prices to fall this year. Well, there’s not much sign of a slow-down in the market so far. Average prices for the first half of February, as reported by the Toronto Real Estate Board, were 5% higher than in the same period in 2010, reaching an all-time high of $451,257. Sales volume remains low, about 13% lower than in the same two weeks last year, continuing a trend that began last spring. The market continues to be driven by a combination of low interest rates (and fears that they will soon be rising), together with low inventories of homes for sale. The charts below show the latest price and sales figures compared with the last two years.

Toronto Selling Prices and Sales Volumes 2009-2011

A recent article in the Financial Post reports on the fact that the same pattern is being seen right across the country:  the seasonally adjusted average selling price in Canada reached an all-time high of $357,000 in January.

 All of this is reminiscent of last year, when fears of rising interest rates drove frenetic buying activity in the first half of the year, leading to a very slow summer followed by a renewed surge in activity in the fall after interest rates actually fell. It remains to be seen whether interest rates will rise far enough to put a damper on our amazingly resilient market.

Some historical data will lend some perspective to the present situation. The chart below shows average selling prices in the Toronto are going back to 1966. As you can see, there was a true “bubble” in the late 1980’s, followed by a rather orderly correction back to the long term trend line in the early 1990’s. Since 1996, prices have been on a steady, almost linear upward climb, with only a brief pause in late 2008 engendered by the financial crisis. The average annual increase since 1996 has been 6%, ranging from 3%-9%, and so far this year we are right on-trend at 5% above last year. These data do not suggest that there is any imminent danger of a major correction in the market.

Annual Average Toronto Selling Prices 1966-2010

It is also instructive to look at the trends in sales volumes over the same time period. The chart below shows total annual sales in the Toronto area from 1966 to 2010. The graph is eerily similar (apart from greater volatility) to the price chart, with the same upward trend and the same “bubble” in the late 1980’s.  The past four years are a bit different, though, and seem to be suggesting a “leveling off” in sales; it will be very interesting to see if this portends a similar leveling off in prices as so many expect.

Annual Toronto Sales Volume 1966-2010

We are certainly living in interesting times, as per the well-known Chinese curse. The only thing that seems pretty certain is that few predictions about the market will be on the mark! What do you think will happen this year?