The Heat Goes On

Hot Real Estate MarketThe Toronto market had one of the strongest results ever for the month of April, with all-time record high sales of over 11,000 homes, and average selling price up by 10% over last April. Year-over-year prices were higher for all types of homes:

Detached                                +11.4%

Semi-Detached                      +7.2%

Townhouse                            +10.1%

Condo Apartment                 +5.8%

Ultra low interest rates are continuing to drive the market, with 5 year fixed mortgages available for 2.5% or even less. Remember, not that long ago, when 2.99% for a 5 year mortgage seemed shockingly low? A further decrease of .5% might not seem like that much but it represents a decrease in monthly payments of more than 15%. No wonder buyers are eager, almost desperate, to purchase before these insanely low rates disappear (as they must, eventually).

Prices April 2015

The velocity at which homes are selling in the GTA appears to be accelerating. For example, over 18,000 homes were listed for sale in April, about 4% more than last April; but the total number of homes sold increased by almost 17% year-over-year, and so the number of homes actually on the market decreased by 10%. As a result, the inventory of homes for sale (the number of months’ supply of homes on the market) went down by a whopping 25%, from 2 months to 1.5 months. The market is exceptionally tight and getting ever tighter; and this suggests that the ‘spring’ market may extend well into the summer months this year. Indeed, preliminary results for the 1st week of May show prices approximately 13% higher than last May.

Inventory April 2015

Clearly, the above trend cannot be sustained indefinitely, since affordability is being stretched as prices continue to rise significantly faster than incomes. There appears to be a consensus among economists and industry experts that the real estate market in Canada, and particularly in Toronto and Vancouver, is overvalued by somewhere in the neighbourhood of 25%, although few are using the ‘B’ word. Most are expecting a soft landing, where prices level off and possibly dip slightly and then eventually resume their upward climb once the fundamentals catch up. How much longer the party will go on? That’s almost impossible to predict, though it seems likely that an increase in interest rates, however caused, will be the key trigger.