Toronto Market Continues to Normalize

For the third month in a row, average selling prices have increased in the Greater Toronto area. While prices are still significantly lower than this time last year, they are very much in line with the historical trend that existed before the aberrational late 2016/early 2017 bubble came and went.

 

For example, year-to-date average prices are about 12% higher than in 2016, which is approximately 6% per year compounded growth rate. This is about the same rate of increase that was experienced during the previous 10 years or so. Inventory levels are also stabilizing at around 2.0-2.5 months’ supply, again very similar to what was seen before 2016.

The trend in the number of homes sold is a different story. Sales so far this year are down 34% from last year and, while this is exaggerated because of last year’s bubble, it is a fact that sales are still more than 10% below the levels seen before 2016. Largely this is due to the new ‘stress test’ mortgage qualification rules that were introduced this January. These new rules have converted many would-be house buyers into condo buyers, and left many would-be condo buyers as renters. As a result, the condo and rental markets have received a significant boost, even though the total number of buyers has been reduced. Less obviously, since the majority of homes for sale arise from move-up buyers who have bought, there are also fewer sellers. So, there are fewer buyers and fewer sellers, but still considerably more buyers than sellers — and so a sellers’ market has been re-established.

This stable uptrend in the market may be threatened as interest rates creep upward over the next few months. Also, as described in the other article in this issue, some of the Big Six banks are increasing their posted rates more quickly than their ‘real’ rates. Since affordability directly depends on the Mortgage Qualification Rate, which  in turn is calculated from the posted rates, the threat to the market might be even larger. Time will tell.