Toronto Market Ends 2018 On A Quiet Note

Toronto area sales and prices were down in December, as they always are at year-end, closing out a positive and mostly uneventful year when the real estate market returned to quiet stability after the chaos of the 2016/2017 bubble inflation and collapse.

For the year as a whole, average GTA prices were down 4% vs 2017. This is misleading, however: prices were down 10% for the January-May period (compared with the bubble inflation in early 2017) but up 3% for the June-December period (compared with the bubble collapse in late 2017). So, Toronto prices are doing just fine, thank you very much.

Sales volume (number of homes sold) is another story, however. Because of increases in mortgage rates over the past couple of years, together with tightening of mortgage qualification rules, the ranks of buyers able to purchase a home or a condo have been thinned, and GTA sales fell steeply in 2017 and 2018. The total number of homes sold in 2018 was almost as low as in 2008 (when  the Financial Crisis hit), and almost 32% below the 2016 peak.

Falling sales, together with chaotic prices, led to much ‘fake news’ in 2018, mostly broadcasting the message that the market (if not the sky) was falling. While there are parts of the GTA (e.g., Vaughan, Richmond Hill, Markham) that are doing poorly, the city of Toronto is doing very well indeed, and has been experiencing what are arguably the healthiest (i.e, most balanced) market conditions that we have seen in many years. As the chart below shows, the inventory of homes for sale has remained close to 3 months’ supply all year, our ‘rule of thumb’ dividing line between a sellers’ market and a buyers’ market. While the ranks of buyers have been thinned, the number of sellers has also declined, since the majority of sellers are also buyers.

The divergence between the condo and the freehold segments of the market has continued to expand. The influx of newcomers to the Toronto area, combined with the decline in affordability in recent years, makes this easily understandable. Condo prices fell slightly in December, but remained well above the bubble peak reached last April, while freehold prices dipped below last year for the first time in several months. This suggests that the spring market for houses in 2019 could be somewhat flat, while the condo market will probably continue to boom unabated.