August 2017 Real Estate Update

Activity picks up from July – market showing signs of stabilizing but could this be derailed by proposed mortgage qualifying rules?

It’s still too early to make the call, but there are some signs that the GTA housing market is beginning to stabilize. Overall, prices in the GTA are up 3% from last year, but continue to decline from recent peak levels. Average transaction prices are down 20.5% from the April peak, led primarily by continued weakness in the single family detached housing market. However, we will point out that the pace of decline in prices is slowing. In May, prices declined 6.1% from April, in June they declined 8.1% from May, in July they declined 6.0% and in August prices declined a more modest 1.9% from July. Condos continue to fare well. with their first monthly increase in four months.

Exhibit 1: Pace of sales decline slows: % change in price from previous month

Transaction volumes increased 7.2% from July. This is unusual, as August is typically the slowest of the summer months. Only four times in the past 21 years has the market experienced an increase in sales volume in August. It’s too early to say that buyers are returning to the market, but the data suggests that some bargain hunting is occurring.

Exhibit 2: Detached home sales continue to be slow

Another encouraging sign is that listings have continued to decline – in the GTA listings declined 12.4% from July and are down 16.6% from the recent peak. They still remain well above last year’s levels (+65%), but to provide some historical context, this level of listings is consistent with 2015, and below 2010 to 2014 levels. We will see if this holds, as some sellers pulled their listings while others held off listing during the summer. While encouraging, we are watching the impact of the recent increase in interest rates and the proposed changes to mortgage qualifying tests

Exhibit 3: Summary of Activity: August 2017 – Detached Homes

Exhibit 4: Summary of Activity: August 2017 – Condo Apartments

Proposed mortgage tests could stress the market further

OFSI (the Office of the Superintendent of Financial Institutions which is the Federal institution that oversees the financial services industry) is proposing more stress tests for borrowers. You may recall stress tests were introduced last year for high ratio, CMHC insured mortgages where the loan to value exceeds 80%. These borrowers need to qualify at the Bank of Canada 5-year qualifying rate which is currently about 200 basis points or 2% above existing mortgage rates. Naturally, this effectively lowers borrowing ability. OFSI is now proposing to extend the stress tests to all mortgages including lower leveraged mortgages. It is estimated that this would lower borrowing ability by about 20%, even for borrowers with strong credit ratings, and high income earners .

The concern for the real estate market is the “pile-on” effect of numerous regulatory changes in a relatively short period of time could “stress” the market further. The market is already correcting itself following the stress tests from last year, two interest rate hikes, and the Ontario Fair Housing Plan from April.

Our full report provides our updated views and analysis of many specific neighbourhoods in Toronto (i.e. Downtown West, Lawrence Park, Forest Hill, Rosedale, Leaside, Mount Pleasant, York Mills, Bayview Village, Willowdale, etc.), as well as York and Durham Regions.

Feel free to contact us, we are always happy to help!

Kindest Regards,

Jenny & Justin Wu
Sales Representatives
RE/MAX Hallmark Realty Ltd.