Jenny and Justin’s Real Estate Update March 2017

Toronto real estate prices have gone parabolic

In stock market parlance, when prices arch upwards at an increasing speed, they form a parabolic curve. This stock chart pattern is often used by traders as a caution that prices are in unsustainable territory and subject to a retracement. The average price of a detached home in the City of Toronto reached $1.562 million. While this was down from February levels, it was up a substantial 32.8% from March 2016. The strong price action was pretty much across the board in nearly all districts and across home types – detached, condo apartments all experienced strong gains. Certainly, this is not the type of price action or pattern we are accustomed to seeing in real estate markets, and is a source of bewilderment by many observers and lead many to believe that the Toronto real estate market is in bubble territory – joining other global cities facing a similar experience (Shanghai, Sydney, Auckland, Seattle, Vancouver).
Much of this global phenomenon can be blamed on the extended period of low interest rates and easy monetary policies (e.g. quantitative easing) of global central banks. But there are many GTA-centric factors that have also been key drivers to the rapid rise including our geography and provincial polices (Places to Grow Act 2005) that have restricted sprawl.

Source: Places to Grow Act, Ministry of Municipal Affairs

The adjacent map illustrates the constraint to the growth of the Greater Golden Horseshoe and GTA with protected greenbelt areas to the north, east and west, and Lake Ontario to the south. For planners, builders and developers, the easiest way to meet housing needs has been through increased densification/intensification in urban areas i.e. build up, not out.

On the demand side, Toronto has grown its status as an economic, financial and cultural center which has attracted investment, jobs and immigration. The strong USD/weak CAD has also been a strong impetus for foreign capital inflow particularly for currencies pegged to the USD. And as we will illustrate, the cost of Toronto real estate is still viewed as attractively valued compared to other global cities – see our infographic posted on our FB page.

Having said all that, while we remain bullish on the longer term prospects of the Toronto market, the magnitude of these price movements are neither healthy nor sustainable, and a slowdown would be healthy for the market to regain some semblance of balance. How this will occur is difficult to predict. Interest rates are not expected to increase meaningfully any time soon. The Ontario government is set to table its budget in relatively short order with promises of policies that will deal with this issue. We’ve also noticed an increased number of new listings – particularly for detached homes – which may be the invisible hand at work to rebalance the market.

Summary of Activity – Detached Homes (March 2017)

Active listings continued to fall, but the pace of the decrease was lower. At the end of March, active listings for detached homes dropped 10.8% year over year, but this compares to the 37% drop in February, and 41% drop in January and December. A higher level of new listings is the explanation, as we head into the Spring selling months and as sellers look to monetize on the strong price environment. Overall, new listings of detached homes were 1,924 which was the highest level for March since 2012.

Condo activity continues at a robust pace

Summary of Activity – Condo Apartments (March 2017)

Interestingly, the increase supply of listings in detached homes was not mirrored in the condo market which saw a 62% drop in active listings (Toronto) and a 26% drop in new listings. We suspect that many buyers that were shut-out of the single family detached home market have migrated their sights to the condominium market. In addition, we further suspect that investors looking for income properties have been competing within this market as well. Overall, prices for condo apartments in the city were up 32% year over year – compared with high single digit growth for most of last year.

As always, feel free to contact us if you would like our full report or have any questions regarding the contents of this update or about the market in general.

Best Regards,
Jenny & Justin Wu