May 2017 Real Estate Update
GTA housing market slows – uncertainty keeping buyers on sidelines
The first five months of 2017 have been a wild one for the Toronto/GTA housing market. The year started off with record low inventory levels. Prices soared at an unsustainable pace. Housing prices were rising and hitting new records on what seemed like a weekly basis. Since then, we have entered a completely different market. The numbers show that the market has swung from a strong sellers market to a more balanced market within a period of two months. That certainly didn’t take long.
The month of May experienced a pullback, as prices have finally started to decline from peak levels (although not all markets), but remain higher compared to last year. Sales volumes declined and inventory (active listings) climbed as home owners look to cash in on strong prices.
Some observers have pointed to the Ontario government’s announced policy plan and the implosion at Home Capital as the reasons for the abrupt change. While these events were likely a catalyst, in our opinion, they aren’t the root-cause of the reversal. The market was overheated and just got ahead of itself, and needs to go through a period of rebalancing. It’s a question of confidence at this point, and many buyers are sitting on the sidelines waiting for prices to decline further before re-engaging. Those that are active are looking for better deals. After many months of one-sided transactions, deals are now getting done with conditions and more balanced negotiations. We believe this is healthy and normal.
How long the market will take to balance out is obviously unknown. If we look at the Vancouver market as a cue, it took six to eight months to rebalance, which would suggest a rebalancing by late Fall for Toronto. Naturally, the two markets have different circumstances, so this is speculative at best. Nonetheless, real estate should be viewed from a longer term lenses. As such, from a longer term perspective, we remain bullish on the Toronto housing market. The fundamentals of the Toronto market remain sound with a diverse economic base, positive demographic trends, growing immigration, and investment in transit and infrastructure.
Conditions are more balanced following months of a strong sellers’ market
As we discussed last month, the markets outside of the 416 area code such as York region have seen the biggest slowdown in sales and largest increase in listings – this continued in May. Average transaction prices in Toronto declined 4.6% from April, and 9.6% in York region. For the city of Toronto, the data suggests we are in a more normalized market with about 1.5 months of inventory (over the past 20 years this has been closer to 2.6 months) – so inventory still remains low from a historical perspective. Also, the sales-to-new listings ratio is 0.47 which suggests a balanced market (typically defined as between 0.4 to 0.6). On the other hand, in York region, months of inventory has spiked to 3.0 months (vs. the historical average of 2.8), and the sales to new listings ratio dropped to 0.28, suggesting a market that has swung more in favour of the buyer.
The condo market remains relatively strong
Detached home prices in the GTA declined 5.3% from April. The decline in Toronto was more modest at 4.7% and while detached homes in York region fell 5.7%. We wouldn’t read too much into these numbers yet, as prices do fluctuate month to month. For example, price drops greater than 4% occurred in Nov. ’15, Jul ’16 and Dec ’16. Nevertheless, given the significant increase in listings, and continued negative press around Toronto real estate, we expect further slippage in the near term before stabilization.
New listings soared in May. In the GTA, there were 14,036 new listings of detached homes which set a new record. Incidentally, April was also a record month for new listings at 11,863 detached homes. Active listings of detached homes were 10,654 (up from 2,306 in January!) which is the highest level of inventory since 2013. This is a remarkable swing given only three months earlier, inventory was a an all time low. While we had expected a supply response, we did not anticipate all of it to occur within two months! Months of inventory for detached homes is 2.2 months, up from 1.3 in April and 0.8 months last year, while the sales-to-new listings ratio swung to 0.34 suggesting conditions that have swung more in favour of buyers of detached homes.
The condo market, on the other hand is showing more stability. Average transaction prices fell 1.8% in the GTA, 2.3% in Toronto and 2.9% in York region. New listings were also at a record high at 5,053 for the GTA, but months of inventory remained quite low at 1.2 months and the ratio of sales to new listings was 0.57 suggesting a balanced market.
As always, feel free to contact us if you have any questions regarding the contents of this update or about the market in general.
Jenny & Justin Wu