Real Metrics – January 2018
December data suggests stabilizing market but some of this may be due to forward buying ahead of stress tests
As we start the year, we would like to thank our clients for trusting us with their needs, and for your referrals. We understand there are many choices when it comes to real estate services, and are grateful that you have chosen to work with us. We will always endeavour to maintain the trust and integrity that you expect. Here’s to a healthy, happy and prosperous 2018 to you and all of your loved ones!
2018 promises to be another interesting year for the Toronto real estate markets. New mortgage stress tests are now in effect, and are expected to have some impact on the market. We discussed this in our November issue, and our belief that this will have a more marked impact on the mid to upper end of the market. We expect certain price points (particularly sub $1.0 mm) to be competitive, as stress tests push some buyers (previously above $1 mm) into lower priced points.
Overall, it was another steady month of activity in the Toronto real estate market. Last month, we introduced a new graph that showed that the pace of year over year declines in sales volumes were beginning to slow. This generally continued in December, with detached home sales falling 13.9% from a year ago (vs. a decline of 19% last month). Following the Ontario governments’ housing policy change in April, volume decline as much as 47%.
There were 4,940 transactions in the GTA and 1,970 in the City of Toronto in December. While these are below last year’s levels, they are 22% and 15% above historical norms for this time of the year, respectively. Certainly, some of this is related to buyers getting purchases done before the Jan. 1 stress tests, so we will continue to monitor this data in the months ahead to see if indeed this trend can be sustained.
Average transaction prices in the GTA rose 0.6% year over year for all home types in December, but declined 3.5% from November. Condos continue to show strong performance with average transaction prices rising 14% from last year, while detached homes continued to fall (-3%). As we discussed in our letter last month, over the next several months, while we expect prices to remain relatively flat from current levels, the year over year percentage price changes will be negative due to the record prices set in early 2017. This is simply the mathematics of it, and does not necessarily mean that housing prices are continuing to fall. We anticipate stability in the marketplace, as we head through the year.
Are inventories too high? Well that depends on where and what…
This month, we look at inventory levels, and place some context around the data. Active listings (inventory) have been steadily rising steadily since March/April. After dissecting the data, some of what we already knew remained apparent, while also giving us some interesting historical insights and context.
During December, there were 11,769 total listings in the GTA, an increase of 172% from last year. For the City of Toronto (416 area codes), listings were 3,736, an increase of 86% from a year ago. So just from this, we can glean the fact that inventory remains relatively tighter in the 416, than the outlying 905 area codes.
A key point to keep in mind is that December 2016 was the lowest inventory in more than 21 years in the GTA, and comparing 2017 to 2016 will yield unfavourable comparisons. To provide some context, we looked at the average number of listings in December over the past 20 years to get a more comparable look at where inventory has been historically. Based on this, overall inventory in the GTA is 10% above historical levels for this time of the year. For Toronto, inventory is actually 22% below historical levels, while the 905 area codes are 32% above.
By housing type, as we would have concluded even before seeing the numbers, detached homes have contributed more meaningfully to the increase in inventory. For the GTA, detached home listings are 27% above historical. Interestingly, for Toronto (416) the inventory is right at historical levels, i.e. there were 1,467 detached home listings vs. 1,469 historically. Inventory in the 905 area codes is 36% above historical levels (see exhibit 3 below for the City of Toronto and York Region). Condo inventory remains at or below historical levels. pointing to continued robustness in this housing segment.
Our take-away from this analysis is that the market remain bifurcated with Toronto remaining a relatively stable and possibly improving market, while outlying 905 areas may continue to see some pressure. And condo markets should continue to remain healthy.
Exhibit 4: Activity in Toronto remains healthier than outlying areas
Exhibit 5: Summary of Activity Detached Homes – Dec 2017
Exhibit 6: Summary of Activity – Condos – Nov 2017 – Condo Market Remains Healthy
Please refer to our pdf report for more details.
As always, feel free to contact us, we are always happy to help!
Jenny & Justin Wu
RE/MAX Hallmark Realty Ltd.