Real Metrics May 2019

More signs of recovery

The Toronto housing market continues to display signs of recovery similar to trends in recent months. Overall, average transaction prices in TREB reported areas (which includes the City of Toronto, York, Peel, Durham, Halton and Simcoe) were up 4% year over year for all home types. In the City of Toronto specifically, prices climbed 8.8% from a year ago for all home types with average transaction prices rising to $937,804 which is just 0.7% shy of the record set back in April 2017. To be clear though, the strength has come largely from condos, semis and townhouse segments, and geographically from specific neighbourhoods (i.e. close to subways and the city core). Outlying suburban neighbourhoods and higher price point neighbourhoods remain below their 2017 peaks. Exhibit 1, shows how different neighbourhoods in the City have performed relative to the peak in 2017. Not surprisingly, the two strongest neighbourhoods (C01, C08) are downtown Toronto and predominantly condos.

Exhibit 1: Recent prices vs the 2017 peak (for all home types)

Now, outside of Toronto, the markets have not experienced the same level of performance. In York Region, for example, average transaction prices are still falling and are down 22% from the peak in2017, while Durham and Peel Regions are down 7.7% and 11.4% from their 2017 peaks, respectively.

Sales volumes continue to recover

Encouragingly, sales volumes for all home typeshave rebounded strongly – up 27.5% from last year for TREB reported areas. Mind you, the comparison is an easy one, since last year represented a near 10 year low for volumes going back to the last recession (2008-2009). However, interestingly the May sales numbers were above historical levels for this time of year – being 7.4% above the 10 year average for the month. Like stock markets, extreme weakness typically correspond to extreme pessimism or poor liquidity in the market. And we are coming off one of those periods of market dislocation due to policy changes, higher rates and tighter credit conditions. These policies and conditions remain in place but the market has adjusted and/or continues to adjust.

Detached home sales growth

One of the recent trends we’ve been watching is the recovery of detached home sales, which took a beating in 2017 after the implementation of the foreign buyers tax and in 2018 due to tighter mortgage rules (i.e. B20). In exhibit 1, we show detached home sales relative to their normal seasonal averages. We can see through 2014-early 2017, sales volumes were consistently above their seasonal averages. By mid, 2017 through 2019, volumes dropped precipitously. By May 2019, sales of detached homes in Toronto were only 2.3% off their historical seasonal average, while in York Region they are still down 11.3% from historical averages but an improvement nonetheless. Naturally with all data, it’s hard to call this a trend until we get several more months of data, but this is encouraging nonetheless.

Exhibit 2: Detached Home Sales Rebound

Still, detached home prices fall from a year ago despite stronger volume

Despite the stronger sales volumes for detached homes, in the aggregate, prices continue to decline. For Toronto, the average transaction price for a detached home was down 2.9% from a year ago, while in York Region the decline was down 4.0%. Higher inventory/listings relative to sales activity partly explains the decline. Active and new listings in Toronto were up 7% and 13% respectively. Inventory stood at 2.7 months of supply at the end of May, which is moderately above historical norms (of 2.3 months). In York Region, active and new listings were both down 4.0%. Inventory continues to normalize but still remains high at 5.4 months of supply. Until inventories get closer to 3.0 months of supply (which could take a while), we expect prices in York Region will remain under pressure.

Exhibit 3: Summary of Activity by Region and Property Type – May 2019

Exhibit 4: Summary of Activity: May 2019 – Detached Homes

Exhibit 5: Summary of Activity: May 2019 – Condo Apartments

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