Toronto home prices drop six percent in May 2017
The average price of a home in the Greater Toronto Area fell 6.2 percent from just a month ago, signalling a slight cooling of the market since the Ontario government imposed new housing rules to tame Toronto’s housing bubble.
Home prices, however, were still 15 percent higher than they were in May 2016. The average selling price of a home in the GTA stood at $863,910, a figure that still remains out of reach for most middle-income Torontonians.
Indeed, Toronto’s real estate market appears to have lost its frenetic pace since Ontario Premier Kathleen Wynne announced the government’s 16-pronged “Fair Housing Plan”, which includes a 15 percent tax on all home purchases made by foreign nationals and strong rent control rules related to homes built after 1991.
This tepidness was reflected in May’s TREB data — home sales were down 20.3 percent, compared to a year ago. Only 10,196 homes were sold in the GTA in May 2017, as opposed to 12,790 in May 2016. Active listings however, surged by 42.9 percent in May 2017 compared to a year ago — this boost in supply most certainly factored into the slight dip in home prices this month.
“We have no doubt that Ontario’s Fair Housing Plan announced on April 20th triggered a significant reaction on the part of both buyers and sellers in the area,” said a note by RBC Economics Research.
“Don’t be surprised if the Toronto-area market moves into a buyer’s market territory in the coming months. This would not signal an imminent price collapse. It would in part simply be a reflection of changing sales tactics in the face of more patient buyers.” .
According to TREB, year-over-year price increases were greater for condominiums compared to low-rise homes, reflecting the fact that the surge in supply of homes on the market in May were mostly townhouses and single-detached homes.
As VICE Money reported early last week, Toronto’s home prices are being buoyed by factors other than a rise in income. Between 2012 and 2015, home prices rose 30 percent, while incomes inched along, rising a mere three percent in that four-year period. In fact, since the 2008-2009 recession, home prices have more than doubled in Toronto — they’ve climbed by 58 percent in Vancouver in the last four years.
The running theory of course, is that these (absurd) prices are being fueled by foreign demand for Canadian real estate, low interest rates, supply constraints, and a population growth in urban Canada mainly due to immigration from abroad and inter-provincial migration. It’s hard to determine which of these factors are most responsible for driving up the real estate market.
If the housing markets in both Toronto and Vancouver continue to remain relatively robust despite a 15 percent tax on foreign buyers, it is possible to infer that foreign demand for Canadian housing only represents a small percentage of overall demand. That, or the possibility that foreigners buying homes in Canada are completely undeterred by a mere 15 percent increase tacked on to their overall costs.
Currently, the Canada Housing and Mortgage Corporation (CMHC) estimates that only 3.9 percent of condominium units constructed since 2010 in Toronto were purchased by foreign buyers — in Vancouver, it’s five percent. The B.C. government’s own data estimates that in the first half of 2016, prior to the imposition of the 15 percent foreign buyers tax, non-Canadian ownership represented 10 to 13 percent of overall home sales.
Home sales in Vancouver slowed in the immediate aftermath of the foreign buyers tax rule, but they’ve since picked back up, putting a wrench in the province’s attempt to deflate Vancouver’s housing bubble. Numbers released on Friday by the Real Estate Board of Greater Vancouver showed that prices increased for a fourth consecutive month on a month-over-month basis.
One of the primary reasons why policymakers are struggling to get a grasp of the housing affordability crisis in Toronto and Vancouver is because of the unprecedented low-interest rate environment that we’re in. Interest rates have been at a historical low since 2010, flooding the economy with cheap credit — an intentional measure to stimulate domestic spending.
A side-effect of that however, has been the housing bubble; the availability of mortgages at a low cost has spurred demand for housing at a rate not seen since the late 1980s. As long as interest rates remain low (and the Bank of Canada has not shown any clear signs of raising rates in the near future), housing will remain financially attractive to many Canadians.