Toronto surge in home prices
Home prices in the Great Toronto Area are continuing their steep upward trajectory despite the federal government’s recent policy initiatives to slow the housing market, according to new housing data from the Toronto Real Estate Board (TREB). The average home price in the GTA now stands at a whopping $730,472, an increase of roughly 20 percent from December 2015, when the average home in the GTA was priced at $608,714.
“I don’t have a logical explanation for this, except that it’s euphoric speculation,” mortgage broker Bruce Joseph told VICE Money. “There have been so many negative factors in the latter part of 2016 that could have impacted the housing market in Toronto — Ottawa’s new mortgage rules, Trump’s stance on trade with Canada, a potential trade war with China. But nothing seems to give.”
Breaking down the numbers by type of home, condominiums in the Toronto area (TREB categorizes this as the “416 zone”) seem to have led the surge in overall home prices in 2016. The average price of a condominium unit in Toronto is now $466,592, up 16.6 percent from a year ago.
This in fact vastly defies a number of housing reports from Canada’s major banks sounding the alarm bells about an oversupply of condo units in the Toronto market. Back in 2014, when the average price of a Toronto condo was $353,665, TD forecasted an eight percent decline in condo prices in Toronto by the end of 2015. Clearly the opposite has taken place. Last summer, RBC economists Robert Hogue and Craig Wright published a report that warned about overbuilding of condo units, saying the level of new units set for completion in the near future, coupled with existing unsold units, put Toronto’s condo market in “high risk” territory.
“Look, anyone who says there are too many condo units in Toronto doesn’t really know the market,” Toronto realtor David Fleming told VICE Money. “I recently had 16 offers on a 2 bedroom, 1 bathroom condo unit at 230 King Street East. Supply is not keeping up with demand.”
The (lack of) supply factor
An argument that has gained quite a bit of traction over the last 2 years or so is that home prices in Toronto, particularly of single detached homes have gone through the roof because there aren’t enough homes being built to keep up with the number of people looking to buy property.
“Active listings at the end of December 2016 were at their lowest point in a decade and a half,” said Toronto Real Estate Board President, Larry Cerqua in a news release today. Indeed, the numbers are worth paying attention to — in December 2015, there were 9,137 units listed for sale in the GTA area. By December 2016, that number had plunged 48.1 percent to 4,746.
The number of new listings on the market also dropped in 2016 — by almost 12 percent.
David Fleming strongly believes that Toronto has a massive supply problem. “There is no room to build homes, partly because of the Greenbelt legislation. Very few developers are building single detached homes. They are building condos instead because the only area in Toronto with space is the sky.”
That’s definitely one part of the explanation as to why Toronto’s home prices are seemingly out of control. But in areas like Brampton and Milton, large swaths of non-Greenbelt land remain vacant. A 2016 study by the non-profit research group Neptis Foundation, found that the regions of Brampton, Vaughan and Milton have 35 percent of the remaining Designated Greenfield Area land in the GTA (areas where developers are encouraged by the province to urbanize) left to build on.
But perhaps not so strange is that development proposals in those areas, although numerous, tend to be for townhomes and low-rise condominiums, as opposed to single detached homes, perhaps a product of how much more developers stand to gain from selling a larger number of smaller units in the same area of land.
The foreign buyer factor
Or non-factor, really. The TREB report had another really interesting statistic; only 4.9 percent of GTA home sales transactions involved a foreign purchaser. In the City of Toronto, that number was similar— 5 percent of transactions over the last year involved a foreign buyer.
“I’m surprised, very surprised,” said mortgage broker Bruce Joseph. “I question the accuracy of those foreign ownership numbers. They don’t seem right.”
Fleming begs to differ, arguing that while 4.9 percent sounds like a small number, if you take into consideration the number of total sales of homes from December 2015 to December 2016 — 113,133 properties — foreign buyers purchased roughly 5,500 of those properties. He believes many of these purchases are on the higher-end of the price spectrum, thus contributing to the uptick in overall GTA home prices.
Just for sake of comparison, after the B.C. government introduced a 15 percent tax on purchases of Vancouver homes made by foreign buyers, it was estimated that only 1.3 percent of total property deals in August and September of 2016 came from foreign purchases, a sharp reduction from the 13.2 percent figure in the lead-up to the implementation of the tax.
At the end of the day, says Joseph, most people still perceive real estate as one of the most stable assets to own. “That, combined with low interest rates, and I don’t really see a strong catalyst that will slow down home prices in the near future.”
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