Toronto’s Real Estate market conditions changed drastically after the implementation of new government policies, back in April 2017. Kathleen Wynne’s main objective was to cool the Toronto-area real estate market with the Ontario Fair Housing Plan.
It appears that Wynne has met her goal of ‘cooling’ the market. As indicated in the latest TREB Market Watch, sales declined 37.3% YoY as of June 2017. However, here’s the catch: average prices are still up 6.3% for the same time period. The average home in Toronto is $793,915 – a stat that many people are not taking into consideration.
Headlines such as: ‘Toronto Real Estate Market Crash’ is can be misleading – since there has been no YoY decline. Realistically, the market is cooling off from the record prices during the first 3 months of 2017.
Slowdown in Sales
According to consumer surveys – many households still show strong interest in purchasing a home in the near future (TREB). However, many would-be buyers are waiting it out – to see the effect of the fair housing plan. The reduction in sales shifted Toronto Real Estate’s market away from the strong seller’s market that was experienced at the beginning of this year. The slowdown in sales is beneficial for would-be buyers: more options, and stronger bargaining power. This would lead to less intense bidding wars in some areas.
Increase in Supply
Year over year new listings increased 15.9% as of June 2017, and year over year active listings increased 59.6% during the same period. TREB defines new listings as ‘new listings entered into the TREB MLS system between the first and last day of the month/period being reported,’ and active listings as are amount of homes for sale at the end of the last day of the month/period being reported (TREB).
Despite the increase in listings, the average home sold within 15 days – same as the year before.
Foreign Buyer Tax Effect
Vancouver experienced a similar situation back in Summer 2016, where the government introduced a 15% foreign buyer tax. As a result, Vancouver home sales hit a four-year low.
Similar to Toronto, YoY sales dropped 26% in September 2016 – as many buyers decided to wait on the sidelines to analyze the effect of the newly implemented government policies. As of June 2017, sales and prices recovered, Vancouver real estate’s market activity returned to near record-levels (Financial Post).
Supply has been one of the underlying factors into Toronto’s rapid price growth from the past few years. Toronto attracts approximately 100,000 newcomers annually. However, there remains to be a shortage of homes for sale (until recently), which caused intense price increases.
There is also a missing middle – homebuyers have the choice of buying a condo or a detached home. In other words, there is minimal supply of attached homes (townhomes or semi-detached homes). Attached homes usually offer the same practicality of detached homes at the fraction of a price – an attractive option and a
For example, in Toronto east, the average home price is $718,605 as of June 2017 (this includes all types of homes, such as condos, detached and attached homes). During the same period in this area, the average detached home sold for $956,883, and the average condo apartment sold for $380,312 – more than half of the average detached home price. However, we have to keep in mind that condos are typically smaller than detached homes, and there’s minimal supply of spacious, 3 bedroom condos.
On the other hand, the average townhome sold for $792,861 – approximately $164,000 cheaper than the average detached home sold during the same period. This makes townhomes an attractive option and a new reality for many homebuyers. Townhomes typically offer the same practicality of detached homes for the fraction of the price.
The new fair housing plan did address this issue in one of the 16 measures – under the smart growth measure. Developers will be encouraged to accommodate a diverse range of household sizes. Having higher density development (including more attached homes) will help with the affordability levels.
Will Toronto real estate experience a similar effect as Vancouver? Both market conditions prior to and after the Foreign Buyer Tax are eerily similar. In both markets, buyers sat on the sideline after the government policies, leading to a reduction in bidding wars.
It’s been a year since the Vancouver Foreign Buyer Tax was implemented – and the market has already returned to record levels – recovering from a 4 year low. A similar situation can be foreseen in Toronto-area when the would-be buyers get back into the market.
All in all, the market has certainly cooled down, and does present a buying opportunity for first time homebuyers, as they have more selection, and less competition.
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Writer: Jelani Smith
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