January 3, 2017 | real estate predictions
By now, we all know that real estate predictions are about as easy to determine as the winning number to Lotto 6/49. With that said, we are at a particularly interesting moment in Toronto as far as real estate is concerned. We are one of the few Canadian cities that still has runaway real estate prices. Besides us, only Victoria and Hamilton have seen steady, big increases in the last year. And Hamilton may owe a lot of that to Toronto. Some cities have had declines (Calgary, Edmonton and Quebec City). Some have had modest increases (Ottawa, Halifax and Winnipeg). The mighty Vancouver real estate rocket had an impressive 2016 but has stopped for a welcomed (and forced) breather at the end of the year.
We have seen some pretty impressive Toronto price increases in 2016, which is great if you own a property. It’s not-so-good, if you you have been waiting to buy. In November of 2015 the average home in Toronto, according to TREB, was $632,774. That includes all housing types – condos and houses alike. This November, the average sale price was $776,684. That is a 22.7% increase over last year. That’s very impressive or downright terrifying, depending how you want to interpret this information.
Will this year have the same kind of price increases in Toronto? I don’t know about 22.7% again, but I think we’re still heading up. Here’s why:
- Low Inventory This is a chronic problem in Toronto. Where there is a low supply of new properties being added to a growing city, there is a lot of upward pressure placed on prices. Why is there is low inventory? Well, that can’t be explained here. No matter how you slice it though, this issue of low inventory will certainly be around for 2017. Possibly, for many years to follow. Even if we could somehow flood the market with new properties for people to buy, it would not be built by the end of 2017. What is different this year is the kind of properties that are in low supply. Low supply used to be a term often thrown around when discussing houses in Toronto. In the last year, it has been used to describe condos as well. It’s hard to believe, only a few years ago there was a lot of chatter about the Toronto condo market having an oversupply of units coming to market.
- Interest rates It has widely been expressed that the Americans will raise their rates 2 or 3 times this year. I suspect that if this is the case, Canada will likely follow suit. Interest rates hikes may be tough for Canada as a whole, though, since it will put downward pressure on home prices across Canada, even in cities with prices that are slipping. Higher rates would mean many buyers would qualify for less on a mortgage. There have been threats of interest rate hikes in recent years that never materialized, but this time, I think it just may come to fruition.
- More Interference From Government If the government cannot create more supply for Toronto, it will try to legislate its way to a slower pace of real estate appreciation for our city. This would be focused on Toronto and the surrounding region as well. I think it is very possible we will have some kind of foreign investment restriction à la Vancouver in 2016. This would put some downward pressure on prices. Historically, government interventions often do little to tame the wild real estate beast. This year, however, the government may be more determined in Toronto than in the past.
- The Exploding Burbs For those house-seekers that have been priced out of Toronto, Durham region, Hamilton, even Kitchener are seeing huge price gains. If you are fleeing to the seemingly affordable suburbs, you will find less expensive homes, but prices are on the move there too. Bidding wars are more and more common. So, if you think Toronto is the only region in the area with big price gains, you would be wrong. The suburbs are alive and thriving. Even nearby cities like Hamilton are seeing huge increases.
- Vacancy Rates Down For those who would prefer to rent or sit out the market, the vacancy rates will go down as well. And in turn, this means rents will go up. Investors will have an easier time renting. There will be competition here too for good rental units.
So with all that said, what kind of 2017 should we expect? We all know the recent Toronto price increases of 22.7% year over year are not sustainable in any way. We should not expect that this kind of value increase will continue year-over-year. Does it mean we are in a bubble? Well, I suppose it could. Of course, there has been talk of a bubble now in Toronto for over 10 years now. Real estate runs in cycles of bust and boom. So, it is possible.
Still, I do think we in Toronto are in a new reality faced by many cities. We live in an era where cities are the places where many people want to live, work and invest. Living in a city that is an international hub and a declared alpha city will not be inexpensive now or in the future.
In my opinion, we will need some big infrastructure projects to move people into and out of the city much better than we do now, and improve on our current transit system. The government should stop trying to tame the market and improve transit and infrastructure to get people out to where they have the room to build more supply past the Green Belt. This may take some time though… As for 2017, any thing could happen to change the real estate market – a change in the Canadian economy like a new and unpredictable American administration. I still think the local factors will keep this market growing whether it should be growing or not. My gut tells me we’ll have another year of double digit growth. I know, real estate predictions are almost pointless, but I can’t help but offer something up at the start of a new year!