May 24, 2019 | Advice for Buyers
Since 2017, the Toronto real estate market has been acting rather strangely. As most of us remember, there was a very quick run-up in prices in the early Spring of 2017, before a small correction led to a slip in price in some parts of the GTA. Government legislation to control the market, and some surprisingly significant price increases in some parts of the market happened. Since that time, some people have been standing back to watch what will happen.
There have certainly been fewer buyers in 2018 in the real estate market of the Greater Toronto area. 2019 was also below average, though more sales than the previous year. Both years are well below average in a growing city. But who is doing the buying these days and what are they buying?
Well, to get an idea of who is buying what right now, let’s start with these stats below:
This graph tells us a lot. First, we can see that there are fewer properties in the GTA selling under $500,000. Does this mean there is less interest in this price range? Not at all. In fact, quite the opposite. Since Millennials/first-time buyers make up a great number of the buyers out there right now, this is a price range that should be very competitive and healthy for GTA buyers. Under $500K is a reasonable price point for many folks to buy a condo. Still this is the only price range to go down in 2019 because there are fewer condos sold in this price range since 2018. In some parts of the old city of Toronto, prices have gone up in the double digits year over year. That’s why there are fewer sales below $500,000. Because of rising prices, there are just fewer properties available in this price range. This price point also suggests the need for more affordable housing.
The next part of the chart that proves to be interesting has to do with the two largest price brackets. According to this chart. It seems that the most buyers seem to be buying property in the GTA in the $800K to $899K price range followed by the $900K to $999K. Then we have a drop off once we hit a million. Why is that? Well, for two reasons really. Once you go over a million dollars, you can no longer receive mortgage insurance. So buyers are required to put down 20% once they buy something more than a million. Nothing less. On top of that, the government brought in the stress test legislation. So, any buyer has to qualify for a mortgage two percent higher than the current mortgage rate. This puts downward pressure on buyers as well. That’s why there is a lot more competition under a million dollars than over. The irony is that the government is trying to save buyers from spending too much. If interest rates go up, they don’t want them to lose their homes. That’s why the stress tests were brought in. They want buyers to be able to keep their homes if interest rates rise. Still, this legislation does put much more people in an already crowded price point.
Since the past two years have had more condo sales that the sales of houses, we have seen more sales with lower price points. So, in some ways the stress test is working.
In 2017, the average mortgage payment in the GTA was $3360/month, the highest it's ever been. In 2019, it's $3245/month.
So, with the stress test, buyers are buying properties with a smaller monthly mortgage, even after two years. We have buyers in all price ranges and property types over the past year in the GTA.
But if we had to have a profile for an average buyer in Toronto right now, I would say we are seeing more buyers under the million dollar mark because of government regulation that keeps them in that price point. I would say that we have more people buying condos over houses right now. And we have more buyers in the old city of Toronto than in the suburbs.
Will this trend continue? I would say yes, but not for much longer. I think this year we will see a return of houses. Prices will start to trend upward across the GTA for houses. They are already doing very well in the old city of Toronto, but I think they will improve in the suburbs too. In 2017, the difference between the average condo in the GTA and the average detached house was $661,000. In 2019 it is $429,000. That should give you an idea of just how well condos have done in the GTA over houses these past few years. If you are ever planning to move from a condo to a house, now is the time to do it. I do believe that we will return to a time soon where houses will appreciate faster than condos. Condos are added to the supply side of things with each new project, and there are more to come. There are far fewer houses under construction in the GTA. So, from the simple rules of supply and demand, we will have more condos available in the future and fewer house in the a growing region.