February 9, 2017 | 2017
I know you are tired of hearing it, but I have no choice but to say it again: Toronto’s real estate market is on fire. Not a camp fire. Not a gas bbq. But an inferno. And this fire has been burning for a long time. Big deal, you may be thinking… You’ve heard the same thing before in 2016, 2015, 2014 and before that. 2017 is, however, different in some ways from those previous years.
Before we even get to why this year is different than others, let’s look at the stats from the Toronto Real Estate Board. Who has been doing the buying?
The average income for a buyer is $98,000. 51% of all buyers are first time buyers. From January 2016 to January 2017, prices in Toronto at large for all property types have increased by 14.5% year over year. If we break it down from condo apartments in Toronto, prices have increased 13.1% from January 2016 to January 2017. And if you look at the coveted detached house, the increase was 26.8% over the same period. If we look at price increases from the last there months, they are some of the strongest in years.
The mention of real estate price increases may sound like almost any other year in Toronto, but here are three big differences that show us how 2017 may be different from the other years:
- The Condo Ascension In many ways the Toronto condo followed a similar trajectory as the U.S. housing market in 2008, but much less severe. Some Toronto condo prices did dip from 2008 to about 2013, ever so slightly, while houses in Toronto had risen in price during the same time. For many years, the house real estate market and the condo real estate market were two different animals. Then, as starter homes became out of reach for may first time buyers, they and downsizing boomers began to buy up two bedroom condos. Just last week I was in a downtown conversion loft with 13 offers $100,000 over the asking price. It was a 20% increase in 5 months from a comparable unit. Then the one bedroom condo became rare. Talk of condo oversupply evaporated, and now we have a constrained supply problem with all housing types.
- The Booming Burbs The other thing that is different this time. The suburbs and nearby cities are booming. Yes, Mississauga, Kitchener, Oshawa and Hamilton are seeing steep increases as well year over year. Why you may ask? Well, when you’re priced out of Toronto and you want a house, you go to the where you can afford a house. And when you go to places like Hamilton, you will see a booming city in itself become Toronto’s hip cousin. I’m seeing bully offers in Mississauga, houses going $100K over asking in Oshawa. You may need to go even further to avoid this kind of house buying for 2017.
- Government Intervention We have certainly had a great deal of government intervention over the past several years. They have brought in about 10 different items to tighten up the mortgage market. I think this year we may see the government bring on the toughness and possibly the effectiveness of their desire to tame the GTA market. Some believe that the 15% foreign buyer clamp-down in Vancouver may have something to do with leading more buyers to Toronto. Some may believe we may see the same tax here. I’m not convinced the government will target their efforts on foreign investment in Toronto and nearby. One immediate thing looming on the horizon for new buyers will be the increase proposal for land transfer. Sadly, the government may think it’s fixing a problem by discouraging buyers from a purchase with higher taxes, but all they are doing is making sellers want to stay put and not sell. And this leads to shorter supply.
In my opinion, that’s the biggest contributor to higher prices. If you are a saddened buyer, and all this does is make you fret that prices will be taking off like a rocket forever, keep in mind, there are things that may cause prices to come down, even though there is no sign of this having any effect at the moment. These include:
- China’s Choice I don’t personally believe foreign investment plays a huge role in the Toronto market. Though there are not enough really meaty stats, foreign investment is about 5 -15% of the real estate buyer pool, depending on who you read, much less than Vancouver. Whether the provincial government decides to bring in legislation in the Toronto area to curb foreign investment with a big tax or not, China has something planned that may discourage foreign investment in real estate outside of China. They are clamping down on their own citizens to prevent the flow of real estate money from leaving their country. And they are serious this time.
- Boomer Blow Out If those Boomers ever decide to downsize, then we may have more supply. I’m not sure that’s going to happen soon or ever, and they will need to live somewhere. So, there just may be a better opening of up the houses side of the market. The is especially true for Boomers who have a lot of their wealth tied up in real estate. They will sell it off to enjoy their retirement.
Regardless of these downward pressures, the upward pressure for 2017 is really what’s currently at play in Toronto real estate. Of course, we cannot maintain the pace of price increases forever. But something is different now. Even if we have a price correction, supply of real estate stock in this city will remain low. Look at how New York And San Francisco has bounced back from their recession. Now that we seem like a dream destination for immigrants coming to North America, we could be in for even more demand on our housing. I suppose if you have something good going on in your city, people from all over will want to be part of it.