Solid rebound expected in final quarter of 2018, housing market correction is behind us
Buoyed by a strong summer market, demand for detached homes in the Greater Toronto Area (GTA) is finally on the upswing, as active listings fall and average prices start to rebound, signalling an end to the housing market correction.
After peaking in May, the Toronto Real Estate Board (TREB) reported that the supply of detached homes listed for sale has gradually declined. Average price in the nine TREB districts has been battling back from trough levels that were reached as early as July of 2017 in Durham Region to as recently as February of 2018 in the Central Core.
“We expect momentum to build moving into the traditional fall market, and the trend to continue throughout the remainder of the year,” says Christopher Alexander, Executive Vice President and Regional Director, RE/MAX Ontario-Atlantic Canada.
“The worst is now behind us. Pent-up demand will be a factor in the coming months, as homebuyers – many of whom delayed their purchasing plans – are entering the market,” says Alexander.
Leading the charge are first-time buyers of single-detached homes in the $600,000 to $900,000 range. Since June, this segment has reported a 22-per-cent increase in year-over-year sales (4,086 versus 3,347). Inventory at this price point is low, with just under 900 homes currently listed for sale in the 416 area. This could potentially prompt buyers to expand their search into the 905, where the number of homes listed for sale in this price range is more plentiful.
The luxury market is also starting to firm up, with a 16-per-cent increase in sales of single-detached homes priced over $2 million in July and August, compared to the same period in 2017 (292 versus 252). The top end of the market still has some distance to travel to match up with last year’s frenzied pace, but sales have been increasing in recent months.
“It’s been a real roller coaster for single-detached properties in the GTA over the past 32-month period,” explains Alexander. After reaching peak levels in early 2017, market-cooling tactics such as Ontario’s Fair Housing Plan in April, the federal government’s mortgage stress test expansion in October of 2017, and the Bank of Canada’s interest rate hike in January of 2018 created a great deal of uncertainty in the market.
“While the October 2016 stress test for high-ratio mortgages had little impact on the market, the same can’t be said for subsequent interventions,” says Alexander. “Conditions had changed. Inventory levels reached their lowest point in October 2016, which contributed to a notable uptick in sales and pricing between October and May 2017. The introduction of the Fair Housing Plan set the wheels of correction in motion.”
The run-up in detached housing values between January 2016 and peak levels in early 2017 was unprecedented. The highest appreciation was noted in the city’s west end, where the average price had climbed 60 per cent in the 14-month period, rising from $763,327 at the start of 2016 to $1,223,700 in March of 2017. Durham Region, Simcoe County and Dufferin County also experienced serious gains in just over a year, with prices climbing 55 per cent, 52 per cent and 59 per cent respectively. The average price of a detached home in the central core, home to the most expensive properties in the GTA, rose 48 per cent, jumping from $1,687,247 in January 2016 to $2,503,188 in February 2017. Peel Region, the city’s east end, York and Halton Regions all reported increases ranging from 47 to 38 per cent over the one year period.
The pace was simply unsustainable,” says Alexander. “While government intervention appeared heavy-handed at the time, in retrospect, the measures put in place served to cool down a wildly overheated market.
Since then, buyers have cautiously re-entered the market, with many taking advantage of lower, post-correction detached property values. By the end of August2018, homes in the more-affordable West and East Districts were back on the rise and within striking range of those average prices reported during the same period in 2017. Detached housing values in the city centre – the target of investors throughout 2016 and early 2017 – have been climbing, albeit at a more moderate pace, particularly north of Hwy. 401.
“For trade-up buyers looking to cash in on equity gains, the centre core is the area to watch, given that the spread has narrowed,” says Alexander. “As demand kicks into high-gear for starter homes priced from $600,000 to $900,000, these first-time sellers are expected to take advantage of the softer conditions at more expensive price points.”
In the 905 areas, recovery is moving at a slower pace, but as inventory levels decline, detached housing values are expected to appreciate.
From an economic standpoint, the future is bright. The GTA is still Canada’s financial centre, drawing people from across the province, country and globe. Between 2007 and 2017, the population rose by 17 per cent and growth is expected to continue as more people choose to make the GTA their home.
Despite soft August job figures released by Statistics Canada, a recent survey by The ManpowerGroup found that slow but steady gains in employment are anticipated by Canadian employers in the fourth quarter of 2018, with a cautiously optimistic hiring climate for job seekers.
“After an extended period of housing market inertia, the floodgates are breaking open,” says Alexander. “Upward movement in detached housing values and the threat of additional interest rate hikes in the future are prompting homebuyers to get off the fence and into the market. Rising consumer confidence, job security and an economy firing on all cylinders should continue to support healthy home-buying activity in the GTA for the remainder of the year and into 2019.”