When Will The Toronto Real Estate Market Crash?

As we complete the first half of 2019, we can see that the market has been pretty unpredictable. Toronto saw a price surge in the spring in some areas, and many buyers remain skittish and uncertain due to the mortgage stress test. If you’re wondering when will Toronto real estate market crash occur (if at all), here’s some insight.

The Spring Stats

Spring was a good indication of the inconsistency of the market. Many people blamed the mortgage stress test for making it more difficult for people to qualify for mortgages. Buyers came and went, with sellers being a little miffed that they did not see the number of showings they had hoped for. And sadly for sellers, home prices were also lower than the outrageous prices they could have gotten barely a year ago.

Some of the basic GTA sales stats included:

  • Condos saw a 5.8% increase
  • Semi-detached houses saw a 2.9% increase
  • Townhouses saw a 4.7% decrease
  • Detached houses saw no changes

So, for the most part, there were increases, which is always good.

The June Stats

The stats for June 2019 have shown us some interesting, positive things, including:

  • GTA reported 8,860 sales based on TREB’s MLS® System, a double-digit increase of 10.4% compared to June 2018.
  • Total new listings were about the same.
  • First-half-of-2019 sales increased by 8.5% over 2018, with new listings increasing just under 1%. (Active listings at month-end decreased by 5.7%.)
  • The overall average selling price was up by 3%.
  • The MLS® Home Price Index Composite Benchmark was up by 3.6%.
  • The average selling price mid-2019 was up 2.4%.

Jason Mercer, TREB’s Chief Market Analyst, says there was strong year-over-year growth as buyers became more active. He feels that the market has tightened since there wasn’t any change in the new listings on the market. He also notes that higher-density housing prices offer a more affordable option compared to detached houses. That can mean good news for the new OSFI mortgage stress test.

Canadian Growth

According to The Canadian Real Estate Association (CREA), Canada has a lot going on for it right now. There has been substantial population and employment growth with a falling unemployment rate. Despite warnings that the Bank of Canada would be making several rate hikes in 2019, it now seems likely this won’t happen. So, this doesn’t indicate much of a financial crisis. Mind you, although Canada took on less household debt, the amount we owe is growing due to high Canada mortgage and housing debt. 

Buyer Incentives

CREA also notes that the new budget for 2019 made changes to the maximum individual withdrawal limit under the Home Buyers’ Plan (HBP), with a $10,000 increase from $25,000 to $35,000. They also introduced the First-Time Homebuyer Incentive. This offers a shared equity program that provides a portion of a home purchase from the federal government in exchange for an equity share in the value of the home. These offers can incentivize buyers and assist in the recovery of home sales as we look towards the last half of the 2019 real estate year.

Hard-To-Come-By Mortgages

While 2019 saw a slow beginning, CREA predicts that sales will remain below the impressive results we have seen in the past few years for Canadian real estate. This is probably due to (you guessed it) the B-20 mortgage stress test. This makes access to financing more challenging, which is putting a damper on the housing market sentiment.

“OSFI mortgage stress test is currently a major obstacle in what’s become an elusive dream,” wrote Christopher Alexander, Regional Director and Executive Vice President at RE/MAX of Ontario-Atlantic Canada, in an op-ed. “Requiring homebuyers to qualify at a higher rate is simply unnecessary. Particularly with the housing affordability crisis in many of Canada’s largest urban centres, young first-time buyers need a break and they need it now.”

Canada’s Housing Market

CREA predicts Canada housing sales to increase only slightly by 1.2% in 2019. Despite the small number, this is an improvement from its previous forecast, which actually estimated a 1.6% decline in Canadian real estate sales. This would have meant annual sales below the 10-year average. That would be a very disappointing number for Canada real estate markets when compared to the impressive records set back in 2016. As it stands, the prediction places 2019 and 2018 tied for the weakest since way back in 2001.

Provincial Gains

While British Columbia is singled out as the province that will pull down national figures thanks to a 13.3% decline from 2018, CREA still made a minor revision to their predicted decrease to 14.9%. The good news is that CREA also altered Ontario predictions for the positive from a scary gain of just 0.9% to a far more digestible 3.9%.

Sitting at the highest gain predictions for Canada are Quebec and New Brunswick at 7.7% and 10.6% respectively. In fact, they are predicted to set annual records. Other provincial predictions for growth include:

  • Saskatchewan and Newfoundland and Labrador at close to 5%
  • Manitoba and Nova Scotia between 3.5% to 4.5%, which will bring them close to making annual records

Average prices are forecast to rise in Ontario, Quebec, and the Maritimes. While CREA predicts that sales will be “historically weak” in British Columbia, Alberta, Saskatchewan, and Newfoundland and Labrador, Ontario will probably come in very near its 10-year average. Nonetheless, Toronto and Vancouver still have the highest prices in the country.

Bank of Canada

With the Bank of Canada’s decision to lower its five-year benchmark qualifying rate to 5.19%, more Canadians can let out a sigh of relief. This includes people in the GTA since it is the first decrease since September 2016.

However, the mortgage stress test is still a factor. RE/MAX’s Christopher Alexander says, “Beyond the first-time buyers who have been hardest hit by the stress test, there’s a domino effect happening. The rental market is in a frenzy, since those who no longer qualify for a mortgage are forced to rent. On the flip side, those who currently own a starter home with hopes of selling and moving up the property ladder, are unable to find buyers, since 10 per cent of buyers no longer qualify for a mortgage.”

Final Word

For the most part, things look positive. Although sellers won’t see the crazy offers and bidding wars that they did a year or two ago, they will still have the opportunity to build equity in their homes. As long as they weren’t buyers when the market was so high. Also, although the new mortgage rules won’t provide an easy way to pay off a mortgage, it will help buyers qualify more easily. Combine this with steady interest rates and the First-Time Home Buyer Incentive and maybe things will be looking up.

 

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