Toronto and GTA Markets in May 2021

This is the recently released report of the Toronto Regional Real Estate Board concerning the May 2021 results:

“June 3, 2021 – Residential transactions reported through TRREB’s MLS® System remained high in May 2021, but fell short of the 2016 record and were below this year’s March peak. Despite a slight ebb in sales over the last two months, market conditions remained tight enough to push the average selling price to an all-time record in May.

Greater Toronto Area REALTORS® reported 11,951 sales in May 2021 – more than double the result from May 2020, the second full month of the pandemic. May 2021 sales were below the May 2016 record of 12,789 but remained well above the average May sales of 10,336 for the 2010 through 2019 period. Often, May is the strongest sales month in any given year; however, 2021 results bucked this trend, with May sales below the 15,646 deals reported in March.

“There has been strong demand for ownership housing in all parts of the GTA for both ground-oriented home types and condominium apartments. This was fueled by confidence in economic recovery and low borrowing costs. However, in the absence of a normal pace of population growth, we saw a pullback in sales over the past two months relative to the March peak,”

said TRREB President Lisa Patel.

The MLS® Home Price Index Composite Benchmark was up by close to 19 per cent year-over-year in May 2021. The average selling price across all home types was up by 28.4 per cent year-over-year, reaching a record $1,108,453. On a seasonally adjusted basis, the average price increased by 1.1 per cent between April and May 2021.

“While sales have trended off the March 2021 peak, so too have new listings. This means that people actively looking to purchase a home continue to face a lot of competition from other buyers, which results in very strong upward pressure on selling prices. This competition is becoming more widespread with tighter market conditions in the condominium apartment segment as well,”

said TRREB Chief Market Analyst Jason Mercer.”

TRREB always compares things to exactly one year ago. It sometimes provides rather odd comparisons. That’s why I don’t do that in this report.

REVIEW

Here are the average sale prices as reported by TRREB for single family homes of all types in the GTA, including houses, townhouses and apartments starting at the beginning of 2018 until now:

Average Prices    Month
 

2018
 

$734,837              January 1st

$735,874              January 31st

$767,801              February    

$784,514              March

$804,926              April

$803,440              May

$808,066              June

$781,918              July

$765,252              August

$796,814              September

$807,538              October

$787,741              November

$749,019              December

2019
 

$749,019               January 1st

$747,175               January 31st

$779,791              February

$788,133              March

$820,373              April

$838,248              May

$831,882              June

$806,971              July

$792,134              August

$842,421              September

$851,877              October

$843,307              November

$838,662              December

2020

$838,662              January 1st

$838,087               January 31st

$910,068              February

$902,737              March

$820,226              April

$863,563              May

$931,131              June

$943,594              July

$951,219              August

$960,613              September

$968,535              October

$955,889              November  

$932,277              December

2021

$932,277              January 1st

$966,108              January 31st

$1,045,203           February

$1,097,299           March        

$1,090,784           April

$1,108,453           May

For those following these numbers on a monthly basis, please note that some of the recent sales numbers in 2020 and 2021 have had to be restated. A few transactions may have fallen through and not closed as originally scheduled. Consequently, TRREB deletes them and re-enters them in the proper month. That will throw the average prices off by a few hundred dollars if you are looking back at previous monthly reports for consistency. Changes are more likely for the most recent months.

You will notice that the market is now at $1,108,453, which is the all-time peak for prices.

What usually happens each year? The market starts off in January, rises in February, gains momentum in March and April and reaches its peak for the year in May. The market declines in June, declines in July and then bottoms out in August. In September, it reverses itself and rises once again, and in October, it reaches its second peak for the year. In November, the market declines, as it does again in December, and the cycle repeats itself the following year.

For 2021, we are off to a predictable start. The market got going in January, rose in February and rose again in March. April prices dropped which is unusual, however, nothing is more predictable than a May peak. The global recession implications of Covid-19 seem to have come and gone.

Let’s undertake an analysis with respect to the rates of return achieved over the last several years. The purpose of this calculation is to smooth out the returns over a longer time period to produce more accurate results. This avoids the rise and fall in a month or two and notably the reference to the exact same month a year ago.

You will notice that TRREB refers back 12 full months for comparison purposes. The results should always look reasonably good, because after all, that was a year ago. As you go forward, there should always be good news to report. On the other hand, you would clearly see the ups and downs of the market if you looked at the monthly results.

The market has declined substantially a few times. Within the last three decades, there are three examples: 1990, 2008 and 2017. The first two are largely historical now.

We will start with 2017 which was a year with a peak in the market and the sudden drop. 2017 started with $730,472 and we are now at $1,108,453, that’s an increase of $377,981 which is a 51.74% increase over the fifty three (53) month period. Expressed over 12 months, that’s an 11.72% annual increase.

2018 started with $734,837 and we are now at $1,108,453, that’s an increase of $373,616, which is a 50.84% increase over the forty one (41) month period. Expressed over 12 months, that’s a 14.88% annual increase.

2019 started with $749,019 and we are now at $1,108,453, that’s an increase of $359,434, which is a 47.99% increase over the twenty nine (29) month period. Expressed over 12 months, that’s a 19.86% annual increase.

2020 started with $838,662 and we are now at $1,108,453, that’s an increase of $269,791, which is a 32.17% increase over the seventeen (17) month period. Expressed over 12 months, that’s a 22.71% annual increase.

So, what’s the percentage rate of increase to the end of March?

From 2017             11.72%               calculated

From 2018             14.88%               calculated

From 2019             19.86%                calculated   

From 2020             22.71%                calculated  

The most accurate number here is the 11.72 % annual increase from the beginning of 2017. It’s the longest time period, and is therefore the most steady and accurate. Historically, over one thousand years of history we have seen increases of over 5% per annum. So, this is certainly not new! Typically, for the GTA we might expect 6.5% annually in terms of increases. This is a fairly consistent pattern.

We do run a substantial difficulty with many buyers from 2017. If you bought in April 2017 at the peak, you paid $919,614. That property is now worth $1,108,453, that’s an increase of $188,839 which is a 20.53% increase over the forty nine (49) month period. Expressed over 12 months, that’s a 5.03% annual increase, or just slightly over 5%, which for centuries has been the rate of return on real estate. You can appreciate what a significant difference is made by using a different starting point for the purposes of the calculation. Just four months, and we either have 11.72% or 5.03%.

It does speak to the decision for those who faced closing in 2017 after paying the high prices. They actually broke even in June 2020, while those who failed to complete have suffered substantial losses, with no property at all to show for it. They are now well ahead of just having their money sit in the bank. The message is clear: if you can close, do so, and hold on, because at some point the market will reward you. Those who closed have now achieved the low end rate of return expected on real estate transactions.        

Volume of Sales

Here are the sales over the last number of years. It’s important to be aware that potentially, there is a great deal of interest. It was only when the market skyrocketed and then plunged in 2017, that many prospective purchasers were frightened to participate. To a certain extent they have returned but there is very limited supply. That makes it a “super-sellers’ market”. As more and more inventory arrives, the market is likely to transition, but in all probability it will remain a “sellers’ market” until the end of 2021.

2015                     101,214

2016                     113,040

2017                     92,340

2018                     78,018

2019                     87,750

2020                     95,087

2021

January                 6,889                   

February               10,941                 

March                   15,646                 

April                     13,650                 

May                      11,951

Total                    59,077

You will notice that there have been a great many transactions. The market is “hot” and relatively, there is little to no inventory. It’s a Seller’s market. We are almost close to 60,000 transactions, so, this could be a record breaking year

The reasons seem straightforward:

  1. Interest rates are low, and
  2. Buyers are optimistic about the market

COMMENT

Some market trends that we have been seeing:

  • Vast increase in the demand for cottages, but now leveling off (leasing and owning)
  • Increase in demand for properties with backyards (semis and detached)
  • Increase in demand for properties in the suburbs and outlying areas
  • Toronto based families looking to relocate to the 905 and 519 areas
  • 905 based families looking to relocate to 519, 705 and 613 areas

It’s impossible to predict the future, but we can certainly observe the current trends in the marketplace to give us some guidance.

Predictions

Buyers are getting tired of being consistently outbid. So, they will pause to some extent. This will take the pressure off the bidding wars and price acceleration. This occurred to some extent in May, but we still saw price increases with fewer bidders.

The market will still be a Sellers’ market for the balance of 2021, but the pace will slow down.

If you would like to discuss the market, please give me a call at 647-404-8150.

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Brian Madigan LL.B., Broker

www.iSourceRealEstate.com

www.OntarioRealEstateSource.com

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