Toronto and GTA Markets in August 2022

Woodbine Centre | Page 33 | UrbanToronto

Prices down 20% since February but the same as August 2021

This is the recently released report of the Toronto Regional Real Estate Board concerning the August 2022 results:

“September 2, 2022 – There were 5,627 home sales reported through the Toronto Regional Real Estate Board’s (TRREB) MLS® System in August 2022, representing a year over-year dip of 34.2 per cent – a lesser annual rate of decline compared to the previous four months. The August sales result also represented a month-over-month increase compared to July.

Sales represented a higher share of new listings compared to the previous three months. If this trend continues, it could indicate some support for selling prices in the months ahead. On a year-over-year basis, the MLS® Home Price Index (HPI) was up by 8.9 per cent and the average selling price for all home types combined was up by 0.9 per cent to $1,079,500. The average selling price was also up slightly month-over-month, while the HPI Composite was lower compared to July. Monthly growth in the average price versus a dip in the HPI Composite suggests a greater share of more expensive home types sold in August.

“While higher borrowing costs have impacted home purchase decisions, existing homeowners nearing mortgage renewal are also facing higher costs. There is room for the federal government to provide for greater housing affordability for existing homeowners by removing the stress test when existing mortgages are switched to a new lender, allowing for greater competition in the mortgage market. Further, allowing for longer amortization periods on mortgage renewals would assist current homeowners in an inflationary environment where everyday costs have risen dramatically,”

said TRREB President Kevin Crigger.

“The Office of the Superintendent of Financial Institutions (OSFI) should weigh in on whether the current stress test remains applicable. Is it reasonable to test home buyers at two percentage points above the current elevated rates, or should a more flexible test be applied that follows the interest rate cycle? In addition, OSFI should consider removing the stress test for existing mortgage holders who want to shop for the best possible rate at renewal rather than forcing them to stay with their existing lender to avoid the stress test. This is especially the case when no additional funds are being requested,”

said TRREB CEO John DiMichele.

“There are other issues beyond borrowing costs impacting housing affordability in the Greater Golden Horseshoe. The ability to bring on more supply is the longer-term challenge. However, we are moving in the right direction on this front. The strong mayor proposal from the province coupled with the recent commitment from Toronto Mayor John Tory to expand ownership and rental housing options are examples of this. TRREB looks forward to hearing additional initiatives from candidates vying for office in the upcoming municipal elections,”

said TRREB Chief Market Analyst Jason Mercer.”

TRREB usually compares things to exactly one year ago. This time, the “good news” is just the one month comparison. So for August that’s the point they will emphasize. Frequently, that provides some rather odd comparisons. That’s why I don’t do that, in this report. You have all the numbers available to you.

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

$902,788              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  

$932,297              December

2021

$932,297              January 1st

$966,068              January 31st

$1,044,910           February

$1,097,319           March        

$1,090,414           April

$1,108,124           May

$1,088,991           June

$1,061,724           July

$1,070,201            August                   

$1,135,027           September

$1,155,603           October

$1,162,488           November

$1,157,861           December

2022

$1,157,861           January 1st

$1,242,076           January 31st

$1,334,123           February

$1,299,470           March

$1,253,435           April

$1,211,888           May

$1,146,249           June

$1,073,730            July

$1,079,500            August

For those following these numbers on a monthly basis, please note that some of the recent sales numbers in 2021 and 2022 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 $1,079,500 which is now $254,564 below the all time peak of $1,334,064 achieved in February 2022, and closely approximates the values in August 2021. That is a 19.08% decrease over the six (6) month period.

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 2022, we were off to a fairly predictable start. The market got going in January, and rose again in February. The surprise was a slight dip in March. Then, we faced further declines in April and May which should have been the top of the market for the year. The decline in June is actually predicable, as was the decline in July and we should ordinarily expect further slight decline in August, before we see some upward momentum in September. But, that didn’t happen, we saw a reversal and a change to upward momentum in August. That’s a good sign of stabilization of market prices. Of course, we need to see two more months like that to be sure.

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, which may not be a particularly relevant calculation. 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. Hence, this report provides you with all those numbers.

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 $1,079,500, that’s an increase of $349,028 which is a 47.78% increase over the sixty eight (68) month period. Expressed over 12 months, that’s an 8.43% annual increase.

2018 started with $734,837 and we are now at $1,079,500, that’s an increase of $344,663, which is a 46.90% increase over the fifty six (56) month period. Expressed over 12 months, that’s a 10.05% annual increase.

2019 started with $749,019 and we are now at $1,079,500, t hat’s an increase of $330,481, which is a 44.12% increase over the forty four (44) month period. Expressed over 12 months, that’s a 12.03% annual increase.

2020 started with $838,662 and we are now at $1,079,500, that’s an increase of $240,838, which is a 28.72% increase over the thirty two (32) month period. Expressed over 12 months, that’s a 10.77% annual increase.

2021 started with $932,297 and we are now at $$1,079,500, that’s an increase of $147,203, which is a 15.78% increase over the twenty (20) month period. Expressed over 12 months, that’s a 9.47% annual increase

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

From 2017              8.43%                calculated

From 2018             10.05%               calculated

From 2019             12.03%                calculated   

From 2020             10.77%                calculated 

From 2021             9.47%                 calculated

The most accurate number here is the 8.43% 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. Right now, we are still substantially more than that.

We do run into 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 $1,079,500, that’s an increase of $159,886 which is a 17.38% increase over the sixty four (64) month period. Expressed over 12 months, that’s a 3.25% annual increase. 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 8.43% (January) or 3.25% (April).

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. In some cases, they lost hundreds of thousands of dollars. They are now 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 a positive rate of return. Those who failed to close have simply lost all of their money, without anything today to show for it.        

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, many prospective purchasers were frightened to participate. To a certain extent they have returned but there is very limited supply. That make 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 2022, and for several years to come until we have substantial inventory.

Despite recent media commentary indicating that it has become a buyers’ market, there are really no statistics to support that. Prices have come down, but you must appreciate that they rose very quickly, and this might not be anything more than a rationalization. Also, we have just seen interest rates increase. Since most buyers in the market require financing, this restricts their total buying power.

Here are the traditional yearly sales:

2015                     101,214

2016                     113,040

2017                     92,340

2018                     78,018

2019                     87,750

2020                     95,066

2021                     121,712

Here are the current monthly sales:

2022

January       5,595         

February      9,032

March         10,876

April           7,955

May            7,245

June            6,445

July             4,900

August        5,627

Total           57,675

2021

January       6,888

February      10,929

March         15,628

April           13,613

May            11,903

June            11,053

July             9,339

August        8,549

Total           87,897

We are down quite a bit from last year. We are short 30,222 transactions compared to last year. The buyers are still there, they are just on the sidelines. Also, they don’t have quite as much money as they had this time last year due to interest rates. This has obviously had an impact on prices, which are down 19.08% since February.

To a certain extent, we are witnessing a repeat of the 2017 market. We see Buyers who overpaid in February and March seeing that their own homes didn’t sell for what they expected and the purchased property doesn’t appraise successfully. This has forced many of them into default.

In early February, we would often see 20 bidders per house; that dropped in half, and now a bidding war would be rare. Also, we see many properties listed, taken down off the market, and relisted since they did not receive any Offers whatsoever on their scheduled offer date.

It’s important to appreciate that we will not see a balanced market until we see about 5 months’ worth of inventory on hand. Right now, we are at 13,305 listings and currently selling at the rate of 5,627 per month, so that’s just slightly more than two months’ inventory. Fundamentally, that still means that it’s a Seller’s market.

The reversal in August indicates that 5,627 Buyers concluded that the market dip of almost 20% since February has bottomed out. We will have to see if this encourages more Buyers to come forward in September.

Supply is the issue. Delays by municipalities with respect to development are the problem. It takes 7 years to develop property in Ontario, but only 7 months in Texas. They must be much quicker with the paperwork!

Notwithstanding all the political comments about the shortage of inventory, municipalities increased their development charges in June. For the City of Toronto these increases were 49% across all types of properties. For singles and semis, this went from $93,978 to $139,830 or an extra $45,858 which will be passed on to the Buyers. Higher prices and fewer deals will force some of the developers to put their projects on the shelf.

COMMENT

Some market trends that we have been seeing and continue:

  • Increase in the demand for cottages,
  • 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
  • Baby boomers staying in place rather than downsizing
  • Renewed interest in downtown condos
  • Families who temporarily relocated out of Toronto during Covid, returning

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

Predictions

It looks like the impact of Covid is over, at least when it comes to residential real estate. All properties in Ontario have become more valuable. More and more individuals will work from home. Commuting times and traffic had become quite onerous. Recently, we have seen a substantial increase in gas prices which should result in many consumers turning to electric vehicles. That transition could easily take more than a decade.

Commercial offices have been in a transition. At first, employees were reluctant to return to work, but now, they just need more space. So far, there has not been that much of an impact. Retail spaces seem to be recovering somewhat, but for the last two years the consumer has been forced to resort to the internet, and has become quite accustomed to the practice.

The trend which we will likely see going forward is the conversion of large commercial properties like the Woodbine Centre and Sheridan Mall into mixed use developments with a strong residential component.

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

Brian Madigan LL.B., Broker

www.iSourceRealEstate.com

www.OntarioRealEstateSource.com

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