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Housing market in GTA sees price gains

Housing market in GTA sees price gains

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Housing market in GTA sees price gains

The Greater Toronto Area’s housing market sees double-digit year-over-year price gains in fourth quarter of 2017

The Royal LePage House Price Survey released January 10, 2018 revealed double-digit growth across the GTA in the fourth quarter of 2017 compared to the same quarter last year. Home values continue to be influenced by an exceptionally strong start to 2017. During the quarter, demand continued to slow in many suburban regions across the GTA. With the exception of condominiums, all housing segments studied depreciated on a quarter-over-quarter basis, as poor winter weather, growing affordability constraints and the threat of a new stress test caused many prospective homeowners to sit on the sidelines, waiting to see if prices would soften.

In the fourth quarter of 2017, the aggregate price of a home in the region grew 14 per cent year-over-year to $837,873. When broken out by housing type, the median price of a two-storey home in the GTA climbed 13.9 per cent year-over-year to $982,637, while the median price of a bungalow increased 8.3 per cent year-over-year to $806,183. During the same period, the median price of a condominium within the region saw the most significant price hike, surging 19.5 per cent to $476,421.

“Over the last decade, condominium prices have tended to be less volatile when compared to other property types, maintaining strong upside appeal while demonstrating resilience in the face of varied market conditions,” said Kevin Somers, COO, Royal LePage Real Estate Services Limited. “When markets soar, prospective homeowners will increasingly look to more affordable property types, like condos, as a result of their diluted purchasing power. This causes pricing and sales activity to ramp up in these categories.

“Even when overheated, condominium price growth is often more manageable relative to other property types given its lower price point,” added Somers. “When prices skyrocket, detached homes are far more likely to overshoot their mark, and because they are considerably more expensive, any decline in market characteristics will be far more pronounced within the segment, especially when home values are already placed out of the reach of many potential purchasers.”

On a quarter-over-quarter basis, the aggregate price of a home in the GTA fell 1.7 per cent, while the median price of a two-storey home and bungalow declined by 2 per cent and 2.4 per cent, respectively, when compared with the previous three-month period. Condominiums were the only segment to witness a slight gain on a quarter-over-quarter basis, rising 0.4 per cent.

Since the beginning of the quarter, continued affordability constraints and waning consumer confidence kept many purchasers on the sidelines in the hopes that prices would soften, especially in suburban regions outside of the core where rates of appreciation far surpassed those experienced in the City of Toronto. When compounded with the Office of the Superintendent of Financial Institutions’ (OSFI) most recent policy announcement, which will require that all new uninsured mortgages undergo a stringent stress test, sentiment softened further as prospective homeowners continued to process the new regulation’s effect on the market and their purchasing power.

“Many potential purchasers believe that there may be one final act remaining in the Greater Toronto Area’s most recent housing cycle and they are willing to hold off and see if a significant price adjustment is just over the horizon,” Somers said. “However, while hope remains eternal, prices are still very much comparable to the recent peak of the market, and frankly, it would be a very big surprise if the Greater Toronto Area completely shifted to a buyer’s market. External demand for housing across the metropolitan area is expected to remain strong thanks to the region’s robust economy luring many buyers into its jurisdiction from across Canada and around the globe.

“Peak millennials, who are also increasingly reaching the age of homeownership, will also place a significant strain on inventory across the region, turning the process of finding a home into an exercise in adjusting expectations,” concluded Somers. “As with Vancouver and many other major cities around the world, the trade-off between housing type and location will likely become more prevalent in the future across the GTA.”

According to Royal LePage’s most recent Market Survey Forecast, the company predicts that the aggregate price of a home in the GTA will appreciate by 6.8 per cent by the end of 2018, as many purchasers acclimate to the new mortgage rules and continue to compete over low inventory levels.

Market Summaries

City of Toronto

Market trends began to heat up slightly in the Toronto, with the region’s robust economy luring many purchasers from across the GTA into the region, seeking to live and work downtown. As opposed to many suburban cities across the metropolitan area, desirable properties that were priced correctly tended to sell quite quickly within the region and would often receive multiple offers. During the quarter, the median price of a home in the area rose 17.7 per cent year-over-year to $850,899.

Buyers have taken a wait-and-see approach in Scarborough, causing the region to transition towards more of a balanced market. Yet, despite recent trends increasingly favouring purchasers, prices still remain high, causing many prospective homeowners to look to the condominium segment or leave the city entirely for areas outside of the GTA where homes are more affordable. When compared to the fourth quarter of 2016, price appreciation remained strong within the region, with the median home value rising 8 per cent to $659,625.

York Region

Trends began to vary significantly across the York Region, with sales activity in Richmond Hill falling as a result of previously high levels of appreciation pricing many purchasers out of the market. While some buyers are trying to capitalize on current prices, many homeowners are not willing to list their properties as they believe that they should still fetch as much as they would have in the spring.

Meanwhile, at the opposite end of the spectrum, home values in Vaughan remained remarkably resilient during the quarter, as the region posted one of the strongest quarterly and year-over-year gains of any region within the GTA in both the bungalow and condominium market segments. As a result, in the fourth quarter of 2017, the median price of a home in Richmond Hill and Vaughan grew by 7.9 per cent and 16.5 per cent year-over-year to $1,246,771 and $1,080,366, respectively.

The Markham housing market sputtered in the fourth quarter of 2017, as sales activity and prices within the region’s high priced two-storey market segment declined. Newly built, larger condominiums served as a bright spot for the region, enticing a significant amount of interest from purchasers. Meanwhile, homeowners within the detached resale market decided to forgo listing their homes until conditions and pricing improved. While home values fell by 4.7 per cent on a quarterly basis, large gains witnessed during the spring caused the region’s aggregate home price to surge when compared to the same time last year, rising 11.2 per cent to $1,063,513.

Brampton

The relative affordability of the Brampton housing market enticed purchasers back into the market from the sidelines during the fourth quarter of 2017, as quarterly price changes helped home values align with prospective homeowners’ expectations, predominantly piquing the interest of many first-time buyers and residents already found within the city. As a result, the region witnessed a slight increase in sales activity, and the aggregate home price rose 14.7 per cent year-over-year to $709,071.

Mississauga & Oakville

While some purchasers jumped into the Mississauga and Oakville housing markets to find a property before the new OSFI stress test took effect, the majority of prospective homeowners elected to wait on the sidelines in order to gauge the impact of the new policies. This however did not translate into a large reduction in pricing, as inventory remained low across the regions. Existing residents are now also holding off on listing their homes, believing that pricing may be rekindled once new market conditions are absorbed. During the quarter the aggregate price of a home in Mississauga and Oakville increased by 12.7 per cent and 14.2 per cent year-over-year to $742,200 and $1,105,412, respectively.

Milton

The aggregate price of a home in Milton climbed 10.2 per cent year-over-year to $728,584 in the fourth quarter of 2017, as previous high home price appreciation caused market trends to slow within the region. On a quarter-over-quarter basis, the aggregate price of a home within the city fell 4.6 per cent, primarily as a result of eroded affordability.

Durham Region

During the quarter, Oshawa and Ajax experienced the largest aggregate home price increases of any area studied within the Durham Region, rising 10.9 per cent and 11.6 per cent year-over-year to $534,008 and  $689,325, respectively.

Pickering also saw a significant increase in price, with its aggregate home value rising 10.5 per cent this year over last to $718,336, while home values in Whitby grew by 8.9 per cent to $675,416 over the same period.

Nationally

Canada’s residential real estate market saw strong, but slowing year-over-year price growth in the fourth quarter of 2017. The Royal LePage National House Price Composite, compiled from proprietary property data in 53 of the nation’s largest real estate markets, showed that the price of a home in Canada increased 10.8 per cent year-over-year to $626,042 over the three-month period. When broken out by housing type, the median price of a two-storey home rose 11.1 per cent year-over-year to $741,924, and the median price of a bungalow climbed 7.1 per cent to $522,963. During the same period, the median price of a condominium appreciated faster than any other housing type studied, rising 14.3 per cent to $420,823 on a year-over-year basis.

“To prospective homeowners in our largest cities, condominiums represent the last bastion of affordability,” said Phil Soper, president and CEO, Royal LePage. “This is especially true for first-time buyers whose purchasing power has been reduced by tightening mortgage regulations.”

In line with Royal LePage’s previous Market Survey Forecast, Royal LePage predicts that the price of a home in Canada will increase 4.9 per cent by the end of 2018. Looking ahead, the company anticipates that the new OSFI stress test will slow the housing market in the first half of 2018, as buyers adjust their expectations and many market participants take a “wait and see” approach.

“The unsustainably high rates of home price appreciation witnessed in recent years in B.C. and Ontario were dangerous to the stability of not only the housing market, but to the broader economy itself,” said Soper. “Policy measures like the OSFI stress test will quell runaway housing inflation to an extent. However, we do foresee an upswing in demand in the latter portion of the year, as prospective buyers adjust to the new realities. To put it another way, the demand is still there.”

The Royal LePage House Price Survey provides information on the three most common types of housing in Canada, in 53 of the nation’s largest real estate markets. Housing values in the House Price Survey are based on the Royal LePage National House Price Composite, produced quarterly through the use of company data in addition to data and analytics from its sister company, RPS Real Property Solutions. Commentary on housing and forecast values are provided by Royal LePage residential real estate experts, based on their opinions and market knowledge.



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Predictions for the 2018 real estate market

Welcome to 2018!

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Welcome to 2018!

The only safe prediction for the real estate market for this year is that it will be unpredictable.

by Gale Beeby
HPG Editor-in-Chief

As we head into the Year of the Dog, the only thing I can predict with absolute certainty is that are as many diverse opinions about the state of the real market in the GTA as there are breeds listed by the Canadian Kennel Club.

According to the Chinese zodiac, the dog — full of energy, faithful and intelligent — has a long-held position as the protector of the home and as man’s best friend. So, regardless of what the economists say will happen, perhaps it is an auspicious year for the homebuyers.

MY TOP FIVE PREDICTIONS

Rough Time For First-Time Buyers

This is the sector of the market that is being hit hardest by new government policies, especially the new mortgage qualification stress test imposed by the Office of the Superintendent of Financial Institutions (OFSI). The rule requires anybody buying a property with less than a 20 per cent down payment of their own money (not mom and dad’s) be qualified for their mortgage at either the Bank of Canada’s rate of 4.99 per cent or with an extra 2 per cent added to their approved mortgage rate. Experts think this might eliminate about 10 per cent of buyers out of the market. Many will put off buying a new home until they can save enough money for a down payment under the new rules.

Interest Rates Will Rise

I know, we’ve been hearing that interest rates will increase the last few years, but the Bank of Canada raised the rate in July and September to its current rate of 1 per cent, up from a record low of 0.5 per cent. Experts differ on when — and how much — the Bank of Canada will raise rates, but they do all agree that rates are going up. I’m betting they are and I’m locking in my mortgage in the first quarter of 2018.

Condos Will Be The New Norm in Family Housing

As prices of ground-related housing (detached, semi-detached and townhomes) has escalated to point where most buyers can no longer consider anything but a condo unit in a midrise or highrise building, buyers are looking at multi-residential buildings, not just as an entry into the market, but also as their permanent home.

According to Altus Group, the average price of a condo apartment in the GTA in November was $702,992, while new single-family homes grew to $1,223,610. Builders are responding by designing larger condo units suitable for family living and Toronto is responding by building more schools and community centres around areas of intensification. Growing up in condo will become the new normal for many families in the GTA.

Detached Home Prices Will Continue to Escalate

Supply cannot match demand resulting in a squeeze for anybody with the dream of a owning a detached home anywhere in the GTA. In November, the average price of a new single-detached home was over $1.2 million, 25.1 per cent above November 2016’s benchmark of $977,890, according to Altus Group, adding that single-family home sales represented only 17.3 per cent of the new homes sold in the GTA in November 2017.

But the lower sales do not represent a decline in interest, warns the Building Industry and Land Development Association (BILD). “Single-family housing is still the first choice for many people, especially for those with families,” said BILD CEO and president Bryan Tuckey.

The reasons for the lack of land supply is complicated — Places to Grown policy, Greenbelt restrictions, lack of serviceable land to name a few — but the fact is there are fewer detached homes being built.

Buyers will be moving out of the GTA in order to afford a new house. Hotspots will include the Kitchener-Waterloo area, Burlington, Hamilton, the Niagara Region and Bowmanville.

New Appeals Process Will Continue to Slow Development

In December, the province passed legislation to eliminate the Ontario Municipal Board (OMB) and replace it with the Local Planning Appeal Tribunal (LPAT). Over the years, the OMB suffered from a reputation that was less than stellar, with many believing that the board sided with the developers in most appeals, which is, in fact, not the case. And, of course, an OMB appeal caused a lengthy delay, costing the builder/developer money, which is passed on to the homebuyer.

The government says that LPATs, on the other hand, will be an independent tribunal with the hopes of making the land-use planning appeal process faster, fairer and more affordable, and allowing community members have a say in how their neighbours are shaped. That’s a good thing, really, as community involvement should always be welcomed by developers.

However, I don’t believe that the LPATs will take any less time to resolve an appeal than the OMB. These things take time, and with more people involved, and more depositions to hear, LPATs could actually take longer. And when the tribunal is no longer made up of independent members who decide on a development using fact-based planning principles, then decisions are bound to be based on the dreaded NIMBY code rather than on whether the proposal has merit in and of itself.

Just remember, the Distillery District would not have come into existence if it were up to the City of Toronto — the OMB gave it the green light. And that’s just one example of a good planning decision made by the OMB.

WHAT THE EXPERTS SAY

New Housing

The Conference Board of Canada expects an overall modest increase for single-family homes in 2018 and predicts the economy to grow by only 2 per cent in 2018, which will inhibit Canadians’ ability to buy new homes. The building industry has responded by making the shift toward multi-residential buildings, with two out of three new homes built today multi-family. However, Toronto’s real gross domestic product (GDP) is expected to grow 2.5 per cent in 2018, showing few signs of problems on the horizon for the region. The real estate sector will continue to benefit from this robust economic performance. People still crave the live-work-play lifestyle in the core and companies, eager to be close to talent, are moving into new office spaces nearby to fill the new tech and research jobs they’re creating. Urban intensification will continue, especially in Toronto, where the GTA will see significant densification efforts.

PWC reports that the condominium market will perform steadily in the near term, with demand steady in most markets. Downtown cores remain most attractive to young professionals, retiring boomers and young families. The size of condo units has been slowly increasing, the Building Industry and Land Development Association (BILD) reports, in answer to the demand of family-sized units.

Resale Housing

According to research by the Bank of Canada and reported by the Canadian Real Estate Association, which oversees the resale housing market in Canada, tightened mortgage rules will reduce sales activity across Canada in the first half of 2018, particularly in and around Toronto and Vancouver. Some homebuyers will stay out of the market as they save for a larger down payment. Taking these factors into account has led CREA to revise its sales forecast for 2018. CREA also anticipates that tighter mortgage regulations will lead some buyers to opt for a smaller, lower priced home.

Re/Max predicts national home prices will increase by 2.5 per cent in 2018, with the GTA facing a flat year except in downtown Toronto and some suburban areas west of Toronto, including Oakville and Brampton.

Royal LePage predicts a 4.9 per cent price increase nationally and a price increase of 6.8 per cent in the GTA.



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