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Real estate property price trend in Toronto

Updated January 25, 2019

Toronto real estate market experienced a shift in 2018. In the GTA 77,426 sales were reported - a significant drop of 16.1 percent from the 2017 level. New listings were also down by 12.7 percent. Yearly sale numbers represented approximately 50% of the number of new listings taken over the course of 2018. That doesn't mean though that every second listed house was sold, because there was inventory left at the end of 2017.

The average property price in the GTA was also down by 4.3 percent, to $787,300. Comparing the City of Toronto area to the surrounding towns comprising the GTA, a difference is noticeable both in sales numbers and in prices.

In Toronto, sales of detached houses dropped by 24.1% vs. 14.8% drop in the 905 area. Semi-detached home sales were down by 32.6% in 416 area and by 26.6% in the 905 area. Townhouse sales declined less in 416 area (18.2%) and more in 905 (31.1%). The drop in condo sales was fairly similar, at 23.9% and 21.8% respectively.

Looking at prices, detached homes prices declined in Toronto by 8% (and in 905 area by 2.2%). All other property types saw an increase in price - In Toronto prices of semi-detached houses increased by 4%, townhouses by 10%, and condos by 11.4%. In the 905 area price increases were smaller - 3.9% for semis, 2.9% for townhouses and 5.8% for condos.

Average time required to sell a listing increased from 27 days in 2017 to 31 days in 2018. Higher borrowing cost combined with the stress test introduced in 2018 caused some prospective buyers to reassess what they might be able to afford or to put their house search on hold.

In summary, in the first two months of 2018 both new listings and existing listings inventory were substantially higher than in the previous year, sales and average prices declined, and time necessary to sell a property increased. Comparing to the same period of 2017, from March until the end of the year with one exception in August, fewer new listing were introduced to the market, and existing inventory started to diminish.

Market conditions improved in the second half of 2018. From June to October sales numbers were higher than year earlier, average prices increased moderately on a year-over-year basis, and the time required to market a listing, while still higher than a year earlier, improved. In November and December sales numbers dropped again, but so did new and existing listing numbers. Average prices remained moderately higher than in 2017, but time on the market increased again.

Table below shows the percentage changes through the year in the GTA, as compared to 2017, for sales numbers, new listings taken, existing listing inventory, average price and average time on the market.

Changes on market conditions through 2018

Out of 12,105 freehold listings sold in the City of Toronto in 2018, 1,142 were sold for full price, 4,080 sold over asking and 6,879 sold below asking. The lowest, 55%, was paid for a semi-detached house at Bathurst and Harbord, being sold under Power of Sale. It was listed with an asking price of $1,499,000, and sold in April for $825,000 after 58 days exposure to the market. The highest, 418%, was paid for a detached 1.5-storey house on Finch, listed with an asking price of $500,000 and sold in 5 days for $2,090,000 (or over one and a half a million more).

164 freehold homes sold on the day the listing was signed, 350 in one day, 478 in two days, and 473 in 3 days.

19,025 condominium apartments were sold in the City of Toronto in 2018, nearly identical to the previous year. Out of these, 2,920 sold for full asking price (slightly more than in 2017), 5,114 sold above asking and 10,988 sold below asking. The lowest, 72%, was paid for a 3 bedroom unit at Kipling and Steeles, listed for $249,999, and sold for $180,000. Sixteen units sold for up to 80% of asking, 174 between 81% and 90%. The highest, 152%, was received for a small one bedroom unit at King and Dufferin, sold by the builder, and listed with an asking price of $275,900 and sold for $420,000.

202 condo units sold on the day the listing was signed, 594 sold in one day, 878 in 2 days and 820 in 3 days. It would be fair to guess that at least 202, and very possibly nearly 2,500 units were sold without review of the Status Certificate.

The following factors affect our real estate market.

  1. Bank of Canada increased the key interest rate three times in 2018 - on January 17, to 1.25%, on July 11, to 1.50%, and on October 24 to 1.75%. Interest rates have been very low for a number of years, keeping the real cost of purchasing a house, townhouse, condo apartment or loft reasonable. On January 1, 2018, a new minimum qualifying rate was required for all mortgages, including the ones where the down payment is 20% or greater. Buyers have now to qualify for a five-year benchmark Bank of Canada rate, or the contractual mortgage rate plus 2%, whichever is greater. In the recent past only insured mortgages (where down payment was under 20%) were subjected to "stress test".
  2. Change in mortgage lending rules in the recent past reduced the amount of loan for which the first time buyers with low down payment would qualify. Most recently introduced change requires a down payment of 10% for the amount of mortgage over $500,000. Buyers need to have 5% down for the first $500,000 and additional 10% of the loan sum above that amount.
  3. Properties selling for over 1 million no longer qualify for government insured mortgage.
  4. Young people, immigrants, and foreign investors are still fueling the demand, while older generation stays longer in their homes.

Ontario Greenbelt Aliance urge the province to expand the existing greenbelt and freeze urban boundaries to protect agricultural land and water sources in the Golden Horseshoe. Freezing urban boundaries contributes to the rise in land value.

New Ontario Fair Housing Plan (FHP) was introduced on April 20, 2017, imposing a 15% non-resident speculation tax.

New Toronto Land Transfer Tax was introduced in 2009, and Harmonized Sales Tax came into effect in July of 2012. The later does not have a great impact on purchases of resale homes, other than adding to the closing costs, but will be felt by buyers of new construction.

Using average house prices on record since 1953, corrected for inflation (for comparison purposes we brought the historical data up to today's equivalent values), I produced the following graph. The average prices are courtesy of TREB.

On the graph below you will see three 'spikes' in house prices, and three 'dips'. Straight line denotes the trend. In 1974 and 1989, when the average prices rose steeply above the trend line, a 'correction' ensued. We can also see a small correction as a result of late 2008 and early 2009 market conditions. The rate of price gains between 2013 and 2015 was a bit lower that the one which led to the 'bubble burst' of 1989. Last three years rise is steeper, but, at 17.31% for 2016 and 12.71% for 2017 it is still less than a half of the 36% yearly increase that happened in 1987, and the 33.3% increase from 1974. The drop in average price in 2018 is slightly larger than that in 1993, but considerably lesser than the one in 1991 and 1992. Each correction led to a period of stable prices, especially when these prices were corrected for inflation.

Average real estate prices 1953 - 2018 in Toronto, Canada, corrected for inflation

At the beginning of 2011, when the average house price reached $465,412 (which, corrected for inflation, amounts to $513,917), the price line has crossed over the trend line. The increase rate, initially moderate, was steeper between 2015 and 2017. The brief correction which happened in 2007 - 2008 was more of leveling off the prices, similar to the period between 1957 and 1960. After that brief correction the prices continued to rise, and the increases were quite substantial since 2010.

When the prices rise faster than the trend suggests, the market eventually slows down. Whether the prices become stable, following the trend line, or actually drop, seems to depend on the speed with which the price increases happen. The steeper the angle of the curve representing house prices, the more likely is a price 'correction'.

While the recent rise in real estate prices in Toronto is quite significant, the year-over-year changes in prices (not corrected for inflation) have lately been much more moderate than in previous years (see graph below). You will also notice that the largest single decrease in price was approximately 8%, while the largest increase (in 1987) was around 36%.

Year-over-year real estate price changes in Toronto, Canada

If you are interested in more detailed information about the market in a specific area, please call Marisha Robinsky, real estate sales representative, Forest Hill Real Estate Inc., Brokerage, 416-755-0123.