Toronto Real Estate Market Report
February 2012
Since the beginning of this year there have been numerous articles written about the impending doom in Canada’s housing market. A recent example appeared in MacLean’s Magazine. Its headline says it all: “You are about to get burned: Canada looks exactly like the U.S. before its devastating housing crash – maybe even worse. Why it’s officially time to panic.” However an examination of the article’s content reveals that it is short on any hard data that would indicate that it is time to panic. The premise of the article is that money is cheap, Torontonians are spending recklessly, the condominium apartment market is overbuilt, and a day of reckoning is coming and soon.
The latest market data provided by the Toronto Real Estate Board does not support the MacLean’s position. In fact the hard data that is available indicates that the greater Toronto market place is buoyant, impeded only by a lack of available properties for buyers to purchase. In February, 7,032 residential properties were reported sold, a 16 percent increase compared to the 6,058 reported sold in February 2011. Although these reported sales are not a record, they are extremely strong. For example in February 2007 6,772 sales were recorded. 2007 continues to be the best year for sales, reporting 93,193 properties sold.
In February 12,2684 new listings came to market. This amounted to 11.2 percent more than the 11,404 new properties that came to market in 2011. This is a welcome increase, but insufficient to meet the demand. At the end of February there were 14,546 active listings, almost identical to the 14,525 that were available last year. The inventory of 14,546 available properties represents a supply of only 2.2 months. A balanced market would require at least 3 months supply. In many Toronto neighbourhoods the supply remains exceedingly low. In the eastern districts in close proximity to Toronto’s central core the supply continues to average only 1.4 months. It is these conditions, coupled with buyer demand, that have led to many instances of competing offers for properties with concomitant increases in sale prices.
The high demand and exceptionally low mortgage interest rates are resulting in all properties coming to market selling very quickly. This has been the case for most of 2011 and now into 2012. In February all residential properties coming to market (on average) sold in 24 days. This is a 10 percent improvement compared to the 27 days properties took to sell in February of last year. Properties in Toronto’s central, and most high priced districts, took only 21 days. Toronto’s eastern districts took only a jaw-dropping 19 days, driven primarily by sales in Riverdale, Leslieville and the Beaches. In those neighbourhoods all new properties coming to market sold in approximately 12 days. As in January, properties in western districts took the longest to sell at 26 days. Many districts are witnessing the fastest sales in their history.
It is not surprising that February’s average sale price for the greater Toronto area broke a record, coming in at $502,508. This is the first month that the average sale price has exceeded $500,000 and tops the previous record of $485,402 achieved in May of 2011. Sales took place in all price categories. There were 407 properties that sold having a sale price that exceeded $1 Million. A look at average sale prices across Toronto indicates that a detached house (on average) in western neighbourhoods now costs $643,217. In central Toronto a detached house is now within reach of a select few, coming in at $1,239,256. Eastern neighbourhoods are the least expensive to purchase a detached home, but even in those areas prices are climbing. The average detached home is now $549,763, but in areas like Riverdale, Leslieville and the Beaches the average sale price is substantially more than $700,000.
So the Toronto resale market does not reflect the negative assessment of economists for the Canadian housing market. Prices are strong, demand exceeds supply, and sales are taking place at a record breaking pace. There are a number of factors that are responsible for a real estate market: net migration and household formations, servicing costs, affordability, household incomes and inventory. Current trends favour a continuation of Toronto’s existing resale market. Toronto’s record breaking average sale prices have yet to create an affordability problem. With a 10 percent down payment, a household income of only $54,000 would be required to purchase the average resale property in the greater Toronto area. With average household incomes of approximately $86,000 in Toronto, affordability is not an issue. However a combination of continued average price increases and an increase in mortgage interest rates would challenge the ability of the average Toronto household to purchase a home.
The first month of 2012 began strong reporting 4,567 residential properties sold, an 8.8 percent increase compared to the 4,199
properties reported sold in January 2011. January’s result could have been even stronger if there was a sufficient number of available
properties to meet buyer demand. During January some of Canada’s major banks offered promotional mortgages that saw interests
rates plummet to 2.9 percent for 5 year fixed terms. This inturn drove buyers to market, trying desperately to capitalize on these low
mortgage rates. Competing offers on properties that came to market were the norm.
In January 9,655 new properties were listed for sale by sellers. This was 8 percent more than the 8,937 that came to market in January
2011. Unfortunately the increase in new listings as compared to last year did not improve the overall supply. At the end of January
there were only 11,009 residential properties available for purchasers to buy. This is a decline of more than 9 percent compared to
the 12,107 properties that were available at the end of January 2011. The inventory of 11,009 available properties represents a
supply of only 2.2 months, far from a balanced market. In some neighborhoods the supply of inventory is even less. For example, in
the neighborhoods immediately east of the central core of the City of Toronto there is only 1.4 months (on average) of available resale
housing. These conditions will lead to fierce competition for properties that become available, resulting in an increase in sale prices.
Base on the tight market conditions we are experiencing it is not surprising that all properties that came to market sold quickly. In
the greater Toronto area on average all properties sold in 32 days. This compares to 36 in January 2011. In the City of Toronto sales
were slightly faster, taking only 31 days. Central properties also took 31 days on average to sell. Properties sold very quickly in
Toronto’s eastern neighborhoods, while Toronto’s western districts lagged behind dragging Toronto’s over-all days on market down.
Eastern properties sold in only 27 days, with eastern neighborhoods close to Toronto’s central core (Riverdale, Leslieville, The
Beaches) all selling on average in less than 20 days.Western neighborhoods took 38 days to sell.
Although 32 days on market was slower than the brisk pace of sales throughout the fall months, 32 days on market for January,
historically a slow month, is quite an accomplishment.We anticipate that this pace will accelerate as the market gears up for the seasonally
more active spring market.
In January the average sale price of all properties sold in the greater Toronto area was $463,534, an increase of 9 percent compared
to the $425,762 recorded in January of 2011. Increasing average sale prices has given rise to a greater number of high end sales
(properties having a sale price of $1Million or more). In January 201 properties fell into this category. This compares vary favorably
with the 145 properties having a value of $1 Million or more sold in January of 2011. In 2010 there were only 137, and shockingly
a mere 28 were reported sold in January 2009, a period of world wide economic turbulence. Some neighborhoods in Toronto are
becoming more pricey. For example the average detached home sold in central Toronto came in at $1,151,542, double what the
average detached home sold for in the east ($ 517,449) and Toronto’s western districts ($560,451).
As we stated in the December Market Report, forecasts for 2012 for the greater Toronto market place remain positive. January’s
performance is certainly consistent with the forecasts of the Toronto Real Estate Board and Canada Mortgage and Housing
Corporation. There are some concerns that historically low mortgage rates and a lack of resale inventory have driven house prices to
unsustainable levels. Last year sawToronto’s average sale price increase by 8 percent compared to 2010. Notwithstanding these price
increases, affordability continues to favour buyers. Based on the average income for Toronto families ($82,000), the average priced
home ($463,534) is still within reach. Based on even a 10 percent down payment, mortgage servicing costs still remain below
lending institutions 32 percent gross debt service ratios. The key to the market’s continued strong performance remains low
mortgage interest rates. If and when they begin to rise the market will become less frothy and move to a more balanced state.
Prepared by: Chris Kapches, Senior Vice President, Chestnut Park Real Estate Limited
