Housing Market in Toronto after Second Quarter

By Elli Davis, August 9, 2012

Toronto Skyline by Pixel_Monkie

It is important to look at the region as a whole, so let me introduce some basic prospects of the Ontario market before I focus on Toronto. Lower interest rates seem to have a positive effect on housing activity in Ontario. The numbers in the beginning of this year show that the U.S. market stabilization also influenced Ontario in a very positive manner, enhancing its exports and approaching the pre-recession levels quite swiftly. The migration in the region has the potential to influence the new housing activity positively, also to a moderate increase, after the region has secured job prospects.

The Condo Market

Despite the fact that some analysts seem to find signs of sanity in Toronto’s condo craze, others remain sceptical. Governor Carney is not convinced by the supposed lower activity of developers and increased cautiousness of first-time home buyers. The governor and his officials are still concerned about the excessive building in Toronto’s condo sector, although investors are certain that the condo boom is going to last a while longer.

Analysts at the Central Bank suggested that if units continue to be produced in such high numbers and are not absorbed by demand over the next 18 to 36 months, the demand-supply imbalance might become a seriously pressing issue. The situation could result in worse outcomes over time than it has now. These might be serious financial shocks resulting in falling home prices and job losses. The instability on the real estate market has also been caused by the high indebtedness of the household sector. European problems are making it harder for RBC to use interest rate hikes to control borrowing and lending — all this despite repeated notifications addressed to Canadians warning them that rates will have to eventually rise.

First-Time Buyers’ Market Slowing Down

The share of home sales typically occupied by first-time buyers (up to $400,000) fell from 50 per cent a year ago and 60 per cent two years ago to 43 per cent. This has been reflected in the condo market, the typical market for first-time buyers. This presumption has been supported by the CMHC’s latest Renovation and Home Purchase Survey, which showed the fall from the average of 40 during past few years to 34 per cent.

Residential Activity in the Second Quarter of 2012

• Number of Sales – 30,622
• Year/Year (%) – 4.4 (from 29,319 )
• Number of New Listings – 52,292
• Average Price ($) – 514,534
• Year/Year (%) – 7.2 (from 479,830 )

Mortgage Rates and Labour Market Indicators

Toronto Harbour by Julie

If mortgage rates did not change and stayed at these historically low levels for the rest of the year, it could generate a boost in the housing market that would be impossible to sustain. Finance Minister Jim Flaherty introduced major changes to the limits of what the Canada Mortgage and Housing Corporation is allowed to insure, using new mortgage rules to effectively pump the brakes on a housing industry that many experts worry became too hot in June. We’ll see what this will bring.

Mortgage rates are the same for the whole country, Toronto being no exception, with the percentage for five-year terms set at 5.24 per cent, with 3.2 per cent for one-year terms. Both indicate decreased mortgage rates compared to the beginning of the year.

A higher unemployment rate means fewer potential customers for the housing sector. The importance of low unemployment for the housing sector is indisputable.

The unemployment rate has been slightly increasing, reaching 8.6 per cent in June compared to 8.3 per cent from the same time last year. The participation rate reached 66.9 per cent and average weekly earnings reached $910 .

Affordability

Most figures stood 14 per cent above the ten-year average, hitting the highest Toronto levels of the past two years. For now, it seems that affordability is not an issue. According to RBC, it have even increased by 0.5 to 1.3 per cent, but it is very likely for the market to experience some tightening, later causing affordability to drop.

Average Vacancy Rates and Rents

• Private Apartment Average Vacancy Rates (%)

In spring of 2012, the Toronto market’s numbers reached average of 1.5 per cent, reaching 1.4 per cent for bachelors, 1.7 per cent for 1-bedrooms, 1.3 per cent for 2-bedrooms, and 1.7 per cent for 3+-bedrooms in April.

• Private Apartment Average Rents ($)

In Toronto, you’d pay $808 for a bachelor, $1,009 for a 1-bedroom, $1,164 for a 2-bedroom, and $1,389 for a 3+-bedroom apartment per month in late spring. The average price reached $1,086. In a town of 10,000+ in Ontario, you’d pay $959 on average — almost the same as Alberta.

• Private Row (Townhouse) and Apartment Vacancy Rates (%)

In spring of 2012, the market also stayed around 1 per cent, just like private apartments, reaching 1.4 per cent for bachelors, 1.7 per cent for 1-bedrooms, 1.3 per cent for 2-bedrooms, and 1.7 per cent for 3+-bedrooms in April. The average added up to a mere 1.5 per cent.

• Private Row (Townhouse) and Apartment Average Rents ($)

In Toronto, you’d pay $808 for a bachelor, $1,009 for a 1-bedroom, $1,164 for a 2-bedroom, and $1,382 for a 3+-bedroom apartment. The average price reached $ 1,092. In a town of 10,000+ in Ontario, you’d pay $966 in average.

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