It seems as the weather gets cooler the real estate market just gets hotter! Once again, we’re experiencing a significant lack of inventory which is resulting in price growth across the board. In this months’ report we take a look at the latest numbers and market activity, a ‘bank’ that’s helping first time buyers enter the market, and we broach the dreaded market crash topic.
Let’s Talk Stats
It’s no secret that the real estate market is HOT. While it seems like this has become a standard phrase for the Toronto real estate market, the continued lack of inventory combined with steady demand has sent property prices soaring to new highs.
Currently the average price of a property in the GTA is up 19.3% compared to last year! Here’s a breakdown of the year-over-year increase by property type:
- 28% for detached
- 24% for semi-detached
- 28% for Townhouses
- 13% for condos (more on this in the next section)
Almost 9,800 homes were sold, which is just shy of the record set in October 2020 (10,503 homes), and that puts October 2021 as the second highest October in number of sales.
Of course anything related to 2020 has the covid-caveat attached, so consider another angle: October 2021 versus July 2021. In a span of just three months, the average price in the GTA has climbed 8.7%. Almost 9% in 3 months!
There needs to be much more supply (inventory) to bring some semblance of balance to the market, but that is easier said than done. In the meantime, there is likely going to be increased pressure for the government to step in. Uh oh. Cue the 2016/2017 flashbacks.
TLDR: There may be some buying opportunities ahead, but a ‘crash’ isn’t likely.
The last time we saw the market this tight was back in 2016/2017, can history be repeating itself?
When prices started hitting eye-popping numbers in early 2017, the first sign of the impending correction was the media attention. All over the news, real estate was topic-du-jour with terms like ‘overheated’ and ‘overbidding’ splashed around.
A quick look at some of the current headlines leaves us with an eerily nostalgic feeling:
Canada’s unhinged housing market, captured in one chart National Post, November 10, 2021
Toronto home prices up 33% and the real estate market isn’t cooling anytime soon BlogTO, November 18, 2021
Outside Toronto’s core, a market gone ‘haywire’ Globe & Mail, November 10, 2021
In 2017, what followed the media attention was the Government of Ontario introducing the Fair Housing Plan and a foreign buyer tax (remember that??) which was intended to cool the market. Four years and a pandemic later, that clearly has not worked.
Given that the real estate market is making headlines once again AND the fact that we’re heading into an election year, be prepared for more government intervention ahead. We’re hearing proposals for vacant-home taxes, interest rate hikes, bidding war controls – and while all of this may provide some temporary relief (read: correction) to a market at risk of overheating, the real issue at hand is simply a lack of (quality) inventory. And that isn’t something that is going to be solved any time soon.
So for those of you waiting for a market crash, don’t hold your breath.
Ideas, Proposals and Actions.
Housing has always been a hot topic in the GTA, but since the onset of the pandemic and in the absence of travel, it has become THE topic across North America.
There have been a few proposals and ideas that we’re keeping tabs on including:
Cooling off period for resale homes.
British Columbia will be enforcing this new legislation beginning spring 2022, this will give buyers the chance to change their minds on home purchases and would allow them to do so without any consequences. It will be interesting to see how this plays out in BC and if similar legislation makes its way to Ontario.
Bidding War Rules
During the federal election, part of the Liberal platform included a plan to ban bidding. Crickets since the election.
A proposal to help with affordable housing in Toronto which would require new residential developments of 100 units or larger to include affordable housing. Great concept but this doesn’t necessarily help the immediate problem.
Vacant Home Tax
In the hopes of increasing supply, another proposal that the government is considering would tax home owners who leave their properties vacant. A proposal for an over-exaggerated issue IMO. Investors are the new foreign buyers.
What these proposals are missing is the fact that Toronto is an ageing city with a lack of quality inventory (homes that don’t require an immediate 200K in renovations), and the subsequent log-jam created (and amplified by high transaction costs financing woes).
The Bank of Mom and Dad
“How are people affording these homes?”
I’ve lost count how many times this question has been asked in recent years. There are multiple answers to the question, but one that now has data behind it is what we in the industry have been referring to as the Bank of Mom and Dad.
In a report released by CIBC, one-third of first time buyers are receiving help from their parents – and while getting a bump from the ‘rents isn’t a new phenomenon, the dollar values are making heads turn:
- Estimated $10 billion gifted in past year
- National average: $82,000
- Toronto market average: $130,000
- Vancouver market average: $180,000
We’ve seen this first hand with many of our clients that have forked over generous amounts to help their kids get into the market. As parents ourselves, if/when our kids are ready to buy, we’ll gladly help them out too if possible. But as Benjamin Tal points out, these well-intentioned gifts are leading to unintended consequences: “While gifted down payments are helping to close the wealth gap between children and their parents’ generation, Tal said it’s simultaneously widening the wealth gap between kids who receive a gift and those who do not.”
What’s your take on all this, will you be dipping your toes in the market right now, or are you waiting to see if it’ll cool down?
Have any questions about what this means for you, or just want to talk real estate? Reach out today. We’d love to hear from you.