On Tuesday of this week, John DiMichele, CEO of the Toronto Real Estate Board (TREB), presented the Board's second-ever Market Year in Review & Outlook Report. The 2017 Report is comprehensive and insightful, featuring the results of TREB-commissioned Ipsos surveys on consumer preferences and intentions, as well as foreign buyer activity. A report on Commercial Real Estate is also included in addition to sections exploring the city's transit infrastructure and housing affordability issues. If asked to summarize this year's findings in three words, one might say: "Sold Over Asking" or "Limited Supply Hurts" or "Foreign Buyers Minimal". Fortunately, we are not bound by a word limit. Here is our summary of, and commentary upon, what we view as the Report's key findings.
First, 2016 saw another year of record unit sales in the GTA (416 and 905 area codes) with, once again, over 113,000 home sales (Chart 1.1). This represents an 11.8% increase from 2015. It is also important to note that counter to common perception, this year of record sales was fueled heavily by domestic demand - with only 4.9% of transactions involving foreign buyers.
One of the drawbacks of these strong gains is a record low level of active listings (see Chart 1.3). Home owners are hesitant to put their properties on the market for fear they won’t be able to purchase a replacement. Consequently, we see an increase in the home renovation market. One interesting, often heard, question is: “How can first time buyers get into the market”? Well, the data show two trends. The challenge of housing affordability is real, yet - at the same time - first-time buyers remained key players in last year's market. In 2016, 51% of homes sold were to first time buyers, which is a mere 2% drop from the 2015 level of 53%. Overall, first-time homebuyers still constitute the majority of home purchases, pointing to the continuosly strong buying power of those new to the market.
Which brings us to another key question: Are Torontonians stretching themselves too thinly? Recent polls show that the answer is no. The average down payment remained the same - 29% - in 2016 as it was in 2015. Furthermore, the percentage of household income dedicated to mortgage principle and interest was 27%, well below the federally mandated level of 39%. Add taxes and utility costs and it would still fall well below the regulatory level.
The TREB-commissioned Ipsos survey data also shows positive signs for the 2017 market. When surveyed, 28% of GTA residents claimed they are "likely" to purchase a home in 2017 - down only 2% from last year. Of these likely buyers, 53% indicated they would be first time buyers, which is up 4% from the number of similar respondents in 2016. Some additional key insights include the fact that 40% of GTA buyers indicated they would be purchasing within the City of Toronto, with 19% claiming they would spend $1M or more. This spending power compares with only 10% of respondents a year earlier who were projecting to spend a million dollars or more on a home.
Much discussed in media and throughout our industry, this year brought changes to the federal mortgage guidelines which involves a “stress test” whereby mortgage applicants must qualify at the posted rate, not the common discounted rate. When these new rules and regulations come into effect later this year, it could cause some buyers to delay their purchases. Thus, in the first months of the year, we could see sale prices rising at rates closer to 20% but, as interest rates rise and mortgage rules become more strict, perhaps witness an ebbing of growth. At this time next year, we will have evidence as to the impact of these new rules and we'll be sure to offer our analysis on how, and to what extent, they affected the market.
Overall, the data point to another strong year for the housing market in both the GTA at large, and the City of Toronto more specifically. On second thought, perhaps we will conclude by offering our own 3-word Market Summary: Bring It On!
Read the full report below:
All TREB Market Year in Review & Outlook Reports are available HERE.