The Toronto residential resale market at the end of August is a very difficult market to understand. For some months now it has been operating in different ways in various trading areas, still performing very well depending on the housing types involved and where they are located. To merely state that the market is in decline is to misunderstand its various complexities. Moreover, notwithstanding the recent monthly negative variances, it remains fundamentally strong and capable of returning to the frenetic pace it demonstrated in the spring.
August data for the greater Toronto area indicates that the resale market has declined by 12.5 percent from a year ago. Last August the Toronto Real Estate Board reported 7,330 sales. This year that number declined to 6,418. The prevailing view of economists is that this decline was caused by the more restrictive lending guidelines that lenders are now required to follow: specifically the reduction of amortization periods from 30 to 25 years. Unfortunately this explanation is inconsistent with the negative variances experienced in June and July. The new guidelines came into effect on July 9 of this year. A more plausible explanation is that by the end of May Toronto house prices had simply become too expensive for most buyers.
This theory of affordability is supported by sales results in the 905 regions as compared to the 416 trading areas. A detached home in the 905 areas can on average be purchased for $564,571. That is approximately $183,000 less than the same type of property would cost a buyer in the 416 trading areas. As a result sales of detached homes in August were down only 7 percent in the 905 areas but down 19 percent in the 416 areas. The same is true for semi-detached homes. The only housing type in which both the 905 and 416 trading areas are in synch is condominium apartment sales: both are down more than 22 percent compared to August of 2011.
So what emerges from the August sales data is that sales have been more negatively affected in the City of Toronto than in the outlying areas. Not only is there a substantial price distinction between the two areas, but a city buyer must carry the added financial burden of the additional City of Toronto land transfer tax. We can also see a rapid and deep decline in condominium sales. This trend is universal. In the 416 areas this decline in sales is being followed, by declining condominium sale prices, which were down 4 percent compared to August 2011.
Average sale prices as a whole were up 6.5 percent in August, notwithstanding the decline in total average condominium apartment sale prices. In August single family detached homes were up 15 percent, followed by an 11 percent increase for semi-detached homes. Even in an era of historically low mortgage interest rates these price increases simply cannot be indefinitely sustained. It can be anticipated that moving into the fall months, average sale prices for detached and semi-detached homes in the 416 will moderate. The overall average sale price for August was $479,095 as compared to the $450,323 achieved in August 2011. It should be noted that August’s average sale price is more than 7 percent lower than the record high average sale price of $516,027 produced in April of this year.
Despite the decline in sales year-over-year, the time it took for properties to sell in August was still very low. It took only 28 days on average for all properties to sell, only 1 day more than August 2011. This number is even more astounding when condominium apartment sales are removed from the analysis. Even in Toronto’s most expensive district (average sale price for a detached home being $1,203,217) all sales took place in only 25 days. In the eastern districts of Toronto, sales took place in under 20 days, again driven by lower prices for the product available there. What this demonstrates is that despite the decline in sales numbers in some trading areas, there are buyers waiting for the right property, prepared to pay the higher prices demanded in the 416 districts, and prepared to make quick and determined purchase decisions.
The number of new listings that came to market was out of synch with expectations. Only 11,748 new listings came to market in August. That is down 5.5 percent compared to the 12,430 new listings that became available to buyers last August. August was the first month since the beginning of the year in which new listings did not exceed new listings for the same month last year. At the beginning of September there were 19,043 active listings, more than 1000 less than were available at the beginning of August. There were 10.5 percent more listings this August than were available in August 2011 (19,043 as compared to 17,233 in August 2011).
Moving into September the market remains very organic. As indicated in this update there are forces at play that could cause the market to grow rapidly, emulating the spring months, and conversely we could see a continuation of the trend the resale market has experienced over the last three months. As indicated in last month’s update, managing seller expectations in this market will be crucial to successful sales.
Prepared by: Chris Kapches, Senior Vice President and Legal Counsel
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