Our predictions for the Toronto Real Estate market

predictions

I was asked by a real estate marketing company point2homes.com to answer the following questions about the real estate market. I thought I would share my insights with you:

Will Toronto’s house prices finally peak in 2015?

Property prices in Toronto are, without a doubt, at an all time high. Of course everyone would love to know the answer to this question. Looking around me every day, and considering the factors that affect house prices, I would have to say the answer to this question is "no" prices will not peak in 2015.

One of the first reasons I don't think this will happen is because people have to live somewhere so either they buy a property or rent one. Considering the high cost of renting, I believe buyers who have the minimum down payment will continue to opt to buy, if their incomes allow it, because the greatest upside is the forced saving factor and the opportunity to build personal equity rather than building a landlord's equity.

I have been astounded in the past few years with the high cost of renting a house or a condo in central Toronto. For example, a typical small detached three bedroom in a popular central location can rent anywhere from $2,500 to $3,500 a month plus utilities depending on its condition. This amount of money, considering current mortgage interest rates, carries a mortgage of about $550,000 to $750,000. Add to this amount a down payment and it's still enough to buy a condo or small house in many parts of Toronto.

Furthermore, city builders obviously believe that rental costs will continue to remain high which is why they're opting to build luxury rental buildings which hasn't happened in decades in Toronto. You can see cranes for luxury rentals in Forest Hill, Yonge and Eglinton, Yorkville and many other parts of Toronto. High rents will continue to encourage people to buy their homes instead of renting.

Another factor that is keeping prices up is the number of international buyers either moving to Toronto or investing in Toronto. I don't see this abating and, as a matter of fact, often when a property fetches an unexplained high sold price it isn't unusual for it to be from an international buyer who comes from a city with much more expensive real estate values and THEY think Toronto property prices are a bargain.

Another important factor that is keeping prices up is the number of buyers that are getting financial help from family. It has been reported in the media recently that 25% of buyers get a portion or all of their down payment from parents or grand parents who are opting to disperse inheritance early.

All that said we have had a number of periods of pause in the real estate market where prices have come down quite significantly in the last fifteen years so it hasn't been a continued steep climb for house prices. These periods have occurred just after 9/11, when the city implemeted the municipal land transfer tax in February 2008, when Lehman Brothers went under in September 2008, after expansion of the HST in 2010, after mortgage rule changes in July 2012. These incidents cooled the market overnight and saw prices decline sharply. These unavoidable incidents and government policy changes will continue to happen which will give buyers some reprieve. We just don't know when they will happen.

Of course the game changer will be mortgage interest rates. If they go up significantly then it will cool the market and give buyers the reprieve they have long waited for. Although I don't believe that reprieve will be as significant as some people hope because of the reasons I mentioned; rents are high and people want to live in the city so they will opt to buy instead of paying high rents, international buyers are not going away, immigration will continue and parents/grand parents will continue to assist with the down payment.

In your opinion, will sold prices become public?

The absurd aspect of this argument is that sold prices are already public. All one has to do is contact a real estate agent and they can find out the sold price of any property. Name one neighbour who doesn't know what the house down the street sold for? Yes I believe sold prices will become public because the consumer demands and deserves this information in order to make more informed decisions and the digital age makes this impossible to avoid.

Will we see a higher demand for larger condo units?

Absolutely and this is happening right now. Single family homes are very expensive and high rise living will become the norm in the future. Even builders are switiching gears and changing floor plans as we speak to accomodate larger units for family living.

Could there be a buyer’s market for homes over $1.5 million?

No I don't believe this because statistics do not bear this notion at all. For example, statistics reveal that in the first quarter of 2014, 133 freehold properties sold between $1.5 million to $2.5 million in central Toronto (C01-C11) and the average days on the market was 25 days.

In the first quarter of 2015, 190 freehold properties sold between $1.5 million to $2.5 million in central Toronto (C01-C11) which is a 43% increase in unit sales from the same period last year and the average days on the market was 21 days which is 4 days faster than in 2014. It's obvious from these statistics that it's not a buyer's market in the price range over $1.5 million either.

I would really like to hear from you, our followers, as to where you think the Toronto real estate market is headed and what factors you think will influence it one way or the other. Please feel free to leave a comment at the end of the blog.

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2 Responses to Our predictions for the Toronto Real Estate market

  1. Mark says:

    I dont agree with you.I believe prices will drop significantly for more expensive properties, as they did in the UK, Europe and the States a few years back. Of course, since real estate is cyclical, prices will bounce back a few years later.
    People need houses to live but homes have become too unaffordable for many people and if interest rates inch up there will be fewer buyers and more homes on the market, homes that people bought when rates were low and now cannot refinance because of increased rates. Cheaper areas will not suffer as much I think, neither will the lower end homes or condos because cost of building them relative to cost of purchase is much less in comparison to larger homes.
    The problem is we cant time when this will happen. Already rents are way too high to be affordable and often, many,unrelated people share an apt to share the cost of rents.With rising property tax and utility costs, houses are becoming ever so more unnaffordable.

    Reply
    • Josie says:

      Thank you for sharing your thoughts Mark. I don’t disagree with what you said, I just think we will continue to have a rising market, with occasional periods of pause, just as we experienced in the past for the foreseeable future. Of course, it goes without saying, the overall health of the economy and any significant interest rate hike will put downward pressure on house prices.

      Reply

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