2018 may be a bad year for first-time buyers

The Toronto Real Estate Board (TREB) released its Market Year in Review & Outlook Report, which includes the results of their latest Ipsos consumer survey. There are no big surprises in the report – new policies were set in motion last year in an attempt to balance the housing market, and it looks like it worked. That said, it looks like first-time buyers may struggle in 2018.

TREB’s release kicks off by explaining how the GTA’s real estate industry positively impacts the economy.  

“On average, each residential transaction reported through TREB’s MLS® System in the GTA generates $68,275 in spin-off expenditures, according to recent analysis conducted by Altus Group,” says TREB President Tim Syrianos.

“The real estate industry is a key contributor to our economy, with total annual spin-off expenditures close to $7 billion,” he adds. “From the economic impact of TREB MLS® System transactions, to government revenues associated with residential sales, to the impact of the new construction sector, this new Altus research included in this report highlights the depth to which transactions involving GTA REALTORS positively impact our economy.”

Whether you’re shopping resale or looking into the new construction market, a real estate agent is always helpful.

But that’s not the info you came here for. Let’s get into sales and prices!

In 2017, there were 92,394 sales, which is 18% lower than the record amount set in 2016 (113,000). In the first quarter, price growth was up 30% year-over-year. TREB says this partially led to the introduction of the Fair Housing Plan (FHP).

The annual price growth did slow in the second half of the year. Overall for 2017, the average selling price was $822,681.

When the FHP was announced, sales dropped and listings started to go up. TREB believes the balancing of the market was due to a psychological effect that gradually waned by the fourth quarter.

Near the end of the year, there was a little spike in sales as many buyers aimed to get into the market before the mortgage stress test kicked in on January 1, 2018.  

With record high sales at the beginning of 2017 and the new stress test introduced, TREB says to expect a year-over-year decline in sales for at least the first four months of the year. According to TREB’s findings, there should be approximately 85,000 to 95,000 homes sales in the GTA this year.

“Fundamental demand drivers promoting housing demand will remain in place in 2018, including immigration-driven population growth, job creation and low unemployment across a diversity of economic sectors,” explains Jason Mercer, TREB’s Director of Market Analysis. “However, we must be cognizant of the fact that, in the short term, higher borrowing costs and the effects of federal and provincial policy decisions will act as a drag on demand for ownership housing.”

The results of the Ipsos consumer survey show that buyer intentions are lower in 2018 compared to last year, especially among first-time buyers. The survey shows that 26% of intending buyers feel that they will not qualify for a mortgage after undergoing the stress test.

The average selling price in 2018 will range from $800,000 to $850,000. As you can see, TREB has left a little bit of room for a year-over-year decline. The condo market in particular will be much tighter as prices continue to rise and demand refuses to ease.

“It is also probable that provincial rent control legislation will stunt the supply of available rental units, resulting in a continuation of average rent growth well-above the rate of inflation,” says Mercer.

Where does that leave first-time buyers? Rent is going to be more expensive and many are getting priced out of the condo market. The report does say that first-time buyers are flexible because they have the option to live with family, but that seems like a sweeping generalization.

Not everyone has the option to continue paying high rent or live with family. If affordability remains an issue, we may see more young talent and families moving out of the GTA in 2018.