Will 2016 be another record year for home sales in the GTA?

The Toronto Real Estate Board (TREB) launched its inaugural Market Year in Review & Outlook Report this week, with plans to make it an annual release.

In emphasizing the importance of real estate to the economy, the report cites a recent Altus Group study in which they found that each home sale through MLS in Ontario results in an additional $55,000 in spending on average; with about 100,000 such sales expected this year, that’s an economic bump of $5.5 billion. It’s good news indeed, then, that TREB is predicting if not another record-breaking year, then at least a second-placer.

TREB’s MLS system reported record sales in 2015 noting a better-supplied condo resale market, seller’s market conditions resulting in high single-digit or low double-digit annual price growth rates for low-rise homes, a healthy regional economy and continued historically low borrowing costs all spurring ownership demand. Pent-up demand carried over from 2015 will, the report predicts, result in another banner year.

But the report’s a whopper, so let’s look back first, before we look ahead.

GTA realtors reported 101,299 home sales through the MLS system in 2015, a 9.2% increase over sales in 2014; 2015 broke the previous record set in 2007 by 8.7%. In the City of Toronto, condominium apartment sales accounted for nearly 47% of those transactions last year, a 10-point spike over a decade ago, a trend echoed in the new homes market.

Although the number of new home sales last year was in keeping with the long-term normal range of the past decade and in line with net population growth, one marked change was in the types of homes being built. As readers of this newsletter (and anyone who opened a newspaper in the last couple of years) know, low-rise homes no longer account for the majority of new homes sold as they did a decade ago — these days, city living is all about the high-rise.

Resale transactions accounted for nearly 60% of all homes purchased last year. Low-rise home sales continued to dominate in the 63% of MLS sales that didn’t transpire in Toronto proper.

More than half the home purchases in the GTA were attributable to first-time buyers; in the City of Toronto, that rose to almost 60%, while in surrounding areas, they made about 47% of purchases. Condominiums are, of course, a great entry point for first-timers. On average, it was estimated that buyers had owned two homes including their current one, a finding consistent across the GTA.

Home prices rose steadily throughout the year. TREB uses the MLS Home Price Index, which estimates the price of typical home types with the same characteristics over time; their Composite Benchmark Price covers all major housing types, and hit an average of $573,500 in York Region, $406,880 in Durham, and $368,200 in south Simcoe County.

The report says the condo market was more well balanced than the low-rise market in 2015, with year-over-year growth of their benchmark prices about half that of low-rise homes, but still healthy, with a 4.7% annual growth rate in December that more than doubled the rate of inflation.

Predictions that we would see a glut of condo inventory resulting in a big price drop for condos came to nothing, as the report says the increased number of completions was met by an increase in sales; inventory levels for condos actually trended lower last year over 2014. With vacancy rates for apartment rental units at less than 2%, many condo investors turned their units into rentals.

The most common down payment category was between 20% and 24.9%, and more than half of recent buyers negotiated a rate of between 2% and 2.99%. In spite of outcries over affordability, that and the fact that average household spent about 32% of their incomes on mortgage principal and interest, property taxes and utilities, which is well below the federal government’s mandated ceiling of 39% for government-backed mortgages, means that housing is relatively affordable in the GTA, although clearly low-rise homes in the city proper aren’t in every family’s future.

The government’s December change to mortgage policy that increased the minimum down payment for portions of mortgages between $500,000 and $1 million from 5% to 10% won’t make a huge impact. About 43% of home sales in 2015 fell into that range, but the report cites a recent Ipsos finding that only a small share of such dealings involved down payments of less than 10% — only 6% of homes between $500,000 and $700,000 and only 3% of homes between $700,000 and $1 million.

It’s early days, but all the indicators are there for another healthy year of GTA homebuying and building. We’re looking forward to watching, speculating, and reporting throughout the year!