It was a year of the high, the higher and the downright unaffordable in Toronto’s housing market.
While 2016 proved to be another booming year for real estate across Canada, the Vancouver and Toronto markets remained bullish in their upward growth, leaving many prospective buyers grappling to keep up with hyper-inflated prices. The question on everyone’s mind as the year comes to close is: What does that mean for 2017?
While many Torontonians were able to realize their dreams of home ownership in 2016, there were many more who faced the harsh reality of being priced out of an aggressively competitive market, where the average detached homes are in excess of $1 million.
The sentiment among market watchers for 2017 is mixed.
A recent Market Outlook report from RE/MAX is forecasting that prices will continue to rise next year, further widening an already large gap between affordability and home prices. The report estimates that the average home price to date, a staggering $725,857, will see an increase of about 8 per cent, climbing to $783,926 next year.
Some analysts however believe next year will bring good news for Torontonians, who had all but given up on getting a foot on the property ladder. Some forecast that home prices will level out in 2017, particularly with inventory being so low, which will bring a cooling effect that has been long overdue.
The Canada Mortgage and Housing Corporation (CMHC) also predicts that 2017 and 2018 will bring slower growth in house prices. At the start of 2016, fears of an imminent real estate collapse ran amok as prices reached all-time highs and broke records. Steep property prices, however, did little to deter eager buyers from snapping up properties as soon as they became available. Data from the Toronto Real Estate Board reveals that in October alone, Toronto home sales approached 10,000 despite the fact that average home prices were over 21 per cent higher than the same period in 2015.
With an ever-increasing demand for inventory outpacing supply, compounded by land scarcity for new developments, already exorbitant prices were sent soaring to new highs. In October, the CMHC issued a “Red Alert” in an effort to cool the overheated market in Toronto. The average selling price for a home sold in Toronto at the end of November was well in excess of $700,000 — 17 per cent higher than last year.
Another cause for concern this year among prospective buyers and domestic investors was the role that foreign investors played in driving prices up and depleting supply. While real estate groups lobbied and some economists strongly advocated for the taxing of foreign investors, akin to the property transfer tax on non-resident buyers introduced in Vancouver, there were those who believed that the role of foreign buyers was not a major one in the local market.
The Bank of Canada announced in September that Canadian household debt had reached a new record as eager homebuyers took advantage of rock-bottom interest rates. While talks of a housing bubble on the cusp of bursting have somewhat dissipated, there is still some concern amongst analysts and investors about the rate at which the Toronto market is growing and the disparity between home prices and income levels. Some analysts believe that the market is long overdue for a correction and such a correction could mean a housing crash that would send serious ripple effects across the country.
While it certainly won’t happen overnight, data from the Real Estate Board of Greater Vancouver revealed in October that the market has already started to slow, which could be an auspicious sign for Toronto.
“The cooling down of the housing market engineered by policymakers will continue to unfold in Vancouver in 2017, while it may take a little while longer — or further policy action — to get going in Toronto,” says Robert Hogue, Royal Bank of Canada senior economist.
All in all, 2016 has become one for the books across the country.
“The Vancouver and Toronto housing markets veered in opposite directions in 2016, with the former cooling in response to a property transfer tax on non-resident buyers, while the latter accelerated, led by strong demand for condos,” says Sal Guatieri, senior economist at BMO Capital Markets. “New mortgage rules announced by the federal government should have a dampening effect on activity and price growth in both cities in 2017.”