Toronto Real Estate Board Releases 2019 Market In Review & Outlook Report
The Realtor Board for Toronto put forward its fourth annual Market In Review & Outlook Report on February 6th, 2019. The comprehensive, evidence based account provided details on housing market conditions throughout the prior year, forecasts for the current period, rationale and reasoning underlying such projections, overview of the rental market, discussion about missing middle housing from Ryerson’s Centre for Urban Research, and comments on transit supported growth from Pembina. TREB also provided input on the new home market, courtesy of research from Altus. The mortgage stress test introduced in 2018 was also a topic for review. The Board believes that the Federal Government, and specifically OSFI, should review the +2% qualifying criteria, which has had a disproportionately negative impact on milennials, who are increasingly the largest home buying demographic. The focus of this year’s study was housing supply, and how best to improve it while creating livable communities.
What Happened Last Year?
2018 was a year of volatility and moderation. Both sales and new real estate listings were down compared to the prior period. Average price was also down during the earlier part of the year, but there was a recovery in the later half. Changes to the mortgage lending guidelines and increased mortgage rates impacted home sales, which were down 16.1%. The 77426 sales on record was the lowest since the financial crisis. The OSFI Stress Test requiring borrowers to qualify at the higher of the contract rate + 2% or the 5 yr fixed rate definitely had an impact. This resulted in buyers putting their decision on hold, and particularly first time buyers, who remain below 50 percent this year. New listings declined from the record high set in 2017.
Part of the reason for this is a lack of housing options. In essence, the supply mix is not in line with the demand. Home buyers prefer low rise options, but the majority of construction over the past decade has been the opposite. The average price was down 4.3%. Analysis suggests that buyers were prioritizing the higher density low rise segment, which has limited supply but which is also more affordable.
Looking Ahead To 2019
TREB forecasts sales of 83,000 units this year (a moderate increase of 7.2 percent), on the assumption that the five yr mortgage rate will be lower than in the prior year. New home listings are expected to be flat at around 155,000 units. The mix between sales and listings should result in the average price increasing by 4.2 %. Housing has been identified in IPSOS surveys as the third most important issue facing Canada, behind the economy and healthcare. IPSOS survey data suggests that a higher proportion of buyers are somewhat likely to purchase a home this year, which may indicate an adjustment to the stress test. Buyers are responding to the onerous test by changing the type of home they will buy, the price they are willing to pay or the location where they intend to purchase. The average downpayment will be in the 30% range. Predictions are that rates could possibly be lower into 2019, which could potentially impact affordability positively. Demographic and labour force factors support a robust housing market as well, although to a degree this is offset by global uncertainty. The key determinant of whether these forecasts are met or exceeded will be first time buyer participation and overall optimism. Condominiums should continue to be the driver of price growth.
“I am encouraged by the potential for lower interest rates in 2019. I believe that, in combination with the stability in buyer intentions and an adjustment to the OSFI stress test requirements should result in a stable real estate market with positive bias. TREB’s baseline forecast of a 7.2 percent increase in sales and a 4.3% increase in prices is welcome. The focus by policy makers at various levels of government on ‘missing middle’ housing is also encouraging, as that is a housing type which can satisfy millennials’ desire for low rise housing. However, it’s unlikely that such type of housing can be built in meaningful quantities in 2019. That is likely to be a focus next year.”
Ram Rajendram is a Toronto Real Estate Broker with Century 21 Harvest Realty Ltd., Brokerage. He sells condos & houses throughout the GTA & assists home & condo buyers with their purchasing needs. He is also a Canadian Chartered Accountant (CA) & holds a Bachelors Degree in Economics from the London School of Economics (LSE)