GTA Market Activity - August 2022
In August, sales activity volume remained below average. 5,627 homes were sold in the GTA in August, which is a 20-year sales volume low and 34.2% lower than last August, but represented 15% more sales than we saw in July, a jump which is atypical for this time of year and may signal an early start to the fall market.
Prices stabilized this month, and the average selling price was $1,079,500, 0.9% higher than last August and benchmark home prices remain 8.9% higher than they were a year ago.
While monthly fluctuations help us interpret market trends, it is important to remember that while the stock market sees values fluctuate on a daily basis, real estate is a long-term investment with returns more accurately calculated year-over-year.
Months of inventory is trending down again after increasing the past few months. Typically, when inventory climbs, that signals a cooling of the market and house prices. When inventory declines, the market becomes more competitive, and prices tend to increase. According to the Toronto Regional Real Estate Board, “If this trend continues, it could indicate some support for selling prices in the months ahead.”
As more buyers return to the fall market in the coming weeks, the lack of inventory may create a more competitive environment than we anticipated.
Costs Associated with Home Purchases Improve Despite Higher Interest Rates
Much has been said in the media about the impact of interest rates on affordability for homeowners. While interest rates have been increasing since spring 2022, home prices have also moderated during this same period, creating an offset that actually decreases purchase costs and in some cases, monthly carry costs. Let’s look at an example:
A detached home in the GTA is sold for $1.5M in January 2022. Over the summer, the same home sells for approximately 20% less. At the time of purchase, the buyer saves nearly $70,000 on their 20% down payment, and $6,740 in Land Transfer Tax ($13,480 if the property is in Toronto).
Now, let’s look at the mortgage costs. The buyer purchased for $1.5M and obtains a mortgage of $1.2M at 2.79%, resulting in monthly payments of $5,550. In the summer, the buyer purchases for $1.16M, and obtains a mortgage for $930k at 5.09% resulting in monthly payments of $5,460.
Despite higher interest rates, the upfront costs to purchase the home are significantly lower, and the monthly carry costs are slightly lower than in January 2022.
Detached Home Purchase / Mortgage Rate Increase Cost Analysis
Although mortgage rates have risen over the past six months, the costs associated with purchasing a home have decreased.
Population Growth and Household Formation Will Drive Long Term Supply Issues
This month, new projections were released from Statistics Canada outlining that Ontario’s population will grow from 14.8 million to approximately 19 million by 2043 in a medium growth scenario and could even surpass 21 million in a higher growth scenario. The new projections exceed every province in Canada other than British Columbia and Alberta.
The reasons behind the province’s explosive growth are two-fold. First, immigration. According to RBC, over the past ten years, Canada’s population has grown over twice as fast as the average of its peer countries in the OECD. The Federal government’s target is to bring in a record 1.3 million new permanent residents by 2024 and that should add 555,000 new households.
There is another trend in our society that RBC economists say is often overlooked: the size of Canadian households is shrinking. A growing share of young Canadians are also opting to live alone, and are starting their families later. On the other side of the spectrum, older Canadians are living longer than prior generations, and many will stay in their homes for longer.
Canada’s surge in immigration, combined with shrinking household sizes, will strengthen demand for housing on a long-term basis. As these forces gain strength, over 700,000 more households will be formed in Canada by 2024 as compared to 2021.
As our population booms, governments need to play catch up on building the necessary infrastructure to accommodate newcomers and new households.
This month, Toronto released a five-point plan to create more housing and address affordability challenges in the city.
The plan consists of five pillars:
Expanding housing options by permitting “missing middle” housing
Cutting red tape and speeding up approval times by creating a Development and Growth Division
Asking the province to allow the city to enact a “use it or lose it” policy for developers sitting on approved, but undeveloped, land
Allocating a portion of city-owned land to be developed by non-profits
Incentivizing the construction of purpose-built rental housing by reducing fees and charges
Provincially, the Ontario government has vowed to tackle the housing crisis by building 1.5M new homes over the next decade.
The average selling price was $1,079,500 as compared to $1,074,754 the previous month. The average price is slightly above last year’s average of $1,070,201.
The average number of listing days on the market was 22, up from 16 in July 2022. Total active listings were up 62.3% year-over-year, and new listings were down 0.7% year-over-year, from 10,615 in August 2021 to 10,537 in August 2022.
Benchmark price by home type (all TRREB reporting areas):
The benchmark price for detached homes was $1,414.000, 6.45% higher than in August 2021.
The benchmark price for attached homes was $1,079.000, 8.38% higher than August 2021.
The benchmark price for townhouse homes was $838,300, 11.79% higher than August 2021.
The benchmark price for condo apartments was $739,000, 17.87% higher than August 2021.
Average price by home type (416 and 905):
The average price for detached homes was $1,379,700, 3.1% lower than in August 2021.
The average price for semi-detached homes was $998,490, 3.4% lower than in August 2021.
The average price for townhouse homes was $900,307, 2.9% higher than August 2021.
The average price for condo apartments was $711,321, 3.6% higher than August 2021.
All stats are provided by Toronto Regional Real Estate Board.
Proof Point: Demographics a powerful counterforce in Canada’s housing market correction
AUGUST 2022
It’s not just immigration: shrinking households will drive housing demand Canada is in the midst of a steep housing correction. And though this cycle has yet to fully play out, it’s unlikely to morph into the type of prolonged spiral observed in the U.S. during the 2008 financial crisis. One of the main reasons: demographic demand for housing in Canada is strong—and it’s getting even stronger.
We expect the number of Canadian households to rise by 730,000 by 2024 compared to 2021, adding 240,000 new households annually. Immigration is key to this surge: Ottawa’s targets are set to bring in a record 1.3 million new permanent residents, adding 555,000 new households by 2024.
But another critical factor is the often overlooked, longstanding impact of demographic change, including households that have been getting smaller for decades. Even a relatively small decline in average household size has a big impact on the number of new housing units required to shelter Canadians. For example, over the five years leading up to 2021, the average household size declined by 0.02 people. That was enough to raise the total number of households by 140,000 (or close to 30,000 a year). This trend will be responsible for just under 90,000 of the 730,000 new households created by 2024—and will provide a significant boost in housing demand.
HOUSEHOLD SIZE HAS BEEN SHRINKING FOR DECADES
Tory announces 5-point plan to build homes faster, tackle affordability in Toronto
Toronto mayoral candidate John Tory has released a five-point plan to create more housing and address affordability challenges in the city.
Tory, who is seeking a third term, announced his first campaign policy about housing Tuesday morning, ahead of the municipal election in October.
“ I believe we need to get more housing built, we need to get more affordable and supportive housing built and we need to have housing that is obtainable for middle class Torontonians,” Tory told reporters while at a housing construction site in Toronto's Distillery District.
Toronto Mayor John Tory speaks during a press conference to update media on a tentative deal reached between the City of Toronto and the city's outside workers, in Toronto, Saturday, Feb 29, 2020. THE CANADIAN PRESS/Cole Burston
Tory’s plan consists of five pillars:
Expanding housing options by permitting “missing middle” housing
Cutting red tape and speeding up approval times by creating a Development and Growth Division
Asking the province to allow the city to enact a “use it or lose it” policy for developers sitting on approved, but undeveloped, land
Allocating a portion of city-owned land to be developed by non-profits
Incentivizing the construction of purpose-built rental housing by reducing fees and charges
Tory says expanding “missing middle” housing will include legalizing laneway suites and garden suites, and exempting developments of four units or less from development charges.
“We also need to include the option to create duplexes, triplexes, as well as the kind of walk-up apartment buildings found in many pre-war neighbourhoods,” Tory said.
To speed up building approval times, Tory’s proposed Development and Growth Division would act as a “one-stop shop” to handle all aspects of development review and streamline the approval process. Tory said the division would also prioritize and fast-track the approval of purpose-built rentals.
“This will be a reorganization of existing staff in the spin cycle of housing applications, and thus bouncing back and forth between different divisions of the city government. The Development and Growth Division will allow us to be more nimble in getting projects approved,” Tory said.
To avoid developers from sitting on approved land, Tory said he wants to enact a “use it or lose it” policy that mandates developers to start building on unused land within a certain timeframe or face the consequences of higher taxes and expired zoning approvals.
In an effort to create more co-op, supportive and affordable housing, Tory said he wants to allocate a portion of city-owned land to be developed by non-profit organizations.
“Cooperative housing works and for some reason we back away. We, meaning all of the governments, back away from the use of it in previous years,” Tory said.
“If we can allocate the vacant land that we own as a city and encourage the other governments to do the same together with some of the other incentives we’ve been offering through programs like Open Doors and Housing Now…then I believe we will be able to build more supportive and affordable housing,” he added.
Mayoral candidate Sarah Climenhaga, who ran in the 2018 municipal election, commented on Tory's housing plan on Twitter and said "the will to actually remove housing barriers is what I don't see enough of."
"Hearing about housing is fine. What I care far more about than announcements is seeing housing created. It's important to understand where it is, and where and why it's not," Climenhaga tweeted Tuesday.
There are 31 candidates running in Toronto's mayoral race.
Voters are set to head to the polls on Oct. 24.
Population Projections for Ontario
Population estimates (1971 to 2020) and projections (2021 to 2043), for Ontario.
By 2043, the total population in Ontario could range between 16,982,300 (Low-growth scenario (LG)) and 21,147,200 (High-growth scenario (HG)). Under the medium-growth scenario (M1), by 2043, the total population in Ontario would be 19,065,300, compared with 14,830,300 in 2021 (+28.6%)
If you would like to find out what these statistics mean to you, or if you are curious to know how much your property is worth today or how much you can afford to buy, please reach out.
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