This year’s Market Review and Outlook Report follows a rocky 2018 housing market and a stabilizing January 2019. As Toronto Real Estate Board president, Garry Bhaura put it, “...2019 won’t be a record-breaking year, (however) it will surely be stronger than last year”.
TREB worked closely with real estate data partners, Ipsos, Altus Group, the Pembina Institute, and Ryerson University’s Centre for Urban Research and Land Development to contribute insightful research on this year’s key themes. Below is a brief synopsis of what we learned from TREB's Market Year in Review & Outlook Report 2019.
Ipsos Survey Highlights
In the fourth quarter of 2018, housing was ranked as the third most important issue Canada-wide and the second most important issue in Ontario. As the province’s population and regional economy continues to grow, ownership housing continues to be seen as a quality long term investment. Here’s what we learned from the survey:
1. Almost two-thirds of investors are thinking of selling one or more of their units over the next year. Low vacancies paired with the existence of rent control on these units could be the motivation to sell. As we know, new rent control regulations have set a limit on rent increases for units that have been occupied prior to November 15th 2018. Nevertheless, investors who decide to sell their older units may replace them with new, pre-construction properties in order to avoid rent control. Although a number of new units are hitting the market this year, the supply of rental units will continue to be low in 2019.
2. November’s survey results also confirm that the OSFI-mandated stress test has negatively affected affordability. On average, home buyers had to qualify for monthly payments almost $700 above what they will actually pay. This has accounted for the shift in the type of homes being purchased. Higher density homes like condos, have a lower average price point and thus have become more popular among buyers. The survey also found that the number of buyers intending to purchase a detached home is at the lowest level since the survey was introduced in 2015. Nonetheless, there does appear to be an increase in the number of households who are considering a home purchase, just of a different type, ie. condos, townhomes, stacked townhomes etc.
3. The condominium market will continue to be the driver of price growth, while the average detached home price will be below the average growth rate for the real estate market as a whole. This moderate increase will be supported by continued population growth, low unemployment rates and lower average fixed-rate borrowing costs compared to 2018.
The “Missing Middle” Housing Supply
One of the main objectives of this year’s report is highlighting the plan for housing and supply options in order to build liveable communities throughout the Greater Golden Horseshoe. These supply options will be transit-supportive developments that support more “missing middle” homes which are townhomes, condo townhomes, row houses etc.
TREB examined two real-life scenarios through research by the Pembina Institute. The results show that housing built within a ten-minute walk to transit stations, and areas that feature a healthy mix of housing types, jobs, shopping, and services, can result in the potential housing and transportation savings of 10 to 56 per cent for single individuals as well as families.
According to research done by Ryerson University, only 25 per cent of the city’s housing is “missing middle” inventory. Building more of this housing type could provide families with more affordable options that will also result in 20 to 49 per cent in savings on the average price of housing, as per the University’s estimation. If Toronto’s single home neighbourhoods opened up to construction, in 30 years, they could add over 200,000 units.
After a preliminary seasonal adjustment, the average selling prices slipped lower compared to December 2018. However, the condominium market continues to lead in price growth as the average selling price is up 1.7 per cent this year on a year-over-year basis-- a sign that the real estate market in Canada’s largest city remains stable.
Figures from condominium data firm, Urbanation, show that a record number of units are expected to be completed this year. The GTA will see 21,991 units complete which is up 29 per cent from 2017. While 98 per cent of those units are pre-sold, more than half were bought by investors who will either rent their units or sell them. Expect to see a jump in the number of condos completed as we may very well see a dip in low-rise completions, TREB predicts. This demand versus supply relationship points to price growth in the mid-single digits, with the average selling price reaching $820,000-- inching closer to the average selling price level from 2017.
The population in the GTA will continue to grow at a steady annual pace of 2.5 per cent this year. This population growth is key for the long-term demand for housing, especially rental units, as people from around the world move to the GTA to take advantage of a diverse list of jobs and opportunities. Given the continued economic growth through 2019, the unemployment rate is expected to remain at a similar level as 2018’s rate of six per cent.
There has also been a lot of recent talk of positive action on key housing plans. One area that may be revisited is the imposition of the OSFI-mandated two per cent point mortgage stress test. GTA home buyers in 2018 had an estimated average household income of approximately $102,000 annually. Based on this number, many households simply could not qualify for most home types in their prefered location, therefore putting their purchase on hold. The revisiting of the mortgage stress test policy may open up the options for home buyers once again.