Market Notes: The evolution of Toronto Real Estate in 2019

Lets’ catch up! Here are my notes on the Toronto real estate market and how it is evolving: 

Latest Population & Economic Trends:

Over 150K people moved into the GTA  in 2018 and that was represented by 100K immigrants, 10K net interprovincial migrants and 40K net non-permanent residents (students, foreign working). On a net basis, the population in the GTA increased by 100K people. That would indicate we need around 50K extra housing units to meet demand. On that front, housing construction has been moving sideways for about 3 years, hovering just below 40k units. In Q1 2019, we are running at an annualized level of 37K units. That mismatch between demand and supply is mostly showing up in the hot rental market.

On the economic front, the local economy is still posting job growth, but the rate of increase is naturally starting to slow down and the unemployment rate is starting to rise off its cyclical low. This is also a function of more people entering the GTA for work. Overall conditions on the economic front are starting to loosen a bit. We have entered into a much more moderate economic growth environment, which is important to consider when looking at current housing sales trends.    

Sales Trends:

It’s interesting to see now how the market is shifting a bit back now in favour of low-rise homes, following an extended period where condos outperformed the market. In the June market, the fastest-growing segment continues to be detached resale homes, which are up around 20% year-over-year. This is coming off of lows in 2018 which saw detached sales plunge by 20%. Never the less, it is still meaningful for a gradual recovery in the market to see growth across all housing types (detached, semi-detached, rows, townhouses, condos) this spring for the first time in 3 years. Although also important to note is sales in condos in May and June are now declining in the 416 year-over-year, while the 905 is still seeing sales growth. 

After catching a steady increase in market share, the percentage of sales represented by condos has declined for the first time in several years and actually dipped below the semi’s, rows and townhouses for the first time in a while. There has been quite a bit of slack absorbed by the tech sector over the past year and the months of inventory for semi, rows, and towns has actually moved lower than that of condos.

This theme of a reduced gap between the price of condos and other types of homes is now shifting market dynamics as buyers recognize changes in relative values. This should continue in light of detached values are still down about over 1%, and condo price growth is up over 5%, meaning that the gap between condos and detached homes is still shrinking and we should see more opportunity in the market for buyers to move up. In June, semi-detached and condo price growth was virtually identical at 5.3% and 5.2%, showing growing demand for more affordable houses.  

As the market has stabilized after the downturn, activity has gravitated back towards its core in terms of sales by price segment. We are seeing some very strong rates of growth within the $700K-$800K price range, which ties back into the growth in the sales in semi’s, rows, and townhomes, that are often found in that price range. These homes compete with 2BR condos on a price basis and come-in below the $1M dollar cap for CMHC insurance allowing for lower and more flexible downpayment options.

Currently, the price ranges that are seeing the most growth are the $700K-$1M range, followed by the $1.5-$1.75M price range. It is not surprising to see the growth taper off after the $1M threshold as a 20% deposit is required, putting this range out of reach for many first-time buyers. Although, as more condo owners recognize the value of their condo is peaking and decide to trade-up, we should see tighter market conditions in this price range. Important to note is the growth is $2M+homes, which is a good overall market barometer.