Toronto Real Estate Current Market Conditions

After setting a record pace this year the Toronto Real Estate housing market will soften slightly in 2005, according to Canada Mortgage and Housing Corporation.

However, the market will remain strong, according to the fall edition of CMHC's Toronto Housing Market Outlook released last week. (The Toronto market includes Toronto, Oakville, Mississauga, Brampton, York and Durham regions.)

The report predicts that resale homes will take a greater share of sales and there will be a shift towards less expensive housing styles, such as townhouses and semi-detached homes.

"The important story we'll see developing is the resale market taking a larger share of activity," said Ted Tsiakopoulos, senior market analyst for CMHC. "That's one of the impacts of higher prices for new houses."

For example, he says the price of a single new detached house in Brampton and Mississauga increased by 20 per cent over last year. The new house market is in "catch-up mode" after years of not increasing at the same pace as resales, says Tsiakopoulos.

As well, a shortage of developable land is sending lot prices higher, which is driving new house prices up.

This year, new homes accounted for about 40 per cent of all housing sales in Toronto, while next year's forecast is for just over 30 per cent. It's expected 42,000 new homes will be sold this year, and 38,000 in 2005. Resales (sold through the Multiple Listing Service) will hit 84,000 this year and are expected to reach 82,000 next year. The average resale price this year was $314,000; next year, it will be $330,000, the CMHC report predicts.

Tsiakopolous says another factor fuelling the resale market is the supply of nearly new homes on the market. The new home building boom has created a stock of houses that may be only a few months to a few years old.

"There isn't just a lot more supply, there's a lot of newer supply. The quality of stock is improving and some buyers may decide to buy an almost new home, rather than waiting six to 12 months to have one built. There's a lot of choice in the real estate market," he says.

Listings will likely outpace sales, which will slow growth and there will be less spillover demand from the resale market.

"We'll see townhouses and semi-detached units performing better," predicts Tsiakopoulos.

"It's an affordability issue. There's a lot of talk about repeat buyers fuelling the market, and presumably they have a lot of equity in their houses, but in order to move up, they have to sell their houses to first-time buyers (which there will be fewer of). Your chances for selling will be better if your house is a townhouse or a semi."

Downtown condos, however, will not enjoy the same popularity as "ground level" housing, such as towns and semis.

An increasing supply of condos, particularly small starter suites, will lead to price drops.

Tsiakopoulos says the market will remain vibrant despite these factors, with a strong job market fuelling income gains, which will help offset rising housing costs and expected interest rate hikes.

"The market will still be at a healthy level. It's more of a levelling off then a steep correction. I compare it to a commercial airliner that's been travelling 800 kilometres an hour and is now decelerating, commencing its descent. But it will be a mild, soft landing."

"If CMHC is accurate with its forecast of 38,000 sales for 2005, and we think they are, then market share hardly matters — there's plenty of business to go around,'' says Stephen Dupuis, executive vice-president of the Greater Toronto Home Builders' Association.

``The real question mark for 2005 is going to be the fallout from the Greenbelt Protection Act (Bill 135) and the Places to Grow Act (Bill 136)," Dupuis suggests. "This legislation may actually spur the condominium market at the expense of the low-rise market, whether homebuyers or homebuilders like it or not."

Nationally, the trend will be much the same, with housing starts easing somewhat but the market remaining strong, according to CMHC's national edition report. This year, there were 226,800 new starts, with 210,200 expected in 2005.

Ontario's housing market is expected to stay healthy, driven by low mortgage rates, strong in-migration and job growth.

Provincially, 79,000 housing starts are expected in 2005, down from 85,200 in 2004, which was virtually on par with 85,180 in 2003, a 14-year high.

"The Bank of Canada’s recent decision to hold steady on interest rates bodes well for the 2005 real estate market. The historically low rates we are enjoying have been a key contibutor to the market’s strength," said Mr. Abraham (President, Toronto Real Estate Board).

Mr. Abraham cautions however; that other factors like property taxes and the provincial government’s proposed greenbelt plan could impact affordability in the year ahead.
"We will continue to lobby on behalf of our REALTOR Members to help the Greater Toronto Area’s home buying and selling public realize their future homeownership goals."

"We are confident that we are headed into another strong year for real estate in 2005."  Serving more than 20,500 REALTORS throughout the Greater Toronto Area, the Toronto Real Estate Board is Canada’s largest real estate board.