Last year was a rocket ship with respect to Toronto’s real estate market. A spring of record-breaking prices, followed by a quieter summer and fall; all while the condo market remained hot. The source of demand can be attributed to foreign owners, a strong local economy, attracting workers and jobs. On the supply side, we are approximately 20% below historic inventory levels. So, what’s in store for Toronto’s Spring Market in 2018?
Impact of Foreign Buyers
In recent years, there has been significant growth in house prices in Toronto. Policy-makers attempted to cool the activity by implementing the foreign buyers’ tax, reducing the perceived problem of foreign buyers using property as investment vehicles, and in turn, driving up prices for the locals.
Despite those changes, it’s tough to expect the issue to dissolve in 2018. What you can expect, however, is much more attention around this topic this year.
The Condo Market
According to Urbanation, “prices for available condos soared 35 per cent over the past year… [and] the average price per square foot rose to $876. In central Toronto, prices soared past $1,000 per square foot for the first time”. A revealing development occurring within the real estate market since April is the shift from higher-priced single detached homes, to lower-priced condos.
This may account for the recent drop in demand for detached homes in Toronto, while the condo market remains hot.
There are, however, signs that the condo market may cool off slightly this year. Urbanation further says it is seeing speculators exiting the market, partially due to uncertainty, whether it’s the slowdown in single-family homes, rising interest rates, and tougher mortgage rules. Last year, the share of condos purchased by speculators dropped from 4% in Q1 to 2.9% in Q4.
The impact of the new stress test rules will most definitely affect the year-over-year, which may skew the perceived market trends this year. The market may be cool during the first few months of the year as it adjusts to the new mortgage rules.
According to Urbanation, these rules “consist of a new stress test for uninsured mortgage borrowers — come at a time when the Bank of Canada is widely expected to continue to hike the overnight rate throughout the year”. It will impact how much people can buy, which will push them down the property ladder.