Hot & Cold

GTA house prices continue to defy gravity, even as sales plummeted 21% following tighter federal mortgage rules. But analysts expect prices to cool down

The impact of Ottawa’s tighter lending rules really hit home in September with sales down 21 per cent year over year across the GTA, according to figures released Wednesday by the Toronto Real Estate Board.

Unlike Vancouver, where house prices are starting to slip in the face of a 33-percent downturn in sales in September, Toronto continues to record strong price gains despite the significant downturn in demand.

The average price of a GTA home was up more than 8.5 per cent in September over last year to $503,662, according to TREB.

Even the fast-growing condo sector, which has cooled considerably over the summer, saw price gains of 6 per cent over September of 2011.

That’s despite the fourth round of tighter mortgage lending rules implemented by Ottawa in July which cut maximum amortizations from 30 to 25 years, boosting monthly carrying costs enough to push home ownership out of reach of many first-time buyers.

The biggest price gains were in the City of Toronto, where the average condo sold for $377,422 in September, up 8 per cent from a year earlier. In the 905 regions, prices were up just1per cent to an average of $283,321.

But those gains aren’t likely to last, says Benjamin Tal, deputy chief economist with CIBC World Markets.

“The best view of Toronto is from Vancouver. I think what’s happening in Vancouver will hit Toronto to some extent,” says Tal, predicting a 10- to 15-percent decline in house prices nationally over the next two to three years.

Vancouver’s drastic downturn in sales only appears more severe than Toronto’s because of the flurry of investor activity last September which drove high-end homes, in particular, to unprecedented sky-high levels, says Tal.

“I would say this is a good thing,” Tal said of the sales downturn. “We need a good slowing, a healthy slowing, of the market in a way that is almost on our own terms — without the panic of high interest rates or a slower economy,” that made the 1992 housing collapse so severe.

Investor activity is also showing signs of easing in Toronto, but it’s been mostly in the lower-priced condo market and there have been no signs of panicked sell-offs, said BMO senior economist Sal Guatieri.

A slowdown is essential to allow incomes to catch up to prices that, in Vancouver, have been running at 10 times average income levels, up from five times incomes about a decade ago, said Guatieri.

Things aren’t quite as out of whack in Toronto, but still pushing out of reach with average prices at seven times income, compared to four times income at the end of 2001, said Guatieri.

“We may see a moderate decline in house prices in Toronto, but nothing that would undermine the economy or the housing market or encourage people to walk away from their home as they did in the U.S. If we fall into a recession or if interest rates spike higher, that would hurt the Toronto housing market, but neither event seems likely.”

Semi-detached homes saw the biggest price gains with the average price hitting $604,963 in the City of Toronto and $394,265 in the 905 regions, year-over-year increases of 16 per cent and 12 per cent respectively. Detached homes now average $627,111 across the GTA and $781,826 in Toronto.

The fall sales numbers are considered key as September and October are traditionally strong months for sales as buyers start flocking to open houses again after summer vacations.

TREB went to great pains to point out that this September had two fewer business days than last September, making the actual decline in sales about12.5 per cent year over year. While sales of detached homes were down 19 per cent across the GTA — 27 per cent just in the City of Toronto — prices were up 8 per cent across the GTA and 10 per cent in the city. That means bidding wars have eased but not disappeared as condos outpace the construction of high-demand family homes, homeowners opt for renovations instead of costly moves, and the inventory of quality homes for sale remains below historic levels. That’s driving up demand — and prices — on anything that doesn’t reach for the skies. “I’m not seeing first-time buyers pulling out, but I hear people asking a lot more questions,” says realtor John Pasalis of Realosophy, who’s still seeing lots of bidding wars and bully bids for homes. “The second the market does moderate a bit, everybody thinks it’s crashing. We’re just moving a lot closer to a more balanced market.

“It’s still a seller’s market for houses, but condos have slowed down a lot.” Condo realtor Mark Savel said he’s seeing “insane” demand for condo rentals downtown fuelled, he believes, by the fact more people who might have been able to buy a year ago are now opting to rent longer. That’s led to bidding wars even on rental units he said, citing one client who lost out on three different units, even though he offered $250 per month more than asking on one. Savel is also finding that potential condo buyers who decided to put purchases on hold in the spring and see where the market was going are jumping back in, hoping to find deals as the inventory of condos for sale continues to climb. “There’s definitely more of a sense of balance in the market. You don’t have to be the first one in to see a place. Chances are it will still be there a week from now.”