The year 2012 was a year of transition where we came into the year with continued bidding wars and price escalations that many felt were unsustainable. As we moved through the year the government made changes to mortgage lending rules and a shift in the market took start which is still forming.
The Canadian Real Estate Market in 2012
The Canadian Real Estate Association (CREA) is an excellent source of Canadian housing statistics and they offer up a general collection of stats for 2012. The National Sales Activity clearly shows the 2012 market hitting a plateau in April and subsequently sliding downward following the announcement of the CMHC mortgage rules changes which took effect mid-year. This is reflective of what we’ve seen in the Toronto market as well. What’s interesting to note is that house prices also peaked and, according to CREA, MLS® HPI up 3.5% in November, marking its smallest gain since May 2011 but still a healthy increase.
According to the latest Canadian census figures, the number of people living alone in Canada exceeds the number of couples with children. Over 27% of homes consist of singles; more than triple the number from 1961. This is a statistic that helps support the condo builders’ choice of shrinking floor plans in urban cores. Rental vacancy rates have bumped up to 2.6% from 2.2%, "Demand for rental condominium apartments remained strong," said CMHC deputy chief economist Mathieu Laberge.
Toronto Real Estate: Breakdown
This past year has been an extremely interesting for Toronto real estate. Significant changes in the market coupled with fairly strong seasonal trends created a Toronto real estate market that started out hot, shifted over the summer and has been looking more balanced since September. Overall we are in good shape and a change in any of the factors below will have an impact on the market.
- Double Dipping, The Toronto Land Transfer Tax: Toronto homebuyers also have the burden of a Municipal Land Transfer Tax on top of the Provincial Land Transfer Tax to the effect of paying double what homebuyers would pay outside the boundary of Toronto. A report by the C.D. Howe Institute estimates that this extra level of taxation had depressed sales by 16%. More than two thirds of Torontonians oppose the tax, including its mayor Rob Ford, and many homebuyers in Toronto are electing to sit tight, or renovate, as they find they can’t afford to move. (http://www.moneyville.ca/article/1258345--average-toronto-home-price-hits-800-000)
- Canadian Lenders Applied the Breaks: Canada was one of the last to enter the recession and one of the first to exit (some might argue we never exited) due in large part to our banking industry. The Bank of Canada has kept its prime interest rate historically low in order to encourage economic activity, in particular real estate, which drives much of the economy. Finding a fixed-rate 5-year mortgage under 3% has been a common offer and this contributes to the ongoing strength and continued rise in prices of Toronto’s real estate market.
- CMHC Applied The Brakes: In an attempt to rein in consumer spending beyond their ability to repay, without affecting existing debt holders, the government altered lending rules for mortgages. Key among these changes was the capping of mortgage amortizations at 25 years, raising monthly payments for homebuyers, changing the rules for qualification and a rule that required a down payment of at least 20% for buyers of properties over $1 million. It’s the opinion of many that these rule changes were too dramatic and the Canadian Association of Accredited Mortgage Professionals accuse the Minister of Finance of going too far! (http://www.cbc.ca/m/touch/politics/story/2012/11/19/caamp-housing-mortgage.html)
- Declining Sales, Rising Prices: In the last half of 2012, each and every Toronto Real Estate Board bimonthly report was characterized by a trend of fewer sales, but higher prices, in year-over-year figures for Toronto and the GTA. Despite the aforementioned attractive interest rates, the combination of the new CMHC rules and the Toronto land transfer tax (see above) helped to cool the market but not to freeze it, turning it from a red-hot sellers’ market into a calmer, more balanced one. (http://www.torontorealestateboard.com/market_news/market_watch/index.htm)
- Cooling or Balanced: There appear to be 2 camps when it comes to putting a label on the market. For the last several years it was clear a sellers’ market, a ”hot” market. Now we hear terms like “cooling” or “balanced” and it would be hard to disagree. Home prices are definitely moderating in that they are still appreciating but not so dramatically. There have been no shortages of Chicken Little’s out there predicting an all out crash but given the evidence we are seeing and the factors contributing talk of a balanced market is prevailing. The Canadian Real Estate Associate reports that the number of homes sold versus the number of new homes coming to market has been sitting at roughly 50% and that it would take about 6 months to sell the current inventory of homes on the market. This, by definition, is a balanced market. (http://creastats.crea.ca/natl/index.htm)