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Housing prices dip slightly but tight supply keeps costs up

Posted on 08 June 2017 by admin

The average home price last month was $863,910 — $111,810 more than last May when houses and condos averaged $752,100 — according to month-end statistics from the Toronto Real Estate Board (TREB) being released Monday.

Toronto region home prices dipped slightly from April to May — down $55,604 on average — but were still 15 per cent higher than May 2016, as the supply of resale house and condo listings rose 43 per cent year over year.

The average home price last month was $863,910 — $111,810 more than last May when houses and condos averaged $752,100 — according to month-end statistics from the Toronto Real Estate Board (TREB) being released Monday.

That is a 29-per-cent gain on the board’s benchmark price index.

The benchmark figure takes into account homes of similar characteristics such as size, location and the age of the property. The real estate industry considers it a more accurate gauge because it isn’t skewed by a particular housing category or price range.

Consumers may feel spoiled for choice given the increase over the historic low number of listings lately, but prices remain strong because supply is still relatively tight, said real estate board president Larry Cerqua.

“Homebuyers definitely benefited from a better-supplied market in May, both in comparison to the same time last year and to the first four months of 2017,” he said.

“However, even with the robust increase in active listings, inventory levels remain low. At the end of May, we had less than two months of inventory. This is why we continued to see very strong annual rates of price growth, albeit lower than the peak growth rates earlier this year,” Cerqua said in a press release.

There were 18,477 listings in May compared with 12,931 in the comparable month last year. In Toronto alone, there were 1,611 more homes on the market than in April, although both months are typically considered among the busiest for listings.

It is the third consecutive month that listings have increased, although May saw a significantly higher number of homes hitting the market.

It’s not clear how much of the change is the result of the province’s housing policy announcement on April 20 designed to cool the Toronto area’s overactive home prices, TREB officials said.

“The actual or normalized effect of the Ontario Fair Housing Plan remains to be seen. In the past, some housing policy changes have initially led to an overreaction on the part of homeowners and buyers, which balanced out later,” said Jason Mercer, TREB’s director of market analysis.

In Vancouver, where market cooling measures were introduced last summer, housing sales returned to near-record levels in May after several chilly months. Home sales rose 22.8 per cent compared with the previous month and 23.7 per cent above the 10-year average for May. The benchmark price there was up nearly 9 per cent from May 2016.

Before the release of the TREB data, Royal LePage Signature Realty agent Tom Storey said he was expecting to see a drop in sales in the Toronto area in May, but the increase in inventory is exactly what realtors have been wishing for.

“We saw growth in the first four months (of 2017) that would typically take a full year,” he said.

Historically, sellers would look at spring as a great opportunity to sell and the province’s April announcement was well timed and probably goosed some sellers into listing, he said.

The province’s cooling plan, including a foreign buyer tax and expanded rent controls, started a discussion, Storey said.

“Whether or not something’s actually changing, you end up with people talking about it and things are going to change,” he said.

But Storey said he attended two pre-construction condo sales in recent weeks. That sector would, in theory, be most affected by the government announcement, he said, and both developments sold out in two or three hours.

He thinks buyers are recognizing that there are more homes on the market and they don’t have to make a decision to buy in a few minutes or submit unconditional bully offers.

TREB numbers showed the boost in home choices didn’t increase the number of transactions in the Toronto region in May. Sales of detached houses were down about 26 per cent in the city and across the region. Condo sales also dropped 6.4 per cent year over year in May.

With files from The Canadian Press

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Can Government Intervention Cool The Housing Market?

Posted on 29 June 2016 by admin

Ben Myers

Senior Vice President, Market Research and Analytics, Fortress Real Developments.

Housing markets in Toronto and Vancouver are extremely hot, and average prices are skyrocketing. Every new data release, real estate report, and housing related comment is scrutinized, debated and analyzed in painstaking detail. A red flag is raised, an alarm bell is sounded, a stern warning is issued or extreme caution is urged by both domestic and international housing analysts and economists almost daily.

According to the Teranet-National Bank House Price Index, Vancouver has seen resale prices increase by 21.7% year-over-year in May. In Greater Toronto (GTA), existing home prices were up 10.6% annually.

With rapidly increasing house prices, prospective homebuyers get priced out of the market or overextend themselves financially. Another major concern involves the arrival of short-term speculative buyers looking to flip homes, many of which are highly leveraged. These two groups are the most vulnerable to losses when a housing market contracts.

With the recent collapse of the American housing market fresh in people’s minds, the Canadian government is watching and examining the national and metro level residential markets, contemplating steps to prevent a crash here. There are several theories as to why prices are rising so quickly in Toronto and Vancouver, two of the most common are: Canadians are taking on too much debt, and foreign buyers are driving up house prices.

A common suggestion is that homebuyers should be required to make a minimum 10% down payment to prevent them from over-leveraging themselves and taking on too much debt. In theory, the idea seems reasonable, but in practice it would have devastating and unintended consequences.

First time buyer affordability would worsen and more prospective purchasers would be priced out of the market. In my opinion, it’s not the young couple putting $15,000 down on a $300,000 condominium that is driving up the market, it’s the house-poor young family set on buying a single-detached home in their desired neighbourhood and putting $150,000 down on a $950,000 home. It’s the more established family putting $400,000 down on a $1.5 million dollar property that are skewing prices.

In the GTA, there was a 30% decline in resale transactions annually for homes priced between $300,000 and $600,000, while the number homes sold above $1.5 million increased by 83% (May 2016 versus May 2015 per TREB).

Higher down payment requirements would result in less housing demand, and that has economic ramifications. With every resale transaction that doesn’t happen, someone is missing out on earning an income: one less marketing flyer, no commissions are paid to mortgage brokers and realtors, the moving company misses out on a job, the home inspector has less work, as does a lawyer, a banker and a locksmith.

The decrease in new housing demand also impacts architects, urban planners, city employees, asphalt pavers, electricians, framers, hardwood manufacturers, landscapers, local furniture store owners, and even the mail man. This list is just the tip of the ice berg, thousands of other people would also be affected.

The second concern is that foreign buyers are purchasing units, and this extra demand is resulting in higher home prices. There have been complex tax plans proposed to add fees on foreign buyers, the problem being many are not price sensitive, and would keep buying despite a tax.

If the tax becomes too large, foreigners would resort to purchasing under the guise of a Canadian owned corporation or a current local resident; an outright ban on non-domestic purchasers would likely see a similar result. Foreign capital, not foreign buyers is the issue; home purchases by locals are being funded by affluent relatives living in other countries.

The Canadian government is in the difficult situation of trying to find a solution that will bring annual house price increases down, while preventing a drop in house transactions. They need to ensure both home ownership and rental housing is affordable, but they can’t erode the housing equity created in existing homes that could result in underwater mortgages.

A major recession or a rapid rise in interest rates could cool the market, but until that happens I’m not sure what preventative action the government could take that wouldn’t have negative consequences for consumers. At the end of the day, the government may be not be able to prevent a housing market slump despite a well-planned intervention.

So what do you think: Should we let the market decide who wins and losses, or should the government act knowing they might make the situation worse?

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