Toronto Housing Market in January 2013

Toronto Real Estate News
Toronto Skyline by Ricelife
Toronto Skyline by Ricelife

The first month of 2013 is over, and the Greater Toronto Area REALTORS® released their newest figures on Tuesday, February 5, 2013. The report shows that there were 4,375 transactions through the Toronto MLS system in January 2013, which is an insignificant decline of 57 sales compared to the first month of 2012.

Toronto Real Estate Board (TREB) president Ann Hannah suggests that these numbers represent a positive start to 2013. Even though the number of sales was a bit lower than last year, the rate of decline was considerably below the levels experienced in the second half of 2012. This indicates that buyers who postponed their plans of purchasing a new home last year due to tight mortgage lending rules are becoming active in the market. Furthermore, Hannah adds:

It is interesting to note that sales were up for many home types in the GTA regions surrounding the City of Toronto. This is due, at least in part, to the additional upfront land transfer tax in the City of Toronto.

However, the affordability in the suburban regions cannot be ignored: the average sales price of a detached house in the city was $765,049 in January in comparison with $563,675 in the 905 regions. Furthermore, the resale condo sector remains soft, as TREB reports a 5.1 per cent decrease in sales in January on a year-over-year basis. The biggest downfall in sales (6.4 per cent) was recorded in the 905 regions, compared to a decline of 4.5 per cent in the city. The average price of a resale condo in the 905 regions went down by 1.4 per cent, settling at $269,073 compared to units in the 416 area, which experienced a similar decline of 1.3 per cent, resulting in an average price of $340,295.

JS january2013 infographic
Housing Market in the GTA January 2013 Infographic

The biggest decline in sales in January on a year-over-year basis in Toronto was recorded in the townhouse sector, with sales sliding 11.2 per cent. However, prices experienced an increase of almost 2 per cent, eventually reaching $418,262. In comparison, townhouse sales in the 905 regions recorded a 1 per cent increase, and prices were up by 5.6 per cent, settling at $359,271.The number of transactions of detached homes in the 416 region went down by 7.6 per cent; however, prices continued a steady growth of 2.7 per cent on a year-over-year basis. Sales of detached homes in the 905 regions increased by 3.7 per cent and prices grew by almost 7 per cent.

Overall, the report indicates an increase of 4.3 per cent in the average selling price from $462,655 in January 2012 to this year’s $482,648. The MLS® Home Price Index (HPI) Composite Benchmark Price recorded a 3.8 per cent growth over the same period.

Toronto Sunset by Loozrboy
Toronto Sunset by Loozrboy

TREB’s senior manager of market analysis, Jason Mercer, points out that the growth in home prices in 2013 will continue, as the competition between buyers in the marketplace will be tight enough. We should expect annual average price growth in the 3 to 5 per cent range this year, according to Mercer.

Declining Toronto Condo Market

Greater Toronto Area REALTORS® recorded 730 sales of existing (in comparison with newly constructed) condos in Toronto’s downtown 416 area this January, which represents a 4.5 per cent decrease compared to January 2012. The year-over-year gap was not as vast as in December, when 680 condos were sold, representing a downturn of 26.9 per cent from a year earlier.

However, the Toronto condo market is experiencing a steep decline according to information from market research specialists from Urbanation, which has been a leading source of data and analysis on the Toronto condominium market since 1981. Their overview of the last quarter of 2012 indicates a 47 per cent drop in new condo sales in Toronto, as there were 3,841 new condos sold in Toronto in the fourth quarter of 2012 compared to the 7,226 sales in the last three months of 2011.

The Toronto condo market was greatly expanding in 2012, setting several records, including construction starts (24,388), active developments (355), total active units (89,251), and total units under construction (56,866).

The Toronto CMA condominium market set several records in 2012, including construction starts (24,388), active developments (355), total active units (89,251), and total units under construction (56,866). This rapid boom was accompanied by numerous concerns about flooding the country’s largest real estate market with condo buildings. As Urbanation announced, “The active Toronto CMA new condominium market is 79 per cent sold overall, down from 80 per cent sold in Q3-2012 and 82 per cent sold in Q4-2011, but above the ten-year average of 78 per cent.” This slight drawback does not seem to worry Urbanation. Ben Myers, Urbanation executive vice president, pointed out:

Despite concerns over the level of unsold supply in the new condominium market, the ratio of sold to unsold units has consistently been above the long-run average in recent years.

Condos by Sam Xu
Condos by Sam Xu

However, it should be noted that the current sales data do not reflect the record-high number of condos that are being built, as they are not yet on the market except in the form of pre-sales.

Daniel Tencer from The Huffington Post warns that such vast number of new condos prepared to enter the Toronto market could put prices under great pressure if the cooling demand doesn’t radically change.
Moreover, the report shows that the resale condominium market lacked supply in the last quarter of 2012, with only 3.2 per cent of the 227,700 units (1,285 buildings) that were tracked by Urbanation listed for sale in the last three months — the lowest quarterly level in more than ten years. Resale activity fell by 14 per cent from the last quarter in the Toronto CMA to 2,941 transactions.

As Myers suggests, “Many investors chose to hold and rent their units in 2012 rather than sell them into uncertain market conditions.” This confutes the theory that condo holders will panic and sell their units below value during a softening market.

The data released by Urbanation demonstrate that only 0.9 per cent of all the 2,941 resale condominium apartment transactions in the fourth quarter of 2012 were sold for less than 90 per cent of their list price. However, these 27 units were sold high above the average resale price, which implies unrealistic value expectations of their owners rather than pressure for lower prices.

Even though recent figures suggest a softening in condo prices in Toronto, Urbanation points out that condo prices may be falling because developers are building smaller units. Figures released by the Toronto Real Estate Board show a 0.9 per cent downfall in condo prices on a year-over-year basis; however, Urbanation explains that the average selling price in Toronto in 2013 was $536, representing an increase of 5.2 per cent from last year. As Tencer mentions, this indicates that condo prices may be decreasing because developers are building smaller units. As The Huffington Post announced a year ago, the average size of a condo in Toronto went down from approximately 1,000 square feet ten years ago to around 921 square feet in 2011.

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