The Toronto Real Estate Board (TREB) recently released its annual Market Year in Review & Outlook Report at its Economic Summit, which was held at Toronto’s Parkview Manor on January 31.
The report provides a look into the future of the 2017 housing market and addresses current issues, including consumer intentions, foreign buying activity in the Greater Toronto Area (GTA), impact of transportation infrastructure on housing affordability, and the lack of housing supply.
“This report will be extremely useful to anyone with an interest in the housing market in the Greater Golden Horseshoe, including realtors and their clients, housing industry stakeholders, and all levels of government,” said Larry Cerqua, TREB president, in a press release.
TREB’s 2017 outlook indicates another strong year for home sales through its MLS System, with over 100,000 sales forecast for the third consecutive year. TREB estimates between 104,500 and 115,500 home sales will be completed this year, with a point forecast of 110,000, which is down slightly from 113,133 sales reported in 2016.
On behalf of TREB, Ipsos undertook a survey of home buyers in November 2016, focusing on consumer buying intentions in 2017. Compared to a similar survey conducted at the end of 2015, the number of potential buyers had dropped slightly. However, GTA households still had a positive outlook on ownership housing. This included first-time buyers, whose share of overall buying intentions climbed to 53 per cent from 49 per cent one year earlier.
“While changes to federal mortgage lending guidelines and higher borrowing costs may impact some would-be home buyers, the big impediment will be the lack of inventory,” said Jason Mercer, TREB’s director of market analysis. “Active listings at the end of December were at their lowest point since before the year 2000. It is unlikely that the shortage of listings will improve to any great degree over the course of the next year. This will put a ceiling on sales growth.”
Due to very strong demand for ownership housing up against a limited supply of listings in 2017, annual rates of price growth are expected to remain in the double digits for most home types across the GTA. The growth rate for the average selling price is expected to be between 10 and 16 per cent with an average price range between $800,000 and $850,000. TREB’s point forecast for the average selling price is $825,000.
Low-rise home types, including detached and semi-detached houses and townhomes, are predicted to experience the strongest annual rates of price growth, but the condominium apartment segment should remain tight as well.
The Ipsos home buyers survey confirmed that potential home buyers are expecting to see strong home price increases in 2017. However, Ipsos data also found that the average home buyer will make a sizable down payment: 27.6 per cent for all recent home buyers combined and 23.9 per cent for first-time home buyers. Those down payments were sourced in various ways, including savings within and outside an RRSP, gifts from friends or family and equity built up in their current home.
TREB also commissioned Ipsos to survey its members who acted on behalf of home buyers from November 2015 to November 2016 in an effort to shine light on foreign buying activity in the GTA. The survey found that only an estimated 4.9 per cent of GTA transactions, in which TREB members acted on behalf of a buyer, involved a foreign purchaser. Of those transactions, 40 per cent involved a foreign buyer purchasing a home as a primary residence, while 25 per cent purchased a home to rent out to tenants and 15 per cent purchased a home for another family member to live in.
TREB warns that an additional land transfer tax on foreign buyers could have unintentional consequences, including tighter market conditions and stronger price growth in neighbouring regions without a tax; less rental supply, because the number of investors looking to purchase and rent out a property may decline; and a potential negative impact on immigration.
“Housing affordability, and affordable home ownership in particular, is a growing concern. Home prices will increase well above the rate of inflation and income growth in 2017, as the supply of listings remains very constrained,” said TREB CEO John DiMichele. “While governments have been focusing their policy solutions on allaying demand, what is needed are policies that focus on the lack of available homes for sale and for rent. The public, private and not-for-profit sectors need to come together to focus on innovative solutions to the housing supply issue.”
In addition, TREB commissioned the Canadian Centre for Economic Analysis (CANCEA) to undertake a study on how improved transit infrastructure can impact housing affordability. In the case of the Metrolinx Regional Express Rail plan, the study found the impact on affordability is largely positive, especially if residents switch their method of commuting, taking advantage of the new infrastructure. However, improved transit in a region can also add price premiums of up to 12 per cent to a home’s value.