The shaky first half of 2018 is officially over, with home sales and prices both edging upwards for the fifth month in a row this October, according to the Toronto Real Estate Board (TREB).
TREB reported 7,492 sales through MLS in October 2018 in the Greater Toronto Area, a 6-per-cent increase year over year. At the same time. The average property price rose 3.5 per cent to $807,340.
Less Choice for Buyers
TREB expects prices to continue to rise in the future because inventory is so low and sellers are slow to list their homes – new listings softened 2.7 per cent to just 14,431.
“Annual sales growth has outstripped annual growth in new listings for the last five months, underpinning the fact that listings supply remains an issue in the Greater Toronto Area,” said Jason Mercer, director of market analysis for TREB. “While the OSFI stress test and higher borrowing costs have kept sales below 2016’s record pace, many households in the Greater Toronto Area remain upbeat on home ownership as a quality long-term investment.”
Slowing Demand Remains a Risk
The only thing that may deter the Toronto’s housing market’s seemingly unstoppable rise is slowing demand. A large factor behind this is shrinking mortgage affordability, as rising interest rates squeeze buyers’ budgets.
The Bank of Canada has already raised rates five times since last year, with the most recent increase in October. It’s too early to see if that has had any impact on sales, but it’s unlikely seeing as borrowing rates are still below 3.5 per cent, which low compared to the historical average. However, the Bank of Canada has indicated they will continue to raise rates in the near-future. Should interest rates rise a percentage point or more that will add hundreds of dollars of extra carrying costs to a monthly mortgage that may deter buyers from purchasing (or force sellers to list).
Tougher Mortgage Hurdles to Come
OSFI, the federal banking regulator, instituted a stress test this year for just that reason: they wanted to make sure buyers could afford carrying costs even if mortgage rates rise 2 percentage points.
At the same time, it may make it almost impossible for future prospective buyers to purchase homes for sale in Toronto if interest rates rise 2 percentage points andthey have to qualify for an extra 2 percentage points on top of that.
Still, although in theory higher interest rates should reduce demand and force prices to lower, there are many ways to get around this. Many buyers, such as foreign buyers and boomers with liquid assets , can pay cash and avoid interest rates altogether and residential buyers can avoid the stress-test by borrowing from a credit union. Therefore, even higher-carrying costs likely won’t make prices drop.
One option for buyers in this situation is to leave Toronto altogether. Head to lower-priced regions with stable economic opportunities like Hamilton, or check out Kitchener real estate.
Another option is to choose high-density property like condo units, which remain the most affordable housing option at an average of $562,523 this October.
Either way, don’t hold out for a crash in the near-future because the current data only supports an escalating market.
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