Graphs illustrating trends in the Toronto housing market no longer feature the sleek, symmetrical upward curves that buyers and sellers alike had come to expect. Drawing today’s market requires a range of colors and vectors, with predictable, puzzling and counterintuitive trends accelerating across a page.
From a homeowner’s perspective, the optimal time to sell a residential unit may have already passed. Interest hikes by the Bank of Canada are pushing up mortgage rates, making already costly dwellings more expensive and limiting the pool of willing buyers. But from a buyer’s perspective, home affordability isn’t likely to improve any time soon. In fact, the probability is that home ownership will slip further out of reach. That makes the search for a house or condominium all the more desperate. It is not only mortgage rates that are creating the affordability crisis for buyers. As rates continue to rise, owners of existing homes are more reluctant to sell. That is because even though they will be able to make a nice profit on the sale of a home, most will still need a new place to live. And a mortgage for the new home will be far more expensive than the mortgage they currently hold. At the back of the mind for everyone watching or participating in this market is the question of whether the soaring prices and confounding trends prove that Canada is in the midst of an unsustainable market bubble. Many homeowners remember the collapse of prices in 2008 & 2017. Some were caught with adjustable rate mortgages that did not match the value of their dwelling. Some had taken out home equity loans; now the equity was gone, but the financial obligation remained. When a large number of market participants start to believe that a new housing bubble has formed, panic becomes a powerful driving force in decision-making. Sellers need to unload their properties – yesterday. And although buyers don’t want to buy a house at an artificially high price, they also don’t want to ride the interest rate escalator that the Bank of Canada has planned for them. Amid this tangle of trends, rates, prices and passions, there is one part of the GTA housing market that remains calm. Homes in excess of $1.5 million still seem to be selling briskly, seemingly immune to increases in mortgage rates or fears that a price implosion could be on the horizon. As the Financial Post noted: “The Toronto Regional Real Estate Board reported 47,157 sales in the first four months of 2021. The year-to-date sales in April 2022 were down to 33,610, a decline of 29 per cent. At the same time, the average house price in the GTA was up by 21 per cent. The increase in housing prices resulted from sales activity declining in lower-priced homes and increasing in relatively expensive homes. … In 2021, the January-to-April sales of homes sold for more than $1.5 million represented 15 percent of the total sales. A year later, the same price category accounted for 27 per cent of the sales. Relative to 2021, sales of homes sold over $1.5 million increased by 31 per cent.” These data suggest that this is the new reality of the GTA housing market: At the lower end of the price spectrum, the market is demonstrating an extreme sensitivity to interest rates. Near the top, rich housing values keep getting richer. Or as the great philosopher Taco once put it: “High hats and arrow collars, white spats and lots of dollars; spending every dime for a wonderful time …” |
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AuthorLarry Weltman is a Customer Service Representative for AccessEasyFunds Limited, or AEF, an Ontario-based firm Archives
November 2022
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