September 2020: Toronto & GTA MLS® home sales: “Party like it’s 2017…?”

Toronto, Ontario, October 6th, 2020 - The Toronto Regional Real Estate Board [TRREB] today released its monthly MarketWatch residential real estate statistical report showing home sales through the board’s MLS® system by Toronto & GTA Realtors® in September were - overall - very strong. But it was the Freehold / Low-rise sector shouldering most of that upside as inventory remains constrained in that group. The Condo Apartment group, conversely, saw listing inventory surge by 215% as the combination of pandemic effects along with a crackdown on AirBnB-type rentals - not to mention lower immigration [also a result of the pandemic] has owners and landlords heading for the exits.

Bungalows for sale in Toronto and the Greater Toronto Area are seeing incredible demand while listings are a rarity indeed, often snapped up in a matter of hours or days.

The low-rise sector is on the flip-side of the effects of the pandemic as people are opting to leave the relative population density of downtown areas in favour of the ‘burbs. Further, as more people - and their employers - embrace “WFH” [work from home] - even part of the time - they’re more likely to buy a home further afield in many instances. Of course, employers are generally on-side as they require less work / office space. Do we see a shifting of tax deduction rules as the employee takes on the added cost of a necessary home office while the employer can scale back in that regard?

The Skinny on the Stats

Overall, 11,083 home sales were reported in September, an amazing 42.3% spike from the year-earlier period...pandemic or no pandemic. And despite the dramatic jump in Condo Apartment inventory, prices and sales volume were up across the board. But a 215% rise in listings? Somebody write on that Condo wall. The overall average sale price was $960,772, up an even fourteen percent. All figures quoted herein are year-over-year comparisons unless specifically noted otherwise.

Not surprisingly, volume and price growth were considerably stronger in the areas surrounding Metro Toronto. The exceptions were price growth for Townhomes and - yes - Condo Apartments which were roughly the same in both “The 416” and “The 905”. See the accompanying charts for more specifics.

Detached homes in T.O. saw a 28.1% jump in sales volume to 1,161 units at an average sale price of $1,487,122, up 9.4%. In the balance of the GTA, 4,398 home sales represented an incredible 63.6% rise averaging $1,104,866, a healthy [for homeowners] 16.9% jump. Incidentally, those average selling prices are creeping ever closer to the 2017 peaks: Toronto’s is about $90,000 short of the peak which occurred in April, 2017. The average for the rest of the GTA is now less than $20,000 shy of its peak which occurred a month earlier in March of that year.

Most Realtors will tell you that was a very difficult market to deal with. Most Realtors will tell you the current market is worse. For a variety of reasons.

Condo apartment sales in The Big Smoke were up 7% to 1,549 units averaging $686,191, up 7.7%. The rest of TRREB’s market area saw 818 sales, up 32.1%, averaging $537,354, up eight percent even.

We’ve included a chart of the sales volume by price range and house type at the very bottom of this post if you’re interested.

Inventory…

While the overall inventory figures appear to show some alleviation to a longstanding tight inventory problem, that’s obviously out of balance given the Condo Apartment inventory surge: in most areas, “bidding wars” have been very much the norm.

The Total Active Listings figure was up 5.3% to 18,167 homes. “Newly Listed” homes were up 30.8% to 20,420. Forward Inventory [Total Active Listings / Monthly Sales] came in at 1.64 months. Still on the low side, historically speaking, Condo Apartment inventory notwithstanding. The “Absorption Rate” - the rate at which the market is “absorbing” new listings in the form of sales [Monthly Sales / New Listings] was .543 for the month.

By and large, ignore those numbers. More telling is the “Days on Market” figure: What did sell in September sold “30% faster” than last September at 16 DoM versus 23.

Quoted from the Report:

Jason Mercer, Director, Market Analysis, TRREB: "Generally speaking, conditions remained very tight in the GTA resale market in [September]. Competition between buyers was especially strong for low-rise home types, leading to robust annual rates of price growth. However, with growth in condominium apartment listings well-outstripping condo sales growth, condo market conditions were comparatively more balanced, which was reflected in a slower pace of price growth in that segment."

Lisa Patel, TRREB President: "Increased demand for ownership housing has been based on improving economic conditions, in terms of monthly GDP growth and job creation, and the continuation of very low borrowing costs. In addition, fewer households have chosen to go on vacation as a result of COVID-19 and instead have remained in the GTA and been active in the housing market, satisfying pent-up demand from the spring."

What now? What about the future?

I gave up trying to predict the future a couple of decades ago. But I will say that this cannot be sustained [and I’m pretty sure I said that more than once in 2017…] But here, for your consideration, are some opinions offered by smarter people than me on the current state of the real estate market in South-Central Ontario...

Bloomberg News: Toronto is among the world’s major cities most at risk of a housing bubble this year.

Closer to home, CIBC World Markets Deputy Chief Economist Benjamin Tal talks about home prices and the growing gap between low-rise and high-rise, essentially, being at least partially a function of the loss due to the CODVID-19 pandemic of lower-paying jobs - not to mention interest rate levels and other factors...in the midst of “the worst recession on record”. Heavy stuff.

UBS - Union Bank of Switzerland - echoes that [or vice-versa], generally: Toronto is 3rd out of 25 of the world’s major cities most at risk of a bubble. While “Fair Valued” in its model is reflected by a factor of “+/- .5”, Toronto currently sports a factor of 1.96 placing it firmly in the “Ruh-Roh” range. Of course - pandemics aside - if you’re saving some thirty-plus percent on the price of a Detached home by buying west of the Humber, east of the Rouge, or north of Steeles Avenue - not to mention paying only half the Land Transfer Tax - that just adds fuel to the fire of accelerating sales in “The 905” [area code]. For now…

...and Teranet / National Bank of Canada call it “One of the strongest [House Price] index rises for a month of September”...like, ever. Can that trend last?

Former Fed Finance Minister Garth Turner adds that, among other red and yellow flags, “Ten years ago outstanding mortgages equaled 59% of the economy. Now it’s 84%.”

There's an old saying in the residential real estate business: "When the average family can no longer afford the average home, the market must correct." Sooner or later... The wealth gap groweth.

Just to be crystal clear, if/when homes and residential real estate in Toronto go into some degree of correction mode, we’re not remotely suggesting that the rest of the Greater Toronto Area will be somehow immune... Only that right at this juncture, bigger picture conditions make it [painfully] obvious as to why the perimeter is outperforming the city proper, and the city core in particular. That’s all. In the 1990’s home prices fell in the forty percent range. It was broad-based… Happen again? Don’t know...like I said: Trashed the crystal ball.

I think I’ll go get something to drink now…
#StaySafe
Andrew.

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