Resale prices way up, new-home prices down

I’ve been employed doing real estate research on the Toronto market since 2002. In almost every year during that stretch, the average new-home price has increased year-over-year. However, according to official data from the Altus Group, the average unsold price for new single-family housing declined three per cent annually in September 2019 from $1.12 million to $1.08 million. The figure has been slowly trending down for two years.

Despite the softening, unless you’ve won Lotto 649, new-home prices in Toronto are still very expensive. With prices so high, it’s natural to ask, is there a major correction coming? No one wants to buy something and immediately see the value of the item drop.

The government has taken steps to cool housing demand by implementing a mortgage stress test, which has reduced many buyer’s access to credit, which in turn lowers ownership demand. The government also instituted rent control, which they expected might reduce investor demand, as returns on hold-and-rent properties would be lower. They clearly slowed demand, as both new and resale transactions dropped noticeably in 2018. However, the decrease in ownership demand resulted in increased rental demand, which caused a spike in rental rates for vacated properties last year. In September 2019, data from Rentals.ca showed that the average rent for vacant rental apartments in the Toronto CMA increased by almost 15 per cent year-over-year. Secondly, the resale market has started to heat up, with Brookfield RPS Home Price index for Toronto showing a 15 per cent annual increase in September.

To further combat the rising cost of living, the provincial government wants to improve affordability for both ownership and rental housing by helping increase housing supply via changes to planning policies in their proposed Bill 108. The reaction to the bill has not been positive, especially from the Toronto planning department and many environmentalists. However, it will be several years before the impact of these policy changes are felt.

Several pundits don’t think the current demand and supply moves by the government have gone far enough, suggesting there needs to be some type of speculation tax, a vacant homes tax, and a removal of the capital gains tax exemption on primary residences. The latest federal election platforms included a national foreign buyers’ tax, and a cap on immigration to help housing affordability. One, or all of these measures could be added over the next five years. That is a lot of changes in a short period of time. What impact will they have on the market?

Forecasting the residential housing market is virtually impossible, almost as impossible as trying to time the purchase of your home to the precise moment the market is at its low point. New single-family house prices are trending down, but how much of that has to do with more townhouse launches and fewer single-detached launches? How much of it has to do with smaller homes and smaller lot releases by builders? How much of it has to do with less supply in an expensive market like Toronto and more supply in less expensive markets like Innisfil, Georgina, Uxbridge and Clarington?

The September resale price looks like it’s appreciating quickly on an annual basis, but was September 2018 a poor month? Was there a spike in luxury product sales? Is it all product types and built forms, or just downtown highrise condos?

Data on the average price can be very deceiving and can never tell you what’s really going on. I suggest looking at the original documents, instead of a journalist’s interpretation of the results. Really dig deep into the neighbourhood you want to buy in.

If you’re in the market for a new home, do your research on the area, the builder, and the market. Most importantly, surround yourself with a team of experts, including a realtor that specializes in the new-home market, a mortgage broker, and a lawyer. Lastly, buy what you can afford, and only buy for the long term. Good luck.

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