Toronto Real Estate Blog

Ontario's housing market bounces back

But homeownership gets less affordable, says RBC Economics.

Ontario's housing market has recovered its past strength with rising home prices contributing to a decline in affordability for the first time since early 2008, according to the latest third quarter housing report released today by RBC Economics Research.

"Ontario's housing market has experienced a remarkable turnaround with price levels returning to and, in some cases, surpassing earlier peaks," said Robert Hogue, senior economist, RBC. "The downside is that rising property values and a modest increase in mortgage rates have negatively affected affordability, after significant improvement over the past year."

Hogue noted that housing affordability improved considerably throughout most of 2008 and the first half of 2009, which has caused many home buyers in Ontario to jump into the market and drive up property values. The RBC Housing Affordability measure for Ontario captures the proportion of pre-tax household income needed to service the costs of owning a home.

During the third quarter of 2009, the RBC Affordability measure in Ontario rose across all housing types (the higher the measure, the more expensive it is to afford a home). Affordability of the benchmark detached bungalow in Ontario moved up by one point to 39.4 per cent, the standard townhouse rose by 0.6 percentage points to 32.2 per cent, the standard condo climbed by 0.5 per cent up to 27.4 per cent and the standard two-storey home increased by 1.0 percentage points to 45.2 per cent.

In the Toronto area, full confidence in the housing market and a renewed sense of urgency are now fuelling buyers to purchase homes. This has significantly bolstered resale activity, tightened inventories of homes offered for sale and pushed prices higher to near-record levels. Affordability levels have suffered as a result, with RBC's affordability measures for the Greater Toronto area (GTA) rising between 1.0 and 1.9 per cent in the third quarter.

"Affordability levels in the GTA still remain close to long-term averages, suggesting that this real estate rally is likely to continue in the near-term," added Hogue.

Ottawa's housing market is among the very few in the country expected to reach an all-time high in home resales this year. The RBC affordability measures moved up between 0.3 and 0.5 per cent in the third quarter, depending on the housing type. With affordability levels still above long-term averages, further increases in home costs within the region may become a restraining factor in the near term.

The report also looked at mortgage carrying costs relative to incomes for a broader sampling of cities across the country, including Kitchener, London, St. Catharines, Thunder Bay, and Windsor.

RBC's Affordability measure for a detached bungalow for Canada's largest cities is as follows: Vancouver 66.8 per cent, Toronto 48.6 per cent, Ottawa 39.2 per cent, Montreal 37.5 per cent and Calgary 36.7 per cent.

The Housing Affordability measure, which RBC has compiled since 1985, is based on the costs of owning a detached bungalow, a reasonable property benchmark for the housing market. Alternative housing types are also presented including a standard two-storey home, a standard townhouse and a standard condominium. The higher the reading, the more costly it is to afford a home. For example, an Affordability reading of 50 per cent means that homeownership costs, including mortgage payments, utilities and property taxes, take up 50 per cent of a typical household's monthly pre-tax income.

Highlights from across Canada:

British Columbia: Following five consecutive declines, homeownership costs rose in B.C. during the third quarter. With housing demand growing faster than the supply, prices have been rising again. This development likely marks the end of the affordability upswing in B.C., with indications that homeownership costs will remain well above long-term averages.

Alberta: The province experienced the first increase in homeownership costs since late-2007, in the third quarter. Housing market activity has picked up and stabilized with the modest rise in costs attributable to higher mortgage costs rather than a rise in property values. Attractive affordability levels and a return to economic growth should fuel housing demand in Alberta next year.

Saskatchewan: With mortgage rates rising slightly and properties gaining value, owning a home became slightly less affordable in the province, following steady improvement for more than a year. However, homeownership costs remain historically high in Saskatchewan as a result of the sharp price appreciation that took place during the recent housing boom.

Manitoba: Despite slight increases in the cost of homeownership - the smallest amongst all provinces in the third quarter - Manitoba's housing market remained relatively affordable. Market conditions in the province appear tightly balanced, which should sustain solid resale activity in the near-term. Job growth and a faster economic expansion next year should maintain solid housing demand.

Quebec: Broad-based vigour in the housing market fueled by the earlier drop in mortgage rates to historically low levels, has sent property values to new highs in many parts of Quebec. Consequently, housing affordability deteriorated in the province for the first time in more than a year during the third quarter.

Atlantic Canada: Housing on the east coast continued to be among the most affordable in the country, with Atlantic Canada experiencing moderate but steady gains in property values sustained by a gradual increase in the sale of existing homes. Increases in homeownership costs in the region, in the third quarter, were modest relative to other provinces, with levels mostly below national averages.

See the full RBC Housing Affordability report »

Toronto Real Estate Board

GTA Realtors Report Mid-Month Housing Market Figures

In the first two weeks of November, Greater Toronto REALTORS® reported 3,666 sales – up 84 per cent compared to the first two weeks of November 2008. The average price for these transactions was up 10 per cent year-overyear to $415,066.

Increased interest in ownership housing has been widespread throughout the GTA and across all housing types,” said Toronto Real Estate Board President Tom Lebour. “However, it is important to point out that we are now making comparisons to the fall of 2008 when we experienced a marked decline in sales and average price” Year-to-date sales, at 78,233 are up 11 per cent compared to 2008. Average price, at $393,180, is up by three per cent.

“Sales and average price in the GTA this winter will be well above levels reported throughout the fourth quarter of 2008 and the first quarter of 2009," according to Jason Mercer, TREB's Senior Manager of Market Analysis.

See the Toronto Real Estate Board report »

MLS home sales forecast revised

Monthly MLS home sales activity continues to run strong, with new monthly records set in July, September, and October. This has prompted The Canadian Real Estate Association to revise its MLS home sales forecast for 2009 and 2010. CREA now forecasts national activity will reach 460,200 units in 2009, up 6.6 per cent from last year. CREA's previous forecast issued in August had annual sales this year about even with 2008 levels. The new sales forecast for 2009 puts activity about on par with annual activity in 2004, but below levels reported for the years 2005 through 2007.

British Columbia and Ontario are still forecast to post annual increases in activity this year, but the forecast has been lifted as a result of recent record level activity in both provinces. In addition, Alberta, Saskatchewan, Quebec, and Prince Edward Island are also now forecast to post an annual increase in activity in 2009. Forecast declines in annual activity have been trimmed for Manitoba and Nova Scotia, and are little changed for New Brunswick and Newfoundland and Labrador.

National MLS home sales activity is forecast to rise seven per cent to 492,300 units in 2010. This is a slightly larger rise in activity than previously forecast. This would make 2010 the second highest year on record for sales, putting activity below the peak reached in 2007, and slightly above the 2005 and 2006 figures. New annual records are forecast for Manitoba and Quebec in 2010.

The forecast increase in activity for 2010 reflects significant weakness in activity recorded in the first quarter of 2009. Monthly activity in 2010 is expected to trend downward from recent heights, but the sharp drop inactivity recorded in the in the first quarter of 2009 is not expected to repeat in 2010.

New listings began declining in the third quarter of 2008, as many sellers took their home off the market pending an improvement in housing market conditions. CREA's previous forecast suggested that average price increases in the second half of 2009 would likely result in mild a rebound in listings. In the third quarter of 2009, the number of new listings did post the first quarterly increase in more than a year, which coincided with the return of strong average price increases. New residential listings are expected to continue trending upward.

The national MLS average home price is forecast to climb 4.2 per cent in 2009, reaching a record $317,900. This is an upward revision from the 1.5 per cent gain in CREA's previous forecast, and reflects the high degree to which the national average price was skewed downward last year by a significant decline in activity in Canada's priciest markets, and then upward by the rebound in activity.

Alberta remains the only province with a forecast decline in average price in 2009 (-3.0 per cent). Average prices are forecast to rise in all other provinces, with gains ranging from a low of 1.5 per cent in British Columbia to 13.1 per cent in Newfoundland and Labrador.

Average prices are forecast to climb a further 4.7 per cent in 2010. Much of the annual increase reflects weakness in the average price in first quarter of 2009, which is not expected to repeat in 2010. Average sale prices are forecast to rise in every province in 2010.

The price trend is similar but less dramatic for the weighted national MLS average price, which compensates for changes in provincial sales activity by taking into account provincial proportions of privately owned housing stock. The weighted national MLS average price is forecast to climb 2.9 per cent in 2009, with a further 4.0 per cent rise in 2010. CREA previously forecast that the weighted national average price for MLS homes sales would hold steady from 2009 to 2010.

"Pent-up demand built in late 2008 and early 2009, as many buyers moved to the sidelines pending an improved economic outlook," said CREA President Dale Ripplinger. "With the economic outlook having improved since then, the release of that pent-up demand will boost activity over the rest of the year and in 2010."

"Significant weakness in activity and average prices seen in late 2008 and earlier this year is not expected to repeat in 2010, so 2010 will look a lot better by comparison," said CREA Chief Economist Gregory Klump. "The raised outlook for MLS sales activity in 2010 still puts annual activity below the pre-recession peak recorded for 2007."

CREA MLS Residential Market Forecast:


    -------------------------------------------------------------------------
                                    2008              2009              2010
                                  Annual            Annual            Annual
    MLS residential           percen-           percen-           percen-
     unit sales                     tage    2009      tage    2010      tage
     forecast              2008   change  Forecast  change  Forecast  change

    -------------------------------------------------------------------------
    Canada              431,823    -17.1  460,200      6.6  492,300      7.0
    -------------------------------------------------------------------------
    British Columbia     68,923    -33.0   84,700     22.9   95,400     12.6
    -------------------------------------------------------------------------
    Alberta              56,399    -21.0   58,050      2.9   64,800     11.6
    -------------------------------------------------------------------------
    Saskatchewan         10,194    -15.4   10,700      5.0   11,400      6.5
    -------------------------------------------------------------------------
    Manitoba             13,525     -2.9   13,050     -3.5   14,050      7.7
    -------------------------------------------------------------------------
    Ontario             181,001    -15.2  191,700      5.9  200,400      4.5
    -------------------------------------------------------------------------
    Quebec               76,762     -4.8   78,900      2.8   82,150      4.1
    -------------------------------------------------------------------------
    New Brunswick         7,555     -7.4    6,950     -8.0    7,200      3.6
    -------------------------------------------------------------------------
    Nova Scotia          10,869     -8.3   10,000     -8.0   10,550      5.5
    -------------------------------------------------------------------------
    Prince Edward
     Island               1,413    -20.1    1,450      2.6    1,450      0.0
    -------------------------------------------------------------------------
    Newfoundland          4,695      5.0    4,250     -9.5    4,300      1.2
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                    2008              2009              2010
                                  Annual            Annual            Annual
    MLS residential           percen-           percen-           percen-
     average price                  tage    2009      tage    2010      tage
     forecast              2008   change  Forecast  change  Forecast  change
    -------------------------------------------------------------------------
    Canada              304,971     -0.7  317,900      4.2  333,000      4.7
    -------------------------------------------------------------------------
    British Columbia    454,599      3.5  461,600      1.5  478,900      3.7
    -------------------------------------------------------------------------
    Alberta             352,857     -0.9  342,300     -3.0  360,500      5.3
    -------------------------------------------------------------------------
    Saskatchewan        224,592     28.8  233,200      3.8  244,700      4.9
    -------------------------------------------------------------------------
    Manitoba            190,296     12.5  202,600      6.5  218,700      7.9
    -------------------------------------------------------------------------
    Ontario             302,354      0.9  315,100      4.2  326,800      3.7
    -------------------------------------------------------------------------
    Quebec              215,307      3.7  224,300      4.2  232,400      3.6
    -------------------------------------------------------------------------
    New Brunswick       145,762      6.7  153,600      5.4  158,100      2.9
    -------------------------------------------------------------------------
    Nova Scotia         189,932      4.9  196,000      3.2  204,100      4.1
    -------------------------------------------------------------------------
    Prince Edward
     Island             139,944      4.9  146,900      5.0  150,700      2.6
    -------------------------------------------------------------------------
    Newfoundland        178,477     19.6  201,900     13.1  213,600      5.8
    -------------------------------------------------------------------------

Source: The Canadian Real Estate Association

Lender warns of housing bubble

Low interest rates have caused some Canadians to act "irrationally" in the housing market, potentially taking on too much debt that could lead to economic difficulties down the road, says the president and CEO of ING Direct Canada. "You have situations in some markets such as Toronto where people are making multiple offers for homes, they are paying thousands more and waiving conditions. It gives me concern they may not be thinking rationally, and this could lead to problems," Peter Aceto said in an interview Wednesday.

"Canadians are also paying their homes off slower and slower, and the concern for me is that they are buying more house than they can really afford." Aceto said he is so concerned about the market that he has instructed staff to advise customers not to go with longer-term amortizations if they can help it. More than 50 per cent of all mortgages in Canada this year were amortizations longer than the standard 25 years, says Aceto.

As a result, the lender said he is worried that some consumers are biting off more than they can chew. "It's almost as if Torontonians feel very concerned they are missing something with such low rates." said Aceto. "The problem is: can they afford to pay for their mortgage five years from now, when interest rates go back up?"

Sales of existing homes in the Toronto area were up 64 per cent in October from the same time last year, while average prices hit a record $423,559, up 20 per cent. Bidding wars have become common in choice neighbourhoods.

See full story by Tony Wong in the Toronto Star »

Toronto Real Estate Board reports:

October year-over-year MLS transactions up 64%.

In October 2009, Greater Toronto Realtors reported 8,476 sales, up 64 per cent from October 2008. The average price for October transactions was $423,559 - up by 20 per cent compared to the same month last year. "Strong sales growth has occurred across many property classes - from price ranges that would attract first-time buyers to luxury properties selling for over one million dollars," said TREB President Tom Lebour. "The highest rate of sales growth in October was experienced for properties selling for over $750,000. In contrast, luxury home sales declined at an above-average rate last year."

Year-to-date sales, at 74,721, were up nine per cent compared to the first ten months of 2008. Average price, at $392,264 was up by almost three per cent.

"After a short dip in the winter, the average home price in the GTA has rebounded because sales have been high relative to listings," according to Jason Mercer, TREB's Senior Manager of Market Analysis. "Watch for listings to rebound in 2010 as home owners react to the strong sales and price growth experienced in the latter half of this year."

Summary Of October Sales And Average Price

--------------------------------------------------------------
                                             October
                                    2009                  2008
                        --------------------------------------
                                 Average
                         Sales     Price  Sales  Average Price
City of Toronto ("416")  3,554  $464,212  2,136       $376,897
Rest of GTA ("905")      4,922  $394,205  3,019       $336,049
GTA                      8,476  $423,559  5,155       $352,974
--------------------------------------------------------------

Source: Toronto Real Estate Board's Market Watch report »

Luxury housing sales edge higher

Purchasers take advantage of buying opportunities in Ontario-Atlantic Canada, says RE/MAX

Luxury homes sales continue to accelerate as economic recovery takes hold in major markets in Ontario and Atlantic Canada, according to a report released by RE/MAX. The RE/MAX Upper End Report found that momentum is building in St. John's, Saint John, Halifax-Dartmouth, Ottawa, Kingston, Greater Toronto, Hamilton-Burlington, and London as purchasers realize that the best buying period in recent history is about to come to a close. Sales are already on par or ahead of last year's levels in 50 per cent of cities surveyed, while the remaining markets are set to reach 2008 figures by year-end.

"Twelve months of healthy home buying activity have clearly been crammed into five short months," says Michael Polzler, Executive Vice President, RE/MAX Ontario-Atlantic Canada. "It's hard to believe that the transition in the market began in May. We've seen steady upward momentum since that time, with solid year-over-year gains posted each and every month."

Pent-up demand and greater affordability have been the catalyst. Increased selection in all markets - except Greater Toronto - as well as record low interest rates have also helped fuel move-up activity from Ontario to Newfoundland.

Leading in terms of sales appreciation is London, Ontario where the number of homes sold, priced in excess of $500,000, has climbed 11 per cent from January to September 2009, compared to one year ago. Greater Toronto and Ottawa both reported a one per cent increase in the number of homes sold in the top end during the same period. Within the GTA, Richmond Hill/Thornhill is particularly heated, with sales up 24 per cent over 2008 levels, followed by Mississauga - up 10 per cent. St. John's, Newfoundland is on par with year-ago figures.

Of the six markets reporting a year-over-year decrease in sales, four are off by just a handful of transactions (10 units or less), including Halifax-Dartmouth (off eight units), Kingston & Area (off three units), Toronto - West End (off 10 units), and Oakville (off five units). Activity in the remaining two markets-Saint John and Hamilton-Burlington-is on the upswing, with the gap between 2008 and 2009 narrowing each month.

"A considerable shift is underway in the upper end," explains Polzler. "The price correction that we witnessed earlier in the year is over and prices have since firmed up. Conditions are more balanced across the board or leaning toward seller's territory once again. The one exception is the Greater Toronto Area -- now largely a seller's market -- with bidding wars making a comeback amid tight inventory levels. The strength of the luxury segment is evident. This is now a real estate market with all sectors working in tandem."

Highlights:

Upper end sales started to move upward as positive indicators of economic recovery began to emerge. The momentum is expected to continue as Canada edges closer to positive periods of GDP growth in Q4 2009 and in 2010.
Locals are fuelling luxury sales in the majority of markets surveyed. Activity among out-of-province and international purchasers has waned from one year ago, although their presence in still evident in some markets.
Sixty-one properties in Canada are currently priced over $10 million, with 18 of those located in Ontario. The priciest Ontario home is nestled in Toronto's prestigious Bridle Path area, listed at $23 million.
Three hundred properties currently listed for sale are priced over $5 million in Canada.
In Atlantic Canada, there are 22 listings in excess of $2 million - 13 in Nova Scotia, five in New Brunswick and two in Prince Edward Island. The most expensive property in Atlantic Canada is a $7.75 million estate on a bluff fronting the Atlantic Ocean on PEI's north coast.

See the full RE/MAX Upper End Report 2009 »

Competition Bureau acts on MLS fees

Tony Wong's front page article in the Toronto Star:

Canadians in the housing market will pay less in realty commissions and fees if the federal Competition Bureau has its way. In a landmark investigation, the bureau has concluded the Canadian Real Estate Association has anti-competitive rules and must change its ways, according to documents obtained by the Star.

Details of a settlement have yet to be decided, but the bureau's findings are expected to have a profound impact on the real estate industry – by permitting more innovative discount brokers into the market while allowing sellers to list their properties less expensively on the Multiple Listing Service.

With a membership of more than 96,000, Ottawa-based CREA is the largest real estate organization in Canada and represents the majority of the nation's realtors.

"The Bureau is concerned that CREA's rules have restricted consumer choice and limited the scope of alternative business models," says an internal memo by CREA president Dale Ripplinger. "Unfortunately, the Bureau seems to believe that CREA's rules ... create restrictions and barriers."

The bureau launched its investigation in 2007. Consumers have complained in the past about high realty fees and the need for more affordable services. The vendor of an average-priced $400,000 home in Toronto can pay a commission of as much as 5 per cent, or $20,000.

"This is absolute, total vindication," says Lawrence Dale, an owner of now-defunct Realtysellers, a Toronto-based discount broker that closed in 2006. "Once they've reached their settlement it means that the average guy on the street will be able to choose their real estate services and pay less for them."

CREA executives met with the bureau on Oct. 23 to hear the long-anticipated results, according to the letter. "At that meeting the Bureau set out the conclusions of their inquiry and their proposed remedy," says Ripplinger. "The Bureau's position is that if CREA does not remove these restrictions, the Commissioner of Competiton will initiate an application before the Competition Tribunal."

Ripplinger says CREA decided not to go before the tribunal, which can administer penalties, but is pursuing a settlement.

According to Ripplinger, CREA rules the bureau wants changed include those that say the listing realtor must act as the agent of the seller and receive and present all offers to the seller, and property information cannot be posted on the Multiple Listing Service without an agent representing the seller.

Changes to these rules would mean offers could be sent directly to the seller without the involvement of the listing agent. Consumers could likely have their listings posted on the MLS for a small fee.

Dale and partner Stephen Moranis claim they were forced to shut down their company because of rules implemented in 2007 by the realtor's association. Realtysellers offered services such as allowing consumers to post listings for a few hundred dollars on the MLS website, where more than 90 per cent of all home sales are made. The company is suing CREA and the Toronto Real Estate Board.

CREA owns the rights to the MLS.

In a separate lawsuit against TREB, Fraser Beach, another Toronto realtor, alleges the organization terminated his MLS access because he launched a discount brokerage service. A decision by Ontario Superior Court of Ontario Justice David Brown is expected soon.

TREB has argued it didn't block his access to the MLS for competitive reasons, but simply because he did not follow membership rules.

Both CREA and TREB have denied all allegations. A Toronto Real Estate Board spokesperson says the board does not comment on ongoing legal matters. Officials of the Competition Bureau were not available for comment Sunday.

Although the real estate association has agreed to reach a settlement, Ripplinger stressed "CREA does not agree with the Bureau's findings and conclusions, either as a matter of fact or as a matter of law." The association has called an emergency meeting for all member boards in December to discuss rule changes demanded by the Bureau.

Source: Tony Wong in the Toronto Star »

Rebound hammers affordability

Housing affordability deteriorated sharply in Toronto in the third quarter of 2009 as home prices spiked above pre-recession levels. "The big improvement in stock markets likely helped drive prices higher, especially since Toronto has many people who work in the financial services area," Hélène Bégin, senior economist at Desjardins Bank, said in an interview yesterday.

Low interest rates, pent-up demand and a lack of listings saw average Toronto prices for existing homes hit $402,762 in the July-September period, the largest such increase of any Canadian city.

See article by Tony Wong in the Toronto Star »