December 2017/Year End Market Review
The Toronto real estate market survived a roller-coaster-like year in 2017. The first quarter (Q1) saw wicked price increases, followed by a hard rebound in prices in Q2, which in turn was followed by a period of relative calm in Q3, then a surge in sales activity in Q4. When the dust settled, the December year-over-year average sale price was up just about 0.7%, but the average price for the year 2017 ended up 12.7% higher than 2016, at $822,681.
Most of that annual gain happened in Q1. That’s when super-tight supply squeezed buyers into making very aggressive bids. Then, the Ontario government gave the market a kick in the teeth with their ‘Fair’ Housing Plan (an Orwellian use of language, as seems to be the style these days…), which scared buyers to the sidelines with speculative talk about ‘foreign buyers’ – the Boogie Man in the Liberals’ pitch. As the TREB report says: “Research from TREB, the provincial government and Statistics Canada showed that foreign home buying was not a major driver of sales in the GTA.” Still, they needed a reason to Do Something, and foreign buyers fit the bill. When buyers retreated, prices plopped back down to where they started the year, and we were into a bit more of a balanced market.
That balance started to shift back towards the sellers’ favour in December. I think that the year-end surge was fuelled by two things: 1) buyers realised that foreign buyers were not behind the steady rise in GTA prices, and the new tax wouldn’t really change anything long-term (after a period of adjustment); and 2) more government intervention, this time in the form of new federal ‘stress test’ rules for buyers in 2018, meant that many folks wanted to get their purchase locked in before those new rules kicked in.
Basically, the wild volatility throughout the year was largely due to government intervention in the market. As mentioned, we’ll see more of that this year, but hopefully less, and with less of a destabilising effect.
TREB also noted that in the second half of 2017, the buyer market shifted away from the most expensive housing type – fully detached homes – to semis, towns and condos. Clearly, the market has the capacity to offer buyers options, which naturally mitigates the need for government intervention, but whaddya do…? Sales activity in the detached segment was down 13.4%, and the average sale price was down 2.1%, to $1,250,235. At the other end of the spectrum, while condo sales volume in the 416 dipped 8.8% in December, the average price was up 14.1%, to $532,700.
So, what does 2018 have in store for us? Life goes on, in spite of policy changes, and lots of folks plan to move for various reasons, so I figure there will be lots of sales this year. The 2017 end-of-year available listing volume sat at 12,926, way up from just 4,746 at the end of 2016. If that can be maintained we might be able to settle in to a ‘liquid’ marketplace that offers buyers choice. There’s no structural shortage of buyers – they just get shooed away by governments from time to time – so more supply will allow more buyers to succeed. With some luck, price appreciation will be lower, which is more sustainable long-term.