By Harry Knox | Special to The Washington Post
Real estate is by definition a seller’s market, but the stiff, last-minute end-of-the-year demand that dominated last year’s real estate market actually represented an opportunity for some buyers. The top 20 real estate markets in Canada saw sales of condominium units soar, while prices of single-family homes softened slightly.
The Toronto Real Estate Board, whose members include the country’s leading real estate brokers, reported that sales of units in the greater Toronto area (the area surrounding Toronto) rose 11.2 percent in November from the previous month, leaving it the only housing market in Canada to post a year-over-year increase.
Meanwhile, the Montreal market fell 4.1 percent from November 2017 and the Calgary market was flat for the year.
Toronto had an increase of 2,685 units sold over the same period last year, while unit sales in Vancouver were down 14.7 percent. Prices rose by 4.3 percent in Toronto and 2.7 percent in Vancouver during that same period.
The city of Toronto showed strong demand from foreign buyers at the end of the year. A TREC study found that foreign buyers represented 5.2 percent of the market in November 2018, up from 1.8 percent in November 2017. The figure is also up from 3.8 percent in October 2018. The report does not explain why the foreign buyer rate is high in November 2018, and it does not say whether the increase is entirely attributable to rising prices.
Condo sales in the Toronto area were up significantly in November compared with the same month a year earlier, as are sales of all types of properties. The condominium-sales market increased by 45.6 percent for the month, with 23,465 units sold, and by 54.1 percent on a year-over-year basis. Condominium prices rose by 12.4 percent from November 2017, slowing slightly from the 13.2 percent increase the previous month.
In the city of Toronto, the average price for all types of property was $739,915 in November, up 12.4 percent from $644,925 in November 2017. With these increases, there are now more homes for sale in the Greater Toronto Area than the market can support. It’s a story that’s being played out across Canada.
The problem is that demand and supply are converging, and prices for all types of properties, not just condos, are going up. That’s partly a function of stricter rules about lending by the federal government, and also of the use of new technology that allows real estate agents to receive offers and negotiate instantly.
In contrast, there is no evidence of that same trend happening with single-family homes. Despite a decrease in prices, they continue to exceed the real value of the underlying land by a wide margin.
The monthly decline in demand that occurred in Montreal last month did not stem from price rises, but from a combination of price rises, higher rental prices, and a sharp increase in available homes for sale.
In Toronto, once the market is full, it is effectively “on sale” and the cost of the home can fall. The average monthly sales for all types of homes are still well below the market’s long-term average.
In Vancouver, the months-to-inventory is also not above the long-term average, even though prices are rising at a faster pace. In fact, the inventory of homes for sale is at the most attractive level seen since the market saw what was then a little over four months of supply in 2007.
Canadians are a prudent lot, but still there is always the worry that their real estate market has gone too far. They shouldn’t worry too much, because the potential price gains have translated into a more balanced market and much less potential for reckless speculation and price distortions.
Harry Knox is the head of the Endowment Strategy Unit of the Pembina Institute, a research organization that advocates for sound environmental policy.