Real estate market conditions-Toronto

I had a look at real estate market conditions for the Greater Toronto Area for the month of November 2016. It’s interesting looking through the data to see what is actually going on in the market. The data may be found in the TREB Market Watch.

Sales for the month of November were a total of 8,547 units throughout the GTA. When you think about the number of units for one month for the entire GTA, it seems to be a pretty small market. What’s also interesting is the breakdown of the sales prices. Now bear in mind that these are averages and not the median prices. Given the data, it’s hard to know what is really selling the most, but I can figure that out later.

Housing prices and units

In November the average house price was just under $770,000. The average prices are: Detached-$1,058,273; Semi-detached-$720,815; Townhouse-$598,432; Condo-$443,586.

The breakdown of unit sales is 3,890 detached houses, 798 semis, 1,318 townhouses and 2,409 condos. Condos and townhouses make up the bulk of the sales, which should not be surprised, they are cheaper.

In won’t go through the spread between 905 properties and 416 properties but will add that 416 real estate sells at around a 20-30% premium over 905 area code real estate. For those of you who don’t know, the 905 versus 416 location is based on area codes. 416 is primarily those areas that used to constitute the old city of Toronto before amalgamation.

Split markets

In looking at the figures, you can see a definite split in terms of prices. There is a considerable difference between the detached houses and the other forms of residential real estate. Nothing new here. Detached housing is generally more expensive than the others all things being equal.

Units sold tells another story. I am going to look at the year ending November 30, 2016. 107,840 houses were sold during the period, 48% detached and 52 other forms of construction. About 25% of the homes had a purchase price exceeding $900,000. The balance of 75% was with a median purchase price of around $600,000.

Why have I broken down the sales data this way? I believe that there are really two markets here. The market for detached houses and the market for the others. Why is the distinction important? It relates to affordability. I would think (without data to support it) that the homes being bought over $1,000,000 are being acquired by people who have greater financial resources than those who are buying at around the $600,000 level. Those in the $1,000,000 plus bracket will likely be able to weather an increase in interest rates better those buying around the $600,000 level. I’ll see if there is some data out there to support this.

Bottom line

An increase in interest rates will bite. Some of the analysis out there concludes that we can weather the storm. Unfortunately, like most countries, we have those who are financially insulated from interest rate increases and those who are not. Those who are not will bear the brunt of it and will struggle.

The problem with monitoring housing prices is that the market is very illiquid. In each neighborhood, there are only a few houses to sell. With demand, increasing prices is pretty simple. One house that attracts interest will lift the average house price and impacts subsequent sales.

Real estate agents look at the recent sales as the basis for determining what their clients should bid. To the extent that the market is hot, a bidding war will impact all the house sales subsequent to it. Illiquid markets are particularly prone to this. Add irrational exuberance and you have recipe for a hot real estate market. No one wants to miss the boat.