The GTA Housing Market 2020
Thursday Jan 09th, 2020
I’m not sure if I can count how often I get asked, “What’s happening with the housing market???” If you live in the GTA, it seems to be everyone’s favourite topic of conversation! And, why not; it’s been a roller-coaster ride over the the past several years. From the frenzy of 2016-early 2017 bidding wars and sky-high prices, to the abrupt downturn and stagnation of the market in mid 2017 through 2018, the housing market has been continuously in the headlines. So how did 2019 shape up and what can we expect in 2020? Here’s a quick summary.
This past year, we saw the GTA stabilize into a more balanced market and by the second half of the year, the signs were evident that we were completely past the slump. We saw consecutive months of price growth in both the freehold and condo markets as many buyers who had previously held back from buying due to the Mortgage Stress Test (see below) were ready to re-enter the market. Overall, the average selling price (in the GTA, in all homes types) was $819,319 – up by 4%.
Looking ahead to 2020, there are a number of drivers pointing towards a strong and mostly balanced GTA market for the coming year. The cost of the average 2-storey detached house in the GTA is predicted to surpass $1M, up 4.5%, and condos up 6% to $600K in 2020. There are however, there are some key market drivers that are worth mentioning as they will play a significant role in shaping the year as well as the future of the GTA market.
Lack of Supply
While a drive along the Gardiner may make you think that there is a plethora of new condos available for anyone who wants one, there is actually not enough new housing being built, either freehold houses or condos, to meet demand. This coupled with other factors, such as older adults staying in their homes longer and issues around reasonable transit options, the GTA is facing a crisis in housing supply. In 2019, we saw sales up 12.6% year-over-year while new listings were down by 2.4%! “Expect further acceleration in 2020 if there is no relief on the supply front,” says Jason Mercer, TREB’s Chief Market Analyst.
Strong Demand - Immigration and Millennials
Toronto has a strong economy with good job potential and has been named as a top city to live in by many polls, making it a very attractive home for new immigrants. Many of these new Canadians are in a position to quickly buy a home. Newcomers to Canada are expected to purchase 1 in every 5 homes on the market!
Add to this, the millennial factor. The majority of this massive demographic would like to be home owners, and with only one third currently owning a property, there is considerable pent
up demand. While younger millennials are eyeing the condo segment, many older millennials have outgrown their condos are starting to look for larger homes and yards for their growing families. Many of these “move-up” buyers will look to the suburbs or nearby cities in order to find affordable options.
Cost of Borrowing
The Bank of Canada held its interest rates low and steady throughout 2019, and there seem to be no immediate thoughts of rate hikes (or further decreases), in the coming year. This has allowed borrowers to access low interest rates on mortgages, making housing more affordable. Additionally, there has been talk that Trudeau will re-examine the OSFI mortgage stress test. While it is unlikely that the Stress Test will disappear, a decreased qualifying rate or more flexility in how it is applied, could bump more potential buyers into a home ownership position.
To Sum It Up…
While the GTA saw a considerable downtown in mid-2017 through 2018, we saw recovery of balance in 2019. There are a number of indicators pointing to this situation continuing with mid-single digit price appreciation in the coming year. It is important to note however, that if the imbalance between supply and demand continues or increases, it will put considerable upward price pressure on the housing market, possibly pushing the GTA back into the type of housing frenzy we saw a few years back.
So, when’s the best time to buy or sell? If you’re thinking about it, connect with me to chat!
A side note: What is the OSFI Stress Test:
Since January 2018, the government, concerned about the hot housing market and buyers taking on more debt that they can handle implemented the Mortgage Stress Test. This involves testing the borrowers finances at a rate higher than the rate at which the lender is offering. It is set at either 2% above the actual mortgage rate or the average 5 year posted rate, whichever is higher. For example, if you are offer a 3.2% mortgage rate, you will need to prove that you can the mortgage at 5.2%. Clearly, this pushed many buyers out of the home-buying game and also forced some home buyers to reset their expectations of what they could afford.
1 Toronto Real Estate Board News Release, http://communications3.torontomls.net/newstand/news/2020/mn2001/pdf/nr_market_watch_1219, January 7, 2020
2 Royal LePage Market Survey Forecast, https://www.royallepage.ca/en/realestate/news/canadian-real-estate-market-to-appreciate-3-2-in-2020-reflecting-similar-price-growth-in-both-condo-and-detached-segments/ December 12, 2019
3 Royal LePage Newcomer Survey; One in five homes purchased by Canadian newcomers, October 16, 2019, https://www.royallepage.ca/en/realestate/news/one-in-five-homes-purchased-by-canadian-newcomers/
4 Royal LePage Peak Millennial Survey, Aug 2017 https://www.royallepage.ca/en/realestate/news/largest-cohort-of-millennials-changing-canadian-real-estate-despite-constraints-of-affordability-and-mortgage-regulation/