GTA Market Watch Outlook 

Prepared by Luke Tao
as of February 8th, 2018



  • Condominium apartment starts will dominate new home construction

  • Balanced conditions will ensue in the resale home market
  • The average apartment vacancy rate will reach a historic low

1.  GTA Market Watch Outlook

Toronto Real Estate Board has reported 4,019 residential transactions in GTA in January 2018. This result was down by 22% (Demand) compared to record 5,155 sales reported in January 2017.

The number of new listings entered into TREB's MLS System amounted to 8,585 which is 17.4% (Supply) increase compared to 7,314 a year ago. With the lower demand and high supply of inventory, we will experience the continuation of market adjustment for at least in the first half of this year.

The average selling price in January was down by 4.1% year-over-year to $736,783. However, the ‘average price’ scenario should be view in a different light -- in that larger portion of homes were sold in the lower price categories and fewer sales in the more expensive detached segment of the market than before, resulting in skewing the actual ‘average price’ situation. In the City of Toronto, the average selling price was up for all home types except for detached houses.  This annual rate of growth was driven by the condominium apartment market segment, with double-digit annual growth versus the single-family segment, with prices essentially flat compared to last year.

The outlook pointed to a slower start to 2018, especially compared to the record-setting pace experienced a year ago, particularly between January to April 2017 where the average prices were surged to around 20% from a year ago. As we move through the year, it is expected that the pace of home sales will pick up, as the psychological impact of the ‘Fair Housing Plan’ starts to wane and home buyers find their footing relative to the new OSFI mandated stress test for mortgage approvals through federally regulated lenders.

It is not surprising that home prices in some market segments were flat to down in January compared to last year. At this time last year, we were in the midst of a housing price spike driven by exceptionally low inventory in the marketplace. It is projected that housing market will gradually return to positive price growth for many home types in the second half of 2018 – with the condominium apartment segment being the driver of this price growth.



The Average prices in Scarborough (E05), Markham (N11), Richmond HIll (n03), North York (C14) and Downtown Toronto (C01) are as follows:


2. Forecast Home Sales in 2016 and 2017


Existing homes sales in the Greater Toronto Area (GTA) will moderate to 91,000 in 2016 and 87,500 in 2017 as affordability concerns dampen home buying activity, and will reflect some pull-back from the record breaking of 101,299 homes sold in 2015.  


The Toronto population increased by an estimated 1.6 per cent year-over-year, and more importantly grew faster among those aged 25 to 54 years at 1.9 per cent.  Growth among this age group, tends to be the most active in the homeownership market (both in terms of first-time and move-up buying).  Stronger employment growth resulted in the overall unemployment rate falling to its lowest rate in seven years.


The GTA’s average MLS price of an existing home will increase by 4.0 per cent in 2016 from the previous year and 2.1 per cent in 2017 to reach $647,100 and $660,700 respectively.  Supply of resale homes are expected to increase over the next couple of years as some newly completed but unsold condominium apartment units are listed for sale.  Additionally, existing homeowners will continue to list their home and take advantage of prices.  These factors will result in loosening market conditions.  Such conditions are likely to produce more moderate price growth.  


2.1  Resale Market

While the initial reaction to the changes announced through the Ontario government’s Fair Housing Plan in April 2017 was swift, homebuyers and sellers will adjust their expectations to suit new market conditions. The Greater Toronto Area (GTA) resale market showed a great degree of transformation in 2017. The year started with prices soaring at unprecedented rates and sales reaching new record highs.  The demand and supply conditions reversed following a series of legislative reforms aimed at cooling the housing market. House prices began to recede from their peak as a record number of homeowners rushed to sell their houses in anticipation of a market cooling and many buyers postponed their home purchases until a clear sense of the market’s direction was regained.  New listings will grow at a much slower pace in the second half of 2017and 2018 as fewer sellers will feelthe need to sell at any cost. While more buyers are expected to regain confidence and be lured back by more attractive prices, sales will stabilize over the forecast horizon as a result of anticipated higher interest rates and tighter borrowing conditions.  With balanced market conditions, Toronto home prices will grow morein line with inflation over the forecast horizon. Also, a shift in the sales mix towards more multi-family dwelling homes will also restrain the average price appreciation over the forecast horizon. The condominium market, which is an affordable alternative, is currently in sellers’ market territory and is likely to post above average price growth.  There is a risk that Toronto home prices could grow at a slightly fasterpace if the local economy boasts strong growth, low-rise home inventories rise and growth in interestrates remain modest. Alternatively, prices could be closer to the bottom end of our range if more restrictive housing policies are implemented over the forecast period.


2.2  New Home Market


The Toronto CMA new home market is unlikely to experience significant changes over the outlook period.  Condominium apartment starts will continue to dominate construction throughout 2018 and 2019. Land constraints, servicing delays and labour constraints leading to higher costs will push back low-rise (particularly single-detached) home starts over the forecast horizon.  Close to 30,000 pre-construction condominium apartment units were sold in Toronto in 2016 – reaching an unparalleled record. An even higher number of sales is expected in 2017, as this housing option continues to appeal to price-sensitive homebuyers and investors. The typical two-year time lag between pre-construction condominium sales and starts will ensure a record pace of high-rise construction in 2018 and 2019.  Affordability concerns, declining number of site openings, increasing price gaps with resale market alternatives and a better-supplied resale market will restrain pre‑construction sales activity and will weigh on low-rise starts in 2018. New home sales activity of groundoriented homes should pick up to some extent in 2019 as anticipated tightening in the resale home market will result in some spillover demand into the new home market. The ensuing result will be stronger lowrise home starts in 2019.  Given lengthy delays in getting low-rise projects off the ground (particularly in the 905 areas where servicing delays are more evident), there is a greater downside risk to low-rise housing starts in the forecast horizon. Limited supply of single detached homes and townhouses(and the resulting upward price pressures) will force more buyers to look towards the condominium apartment market. Therefore, more condominium apartment sales are expected to materialise in the future.  These units will begin construction towards the end of the forecast period and provide an upside risk to the current forecast. Other upside risks to the housing starts forecast include stronger than expected job growth, lower than anticipated increases in interest rates and more serviced land becoming available.

3.  Condo Market


Apartment starts, primarily driven by condominium structures, will dominate housing construction in the next couple of years and exceed 20,000 units in each year.  Pre-construction sales of condominium apartments have exceeded 35,000 units in the past 32 months.  Based on CMHC estimates, these units will begin construction over the next two years.


While construction of rental units have lagged that of condominium apartments for the past decade, low vacancy rates in the primary and secondary rental markets entice developers to channel resources to purpose-built rental projects in the Toronto CMA.  Total rental starts are expected to reach about 1,850 units in 2016 and a further 2,000 units in 2017.


4.  Rental Market


Demand for rental accommodation in Toronto is expected to grow faster over the outlook period. It will continue to get support from strong immigration inflows. High price levels and rising interest rates will slow the transition from renting to owning.  Furthermore, the Rental Fairness Act introduced in 2017, which will expand rent control to all private rental units and offer additional protection for tenants will make rentals a preferable choice for more dwellers. As a result, the average vacancy rate for purpose built rental apartments in 2017 and 2018 will edge lower to around one per cent, the lowest level in more than 15 years. Over the next few years, the private rental apartment supply is expected to grow at their fastest pace since the early 90s as strong demand will encourage more developers to supply the market with more rental units.


5.  Economy


Employment levels in Toronto are expected to show positive but relatively modest gains over the next two years, keeping the rate of unemployment at around seven per cent. The level of household indebtedness will reach a new high in 2017 and household net worth will be negatively impacted by a cooling housing market and sluggish performance of equity markets. Over the outlook period, in light of tightening borrowing conditions, households’ ability to sustain consumption at the same levels and ability to handle higher interest rates will weaken. Furthermore, as the housing market slows it willcurtail spending on a range of items associated with moving into a new home.  A slowdown in consumer spending will lead to less hiring in the service sector.  Relatively robust and steady economic growth in the United States should support exporters, while some may still face headwinds from the stronger Canadian dollar, growing competition from other economies, and potential changes to trade agreements. Overall, business activity is expected to recover to a stronger level and at least partly offset a slowdown in consumer demand.  There are some downside risks to the Toronto CMA economy. A more disorderly correction in home prices could spill into other sectors of the economy resulting in weaker job growth.  Also, geopolitical and trade tensions could intensify, dampening business confidence, investment and job growth.  Alternatively, a stronger US economy, lower than expected interest rates and stronger housing market could result in a stronger than expected job market.  


6.  Mortgage Rate Outlook


Mortgage rates are expected to begin to rise moderately from current levels late in 2016


Mortgage rates are expected to continue trending close to current levels, supporting housing demand.  However, consistent with the view of Canadian economic forecasters, CMHC expects interest rates to begin to rise moderately from current levels late in 2016, contributing to a modest slowdown in housing markets.


According to CMHC’s base case scenario for 2015, the 1-year mortgage rate is expected to be in the 2.60 - 3.30% range, while the 5-year rate is forecast to be within the 4.10 - 5.20 % range.  


For 2016, the 1-year mortgage rate is expected to be in the 3.00 - 3.80% range, while the 5-year rate is forecast to be within the 4.70 - 6.00% range.  


For 2017, the 1-year mortgage rate is expected to be in the 3.90 - 4.80% range, while the 5-year rate is forecast to be within the 5.10 - 6.50% range

7.  Risks Analysis


Upside Risks

  • Prevailing low vacancy rates, low Canadian dollar and global uncertainty could continue to fuel investor demand into the GTA real estate market.
  • Stronger than expected domestic demand in the United States that would positively impact Canadian exporter and likely drive greater-than-expected housing demand.

Downside Risks


  • Strong price acceleration in 2016 reflects a larger share of sales of pricier homes.  The rise in house prices has not been matched by growth in personal disposable income, giving rise to a modest risk of overvaluation.


  • A broader slowdown in the economic growth of China will negatively affect Canada through weaker demand for Canadian exports as well a downward pressure put on commodity exports


  • While a soft landing in the housing market remains the most likely scenario, near record-high house prices and debt levels relative to income leave households vulnerable to a potential correction.  A disorderly unwinding of household sector imbalances, should it materialize, could have sizable negative effects on the economy.


  • The level of completed and unsold condominium apartment units per 10,000 population is above and the rental vacancy rate is below their respective historical averages in the GTA.  However, inventory management is necessary to make sure that the current number of condominium units under construction does not remain unsold upon completion


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