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Toronto’s housing market is headed for a strong year, the area’s real estate board said in its annual forecast, as pent-up demand combined with low inventory is expected to drive the average sale price to $900,000.

The Toronto Regional Real Estate Board predicted 97,000 homes would sell this year, a 10.5-per-cent increase over last year when home buyers were grappling with policies introduced by the federal and provincial governments over the past few years to cool the housing market.

The last time the Toronto region had sales at that level was in 2016, when bidding wars were common and average home prices soared between 20 per cent and 30 per cent.

This year, the lack of inventory is expected to push up the average sale price by 10 per cent over last year’s average of $819,319. The board said price inflation in cheaper properties such as condos will boost the overall average. However, if detached house prices start climbing rapidly, that could push up the average price well above $900,000.

“With little to no relief forecast on the listings front over the next year and demand expected to increase, it is difficult to forecast anything but further increases to average home prices,” the board said in its annual outlook.

Toronto’s housing market, the second-most-expensive area in Canada after Vancouver, started recovering in the spring of last year after a lull in 2018 triggered by the province’s tax on foreign buyers of real estate and Ottawa’s mortgage stress test, which requires borrowers to qualify at a higher mortgage rate.

Home buyers adjusted to the stricter borrowing environment by increasing their down payments, choosing lower-priced properties such as condos and buying in cheaper locations outside the city of Toronto.

Now, with no sign of interest rates rising and mortgage rates easing, buyers are scrambling to get into the market. Realtors are seeing multiple offers and homes selling over the asking price.

“If the property is well priced anywhere in the Greater Toronto Area, there are multiple offers,” said Cam Forbes, a realtor with Re/Max Realtron Realty Inc., who has worked in the Toronto region for 21 years.

Last month, Mr. Forbes said one of one of his properties in midtown Toronto drew 40 offers and another property received 30 offers. “They sold immediately and well in excess of the price,” he said.

The Toronto real estate industry has repeatedly pointed to low inventory as the reason for the uptick in offers. Last month, there were 7,772 active listings compared with 11,962 a year ago.

One reason for the weak supply is homeowners’s concerns that they have nowhere to go if they sell their property. “Sellers are staying in their own homes. They don’t know where to move because there so few listings,” said Mr. Forbes.

As the Toronto market heats ups, policy makers are considering changes to the mortgage stress test. Currently, borrowers must qualify at a rate two percentage points more than the actual rate on the loan or at the Bank of Canada’s five-year benchmark mortgage rate of 5.19 per cent, whichever is higher. The central bank benchmark is based on banks’ posted rates, which are higher than the rates borrowers are charged.

The real estate industry has called for more flexibility to the rules.

The Office of the Superintendent of Financial Institutions, which has defended the rules as good housing policy, is reviewing whether it should decouple the stress test from the central bank’s five-year rate.

That could make it easier for borrowers to get a bigger mortgage. And in a place like Toronto where the average selling price of a detached house is more than $1-million, that would mean more buyers could get into the market.

“If supply remains tight and the stress test is reduced thereby boosting demand, prices could get even higher," said Elan Weintraub, a mortgage broker with Mortgageoutlet.ca.

Constrained supply is a factor in most of the country’s major real estate markets. Excluding the Prairies and Newfoundland and Labrador, inventory is at a 15-year low, according to the Canadian Real Estate Association (CREA). That is expected to boost the national average price this year to about $500,000, slightly higher than last year. The association forecast 529,900 homes would sell this year, a 9-per-cent gain over 2019. However, CREA said that reflects last year’s slowdown rather than a “significant” change in the trend.

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