Toronto's housing market churned out another month of soaring price gains in July, fuelling concerns that it could be the next target of a tax on foreign investors.
Almost 10,000 resale homes changed hands in the Greater Toronto Area last month, the highest recorded number for the month of July, the Toronto Real Estate Board reported. Average resale prices jumped 16.6 per cent to $709,825, with the cost of detached homes surging 21 per cent from the same period last year, to $952,983.
Realtors say it's still too early to tell how much the B.C. government's recent 15-per-cent tax on Vancouver-area residential properties purchased by people who aren't permanent residents will fuel demand for Toronto housing. There are concerns the tax will lead foreign buyers to purchase homes in the GTA market instead.
B.C. implemented the tax this week in the hopes of slowing foreign speculation that has helped push real estate prices up 30 per cent in Metro Vancouver in the past year.
The province's tax adds another layer of angst to the Toronto market, already in the midst of double-digit price gains, fierce bidding wars and what the local real estate board called the "troubling trend" of a shrinking supply of resale homes on the market.
Unease has been growing over skyrocketing real estate prices in both markets. The Bank of Canada recently issued warnings about unsustainable growth, while the federal government has struck a working group to issue recommendations on how to make Vancouver and Toronto's housing more affordable.
"If Toronto does not go the way of the tax, yes you are going to get more people coming to Toronto," said Richard Silver of Sotheby's International Realty Canada in Toronto.
Mr. Silver is monitoring a handful of deals involving sales of overseas buyers in the Toronto area that are not set to close until later in the fall.
"My sellers who have sold their properties to offshore buyers are going to be nervous," he said. "I would suggest to any politician right now: Let's see what happens with Vancouver because it doesn't make sense to go down the road [of a foreign-buyers tax] and then all of a sudden have to completely turn and pull back on it."
Both Toronto Mayor John Tory and Ontario Finance Minister Charles Sousa have said they will be closely watching the effects of B.C.'s tax, which came with little warning. In an effort to get ahead of the debate, the Toronto Real Estate Board, which opposes a tax, has said it plans to publish the results of a survey of its membership to gauge the extent of foreign investment in the Greater Toronto Area.
The increased focus on international investment in Canada's housing market comes as prices for detached homes in the City of Toronto rose 20.7 per cent in July, to an average of more than $1.2-million. In the suburban "905" region, prices for average detached homes hit $888,565, up almost 22 per cent from last July.
The market frenzy was not limited to detached properties. Townhouses and semi-detached homes also saw double-digit annualized price gains in July. Condo prices rose more than 9 per cent from the same month last year, to $406,865. Average resale condo prices jumped 13 per cent in the 905 region and 8.2 per cent in the 416 area.
Even as the number of house sales rose slightly in July from the same month last year, resale listings fell almost 14 per cent in Toronto and dropped slightly more than 3 per cent in the suburbs. A severe shortage of listings in the face of strong demand has some industry observers urging local governments to increase housing supply rather than restrict foreign investment. "Housing policy is now top of mind for all levels of government," said board president Larry Cerqua in a statement. "Policy-makers need to be focusing on solutions to the sustained lack of low-rise inventory throughout the GTA."
Homeowners are cautious about selling and becoming buyers in Toronto's hyper-competitive market, exacerbating the shortage of homes for sales, Mr. Silver said "There are not a lot of listings and part of the reason is prices are very high. If you don't have to buy, then you don't move" he said. "So even though prices have gone up, there's a lot of people who are in a holding pattern."
There are few signs that the Toronto market is set to slow down any time soon, Phil Soper, CEO of Brookfield Real Estate Services, which operates under the Royal LePage banner, told a conference call with investors on Thursday. Mr. Soper said the company is revising its calls for Ontario's housing market to begin to cool in the second half of this year, thanks in part to the belief that mortgage rates will continue to stay low in the wake of Britain's vote to leave the European Union.
"This period of low-cost borrowing will … further delay the cyclical cooling of Canada's hottest real estate markets, particularly in Ontario," he said.