Homeowners in the Greater Toronto Area who are feverishly preparing to list their houses for sale may be able to spend a little more time decluttering.
“I think the spring market will be a little later this year,” says Cameron Forbes, predicting the action will ramp up in mid-March. “Buyers aren’t feeling they need to get in.”
Mr. Forbes, general manager of ReMax Realtron Realty Inc., expects the tempo of the market in the Toronto Area to feel very much as it did in 2018.
The real estate landscape will shift but that will come from buyers – including first-time owners, empty-nesters and investors – altering their strategies.
“There will be a change in the mix,” he says of the housing types and neighbourhoods that buyers will favour.
So far in January, Mr. Forbes says, the market is “slow”. In traditional years, that was typical for the first month of the year.
When prices set off on an unharnessed run in 2016 and 2017, house-hunters were eagerly pouncing on listings as soon as they appeared in January, but a sluggish 2018 has quashed that “fear of missing out.”
Price gains in the Greater Toronto Area have been muted and interest rates don’t appear set to rise any time soon, he says.
Rishi Sondhi, economist at Toronto-Dominion Bank, says Canada’s housing market is entering 2019 on a soft note after losing momentum in the fall.
“Home sales have fallen for four straight months, essentially erasing the gains made in the summer,” points out Mr. Sondhi.
Mr. Sondhi says the unexpected weakness has tilted the balance of risks around his 2019 view to the downside.
Still, Mr. Sondhi says, unless there’s a negative economic shock, markets aren’t likely to deteriorate dramatically in 2019. He points to strong population growth, healthy labour markets and a more patient Bank of Canada as factors that may lead to an improvement by midyear.
As 2019 unfolds, Mr. Forbes anticipates that young families will trade their condos in the central 416 area code for single-family dwellings in the surrounding 905.
At the same time, empty-nesters will be keen to sell their large suburban houses and move into condos downtown.
Overall for 2019, Mr. Forbes is forecasting sales in the Greater Toronto Area will rise three per cent to 80,000 from the 2018 tally of 77,426.
The average price will edge up 1.6 per cent to approximately $800,000 in 2019 from 2018′s $787,300, Mr. Forbes predicts.
Another dynamic Mr. Forbes has seen changing is the psychology of sellers.
He says homeowners in areas where prices have declined have come to accept the fact that their house is worth more than it was in 2016 but not as much as it was at the market peak of 2017.
“They now have another year’s experience of how much their house is actually worth.”
People looking to trade up actually have an advantage because expensive properties have dropped in value more than the average property, he points out.
The average price in the GTA in 2016 was $729,837. At the high-water mark in April of 2017, the average price was $920,791.
Today buyers are still quick to jump on prices in the low-to-middle range.
“The market below $1-million is strong,” he says.
But fewer buyers are shelling out for properties above the $1-million mark in the GTA, he says, because rules surrounding mortgage borrowing are tighter and lenders are more cautious.
Mr. Forbes notes that the leap to a single-family home from a condo has become easier because condos have been rising in value while other types of homes have seen prices slip in many areas.
The average condo price now stands around $553,000 in the GTA, while the average freehold property goes for around $925,000.
“That gap has narrowed,” he says.
Mr. Forbes cites the example of a couple with one or two children living in a small downtown condo. That couple could sell their unit for $550,000 or $600,000 and buy a townhouse near the GO Train in the 905 for about $700,000.
For an added $100,000 or $150,000, they can buy triple the space, he says.
“As soon as you have a child, it’s very difficult to live in 500 square feet.”
He also sees people living in semi-detached houses with small backyards in the city moving to a detached house in the closer suburbs.
“Two years ago they wouldn’t do that. The larger home they couldn’t even think about before, they can now afford.”
Meanwhile, Mr. Forbes knows plenty of baby boomers who have traded their large, detached houses for condos closer to the core.
As for investors, they are still out and about, especially since interest rates have backed off a bit from their 2018 climb.
Some lenders have recently dropped the rate on a five-year fixed-rate mortgage, and bond yields suggest there is more room to move down, points out Mr. Forbes.
Many investors didn’t anticipate the decline in rates – just as they didn’t see the hikes coming last year.
The difference now is that purchasing a preconstruction condo to rent out once it’s built is no longer an appealing deal for many, he says.
Developers have cancelled projects in Vaughan and elsewhere in the GTA because the economics of condo-building have changed, Mr. Forbes says. Developers have trouble making a profit when the approval process is long and land prices are high, among other factors.
Buyers can purchase an existing unit in a good building with access to transit for between $1,000 and $1,200 a square foot, Mr. Forbes says.
That compares with a project still on the drawing board or under construction selling for $1,500 a square foot. Mr. Forbes points to planned projects near the subway at Yonge and Finch, for example, where he says “sales are slow.”
Instead, many investors have turned their attention to single-family houses in markets such as Aurora and Richmond Hill, where sales have dropped sharply since the market frenzy.
Mr. Forbes says investors have caught on to the fact they can buy a bungalow and rent it out for more than the cost of the mortgage payments and expenses.
“They’re trying to ensure they’re cash-flow positive.”
Looking at the risks to his forecast, Mr. Forbes doesn’t see anything too worrying looming on the Canadian landscape. He believes geopolitical tensions such as the disputes between China and the United States and Canada are greater threats.
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