Toronto's housing market is in for another red-hot year, the area's real estate board said in a new forecast.
The Toronto Real Estate Board predicted 110,000 resale homes would change hands in 2017 – the third consecutive year with sales greater than 100,000 – while average resale home prices would rise between 10 and 16 per cent to $825,000 in 2017.
TREB's forecast calls for the Greater Toronto Area market to experience only a minor cool-down compared with last year, when resale activity jumped 11.8 per cent to 113,133 transactions and the average price soared 17.3 per cent to $729,922.
Higher mortgage rates and stricter federal rules to qualify for insured mortgages are expected to curb sales slightly in the region, the board said. However, many buyers are preparing for the tougher mortgage rules by amassing hefty down payments, averaging 23.9 per cent for first-time buyers, according to a consumer survey conducted by Ipsos for the board.
But TREB expects the biggest factor that could rein in the market in 2017 will be a severe lack of homes for sale in the region. Active resale listings fell to their lowest level in 16 years in December, the board reported. The lack of inventory is expected to help push up prices of both single-family homes and condos once again this year even if it means the market is likely to see slightly fewer sales compared with 2016, the board said.
"It is unlikely that the shortage of listings will improve to any great degree over the course of the next year," Jason Mercer, the board's director of market analysis, said in a release on Tuesday.
Despite mounting concerns that international investors may be contributing to the soaring prices and a shortage of homes for sale in Toronto, TREB said any plans by policy makers to introduce a foreign buyers' tax in the GTA would be "misguided."
Last year, the board commissioned Ipsos to poll local realtors about foreign-buying activity. Realtors told the polling firm that fewer than 5 per cent of home sales involved international buyers, and just 2 per cent of realtors said they had acted for clients who disclosed that they were buying property in the Toronto area because of B.C.'s tax on foreign buyers in Metro Vancouver.
Tim Hudak, the Ontario Real Estate Association's chief executive officer, said lack of housing supply is the driving factor behind rising prices in the GTA and "it is easy politics to scapegoat foreigners for increasing housing costs."
Mr. Hudak, the former Ontario Progressive Conservative leader, has urged Ontario's Liberal government to reassess its plans for expanding the Greenbelt – protected land on the fringes of the GTA. "Government-imposed barriers are restricting builders from bringing more housing supply online," he said in a statement on Tuesday.
Douglas Porter, chief economist with Bank of Montreal, said limited supply and robust demand have led to the GTA's affordability issues. "Toronto would have been strong in any event, but I think foreign interest has contributed to the market that we've seen, especially in the last six months," Mr. Porter said in an interview.
Last August, the B.C. government implemented a 15-per-cent tax on foreign home buyers in Metro Vancouver.
Mr. Porter said that if the Ontario government wants to get serious about cooling off the GTA's housing sector, it needs to address demand, too. "Why not try to control demand, especially demand that isn't coming from domestic buyers, at the same time as strengthening supply? We need to work on both sides," he said in an interview.
An Ontario tax could be tailored to target sales of detached houses while exempting new condos, Mr. Porter said. "Some of those condo units might not get built if it weren't for the foreign investment angle," he said.
TREB warned that a new land transfer tax on foreign buyers "could have unintended consequences," such as pushing international investors into neighbouring regions not subject to the tax, reducing the pool of rental properties, or making the GTA less attractive to the immigrants who account for the majority of the region's population growth.
Last week, Canada Mortgage and Housing Corp. maintained its "red warning" for the country's real estate market as a whole, with high prices in and around Vancouver and Toronto among its top concerns.
A new real estate report from Royal LePage analyzing trends in the last quarter of 2016 suggests that the GTA will become the hottest housing market in the country in 2017, surpassing Vancouver.