Toronto home sales surge early, climb 84 per cent
The year ahead should bring first-time buyers into the market
Existing home sales in Greater Toronto Area started the year on a strong note, building on last year's double digit gain.
Multiple Listings Service sales in January climbed 84 per cent above the modest levels of a year earlier. Though year-over-year increases will slow in coming months, Toronto resales in 1997 are expected to surpass last year's robust 55,800 units - the highest in a decade.
Solid affordability will again drive the Toronto housing market in 1997. About $1,100 per month is currently needed to carry mortgage interest and principal payments on an average-priced Toronto existing home, assuming a 20 per cent down payment - less than half the $2,3000 required in 1990. This partly reflects a 28 per cent decline in average house prices since 1989 and close to a five percentage point drop in mortgage rates.
The year ahead should again bring a large number of first time buyers into the market - more than 120,000 renter households in the GTA can now afford home ownership.
Move-up buyers - who remained largely on the sidelines last year-are also expected to be more prominent in 1997.
With home prices bottoming and economic prospects improving, pent-up demand from the rapidly growing number of baby boomers in the 35-49 age group will trigger an increasing demand for up-scale homes. Also, Metro Toronto has finally recovered all the jobs lost since the 1990 peak, boosting consumer confidence, though growth has tended to be stronger in part-time positions.
Despite strong market activity, the average Toronto resale price edged down by two per cent last year. This partly reflects the tendency of first-time buyers to purchase less expensive homes, magnifying the price downturn in the Toronto market. First time buyers accounted for about 70 per cent of resales last year compared with a normal 40 to 50 per cent.
However, prices for more affordable homes have edged up. Prices of less expensive semi-detached units, condominium townhouses and apartments started to pick up in the second half of 1996. For the year as a whole, Toronto median prices for those properties actually increased by almost two per cent in sharp contrast to the decline in overall prices.
A more broadly based pick-in home prices is on the horizon. The inventory of existing homes for sale continues to shrink, especially for modestly priced starter homes. Both the sales-to-active listing ratio and sales-to-new listing ratio (seasonally adjusted) are at levels indicating significantly tighter supply and demand conditions. Firmer markets in combination with increased participation by move-up buyers spells higher Toronto home prices in 1997.
Job creation and continued low mortgage rates are key to strong outlook for residential sales. Employment conditions are likely to improve over the 56,000 jobs created in Metro Toronto over the past year. Private sector hiring should offset government retrenchment, with much improved business confidence and ongoing strength in exports. While mortgage rates could move up moderately later in the year, the increase is unlikely to derail a strong real estate performance.
Price increases in the existing home market will prompt some buyers to choose new homes rather than resales. New home sales in the GTA jumped to 21,500 last year from 12,900 in 1995, and will likely reach more than 26,000 this year. A dwindling supply of newly completed and unoccupied units in the GTA virtually assures that any new demand will be met through construction. As a result, housing starts will probably rise by 25 per cent to almost 24,000 units in the coming year.
BART MELEK, SCOTIA-BANK ECONOMICS
(FROM: REAL ESTATE NEWS FEB.14/97)
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