Apprehension of the Housing Bubble in Toronto
There are several sectors that have raised their concern of an unfolding “mini-bubble” in Toronto real estate market. Experts, however, hasten to allay their fears about this impending crisis. Although we are seeing a tight supply situation in the Greater Toronto Area during the second half of the year, price averages of single-detached units have not breached the double-digit mark.
In a recent market study conducted by RE/MAX on 63 Toronto districts that belong to the Toronto Real Estate Board, results have shown the 27% of these districts posted averages which are a bit off the national price averages, while more than half of these districts posted price increase below 5%. Only 16% of these districts posted price averages that are in excess of 5%.
Experts believe that there is no indication that Toronto is in a housing bubble. While sales are starting to pick up and home inventories remain tight in hot pocket sections of the real estate market in Toronto, the feared surge in home prices is not expected to happen anytime soon. For most part of the year, buyers will remain cautious in their home purchases, although we will see some increase in activities in low-priced housing categories. The prevailing mood of home buyers shall be to defer purchases when there is an indication of paying over the perceived value of the real estate property.
Although there were short episodes of price softening last year, more than 50% of those real estate properties in Toronto experienced a dip in prices of less than 2%. Those that posted price dips in excess of 2% were mostly properties that occupy the upscale end of the market spectrum. These are the real estate properties that are found in the central core of real estate market. Interestingly, these are the same properties that are last to rebound when the market starts to regain momentum. Looking at the year’s averages, we are seeing double-digit increase in total sales. This is an indication that the positive shift in the real estate market is being pushed by properties falling under the lower end of the price scale.
The top 5 GTA districts in terms of increases in home price averages are the following:
o South Pickering – $358,493 at 9% rate of increase
o Rouge – $368,095 at 7.3% rate of increase
o North Pickering – $396,973 at 7.2% rate of increase
o Port Credit – $614,144
o Leslieville, Riverdale – $522,017 at 6.7% rate of increase
The east sector is clearly where frenzied activities are happening. This is primarily due to the affordability factor and the dominance of the single-detached segment in Rouge and Pickering districts. First-time home buyers, particularly those starting new families, find communities in Leslieville and Riverdale districts as attractive choices. On the other hand, most buyers going for home upgrades consider Port Credit as their top choice.
First-time buyers are the most active players in the real estate market for 2009. They have posted the highest share in the total units sold during the early part of the year where they accounted for one home in every two homes that were sold with prices below $400,000. However, the market condition made a major turnaround during the last quarter of the year where homes priced below $400,000 only accounted for a third of the total home units sold for the same period.
Despite the increases in the demand in the move-up and upscale housing segments, increases in price averages across the board were by and large modest. This year will be dominated by continued growth in the detached home unit segment, albeit with lower rates of increases. This segment shall be the barometer of the overall performance of real estate markets in Toronto as it accounts for about half of the market activity in the Greater Toronto Area.