Toronto home prices continued to soar during the third quarter thanks to pent-up demand from the spring COVID lockdown, but the market is already starting to show signs of cooling off, according to a report from the country’s biggest real estate company.
In the third quarter, the price of an average home in the Greater Toronto Area rose by 11 per cent from the same time a year ago, hitting $922,421, according to the report from Royal LePage to be released Wednesday morning.
That kind of double-digit increase won’t be happening in the fourth quarter, or next year, predicted Royal LePage president and CEO Phil Soper.
“It’s unsustainable. There’s a finite capacity for Canadians to pay more for their homes,” said Soper.
Royal LePage is predicting an 8.5 per cent rise in GTA home prices in the fourth quarter, and Soper suggests the figure could be even lower in the first quarter of 2021.
Last week, the Toronto Region Real Estate Board announced that the number of home sales in the GTA rose to a record 11,083 in September, up 43 per cent from the same month a year ago. The board also said the average price of a GTA home rose 14 per cent to a record $960,772.
“On a GTA-wide basis, market conditions tightened in September relative to last year, with sales increasing at a faster pace than new listings. With competition between buyers increasing noticeably, double-digit year-over-year price growth was commonplace throughout the region in September, resulting in the overall average selling price reaching a new record,” said Jason Mercer, TRREB’s Chief Market Analyst.
Much of the skyrocketing price comes from a double-whammy of pent-up demand which has already largely run through the system, said Soper. People who ordinarily would have bought a home this spring pushed the purchase back until the first set of COVID lockdowns eased up, Soper said. That was on top of lingering pent-up demand that still existed after the government introduced a mortgage stress test in January, 2018.
“I think we’ll see a much more normal first quarter in 2021, once the pent-up demand from the mortgage stress test and spring 2020 has worked its way through,” Soper said.
While spending on big-ticket items usually tumbles during recessions, that hasn’t been the case during COVID, Soper said, comparing the current downturn to the 2008-09 financial crisis.
“In the financial crisis, people stopped spending on cars, houses and washing machines. In the COVID crisis, they’re spending on puppies, Pelotons and real estate,” said Soper.
While the pace of growth in the Toronto real estate market might be slowing down, it’s still got plenty of steam in smaller cities and towns, thanks to the growing number of people deciding to move out of town because they can work from home.
“That aspect of the market has legs,” said Soper.
In cottage country, the “work-from-home” buyers are combining with two other groups: People who had put off buying a cottage are deciding to do it now because of lower interest rates, and retiring baby boomers are moving to the area permanently.
“The best year we’d ever had for sales in Muskoka was 2017. We hit that same number of transactions by August this year,” Soper said.
Still, even in Toronto, there are some highly-motivated buyers thanks to COVID.
“There are a lot of people saying ‘what was a comfortable place when we were at the office most of the week, no longer is, now that we’re working from home, and the kids are doing online learning,” Soper said.
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