The Toronto Real Estate Board President’s Col­umn as it appears in the Toronto Sun Resale Homes and Con­dos section

In last week’s arti­cle I explained that the Toronto Real Estate Board (TREB) notched a record 10,955 sales in June. We also expe­ri­enced the first annual aver­age price increase since August 2008, with the aver­age price ris­ing two per cent to almost $404,000. This week, I want to talk about why the Toronto real estate mar­ket has remained resilient over the past year and also why we should con­tinue to see steady growth in the hous­ing mar­ket over the longer term.

Com­ment: And now the data for the first half of July shows a 27% increase in sales over July 2008, as well as a 4% price increase. Not only are the increases con­tin­u­ing, but they are ris­ing even more.

So, how is it pos­si­ble that dur­ing a reces­sion we saw record exist­ing home sales last month? TREB’s Senior Man­ager of Mar­ket Analy­sis, Jason Mer­cer, points to afford­abil­ity: “With prices lev­el­ing off, mort­gage rates at or near his­toric lows and earn­ings con­tin­u­ing to grow, the aver­age home became more afford­able for the aver­age house­hold this Spring.”

Mer­cer also sug­gested that “many house­holds were in a hold­ing pat­tern dur­ing the win­ter months, wait­ing to see how they would be posi­tioned dur­ing these slower eco­nomic times. Mov­ing into the spring, house­holds con­fi­dent in their employ­ment sit­u­a­tion moved quickly to take advan­tage of height­ened afford­abil­ity.” Last week a report released by RBC con­firmed that afford­abil­ity improved over the last quar­ter in the GTA.

Low mort­gage rates have clearly been a fac­tor in keep­ing the Toronto real estate mar­ket buoy­ant. This is in stark con­trast to the reces­sions we expe­ri­enced in the early 1980s and early 1990s, when home buy­ers were faced with double-digit mort­gage rates. Accord­ing to Mer­cer, “the Bank of Canada kept infla­tion in check over the past decade, so they had room to aggres­sively drop inter­est rates to help stim­u­late eco­nomic recov­ery. This wasn’t an option in pre­vi­ous recessions.”

Com­ment: And to those who run around scream­ing that we are all screwed when rates shoot back up to a 1,000% need to look back a few years. In the tur­moil that fol­lowed the 9/11 attacks, inter­est rates went through the floor. I remem­ber won­der­ing what was going to hap­pen in late 2006 and early 2007 when many of those mort­gages renewed. Had rates shot up to 8%, there would have been a very large prob­lem. But rates were only a lit­tle higher than they are now, and there was no cri­sis. We actu­ally had the best real estate year ever in 2007. In fact, mort­gage rates have been within a few per­cent­age points for years now. Why are they sud­denly going to sky­rocket in 5 years, just in time for every­one buy­ing now to renew their mort­gages. There is no rea­son what­so­ever behind this rea­son­ing, it is just cheap fear mongering.

Home own­er­ship will con­tinue to be a wise long-term invest­ment in the GTA because of our steady pop­u­la­tion growth. This region is the sin­gle great­est ben­e­fi­ciary of immi­gra­tion into Canada. Accord­ing to Sta­tis­tics Canada, the GTA has the high­est per­cent­age of foreign-born pop­u­la­tion com­pared to all other major met­ro­pol­i­tan areas around the world.

New­com­ers have been attracted by the diver­sity the GTA offers: cer­tainly eth­nic and cul­tural diver­sity, but also diver­sity in terms of jobs. Over the long term, peo­ple have been able to find employ­ment in almost every sec­tor of the econ­omy. This means that this region is attrac­tive to peo­ple from many dif­fer­ent walks of life with many dif­fer­ent skill sets. At the end of the day, all of these peo­ple require a place to live. Some of these new­com­ers will pur­chase a home right away; oth­ers may rent or live with fam­ily or friends before pur­chas­ing a home at some point in the future.

When we think about the health of the Toronto real estate mar­ket, we have to take a short and long-term view. We may not expe­ri­ence record sales or price growth this year. But, when we look back on 2009, we will def­i­nitely be able to say that the Toronto real estate mar­ket fared very well in the midst of a global eco­nomic slow-down. The Toronto real estate mar­ket fol­lows cycles over the short-term, but if we look for­ward not one or two years, but instead a decade or more, the future looks very bright indeed. Steady pop­u­la­tion growth will prompt sus­tain­able long-term growth in sales and home values.

————————————————————————————————————

Con­tact the Jef­frey Team for more infor­ma­tion  -  416−388−1960

————————————————————————————————————

Related posts:

1. Toronto Real Estate 2009 Year In Review
2. Toronto real estate mar­ket report
3. Toronto Real Estate Fore­cast 2010
4. Toronto Real Estate Board says fall home sales climb
5. Real estate mar­ket review: 2009 so far