Global News

Home sales con­tinue to rise in Canada , accord­ing to the lat­est monthly report by The Cana­dian Real Estate Asso­ci­a­tion. Exist­ing real estate pur­chases rose 2.7 per cent in Sep­tem­ber com­pared with August and up 11 per cent year to year. While sales slowed in other parts of the coun­try – Canada’s largest met­ro­pol­i­tan area expe­ri­enced the most dra­matic increase.

The num­ber of resale homes sold in Toronto in Sep­tem­ber rose more than 20 per­cent over the same time last year. The aver­age price of a home sold in Canada also rose 6.5 per cent to $352,600 since Sep­tem­ber of 2010. The aver­age price in Toronto is much higher at approx­i­mately $460,000.

To find out what is dri­ving this hot mar­ket and crys­tal ball if prices are going to drop, Global News spoke with Jason Mer­cer, Senior Man­ager of Mar­ket Ana­lyt­ics at The Toronto Real Estate board.

The Cana­dian Real Estate mar­ket is still going up?  

Right. Actu­ally CREA [The Cana­dian Real Estate Asso­ci­a­tion] released their lat­est monthly release today. Cer­tainly what we’ve seen over the last year, if you are look­ing at year over year, at this time in 2011 com­pared to this time in 2010 we’ve seen increases in both sales and price. Cer­tainly, if you drill that down or look at the Greater Toronto Area, we’ve seen price growth in the 8, 9, 10 per­cent range cer­tainly through the spring, sum­mer and early fall. At the same time we’ve seen the num­ber of sales up some­where in the neigh­bor­hood of 20 to 30 percent.

What is push­ing the sales up?

Well right now, if you think about the dri­vers of demand for own­er­ship hous­ing. One of the key fac­tors under­ly­ing that has been the afford­abil­ity sit­u­a­tion in the Greater Toronto Area. So if you think about the per­cent­age of income that is going towards mort­gage prin­ci­ple, inter­est, prop­erty tax and util­i­ties, on the aver­age price home, that’s remained more or less in check over the last cou­ple of years. So in and around the high 20’s to low 30 per­cent range and that’s in line with gen­er­ally accepted lend­ing stan­dards. So the bottom-line is that a house­hold mak­ing the aver­age income can com­fort­ably cover a mort­gage on the aver­age priced home. So that’s why we con­tinue to see pretty solid sales growth, as well as an upward trend in the aver­age price as well.

Now there are still his­tor­i­cally low inter­est rates, does that help drive sales?

Absolutely. If you think about what dri­ves that afford­abil­ity num­ber I was talk­ing about, the strong price growth that we’ve seen over the last few years has been mit­i­gated to a great degree by the low bor­row­ing costs, so If you think about what the out­look is for rates over the next cou­ple of years, it’s changed quite a bit over the last few months. Cer­tainly now, the out­look is not much in the way of inter­est rate hikes at least until the sec­ond half of 2012. Depend­ing on who you are talk­ing to, you know, that could be well into 2013, until we see the bank of Canada move back into a rate hike tightening.

Is the aver­age priced home in Toronto becom­ing unaffordable?  

Well again, if you look at the $465,000 house and then assume that the aver­age house­hold income in the GTA is esti­mated to be over $100,000, if you think about what per­cent­age of that income would be going toward mort­gage prin­ci­ple, inter­est, prop­erty taxes and util­i­ties, it’s a lit­tle bit over 31% and that’s still within the gen­er­ally accepted lend­ing guide­lines. It’s also in line with what we’ve seen over the last decade or so. So it sug­gests to me, given that most peo­ple are pur­chas­ing a home using a mort­gage, things still look pretty afford­able and that’s why we’ve con­tin­ued to see the type of price growth that we have.

Are the prices in Toronto inflated?  

We’ve heard a lot of dif­fer­ent met­rics, look­ing at whether or not, the prices are too high or what have you, but again, it’s dif­fi­cult to look at price on its own, in fact, look­ing at price on its own is an abstract term because you have to look at how peo­ple pur­chase a home, and most peo­ple are using a down pay­ment of some kind, or really cov­er­ing the bulk of that pur­chase using a mort­gage, so when you look at those mort­gage pay­ments rel­a­tive to income, that ratio is still quite com­fort­able, so that’s why we’ve been able to see home price growth.

So you are not expect­ing the prices in Toronto to fall?  

No. again, if you look at, what the price level is, or what the price level should be, based on the afford­abil­ity level, we’re more or less right in line with that. So look­ing for­ward into 2012, we’re not expect­ing to see dou­ble digit price growth, but cer­tainly in the neigh­bour­hood of 4 or 5 per­cent, given what we expect to see with bor­row­ing cost, and that seems like a rea­son­able number.

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

Lau­rin & Natalie Jef­frey are Toronto Real­tors with Cen­tury 21 Regal Realty.
They did not write these arti­cles, they just repro­duce them here for peo­ple
who are inter­ested in Toronto real estate. They do not work for any builders.
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