For the second month in a row, home purchasing in Toronto slows down while prices continue to increase.
A quick look at the above chart gives you these stats:
- Sales on existing homes dropped by 12.5% compared to August 2011
- Home prices rose by 6.5%
- Condo sales were down by 22%
- Toronto had 6.418 homes on MLS in August 2012, compared with 7,330 in August 2011
- The average price of a home in the 905 area code was $564,571; compared with the average price of a home in the 416 area code, which was $746,300
So, what are the explanations behind this statistical data?
First, while everyone might be worried that Toronto can’t afford climbing home prices, especially at a time when sales are declining, Toronto can and is affording it. There are actually two reasons why Toronto’s home prices continue to increase, despite what sales are doing here.
The first is that Toronto’s an extremely hot market – all the time. With hot markets come bully bids and bidding wars because people want to be in this area. This is one element that has skewed the number showing for home prices. Another element that’s keeping this figure is so high is the number of high-end homes in Toronto. While only one of these might sell a month, with price tags in the million-dollar range, it could seriously send the other numbers out of balance.
And as for the drop in sales? Well, this one you can blame on the slight cooling that’s occurring in the Toronto market, but just slightly. Given that the number of new listings was also down, it’s not surprising that sales would be, too.
“While sales were down year-over-year in the GTA, so too were new listings,” says Jason Mercer, senior manager of market analysis for the Toronto Real Estate Board. “As a result, market conditions remained quite tight with substantial competition between buyers in the low-rise single family detached segment.”
But, an even bigger factor is most likely the new mortgage rules that went into effect on July 9. The Board’s president, Ann Hannah, said on Friday in a press release that it was these new rules that were keeping people out of the market.
Jim Murphy, president of the Canadian Association of Accredited Mortgage Professionals, agrees. He says that Toronto mortgage brokers have seen a 15 per cent drop in homebuyers due to the new rules.
The biggest rule change that’s had the most impact, especially on first-time homebuyers, is that which states insured mortgages must have a maximum 25 year amortization period. This, it’s been said, is equal to a one per cent rate hike. Something Bank of Canada Governor Mark Carney’s surely glad he didn’t have to do.