TREB Market Update Highlights Growth and Affordability
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The document summarizes the current state of the Canadian and Toronto real estate markets. It finds that while economic growth has slowed, job growth continues in Toronto. Interest rates have risen but are expected to increase only modestly in the future. Housing sales have declined from record highs but are forecast to rebound. Condo apartment sales and prices closely follow overall trends, with increased supply a potential risk to future price appreciation. Affordability remains sound, suggesting current price levels are justified.
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TREB Market Update Highlights Growth and Affordability
- 1. TREB Market Update Toronto Condo Network Presented By: Jason Mercer, TREB Senior Manager of Market Analysis September 17, 2010
- 2. The Canadian economy continues to grow, albeit more slowly Canadian Real GDP, Quarterly Annualized Quarter-Over-Quarter Per Cent Change 8% 6% 4% 2% 0% -2% -4% -6% -8% Source: Statistics Canada Toronto Condo Network September 17, 2010
- 3. Job growth continues in Canada and the GTA… Toronto CMA Employment (All Industries) Seasonally Adjusted 3,000 2,800 Thousands 2,600 2,400 2,200 Source: Statistics Canada Toronto Condo Network September 17, 2010
- 4. …but the unemployment rate remains high Toronto CMA Unemployment Rate Seasonally Adjusted 11.0 10.0 9.0 8.0 7.0 6.0 5.0 4.0 Source: Statistics Canada Toronto Condo Network September 17, 2010
- 5. Bank of Canada has increased its target for the Overnight Rate Key Interest/Mortgage Rates Average 5-Year Fixed Mortgage Rate Prime Rate 8% Target for Overnight Lending Rate 6% 4% 2% 0% Source: Bank of Canada Toronto Condo Network September 17, 2010
- 6. Bank of Canada has increased its target for the Overnight Rate “Economic activity in Canada was slightly softer in the second quarter than the Bank had expected, although consumption and investment have evolved largely as anticipated. Going forward, consumption growth is expected to remain solid and business investment to rise strongly.” - Bank of Canada, September 8, 2010 (http://www.bankofcanada.ca/en/fixed-dates/2010/rate_080910.html) Toronto Condo Network September 17, 2010
- 7. Where does the market think rates are going? Canadian Government of Canada Bill/Bond Yield Curve Spot and Derived Forward Rates Longer-Term Rates: Less than half a percentage point (50 basis points) for 3.50% Short-Term Rates: Market the five year bond. pricing in two to three 3.00% additional hikes by the end Bill/Bond Yield 2.50% of 2011 2.00% 1.50% Dec-11 1.00% Dec-10 0.50% 0.00% September 14, 2010 Source: Bank of Canada; TREB Forward Rate Calculations Toronto Condo Network September 17, 2010
- 8. Sales have come off record highs…should rebound, but no new records GTA Sales Trend (Annualized Rate) 120,000 Long-term sales Forecast trend based on 100,000 population growth 80,000 60,000 40,000 20,000 1995Q1 2001Q1 2008Q1 1987Q1 1988Q1 1989Q1 1990Q1 1991Q1 1992Q1 1993Q1 1994Q1 1996Q1 1997Q1 1998Q1 1999Q1 2000Q1 2002Q1 2003Q1 2004Q1 2005Q1 2006Q1 2007Q1 2009Q1 2010Q1 2011Q1 Source: Toronto Real Estate Board Toronto Condo Network September 17, 2010
- 9. What does this mean for condo apartment sales? Condo Apt. Share of Total Sales 2010 Average Summary of Condominium Apartment Sales Annualized Trend 24% 30,000 Forecast 25,000 20,000 15,000 10,000 Share of Total Condo Apt. Sales by TREB Region 5,000 0 West 1998Q1 1999Q1 2000Q1 2001Q1 2002Q1 2003Q1 2004Q1 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 1993Q1 1994Q1 1995Q1 1996Q1 1997Q1 31% Central 45% North Source: Toronto Real Estate Board 9% East 15% Toronto Condo Network September 17, 2010
- 10. Condo Apartment Share of Total Sales by TREB Region 16% Central East 60% Districts Districts 11% 19% North West Districts Districts Toronto Condo Network September 17, 2010
- 11. Is the current price level cause for concern? Average GTA Selling Price $500,000 Real Average Price Average Price $400,000 $300,000 $200,000 $100,000 $0 Source: Toronto Real Estate Board Toronto Condo Network September 17, 2010
- 12. The average home remains affordable in the GTA TREB Affordability Indicator Share of Average Household Income Used for Mortgage Principal and Interest, Property Taxes and Utilities on the Averaged Priced GTA Resale Home 55% 50% Assumes 20 per cent down payment, average five-year fixed mortgage rate, 25 year amortization period and the 45% average household income in the GTA 40% 35% 30% 25% Source: Toronto Real Estate Board Data and Calculation; Statistics Canada Toronto Condo Network September 17, 2010
- 13. Based on GDS rule of thumb, the average GTA home price is affordable Average vs. Justified Selling Price in GTA 450,000 Justified Average Selling Price based on 32 per cent GDS 350,000 Actual Average Price 250,000 150,000 Shaded areas represent periods when, based on the 32% GDS rule of thumb, a mortgage on the average priced home was not affordable 50,000 2010 YTD 1986 1987 1988 1989 1990 1994 1995 1996 1997 1998 1999 2003 2004 2005 2006 2007 2008 1991 1992 1993 2000 2001 2002 2009 Source: Toronto Real Estate Board Toronto Condo Network September 17, 2010
- 14. Condo Apartment Price Trend by TREB Region Median central Median GTA Condo Apartment Prices condo prices close $375,000 to GTA median for All Housing Types, All Areas Central ALL home types $325,000 Condo Apartments, All Areas North $275,000 West East $225,000 $175,000 $125,000 $75,000 Source: Toronto Real Estate Board Toronto Condo Network September 17, 2010
- 15. Active listings for condo apartments have increased Condominium Apartment Completions and MLS® Active Listings (Annualized Trend) 30,000 Completions Active Listings 25,000 20,000 15,000 10,000 5,000 Regardless of the number of condo apartments under construction, 15,000 completions per year appears to be the upper threshold. 0 Source: Toronto Real Estate Board; CMHC Toronto Condo Network September 17, 2010
- 16. Increased listings could impact future price growth Condominium Apartment Sales-to-Active Listings Ratio and Median Price Growth (All Areas) 70% Annual Median Price Change (Right Scale) 25% Annual Median Price Growth 60% Sales-to-Active Listings Ratio (Left Scale) 20% Sales-to-Active Listings ratio 50% 15% 40% 10% 30% 5% 20% 0% 10% -5% 0% -10% Source: Toronto Real Estate Board Toronto Condo Network September 17, 2010
- 17. Summary Points • The pace of economic recovery has slowed (not stalled). The Bank of Canada has more flexibility with the direction of interest rates. The market consensus is for fewer rate hikes than originall expected through the end of 2011. • The average price level, on its own, does not tell us whether or not home prices will fall. Historically the best determinant of price growth or decline has been affordability. Right now affordability remains in check, thus the current average selling price is justified. • The condo apartment market has tracked trends in the market as whole quite closely. The one wildcard for condos is new apartment completions, but the apparent ceiling on the number of completions each year will help mitigate the risk of a flood of listings into the market. Toronto Condo Network September 17, 2010