House Prices Expected to Climb in 2018

It's no secret that 2017 was a wild year in GTA real estate, and while it looks like 2018 will offer a little more balance and little less frenzy, experts believe we will continue to see prices increase as sales decline.

The Toronto Real Estate Board recently issued its Market Year in Review and Outlook Report, a report that found that annual residential sales were down in 2017 compared to the record level set in 2016.

Total sales reported through TREB's MLS System amounted to 92,394 - down by 18 per cent compared to over 113,000 transactions in 2016.

As most prospective homebuyers might recall, 2017 got off to a newsworthy start marked by low inventory, extraordinarily high costs, fraught bidding wars and packed-to-the-rafters open houses.

In winter 2017, it was not unusual to see a ho-hum detached house in Toronto, Mississauga, Brampton or Oakville sell for $50,000 or more over asking.

Fortunately for homebuyers (and unfortunately for sellers), the frenzy didn't last.

TREB says that record sales in the first quarter of 2017 were followed by a decline after the Ontario Fair Housing Plan (FHP) was announced. The plan, which proposed a 15 per cent tax on foreign buyers and speculators, sent shockwaves through the market and prompted some buyers to back away, essentially cooling things down.

That said, sales picked up in Q4 as people acclimated to the FHP. Buyers also wanted to jump into the market before the implementation of the new Office of the Superintendent of Financial Institutions (OSFI) stress test guidelines, which went into effect Jan. 1, 2018. The new stress test, which requires buyers to qualify for mortgages at much higher rates, could eliminate up to 10 per cent of prospective homeowners from the market.

Naturally, prices increased in 2017, with prices peaking in the winter and falling month-over-month after that.

TREB says year-over-year average price growth of over 30 per cent was reported in the first quarter. In 2017, the average selling price was up by 12.7 per cent, hitting $822,681.

So, what does 2018 have in store for GTA homebuyers?

"Looking forward, the forecast range for TREB MLS sales in 2018 is between 85,000 and 95,000. The midpoint of this range suggests an annual sales count slightly lower than the 2017 total," the report reads.

"It is anticipated that year-over-year declines will be more pronounced in the first four months of 2018, as comparisons are made to the record pace of sales at the beginning of 2017. Conversely, sales are expected to be up on a year-over-year basis as we move through the late spring and summer months."

In terms of buyers, TREB says Ipsos polling data indicates that fewer first-time buyers will be motivated to enter the market, mostly due to the OSFI stress test and FHP policies.

The Ipsos survey found that 26 per cent of intending buyers felt that they wouldn't qualify for a mortgage two percentage points higher than the current market rate on their home of choice. That said, data also indicates that buyers will compromise and purchase a different home type (such as a condo over a townhouse) or look into different locations.

As far as prices go, TREB predicts the average selling price in 2018 to be between $800,000 and 850,000—signifying a slight increase over 2017.

The condo market is expected to be hit with the most significant price increases.

"Fundamental demand drivers promoting housing demand will remain in place in 2018, including immigration-driven population growth, job creation and low unemployment across a diversity of economic sectors," said Jason Mercer, TREB's Director of Market Analysis.

"However, we must be cognizant of the fact that, in the short term, higher borrowing costs and the effects of federal and provincial policy decisions will act as a drag on demand for ownership housing. It is also probable that provincial rent control legislation will stunt the supply of available rental units, resulting in a continuation of average rent growth well-above the rate of inflation."

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