Real estate guru Ray Brown once said, “The best time to invest in real estate is five years ago.” Nothing could be truer! When we look back on trends over the past decade, it’s clear real estate prices in Toronto have long been on an upward trajectory. But what are the contributing factors that impact real estate prices and how have those factors changed in 10 years? And do prices really never drop? Here we look at long-term real estate market trends in Toronto to shed some light on the driving forces that have led us to where we are today.
10-Years of Toronto Real Estate Averages
First, let’s look at the numbers of note over the past 10-years.
Average Sales Price
In 2012 the average sales price for a home in Toronto was, are you ready for it? $497,073! In 2021, the average sales price was $1.095 million. That’s a staggering $597,927 increase in a decade. While prices remained flat between 2012 and 2013, we reported back in 2014 that condo sales continued to lead the GTA housing market, contrasting with sales of detached, semi-detached and townhome properties. However, in 2016 prices peaked at $740,633, and rose again in 2017 to $834,249 then flattened out. Prices soared year over year from $883,573 in 2019 to $986,106 in 2020 and then up to $1.056 million in 2021. The average for May 2022 was $1.212 million.
Average Days on Market
Looking at average days on market (DOM), we see the trend makes sense when looking at housing prices. Going back 10 years we see the average DOM sitting in the mid to low 20s, but when the peak hits in 2016, this drops down to just 19. By 2021 it was 16 and in May 2022 it was 15.
In December 2012, the sales to new listings ratio (SNLR) sat at a respectable 52.9%. By December 2016 it was 75.8%. The sweet spot is somewhere between 40% and 60% to show a balanced market. At the end of 2017 it was looking good at 45.61%, but when we watch the year progress it rises along with housing prices reaching 67.52% in December of 2019. January 2021 reached 86% and now as prices are dropping bit by bit so too is the ratio. In fact, 2022 has seen the quickest and most drastic drop in the SNLR in 19 years. In April it was just 43.5%.
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What Happened in 2016?
The cause and effect of Toronto housing prices shows us some interesting facts, especially when we look at what was happening in 2016. At that time, we had the perfect trifecta of a strong economy, low borrowing rates and low unemployment. That made it easier for people to afford homes, so it helped create an upward momentum for Toronto housing prices. But, and this is very important, we also saw a low inventory of active listings.
We know today that low inventory has also been a major contributor to rising prices. Back in 2016, inventory hit a 15-year low. At that time, we reported, “The inventory crunch continues: Active listings hit a decade-and-a-half year low, according to TREB.” The call to action by the experts? Jason Mercer, TREB’s director of market analysis said, “What we really need is more policy focus on issues impacting the lack of homes available for sale.” Hmmm. Sounds familiar.
So, what did the government do in response to such calls to action? They tried to stabilize real estate markets by introducing the stress test for insured mortgages. Remember that? We sure do. However, at that time, Mr. Mercer said supply trends indicated we wouldn’t start to see more homes available in the near future. How true.
Another familiar story at the time was well-employed, established couples not being able to afford to buy a home as they had once hoped. We also reported at that time that condo unit sales beat sales of detached homes, taking the number one spot. Condo sales increased in 2016 by 20.3% compared to a 10.5% increase in sales of detached properties.
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Immigration Impact in 2018/2019
When we look at 2018 and 2019, the records show we actually did build enough GTA housing to keep up with the population increase. But what also happened was an increase in net immigration which was over 252,873 new residents. As we unknowingly approached the pandemic era, immigration numbers were about to drop dramatically. Unfortunately, the drop in immigration created an unmanageable backlog and a bulk of new Canadians looking for homes.
The Pandemic Era: Condos
The condo market was impacted in several ways once the pandemic hit:
- Roughly 21,000 short-term landlords in Toronto chose to sell or change to a long-term rental strategy
- More inventory for condo rentals reduced competition and provided a window of opportunity for affordable rents for some lucky tenants
- Short-term landlords who decided to list were up against competition of new builds as well as the thousands who decided to sell their condos to live in the safer, wider open spaces of the suburbs
- Condo prices became more affordable for both renters and tenants as inventory rose, and prices fell by about 10% in the second quarter from the first quarter of 2020
By November of 2020 investors realized they had an opportunity to take advantage of the price decline despite dropping rents. In the end, condo sales in December 2020 rose by 75% and the month of inventory levels tightened up.
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Prices Never Drop: Not True!
Just so we don’t provide a false sense of security, we’d like to point out that real estate prices do drop — even in Toronto. The last crash was back in 1989 when Toronto housing prices had peaked at what back then was the unheard-of cost of $ $273,698. Prices fell for a seven-year period, bottoming out in 1996 at $198,150. In fact, GTA house prices dropped almost 34% from the end of 1989 until the beginning of 1991.
People who bought at the peak lost money if they sold their homes during that seven-year period, especially when prices bottomed out. It took 13 years for the market to recover. However, when you consider inflation, it actually took 22 years for prices to even out for those who bought their homes at the peak.
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Signs History Could Repeat Itself
This history lesson shows us the 90s were not just about big hair and bad fashion. It serves as a reminder that the contributing factors that broke the proverbial bubble back then are eerily close to what we are seeing today:
- People hoping to get in on the real estate market before interest rates rise, impacting inventory
- Fears of inflation causing Canadians to buy, buy, buy and increase their debt
- The Bank of Canada responding by raising interest rates (BTW rates back then were as high as 13%)
We’re keeping our eyes on slow increases in inventory, slight drops in prices, and possible increases in days on market for signs we could be entering a buyers’ market. However, if the Bank of Canada is true to its promise and continues to increase interest rates, hopefully we’re not headed for another bubble burst.
If you’re wondering if the market is shifting the Christine Cowern Team has the answers. Give us a call at 416.291.7372 or email us at firstname.lastname@example.org. We’d love to work with you!