Will Dunning has just released his Housing Market Digest for the Greater Toronto Area for February 2019. He does not paint a positive picture of the GTA housing market. We can use one word to describe the state of Canada’s largest market, and that is “underperforming”.
House resale activity in the GTA saw a slight increase in January to a seasonally-adjusted annualized rate of 81,400. That rate is much lower than it should be. According to Dunning, resale activity should be at least 20% higher than that, or somewhere above 100,000 annualized resale transactions.
Though some GTA housing market stats show positive growth, it does not mean the market is healthy
The GTA’s sales-to-new-listings yearly average also saw a 3.5% increase from 49.5% last year to 53%. Whenever the sales-to-new listings ratio falls between 40 and 60%, we can say the market has balanced conditions. If the rate goes above 60%, it indicates a seller’s market, whereas below 40% indicates a buyer’s market.
Home prices have also remained relatively flat on a year-over-year basis. Though CREA’s house price index shows a 2.7% increase in the house price index, Dunning claims that it was caused by price increases that took place between last February and April. When the entire year’s performance is averaged out, home prices have indeed remained stagnant.
Condo sales slow down in the last half of the year
A highlight of the report is that price growth for condo apartments has slowed down considerably on a year-over-year basis. Condo apartments show growth in the house price index by 8% on a year-over-year basis. But this growth basically came to a halt since last August.
Sales for new homes were also underwhelming, with total sales for 2018 at an anemic 25,161. To put this stat in context, the annual average for the past 20 years was 36% higher, at around 39,500 units. Low-rise sales saw a small increase in January to an annualized rate of 6,300. Though a small increase is better than no increase, Dunning claims that number is far below the 20,000 minimum he considers essential for long-term stability.
The mortgage stress test has a big influence on the housing market
What is causing such lackluster stats? Dunning places most of the blame for the lackluster state of GTA housing market again on the mortgage stress test. Though there is a record-breaking number of housing units under construction in the GTA (particularly apartments), new buyers are still having a hard time qualifying for mortgages. “Home ownership is the foundation of a sensible lifetime financial plan. The stress tests are an undue impediment to achievement of lifetime financial security,” Dunning says. “Basing the stress test on a 0.75 point increment over contracted rates is a shortcut for taking income growth into account.”
Though Dunning doesn’t paint an optimistic picture, he invites us to keep our eyes on the federal budget scheduled for release on March 19th. We will see if there will be any changes on the mortgage stress test. In his words, we will see “how much the government does care about young adults.”