The Toronto and area residential re-sale market once again broke performance records in October. The Toronto Real Estate Board reported 8,804 properties sold for the month. These sales make October 2015 the best October on record. By comparison only 8,512 properties were reported sold last October.
Rather than just provide statistics for October’s performance, I felt that it would be appropriate to gauge the pulse of the market with a view to determining if the numerous records that have been broken during 2015 have taken the greater Toronto market to some unsustainable level. In reviewing various key market indicators the conclusion reached is that the market has not peaked or even plateaued (although we will see some seasonal moderation during the latter part of November into December and January).
In conducting this review the following indicators were considered: volume of sales, average sale prices, days on market, rental market vacancy rate and rental rates, and inventory levels.
The volume of sales has continued to increase unabated since the beginning of 2015. Every month, including October, has seen a substantial increase in the number of sales as compared to the same month last year. Last year 92,783 residential resales were reported by Toronto area realtors, the second highest annual sales performance on record. As of the end of this October, 89,071 properties were reported sold. By mid- November we will have exceeded the total number of sales achieved in 2014, on route to approximately 100,000 reported sales by year end, 2015.
Average sales prices, once again including October, have continued to rise as compared to the corresponding month in 2014. The average sale price for January 2014 was $526,965. It rose to an annualized average sales price of $566,626 for 2014. The average sale price in January of this year started at $552,925, approximately 5 percent higher than January 2014. Every month thereafter the average sale price has exceeded the average sale price for the corresponding month in 2014. As of October the annualized average sale price for all properties sold in the greater Toronto Area was $622,118, almost 10 percent higher than the average sale price for 2014.
Days on market also indicates that the Toronto area market place has yet to reach its peak. Throughout 2015 days on market have remained in the low 20’s, consistently lower than any corresponding month in 2014. In October days on market came in at 22, 12 percent lower than the 25 days that it took on average for properties to sell in October 2014. Correspondingly inventory levels have continued to fall. In October there were only 1.9 months of inventory in the greater Toronto area, and 2.2 months in the City of Toronto, where most of the market’s condominium apartments are concentrated.
The number of rentals has increased dramatically in 2015 as compared to last year. During the third quarter of 2015, 9,635 condominium apartments were reported leased, 22.6 percent higher than the 7,859 apartments reported leased in the third quarter 2014. At first blush this dramatic increase could be viewed as a sign that the residential resale market is softening. However, two factors mitigate against this conclusion. Firstly, the vacancy rate in October was only 1.3 percent, unchanged for all of 2015. Secondly, rental rates have remained stable, on average increasing by slightly more than the prescribed provincial increase of 1.6 percent.
A recent report by the Paris based Organization for Economic Co-operation and Development warned that there was a risk of a “sharp market correction” rising in Toronto. It based this conclusion on what it claimed was a glut of new and unoccupied units in the City. The best available data does not support this conclusion. Toronto’s vacancy rate remains at 1.3 percent, perilously low, not high, with 9,635 condominium apartments leased in the third quarter of 2015 alone. Normally market areas with a “glut of unoccupied” properties see vacancy rates rise, and correspondingly, rental rates fall. Rental rates in Toronto are basically unchanged from last year, with one bedroom rents up by 1.9 percent, and two bedroom rates up by 2.2 percent. (Bachelor apartments and three bedroom apartments, a very small component of the overall rental market place, just over 5 percent, declined in 0.7 percent).
Barring any dramatic economic setbacks over the coming holiday season, the market should begin strongly in 2016, to some degree emulating 2015. The ultimate concern remains affordability. Notwithstanding historically low mortgage interest rates, steeply rising average sale prices, unmatched by increases in household incomes, eventually cause markets to peak. Toronto and area’s market place appears to be a long way from such a peak. A concern for 2016 is the implementation of second land transfer tax by municipalities outside of the 416 trading area.