Toronto Real Estate Market Update: WHAT IS HAPPENING?
March 3, 2022
The story in Toronto’s real estate market (and certainly, across the province) is WHAT IS HAPPENING? The average price for a detached home in TO is $1,886,413.
In Kitchener, the average price is $1,152,707, 35.5% higher than January 2021. The average price figure a house in Barrie is $937,146, also an increase of 35.5% compared to January 2021. No shade against Barrie, but a million dollars?
It’s no surprise that a number of government-led initiatives are being tossed around to help deal with this situation, including but not limited to
- A Toronto vacant home tax
- A proposed moratorium on foreign buyers
- Increased interest rates
- A luxury home tax
The main problem with any or all of these initiatives is the uncertainly it’s causing in the market. The government either needs to stop talking about it or take some action and see what happens when the dust settles.
Only one of these initiatives has been turned into law: the vacant home tax in Toronto. It began in January 2022, but no tax will be collected until 2023. The tax is 1% of the current assessed value, which means that on a $1M home, it would be $10,000. A home is considered vacant if nobody lives in it for over six months and the unit is not the principal residence of the owner.
The main goal is to free up housing stock, not to collect taxes. I think it may help free up rental properties, but chances are somebody sitting on a $1M investment isn’t going to sell because they’re facing an additional $10K in taxes.
The City of Toronto estimates that there are between 9,000 and 27,000 vacant homes in the city based on “household water accounts had extremely low to very low consumption volumes.” This doesn’t take into account condo units because the water is bulk metered.
Homes belonging to snowbirds aren’t considered vacant because they’re gone less than six months out of the year. I’m interested to see how this plays out and how it will be enforced.
A moratorium on foreign buyers would only have a limited reach. According to Better Dwelling, roughly only 5% of buyers actually live outside Canada, though foreign buyers tend to invest in condos rather than houses.
It remains to be seen if the pandemic put a damper on this and if more non-residents make purchases.
The luxury tax being considered by city council (essentially an increase in the Municipal Land Transfer Tax on homes valued over $2M and payable when the home sells) could act as an incentive to keep people in the houses they’re already in because people won’t want to buy up.
And then of course, there are the proposed interest rate hikes, the first of which happened on March 2 when the Bank of Canada increased key interest rate by .25% to .5%, the first increase since October 2018. The BoC is expected to raise interest rates incrementally over the coming months, as much as 1.75%, which is not insignificant. I don’t think this will impact the market significantly because anybody who applied for a new mortgage starting in 2018 was subject to the mortgage stress test, so especially with mortgage rates currently lower than they were in 2018, qualifying for the a higher mortgage rate shouldn’t be an issue.
The uncertainty of stock markets tumbling & rebounding (rinse and repeat) also has an impact on the market. When things go south with people’s investments, they don’t tend to make big discretionary purchases. People see 10% of their savings disappear in a day and they get scared. People are generally risk-averse. That instability leads people to hesitate and wait and see.
The only thing that will really make a difference is an increase in inventory levels. People aren’t moving because it’s too expensive to move. It’s a vicious cycle – in this market, nobody wants to sell before they’ve bought, which creates a holding pattern.
As long as we have very little inventory, prices are going to remain high. Keep in mind also that more so in Canada than in the US., the “want” to a home much stronger so if demand remains high and inventory remains low, the pace and fervour of our market won’t be changing soon.
I have hopes that when the better weather comes in, we’ll see more inventory.
If you have any questions about the market or are curious about what your home is worth, please get in touch!