Buyers Stress Test

Toronto, Vancouver see home-sales rush ahead of new stress-test rules



For The Globe and Mail
TORONTO AND VANCOUVER

NOVEMBER 2, 2017

Home sales climbed in October in both Toronto and Vancouver as buyers moved to lock in purchases in Canada's most expensive cities before new mortgage stress-testing rules take effect in January.

The Toronto Real Estate Board said home sales in the Greater Toronto Area climbed 12 per cent in October, marking the biggest month-over-month growth in sales since Toronto's overheated housing market hit a sales peak in March. October sales were 27 per cent lower than October last year, however, when the GTA had record sales.

TREB said the average GTA home sold for $780,104 in October, up 0.6 per cent from September and 2.3 per cent higher than the same month last year.

Toronto's housing market began a modest recovery in September and continued to grow slowly in October, suggesting the GTA has at least halted the sharp downturn in house prices that began in May after the provincial government announced its Fair Housing Plan changes, including a new foreign-buyer tax.

Greater Vancouver, by contrast, has fully shrugged off last year's market downturn, with the volume of sales climbing 35 per cent in October compared with the same month last year and jumping 7 per cent compared with September. The Real Estate Board of Greater Vancouver said sales in the region were 15 per cent higher than the 10-year average for October.The benchmark sales price for all homes in Greater Vancouver was $1,042,300 in October, up 12 per cent compared with October last year and an increase of 0.5 per cent over September.Jason Mercer, TREB's director of market analysis, said the Toronto market is continuing to follow the recovery pattern of the Vancouver region, which saw sales fall after the B.C. government introduced a foreign-buyer tax in August, 2016, then begin to recover by January this year.

Toronto realtor Eryn Richardson, general manager of Century 21 Heritage Group, said his offices saw home sales climb in October not only compared with September, but also compared with October last year. He says buyers no longer seem concerned about a bubble bursting , so are back shopping for homes.

Mr. Richardson also said buyers are concerned about looming new mortgage stress-testing rules announced by Canada's banking regulator – the Office of the Superintendent of Financial Institutions – on Oct. 17. 

Buyers are keen to move before the rules take effect Jan. 1, he said."That's getting people out and buying – I think that's a big factor for sure," Mr. Richardson said.Chris Alexander, regional director for Ontario and the Atlantic region at Re/Max, said he credits the pending mortgage rule change with spurring at least half of the buying action in the GTA in October.

"The OSFI stuff is definitely driving some of this," he said. "On a year-over-year basis, price appreciation is in healthy territory. I think there's still a ton of demand and the market fundamentals of the GTA are very strong. … I think we're in a really good spot."

The OSFI rule change will require buyers who are making down payments of more than 20 per cent of a home's value to prove they could still afford their mortgage payments if interest rates were 2 percentage points higher than the rate they negotiated.

Royal LePage chief executive officer Phil Soper said he thinks most buyers will be unaware of the details of the stress-testing rule and are not buying because of them.

Instead, he believes the Toronto market is being driven by high demand for housing due to the region's strong economy and continuing population growth. He said he now worries about the risk of another huge price runup.

"I'm more concerned about the upside than the downside," Mr. Soper said. "I hope that the OSFI moves will take some of the steam out of the market in the spring of 2018 and keep a lid on home price appreciation, because I do believe there's more risk that the market will get away and trend toward that irrational exuberance we saw last year. That would be my bigger fear, rather than the downside."

Royal LePage real estate agent Shawn Zigelstein, who is based in Richmond Hill, said the biggest factor driving sales has been the large increase in active home listings in the market, which could also lead to sales growth in November compared with October.

TREB reported 18,859 homes were listed for sale in the GTA as of Oct. 31, up 78.5 per cent from 10,563 homes a year ago.

"We have so much more product on the market, it's up almost 80 per cent year over year," Mr. Zigelstein said. "It's a huge number, and we will see how that translates into November and December."

The condominium sector remains the strongest segment of the housing market in both Toronto and Vancouver, while detached home sales have lagged.

In the GTA, condos sold for an average of $523,041 in October, up 0.5 per cent over September and 21.8 per cent higher than October last year. The average detached home sold for 1,008,207 in the GTA in October, a drop of 0.7 per cent compared with September and a decline of 2.5 per cent compared with a year ago.

The price for detached houses in Greater Vancouver averaged $1.8-million last month, up 12.8 per cent from $1.6-million in October, 2016. Prices for townhouses in the region averaged $892,349 in October, up 23.2 per cent from a year earlier, while the average price for condos sold reached $687,053 for a 22.2-per-cent gain year over year.

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