The GTA real estate market continues to outperform 2008 results in an impressive fashion. In August of this year, the Toronto Real Estate Board (TREB) reported 8,035 house sales, up 27% from the 6,318 reported in 2008. What is more significant is that this year, TREB has reported approximately 60,000 house sales in the GTA market to the end of August. Even if we experience a conservative Fall with sales in the area of 20,000 homes, TREB would easily exceed last year’s total unit sales by at least 5,000 units. TREB’s current estimate is that the market will achieve between 80,000 to 85,000 by the end of the year (versus over 76,400 transactions last year).
The average price in August 2009 hit $338,000, which represents a 6% increase over the 2008 average selling price of $318,000 in August of the prior year. The increases in prices are to be expected given the significant shortage of inventory (1.9 months on hand). The days on market (another measure of inventory) averaged 29 days in 2009 versus 36 days in 2008.
Yet, we have seen a distinct trend in the market from the peak in June where the average price of a GTA property hit $345,000 and almost 11,000 units (10,955 to be precise). The big question is how does the Fall look? Will this Fall be a repeat of 2008? Or will the low interest rates continue to drive the real estate market?
To answer this question we have to examine which direction the economy is going, and what impact will it have on the real estate market in the GTA. The interest rate cuts by the U.S. and Canadian Federal governments provide a significant economic stimulus, which has continued to drive the market for big-ticket sales such as homes and cars. These rate cuts have had a major impact on the Canadian market place. Nonetheless, the economic results in the U.S. continue to lag. The demand for big-ticket items has seen no significant change in the U.S. This lag continues to depress the Canadian manufacturing sectors, which export to the U.S. (i.e. autos).
In spite of Ben Bernanke’s recent comments, there are many indications that the recession in the U.S. has not ended, especially in the minds of the consumer. Unlike Canada, consumer confidence is not strong, and this translates into a lack of manufacturing demand. And this in turn affects job growth not only in the U.S., but here in Canada. In fact, Canadian job growth is not expected to see any significant change until the second half of 2010, when economic forecasts predict a reversal of this trend and growth in Canadian employment numbers. When the consumer price index (CPI) begins to show positive continued growth, we can expect tightening of the monetary policy and increases in interest rates to reduce the fear of inflation.
What does all this mean to the real estate consumer? Quite simply, mortgage rate increases impact home affordability, so when these increases come – and at some point they will – we can expect the market to slow down from the active pace we have seen in recent months.
In summary, the fourth quarter (the fall market of 2009) looks very positive from a real estate perspective. Both governments will expect to continue to keep low interest rates, which provide a huge incentive for new buyers and move-up buyers to jump in the real estate market. We expect this trend to continue until spring 2010. At that point, forecasts call for positive job growth and the resulting growth in the CPI, which would change the government’s focus from reviving the economy to controlling the inflation through higher interest rates. Don’t miss this six-month window of opportunity, especially as the typical November/December slow down approaches.
Andrew C. Zsolt, Ca, Mba, Fri, is the founder and Broker of Record of Coldwell Banker Terrequity Realty, Brokerage – the number one Coldwell Banker franchise real estate brokerage in Canada. Andrew has made appearances in The Globe & Mail as well as The Toronto Star as a notable real estate expert. You may contact Andrew via e-mail at azsolt@terrequity.com.
