RBC has returned with the latest regular instalment of its regular Canadian Housing Health Check, and alongside heightened “risks and vulnerabilities” facing the Greater Toronto Area’s housing market following Ontario’s Fair Housing Plan there were positives.
“Sharp shifts in market psychology always raise the odds of overreaction,” note Craig Wright, the bank’s chief economist, and Robert Hogue, a senior economist at RBC, in the report.
In April, the provincial government unveiled the 16-point Fair Housing Plan, which counts a foreign-buyer tax for a large swath of southern Ontario and more robust rent-control measures, leading to uncertainty about how the market would bear the changes.
“But slower home resale activity and increased supply of homes for sale have been positive developments,” the RBC economists continue.
Overall, RBC monitors 10 different factors in four major Canadian housing markets — the Toronto, Vancouver, Montreal and Calgary areas — and on the national level.
Factors include affordability, resale and rental market balances, interest rates, the labour market and demographics. The number of new single- and multi-family units under construction and also inventory levels in both segments are taken into account as well.
For each factor, RBC either evaluates a market as being safe (green), concerning (yellow) or in danger (red).
Anything marked as read “should be considered a source of worry,” according to RBC, while a yellow mark denotes developments that “have been mostly associated with imbalances but not always with housing downturns.”
Toronto was given the green flag in all sections except for new multi-family home inventory and overall affordability, which were each categorized as being significantly outside historical norms (red).
RBC says number of multi-family homes under construction as well as overall affordability are “posing much higher risk than usual” to the GTA market.
Affordability has been eroding in the GTA since 2012 and began worsening at a quicker rate in 2015, RBC observes.
“Most of the affordability pressure is concentrated in the single-family home side of the market; however, stress has increased in the condo segment as well lately, with condo prices escalating rapidly in the past year,” the RBC economists write.
As homebuyers continue to be priced out of the GTA’s detached-home market — where the average price was an eye-popping $1,055,863 in June, according to the Toronto Real Estate Board — they have been shifting to condos.
Increased demand has pushed condo price gains into the stratosphere, with the average unit selling for an average of $519,784, up 23.2 per cent from a year ago.
“The main risk of high levels of construction is that many units could reach the completed stage at once, thereby flooding the condo resale and/or rental markets,” Wright and Hogue continue. “So far, both of these markets have absorbed the increased supply quite handily.”
While Toronto’s vacancy rate stays low, new-condo sales have soared. In June, 5,495 new condo units sold, breaking a previous monthly record set in March, according to Altus Group data.
There is no one reason for the sky-high levels of activity, suggests Patricia Arsenault, Altus Group’s executive vice president of research consulting services.
“Factors include: the sizeable number of units in new condo projects opened in May and June (over 8,500); demand from end-user buyers who might have preferred a single-family home but have adjusted their expectations due to lack of affordable supply; and heightened investor interest due to the rapid price increases for condo apartments in recent months,” Arsenault outlines in a news release.
Bryan Tuckey, CEO of the Building Industry and Land Development Association, which releases Altus Group data monthly, raised concerns about spiking prices in the new-construction condo market.
“The price acceleration in the condo portion of the market is especially worrisome since it not only represents the lion’s share of new housing in the GTA, it’s also making it difficult for condos to remain the affordable option [for homebuyers],” he says in the same news release.