The United States is not the only nation experiencing the return of a booming real estate market: Our neighbors to the north are also in the midst of a similarly extended surge in the marketplace, and it is the renewed strength of the Canadian economy that has powered this upward trend in the average price of existing home sales. Our analyses indicate Toronto is perhaps the most salient example highlighting this continued upward trend, particularly since the city’s average home sale price checked in at $1.2 million in the last month, increasing at a rate representing a 28-year high.
After reviewing each category of housing within Toronto’s city limits — including detached homes, condominiums, and townhouses — it is evident that the sharp increase in the average sale price applies more or less equally to the different types of housing. Even with the 33-percent increase in prices across all housing categories encouraging a 15-percent increase in new listings put on the market, the Toronto housing supply still remains limited by any measure.
Although the sudden increase in equity would lead most economists to predict a continued increase in the number of real estate listings — thereby introducing more balance within the market — our research indicates that many homeowners are still somewhat reluctant to cash in on their gains by putting their home on the market. It is somewhat ironic, but here at Tweed Economics we believe this might be the product of the limited housing supply leaving few good options for potential sellers who wish to remain in the city of Toronto.
City officials are looking at the limited supply of real estate as an issue that may need to be addressed through some sort of government intervention. Throughout our many years working in similar markets in which limited supply issues can be overcome with off-market expertise, intervention by government entities — despite wholly good intentions — all too often leads to unintended consequences that only exacerbate an existing issue or create new, more complex issues.
Various city officials have intimated potential steps they might take to intervene, citing the current lack of affordable housing as a deterrent for first-time homebuyers who wish to live and work in Toronto. This is certainly problematic, and city officials are right to be concerned about a continued lack of supply preventing potential buyers from entering the real estate market. Without first identifying the precipitating factors and understanding how each of these factors influences the market, outside intervention will almost certainly lead to a host of newer and more complicated problems for city officials to handle.
As Toronto city officials discuss the possibility of implementing a vacant-home tax or a foreign-buyers levy in the hopes of reducing real estate speculation, it’s worth pointing out that it is typically ideal to simply allow the market to self-correct. With home values continuing to soar in Toronto, it seems likely that potential sellers in the city will ultimately decide to take advantage of a strong marketplace rather than standing on the sidelines as others reap the rewards of the sharp rise in home equity.