Toronto Real Estate Market Remains Stable In March
The Toronto Board of Realtors released its March market report data on April 3rd, 2019. Sales were on par with the same period last year, and prices were up marginally by 0.5% on average to $788,335. Average prices were up by 1% compared to the prior month. What’s noticeable is a decline in the number of listings, which have fallen by 5.1 percent from the same period last year and by 1.5 per cent in the first quarter. One must also keep in mind that market conditions were quite slow in the early part of 2018, as the real estate market was still digesting the Fair Housing Plan and the B20 Mortgage Stress Tests.
The OSFI test requires mortgage borrowers to qualify at the higher of the contract rate + 2% or the 5 yr fixed rate, and surveys have shown that this has resulted in some buyers putting their purchase decision on hold. First time purchasers in particular, who don’t have the benefit of an existing appreciating asset, are finding it increasingly difficult to pull together the funds for a suitable downpayment. The Real Estate Board believes that this measure is having a negative effect on the job creating real estate market.
Federal Government Announces Relief For Home Buyers
The Liberal Government announced measures in their budget to assist new home purchasers and address the issue housing affordability. The RRSP Home Buyer limit was increased to $35,000 from $25,000 (double that for a couple). The program is also being expanded to allow tax free withdrawals in cases where an individual has been through a family crisis like a marriage breakdown, even if they don’t technically meet the criteria of first time buyer. Canadian realtors had been advocating for this sort of move for some time, especially given the rise in home prices since the limit was set.
The Liberals also announced a $1.25bn (over 3 years) plan to directly assist first time buyers with a shared appreciation mortgage proposal for up to 10% of the purchase price. The Program is known as the First Time Home Buyer Incentive. It will see the Govt, through its housing agency CHMC, take an equity stake of up to 10 % in purchases. The model being employed is very similar to that used by non for profit Options for Homes, which has been building affordable housing for many years. The method functions like an interest free loan, with no payback required until years in the future. However, in order to qualify, a buyer must must have a household income of less than $120,000 per year and be able to come up with a five per cent down payment. Furthermore, the program caps out at 4 X the applicant’s annual income, which means the maximum purchase price (including the CMHC loan) cannot exceed $480,000. Given the average price of condominiums and homes in Toronto, that doesn’t really help too many people. Repayment is only required when the homeowner sells their home, at which point CMHC will take a share of the profits proportional to their stake.
The OSFI stress test is definitely impacting young Canadian’s ability to purchase a home. Moreover, surveys show that it’s impacting what and when they buy as well. I can appreciate the macroeconomic desire to ensure that overall debt levels are manageable. This program perhaps made sense when the market was frothy a few years back. However, with recent data showing a more stable and balanced market, a stress test is perhaps not required. With regards to the Federal Government’s affordability initiatives, I think they are welcome, but they won’t provide too much relief for buyers in the Toronto market, given where prices are.”
Ram Rajendram is a Toronto Real Estate Broker with Century 21 Harvest Realty Ltd., Brokerage. He sells condos & houses throughout the GTA & assists home & condo buyers with their purchasing needs. He is also a Canadian Chartered Accountant (CA) & holds a Bachelors Degree in Economics from the London School of Economics (LSE)
CHART SOURCEs: Toronto Real Estate Board. & Canadian Real Estate Association