Home sales in the Toronto region will start to climb again in 2019 after two years of declining, but Ottawa should nonetheless rethink a tough new mortgage rule that is a drag on the market, the Toronto Real Estate Board said on Wednesday.
TREB, which represents real estate agents in the Greater Toronto Area, predicts 83,000 homes will sell in the region in 2019, a 7.3-per-cent increase from 77,375 in 2018. That would be a turnaround from 2018, when total home sales fell 16.1 per cent in the GTA after an 18.3-per-cent sales decline in 2017.
The association predicts the average selling price for a home in the GTA will climb to $820,000 this year, up 4.2 per cent from $787,195 last year. The average is for all home types, including condominiums and detached houses.
TREB based its predictions on Ipsos Group survey findings that showed an increase in the number of people considering a home purchase this year, as well as anticipated population growth, low unemployment and lower average interest rates for five-year fixed-rate mortgages.
Jason Mercer, TREB’s director of market analysis, told a housing forecast event on Wednesday that he does not expect a major increase in sales in 2019 because the proportion of people who are planning to buy their first homes is falling because of difficulties qualifying for loans under a new mortgage stress test. Under the new rule, buyers have to show they could still afford their mortgages if interest rates were two percentage points higher than the level they negotiated with their bank.
“I don’t think we’re going to get back to a record level of home sales until we see more activity on the first-time buyer front,” he said.
Sean Simpson, Ipsos vice-president of public affairs, said many people have reported they are changing their buying plans because of the stress test.
The survey found 45 per cent of people have adjusted the type of home they intend to purchase because of change, while 43 per cent said they expect to buy a less-expensive home and 31 per cent said they would shop in a different location. Only 18 per cent said the new rule has had no impact on their ability to qualify for their desired home.
“More people are being impacted in more ways as government gets more involved in regulation,” Mr. Simpson said.
Ipsos found 43 per cent of people planning to buy said they expect to shop for a detached home, a steady decline from 54 per cent in 2015, while the proportion who plan to buy a condo has climbed to 26 per cent from 18 per cent in 2015.
“This is not necessarily what they wanted to buy – this is what they are likely to buy,” Mr. Simpson said.
TREB chief executive officer John DiMichele called on the federal government to revisit the mortgage stress-test rule.
“While we saw buyers return to the market in the second half of 2018, we have to have an honest conversation on whether or not today’s home buyers are being stress-tested against rates that are realistic,” he said.
The mortgage industry has complained the stress test sets an unnecessarily high bar, especially since interest rates climbed in 2017 and 2018, reducing the likelihood that buyers will face a further increase of 2 percentage points in the near future.
However, Phil Soper, CEO of real estate brokerage firm Royal LePage, said he does not think it is the right time to relax the stress-test rule.
He said the change cooled overheated markets and curbed risky lending, and it is too soon to start adjusting it.
“We’ve got a really tight labour market and very low inflation and low interest rates – it doesn’t seem economically to be the time to be adding stimulus to the market, and that’s essentially what you’d be doing,” he said in an interview.
Royal LePage forecast 1.3-per-cent average price growth in Toronto for 2019, but Mr. Soper said that forecast was issued in mid-December before it became clear the Bank of Canada would not raise interest rates again soon.
With rates unlikely to climb significantly in 2019, he said he now believes Toronto is poised for greater price growth this year, and that the risk of “runaway” home-price growth returning to the city is greater than the chance of a major housing crash.
“You don’t want to throw gasoline on a fire. You don’t want to throw stimulus at a market where home prices are rising,” he said.