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Single-family Homes Jump, Market Still Cooling


In the flux of the Greater Toronto area (GTA) real estate market, lately it seems that buying activity takes a couple steps forward and one step back. On the upside, year-over-year sales of new single-family homes soared in February 2019, registering a 147 percent increase in purchases over that month in the prior year. Home sales often act as a bellwether for the rest of the Canadian economy so analysts always keep a close eye on statistical trends as the new year gets underway. Overall, growth in gross domestic product (GDP) failed to impress observers in 2018, coming in an at 1.8 percent, a marked slump from the prior calendar year when the total output of goods and services increased by three percent.

The housing market does indicate the health of the economy but it's only one leading indicator that moves officials at the Bank of Canada (BoC) to adjust interest rate policy. Earlier this month, based largely on a lackluster real estate market and depressed prices in energy commodities such as crude oil, BoC officials decided to keep the key policy interest rate at 1.75 percent in hopes of stimulating consumer spending and jump-starting home buying. The key policy rate is the rate banks charge each other for overnight loans, and an increase or decrease in that figure causes the cost of borrowing for homes and cars to move up or down accordingly. In their March 2019 meeting, fiscal policymakers left rates unchanged, adopting a wait-and-see approach on the heels of five rate hikes since October 2017.

So while robust buying activity in the GTA— Canada's most populous region— presents some good news, there appears to exist a downside. Condominium sales in the Toronto metro market drifted down by 58 per cent in February over the prior year, according to data gathered by the Altus Group, and the downswing resulted from one particular trend: Prices for these units have skyrocketed in recent years, and many first-time home buyers have gotten closed out of the market as affordability levels rose. On the other side of the coin, the decreased demand for condos have created more inventory, and increased supply should put the brakes on the upward price movements in this market segment.

In an attempt to help would-be homeowners make that initial buy, policymakers have crafted legislation, creating room in the federal budget to subsidize first-time home purchases. The Canada Mortgage and Housing Corporation will offer funding up to five percent of the purchase price of an existing home and up to 10 percent of the value of a new home. Thus, if the buyer of a new $200,000 property plunks down $10,000 for a down payment, the government will follow suit with a $20,000 contribution of its own. The funds must be repaid, and Finance Minister Bill Morneau hopes this program has a positive twofold impact on the real estate market. Primarily, the package should help make homes more affordable for younger buyers and secondly, analysts predict that increased demand will boost median home prices.

The measure is expected to be passed into law in September 2019. While results will take some time to gauge, aspiring home buyers looking to secure their own little corner of the Great White North have a little more hope on the horizon.

And if you do decide to invest in your own home, make sure to shop around for your mortgage rates at Rates.ca.