Canada’s largest real estate board predicted a slower year is ahead for Toronto’s housing market after it overheated in 2017 and sent home prices surging.

In a preview of its annual forecast, the Toronto Real Estate Board (TREB) said it expects home sales this year to slip to somewhere between 85,000 and 95,0000, slightly lower than 2017 when there were 92,394 sales.

Read: How mortgage rules will impact market

However, that dip in sales will come as the average selling price will creep higher, TREB said.

It forecast that the average home will sell for between $800,000 and $850,000—the same as TREB predicted for 2017. That year the average selling price reached $822,681.

TREB also says it expected year-over-year declines will be more pronounced in the first four months of this year, but sales will be up in the late spring and summer months when compared with last year.

Toronto home sales started 2017 on a hot streak, but slowed after the Ontario government moved to cool the market after a busy first quarter.

Read: Get ready for more volatility

The market was further dampened after an interest rate hike from the BoC in January, a rise in five-year fixed mortgage rates and the Office of the Superintendent of Financial Institutions’ stress test that came into effect on Jan. 1.

The test requires would-be homebuyers with a more than 20% down payment to prove they can still service their uninsured mortgage at a qualifying rate of the greater of the contractual mortgage rate plus two percentage points or the five-year benchmark rate published by the BoC.

“Federal and provincial policy decisions will act as a drag on demand for ownership housing,” says TREB in a release. “In response to the stress test, many intending buyers will change the type and/or location of home they are looking to purchase or potentially tap other down payment sources, rather than simply deciding not to purchase a home.”

Read: Two big banks to watch in 2018

However, it noted first-time buyers are an exception because they have the flexibility of being able to rent or live with family while deciding when, where and what type of home to buy.

TREB’s forecast comes about two weeks after the Canadian Real Estate Association slashed its outlook for 2018 to predict a 5.3% drop in national sales to 486,600 units this year. When compared with previous estimates, that’s a drop of 8,500 units.

It says it was already seeing signs that the country was “fully recovering” from last year’s heated conditions that sent the market into a frenzy.

Originally published on Advisor.ca
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