The association representing Toronto’s real estate agents expects home sales to climb in 2019 after two years of declining market activity, but says the federal government nonetheless needs to rethink its tough new mortgage qualification rules.
The Toronto Real Estate Board issued its annual sales forecast early Wednesday, predicting 83,000 homes will sell in the Greater Toronto Area in 2019, a 7.3-per-cent increase from 77,375 sales in 2018. The forecast would mark a significant turnaround from 2018, when total home sales fell 16.1 per cent in the GTA following an 18.3-per-cent sales decline in 2017.
TREB 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.
The association said it based its prediction for stronger sales on IPSOS survey findings, which showed an increase in the number of people considering a home purchase this year compared to last year, as well as anticipated population growth, low unemployment and lower average fixed-rate mortgage costs.
“Although we won’t experience record levels, we do expect to see a better year in 2019 for sales and selling prices,” TREB president Garry Bhaura said in a statement.
Despite expectations that sales will improve, TREB chief executive officer John DiMichele said the federal government should revisit its new mortgage stress-test rule, which requires buyers to prove they could still afford their mortgages even if interest rates were two percentage points higher than the rate they negotiated with their bank.
“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.
TREB said its analysis shows that on average, home buyers had to qualify for monthly mortgage payments almost $700 above what they will actually pay.
Mr. DiMichele said policy makers “need to be away of the unintended consequences the stress test could have on the housing market and broader economy.”
Critics of the stress test have complained it sets an unnecessarily high bar, especially since interest rates climbed in 2017 and 2018, reducing the likelihood that buyers will face a further 2-percentage-point increase in the near future.
The Office of the Superintendent of Financial Institutions (OSFI), which imposed the tougher test as of Jan. 1, 2018, has defended the move, saying it was concerned about rising debt levels and risky underwriting practices by lenders.
In a speech Tuesday in Toronto, OSFI assistant superintendent Carolyn Rogers said the design of the stress test might make it look like it is in place to ensure consumers are protected if interest rates increase, but the interest-rate test is also a buffer against many kind of financial risk, including changes to income or expenses.
With interest rates still low by historical standards and personal debt levels historically high, “a margin of safety in these conditions is prudent,” she said.
Ms. Rogers said OSFI would consider changes “if conditions in the environment change,” and said the regulator monitors the lending environment continually.
“When we determine that adjustments to our standards and guidelines are warranted, we make them,” she said at an Economic Club of Canada luncheon.
Also Wednesday, TREB reported 4,009 homes sold in the GTA in January, a 0.6-per-cent increase over January, 2018.
Sales prices climbed 1.7 per cent last month on a year-over-year basis, TREB said, to an average selling price of $748,328 for all types of homes.
Mr. Bhaura said the sales improvement in January is in line with TREB’s forecast for moderate sales growth in 2019.
“It is encouraging to see the slight increase in January transactions on a year-over-year basis, even with the inclement weather experienced in the GTA region during the last week of the month,” he said.
The average detached home sold for $941,488 in the GTA last month, a decline of 2.8 per cent over January last year. The drop came as the number of detached homes sold during the month climbed by 3.5 per cent over last year, TREB said.
Condominium prices conversely rose 7.9 per cent in January to an average of $548,176, even as the total volume of sales fell 2.4 per cent compared to a year ago.
TREB said 9,456 homes were listed for sale in January, a 10.5-per-cent increase over last January, which was an especially quiet month after sellers rushed to list before the stress test took effect Jan. 1 last year.