Toronto Star, January 17, 2018 By Tess Kalinowski, Real Estate Reporter :A booming Canadian economy has prompted the Bank of Canada to hike its lending rate a quarter of a point for the third time since last summer.

In the near-term, it will likely mean some belt-tightening among those with variable rate mortgages and lines of credit, and with more increases expected, some consumers will be scrimping further as the year goes on.

But the demand for housing in the Toronto region remains so strong that the higher mortgage rates aren’t expected to have a big impact on home sales.

The Bank of Canada’s move to increase the benchmark rate to 1.25 per cent, which will drive up variable mortgages and consumer loans, was widely anticipated and comes only about two weeks after new mortgage stress testing rules were introduced by the Office of the Superintendent of Financial Institutions (OFSI).

The .25 per cent increase would mean an additional $52 a month or $624 per year on payments of a $400,000, 5-year variable rate loan amortized over 25 years, according to Ratehub Inc.

Royal Bank of Canada was first among Canadian banks to respond to the rate hike, raising its prime lending rate by a quarter of a percentage point, to 3.45 per cent, effective Thursday. Bank of Montreal, CIBC, Scotiabank and TD Canada Trust followed.

The volume of home sales in the first two weeks of January is 6 per cent lower than the same period last year when the Toronto area market frenzy was building to its April peak, said John Pasalis, the number-crunching president of Toronto brokerage, Realosophy.

“The mood overall is relatively positive. A lot of buyers need to buy a house,” he said, speculating that many of those are jumping back into the market, after putting their home search on hold last year.

But Pasalis doesn’t discount the financial stress that is mounting on homebuyers and owners, who have stretched their budgets to get into the market. They won’t default on their mortgages but, he said, “When you’re in an environment of rising expenses and costs that puts pressure on people.”

A December survey for CIBC showed that paying down debt is a priority for 2018 among 25 per cent of consumers. Last year, the Financial Consumer Agency of Canada warned that many are struggling to do that. It found 40 per cent of the three million Canadians who have home equity lines of credit — with an average $70,000 debt — don’t make regular payments on those loans. Twenty-five per cent make only minimum payments or pay the interest.

The central bank has hinted that further rate boosts are possible this year, but it said it would be assessing the impact of higher rates on the economy.

Increased loan costs are one more step in the return to “normality” after 10 years of low lending rates, said James McKellar, associate dean at the Brookfield Centre in Real Estate & Infrastructure at York University’s Schulich School of Business.

“If (the interest rate) does have a dampening affect on the housing market no one’s going to really suffer that much. There’s an incredible amount of demand and people seem to have access to money,” said McKellar.

He suggested higher rates could prompt consumers to reconsider expensive car loans and high-priced internet and phone services.

The Bank of Canada cited robust employment, an unexpectedly strong housing sector and inflation that is close to target as reasons behind Wednesday’s rate hike. Clouding the picture, it said, is the uncertainty around the North American Free Trade Agreement.

The strong economic factors underlying the rate rise also apply to the Toronto area housing sector, said Tom Storey, sales representative for Royal LePage Signature Realty.

“I know interest rates went up but they’re still historically low. Vacancies in Toronto are still under 1 per cent, the rental demand is off the charts,” he said. 

Housing demand is compounded by high immigration levels that is attracting newcomers to cities like Toronto. 

“Even if the (interest rate) increase were to take a handful of purchasers out of this market, the number of properties available in this region is just not large enough to sustain the current levels of demand,” said Storey.

The impact of the OSFI changes won’t be clear until March or April because many buyers avoided them by getting pre-approved for up to 120 days at the end of last year, he said.

On the new construction side of the housing market, it’s unclear how investors will react to the higher interest rates, said analyst Ben Myers of Bullpen Research.

There should be some relief to the currently limited supply of housing three years from now. A balanced supply and demand market in the Toronto area would mean between 25,000 and 30,000 condo completions in a year. Last year there were 18,232.

“We’re not likely to have any years over 30,000 until at least 2020 looking at the preconstruction sales and the typical lag between sales and completion,” said Myers.

The demand to rent condos is likely to remain strong given the low vacancy rates, higher interest costs and tougher lending rules that might sideline some would-be buyers. But investors will weigh those conditions against the lower returns from Ontario’s expanded rent controls on new buildings.



February 6, 2018 -- Toronto Real Estate Board President Tim Syrianos announced that Greater Toronto Area REALTORS® reported 4,019 residential transactions through TREB's MLS® System in January 2018. This result was down by 22 per cent compared to a record 5,155 sales reported in January 2017.

The number of new listings entered into TREB's MLS® System amounted to 8,585 – a 17.4 per cent increase compared to 7,314 new listings entered in January 2017. However, it is important to note that the level of new listings was the second lowest for the month of January in the past 10 years.

"TREB released its outlook for 2018 on January 30th. The outlook pointed to a slower start to 2018, especially compared to the record-setting pace experienced a year ago. As we move through the year, expect the pace of home sales to pick up, as the psychological impact of the Fair Housing Plan starts to wane and home buyers find their footing relative to the new OSFImandated stress test for mortgage approvals through federally regulated lenders," said Mr. Syrianos.

The MLS® Home Price Index Composite Benchmark was up by 5.2 per cent year-over-year. This annual rate of growth was driven by the condominium apartment market segment, with doubledigit annual growth versus the single-family segment, with prices essentially flat compared to last year. The overall average selling price was down by 4.1 per cent year-over-year to $736,783. This decline was weighted toward the detached segment of the market. In the City of Toronto, the average selling price was up for all home types except for detached houses.

"It is not surprising that home prices in some market segments were flat to down in January compared to last year. At this time last year, we were in the midst of a housing price spike driven by exceptionally low inventory in the marketplace. It is likely that market conditions will support a return to positive price growth for many home types in the second half of 2018. The condominium apartment segment will be the driver of this price growth," said Jason Mercer, TREB's Director of Market Analysis.



RE/MAX 2019 Market Outlook Report 

December 13, 2018

It is anticipated that the market will continue to stabilize, as Canadians will start to feel the pinch of higher interest rates as they move forward with their home-buying plans in 2019.

A recent survey revealed almost one-third (31%) of Canadians said higher interest rates have not affected their ability to get an affordable mortgage thus far. However, this is expected to change in 2019. A separate survey of RE/MAX brokers and agents found 83% predict rising interest rates will make it more difficult for Canadians to purchase a home next year.

In Toronto, rising interest rates and the mortgage stress test were the two major factors affecting market activity this past year, with average sale prices dropping by four per cent from $822,572 in 2017 to $789,181 in 2018, and unit sales down by 16 per cent. Lack of affordability in the single-detached segment will make it difficult for buyers wanting to enter the freehold market. The resale condo market, on the other hand, now represents almost 37 per cent of total residential sales, with its relative affordability fueling the rise of vertical growth. Average residential sale price is expected to increase by two per cent in 2019.

Communities such as Ottawa and London are sellers’ markets, showing increased growth in average residential sale price. This trend is expected to continue into 2019, however rising interest rates and the stress test continue to make it difficult for prospective buyers in other Ontario communities, including Barrie, Oakville and Durham regions.

See  Report for selected Cities in Ontario below: