TREB was quick to point out that prices were up year-over-year in November, but as a blanket statement, that comment is not entirely true. The GTA is experiencing a situation where the price to enter the housing market is rising, while more expensive options are remaining flat. This is causing a rising price floor in comparison to a stagnant price ceiling.
This situation began to take shape while prices were experiencing great increases through the end of 2016 and into early 2017. At that time, all markets were going up in the GTA, if at slightly varying paces. As average prices fell after spring 2017, we started to see the four segments of the housing market behave differently, some falling, some continuing to rise. This is when the current situation started to take shape.
In 2016, 36% of GTA resale home purchases were made for less than $500,000. That percentage fell to 26% in 2017 and is currently at 23% through 11 months of 2018. At the other end of the spectrum, 17% of all homes were purchased for over $1 million two years ago. This percentage rose in 2017 thanks mainly to the price escalation through the first half of the year to 22%; however, it has lost ground since then and stands at only 18% so far in 2018.
|Year||% of Sales Under $500,000||% of Sales Between $500,000 and $1,000,000||% of Sales Over $1,000,000|
The rising price floor is not having the biggest effect on the average price; however, it is moving up the median price for a home in the GTA. The median price can rise or fall based on multiple factors. If all prices are rising then the median price will too and vice versa if prices are falling. However, what we are currently seeing in the GTA is median price pressure from the ground up only. Comparing November 2016 with November 2018, we see the average price increase just 1.5% from $776,684 to $788,345 (below inflation). Whereas, the median price had a more significant gain from $633,000 in 2016 to $670,000 now, a 6% increase.
Condos are the entry point into the housing market and their price increase is where the price floor pressure is coming from; however, we are starting to see prices leveling off in that sector. Price ceilings are usually pushed higher by rising price floors, though this has not yet happened in the GTA. It will be interesting to monitor in the coming months if this compression of the market will continue. Fewer and fewer homes are being offered for under $500,000, while the amount of buyers able to go over a million dollars is relatively stagnant. How much pressure can build in the middle before one end of the spectrum gives in, and which side will it be?