At the beginning of January we shared a 2019 sales forecast for the detached and condo housing markets of Toronto. With the first quarter of the year behind us, it seems like a natural time to evaluate if the predictions are holding up and review the new factors influencing the market that were not present three months ago.
Our predictions were primarily guided by the nine-month time lag we have observed between the Vancouver and Toronto markets. Over the past five years, Toronto’s price and sales movements have largely followed the patterns Vancouver had shown roughly nine months sooner. From this information we estimated that Toronto would see fewer sales in 2019 than 2018.
In the detached market our 2019 sales forecast called for a 15 – 25% reduction from the already low 2018 sales totals. For the condo market, our prediction was slightly more reserved with a 10 – 20% sales drop. These decreases did not equal the full reduction Vancouver experienced; however, they did seem in line with Toronto’s pattern of following Vancouver. They additionally considered the relative balance of Toronto’s market and the proposed increases to interest rates that would hurt sales.
Source: TREB, Six Housing Sense
To start the year Toronto’s detached market’s sales have fallen in between the 2018 sales volumes and our sales forecast. Through the first months of the year, we estimated a 20% reduction in sales. With the first quarter now concluded, detached house sales have dropped in comparison to 2018, though only by 8%. While this result outperforms our forecast, it does validate our prediction that sales would drop. That said, it is worth flagging that March sales were strongest of the year so far, being down just 5% versus 2018. This could be signaling renewed strength for detached homes.
Source: TREB, Six Housing Sense
Opposite to the detached market, the condo sector seems to be losing strength right now. Sales started the year 7% lower than 2018 in January but slipped by 14% year-over-year in March. The March sales result was almost perfectly in line with our prediction of a 15% sales drop through the first quarter of 2019. The total results have equaled a 10% drop in comparison to 2018 so far. With sales seemingly loosing steam heading into the spring sales market, it is possible the final results could be closer to the lower end of our 10 – 20% sales decrease range.
Reflecting on the market in the three months since the predictions were made, the biggest changes have been the state of the economy and the Bank of Canada’s messaging on interest rates. Market confidence in the economy has weakened, though the overall health of the economy seems to be holding. Still, the impact of last year’s interest rate increases, as well as the housing slowdown has taken its toll. Employment rates remain strong and to date no other major shocks have materialized, if these conditions can hold, we may escape the fears of a looming recession.
The second major factor hanging over the housing market is the Bank of Canada’s push to normalize rates. In January, some of the aggression towards raising rates had gone; however, overall the expectation of another rate hike was still likely. That no longer seems to be the case and that change in narrative is helping to bring down mortgage rates again. With the increased purchasing power that lower rates bring, it would not be surprising if additional buyers are able to enter or return to the market.
Judging by the first three months, it seems that the detached market will likely realize stronger sales than we anticipated, but the condo market may be the one in real trouble. It is becoming clear that investors played a huge role in the condo sector, and their interest is obviously waning. As the year progresses, we will continue quarterly updates of our annual sales forecast.