National Overview

Residential real estate activity showed unprecedented strength during the first half of 2006, despite earlier forecasts for moderating demand.

Double-digit increases in housing prices were reported in Vancouver, Victoria, Kelowna, Edmonton, Calgary, Winnipeg, and Halifax while more modest gains occurred in Saskatoon, Regina, Toronto, Hamilton, Ottawa, Kitchener-Waterloo, Montreal, Saint John, and Charlottetown. Average price appreciation shattered existing benchmarks, with both Calgary and Edmonton reporting increases of 40% and 25% respectively. Nationally, the number of homes sold continued to rise, with sales matching last year’s record-breaking pace.

Most of the activity was spurred by an unusually strong economic start to 2006. In the second quarter, however, GDP growth subsided – with declining exports, increasing imports, and overall weakness in residential investment the major culprits responsible for the softening. Healthy domestic demand, rising consumer expenditures, and nonresidential business investment helped to offset some of the impact, but the weaker than expected economic growth prompted the Bank of Canada to place interest rates on hold in September in anticipation of a slowdown.

In spite of softer GDP growth for the remainder of 2006, underlying economic fundamentals in Canada remained solid. Unemployment remained low. Income levels continued to climb. The Canadian dollar remained strong, hovering close to 90 cents U.S. in 2006. After peaking at close to $80 U.S. per barrel, oil prices fell to $60 U.S. by early fall and are forecast to remain relatively stable throughout the remainder of the year and into 2007.

Toronto Real Estate Market

The threat of rising interest rates prompted homebuyers across the Greater Toronto Area to enter the housing market en masse during the first and second quarters of 2006. Over 45,000 homes sold during the first six months of the year, a 2% increase over historic levels reported during the same period one year ago. However, the prospect of falling interest rates during the latter half of the year created a pause in the market, throwing sales off last year’s blistering pace.

By year-end, sales are forecast to fall slightly short of 2005 levels, weighing in at 80,000 units, down from just over 84,000 one year ago. Average price is expected to climb 5% to $353,000, up from $335,907 in 2005. Although fewer multiple offers occurred in the fall, strong demand for single detached, semis, and condominiums continued to exist at all price points.

Condominiums represented approximately 30% of the total number of homes sold, up from about 29% one year ago.

Sales of luxury homes priced over $1 million jumped close to 20% year-over-year, with Forest Hill, Rosedale, Lawrence Park, Kingsway, Bridle Path, Hoggs Hollow, and York Mills experiencing extraordinary activity.

Clearly, the strong upward momentum, combined with solid economic performance, served to bolster activity across the board. Developing trends in the marketplace included an influx of purchasers from the 905 area code who were no longer willing to commute to jobs in downtown Toronto. The trend sparked an upswing in demand for single detached homes, semis, and condominiums in the city core. Overall days on market dropped to 33, down from 34 in 2005. The sales to list price ratio remained unchanged at 98%.

Tight market conditions prevailed in the city proper, despite an increase in inventory levels. Neighbourhoods like the Beach, the Danforth, Riverdale, Swansea, High Park, Roncesvalles, Bloor West Village, South Hill, Yorkville, Summerhill, Lytton Park, John Ross Robertson, Cricket Club, Wanless Park, Rosedale, Lawrence Park, and Leaside continued to hold their value, with each reporting year-to-date sales to list price ratios in excess of 100%.

Consumer confidence levels in the GTA were strong throughout 2006, buoyed by an economy running at near full employment. Retail sales rose marginally. Commercial construction is well underway, with three new office towers scheduled for completion. Housing starts were down about five per cent, but lack of available building land, soaring development costs, and a shortage of trades have all contributed to softer sales. Capital expenditures planned for the city include a $670 million extension of the Toronto subway system into York Region.

Concerns over a faltering US economy, combined with inflationary worries, have softened the Bank of Canada’s stance on interest rate hikes. With none expected for the remainder of the year, and some experts predicting further cuts in 2007, the residential real estate market may yet resurrect itself. That said, fewer homes are expected to change hands in 2007. Sales are forecast to hover at 78,000 units, down from 80,000 in 2006, but on par with 2003 levels. Price  appreciation is predicted to be in line with last year, up another five per cent to $371,000, an $18,000 jump over 2006.

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Contact Laurin Jeffrey for more information