Why are home prices so high?

By: Diana Budway

Why are home prices so high?

Tags: Buyer, Detached, Semi-detached, Town House, Sales, Mortgage, Rate, Renovation, First Time

To put it simply…supply and demand. We have the demand and there is little supply. Otherwise known as a “Seller’s Market”. The abundance of Buyers are competing with each other driving the prices ever higher. The largest increases seen are in low-rise home types, including detached, semi-detached and townhouses.

2016 was a record year for new high-rise sales, breaking the previous record for 2011.

Key drivers of record home sales for 2016 also included population growth, low mortgage rates, low unemployment, and above-inflation income growth.

Sources: Statistics Canada, 2015, and Ontario Ministry of Finance Projections. Within the GTA, Toronto’s population is projected to rise from 2.83 million in 2015 to 3.74 million in 2041, an increase of 32.4 per cent, slightly faster than the provincial growth rate. Growth in the other census divisions of the GTA (Durham, Halton, Peel and York) is projected to be significantly faster than the Ontario average, with the addition of over 1.9 million people to the suburban GTA. Peel alone is projected to see its population increase by 685,000 over 2015–41, a 47.6 per cent rise. Halton is projected to be the fastest-growing census division in Ontario over the projection period, with growth of 63.6 per cent to 2041.

The most common mortgage rate was between 2% to 2.99%, fixed over a five-year term.

Forty percent of non-recent home owners increased their spending to over $50,000 in renovations rather than list their property to take advantage of equity gains. This compared to 2015 which was only twenty three percent was a huge increase.

The record sales for last year were heavily based on domestic demand. First-time home buyers accounted for 51%. Foreign buying activity in the GTA was just under 5%, with an average price of almost $970,000 in Toronto, according to TREB Members. The majority of them were either purchasing a property to live in themselves, for another family member, or investment to rent out.

Active listings in December of 2016 was the lowest point since the turn of the millennium. 2017 started with half as many active listings compared to the beginning of 2016.

Continued short supply of listings will continue to make headlines for 2017! First-time homebuyers are expected to account for more than 50% again this year. It is estimated that prices could easily increase between 10 to 16 percent or more.

If you’re considering purchasing a property in 2017, remember that lenders are doing more and more appraisals. Don’t get caught up in the momentum of the bidding war! If the lender does not agree with the purchase price, then you’re going to have to come up with the difference fast! Emotions can run wild, that’s where I step in and objectively help you make the right decision to either move forward or not. Especially if you’re already at the high-end of your mortgage pre-approval.

Whether you’re upsizing, downsizing, a first-time home buyer, or investor, let’s get a plan in place now!

Contact me at diana@dianabudway.com