2012 In Review

Overall, 2012 was a good year for Toronto real estate sales. Below are the top five years ever in the history of Toronto real estate sales. 2012 is #4.

1. 2007 93,193 sales
2. 2011 89,096 sales
3. 2009 87,308 sales
4. 2012 85,585 sales
5. 2010 85,545 sales

2012 was the 4th best year on record and only 8% off the best year ever. It was characterized by phenomenal sales production from January to June, and then below average sales production from July through December. Of course, this coincides perfectly with the timing of Jim Flaherty’s enormous criteria changes with the CMHC’s lending policies. Three of these changes drastically altered the landscape of borrowing to buy real estate in Canada. It was these changes that created the latter half of 2012’s lowdown.

They were as follows:

1. Raising the minimum down payment for a $1.0 million purchase from 5% to 20%. This change caused a significant slowdown in the $1.0 million to $1.5 million home market as it forced a 400% increase in down payment requirements.
2. Reducing the amortization time on CMHC mortgages from 30 to 25 years. Since 2008, Jim Flaherty has tightened this three times from 40 years to 25 years. This has made buying a home the equivalent of 35% more expensive. This last change was really the icing on the cake. It removed a significant number of marginal first time buyers from 2012’s buying economy.
3. Raising the minimum deposit for an investment property from 5% to 20%. Obviously, this made it significantly more challenging for investors to buy investment real estate.

These changes were aimed directly at the Toronto and Vancouver condominium marketplace in that most first time buyers and investors are dealing in the condominium economy. Of course the high end condo marketplace from $1M-$1.5M slowed significantly as buyers now need to amass a large down payment.

It wasn’t enough for Mr. Flaherty to make these changes, he then went on a public relations rampage to destroy the credibility and viability of the condominium industry in Toronto. His policy of meeting with bank management and other lenders to caution them to the perils of lending in the condominium marketplace contributed to the banks creating Draconian lending requirements and ultimately spooking the media. Despite this government intervention and meddling, our real estate market has held strong, with average pricing finishing at $497,301, up 7% over 2011. While volume of sales did fall slightly, prices held firm. The average days on market was 36 days versus 32 days in 2011, also a sign of a very strong marketplace. So, despite a continued effort by the federal government and the Bank of Canada to smear the condo industry, we saw surprising strength throughout the Toronto marketplace.

The latter part of the year was characterized by a reduction of new listings which were down 10% over last year. This is primarily due to vendors taking homes off the market, and/or deciding not to try to sell in the first place. In an environment of 3% lending no one is desperate to sell, so it is unlikely that prices will move downwards. This is not the sign of a weakening market, rather one that is likely to strengthen. I believe that 2013 will see 80,000 homes sold and average prices will likely come very close to $500,000. I expect that the resale and new condo market to show strength but also less volume of sales overall.