Market Watch Q4
What Happened in the 2021 Real Estate Market?
Housing Sales Reach Record High as Supply Falls to Record Low
Toronto had a great year in sales history with 121,699 transactions. That is a 28% increase over the previous year in all property types. Individually each housing type has had an increase in sale numbers since 2018. Sales grew fastest in 2021 within the City of Toronto, posting 37% annual increase compared to 24% growth in the 905 region of the GTA (Southern Ontario including Hamilton).
I’m sure you’re wondering, how is it possible that 2021 has housing sales that have reached a record high whilst simultaneously having the lowest supply number since 1996?
The fact that 2021 has a higher number of sales than 2020 means that that there must have been enough inventory to match that of last year and surpass it. However, there is still a shortage of houses due to an extremely high buyer demand. Low inventory does not mean low number of sales.
Strong double-digit annual price growth was recorded across all housing types and regions during December.
The average resale price for all transactions occurring during December was $1.158m, generally in line with November and October averages and 24% higher than a year earlier.
The Biggest difference in price is found in the Semis/Rows and Towns which started the year at $822k and are now at $1.05m, showing a 29% increase year over year.
Prices ended the year 38% higher than two years prior in December 2019 ($838,662). For 2021 as a whole, prices increased by an average of 17.8% from 2020 and representing the strongest average annual rate of price increase since the late 1980s.
Upper-End Price Segments Grew Fastest in 2021
The changing distribution of sales activity by price range during the past two years has been dramatic to say the least.
The percentage of detached homes selling for under $900K fell from 68% in 2019 to 15% in 2021, with the losses picked up by homes selling for over $1 million.
On a relative basis, market share growth was strongest within the $1.8- 1.99 million price bracket (1% in 2019 versus 7% in 2021). For detached homes priced above $1.5 million, the highest share of sales in 2021 were priced at $2 million-plus (13%).
In the condo apartment segment, the share of sales under $500K fell from 44% in 2019 to 14% in 2021, with most of the loss in share captured within the $500-699K range, which represented 56% of condo sales in 2021.
Market share gains within the condo apartment sector were also experienced within price segments between $700K and $1.49 million, while the highest end of the market represented by units selling for $1.5 million-plus remaining stable at 2%.
The condominium market ended the year very much the same, with few listings available buyers found themselves competing for product resulting in continued price growth.
What is a Supply Indicator?
The current months of inventory is of 0.5. This determines supply and demand in terms of price. The MOI determines the amount of inventory at that times and helps sellers determine the price they are able to sell their house at. To put this into perspective, in 2017 the MOI was of 2.7 and that was still considered a seller’s market. It is still very much a seller's market because four to six months is a balanced market above six it becomes more of a buyer's market below four it becomes more of a seller's market. This is telling us that there is no inventory due to high buyer demand.
The strength in demand and disappearance of supply still came as a shock. It’s almost unbelievable that after 25 years of homebuilding, during which time over 875,000 housing units were added to the GTA, active resale listings at the end of 2021 were at the lowest level since at least 1996.
Underbuilding alone can’t solely explain this phenomenon. While it’s true that the level of construction starts in recent years has failed to keep up with population requirements, housing sales last year were approximately 20% above their long-term trend. The data from land registry indicates that the largest group of purchasers in 2021 were those with multiple properties, which speaks to the increasingly common practice of buyers leveraging existing home equity and holding onto their primary residence as an investment after making a move. To be sure, this helped to increase much needed rental supply, but it also exacerbated the low supply problem the market has been dealing with for some time
What’s a Price Indicator?
The outlook for 2022 is still optimistic, but extremely challenging from a supply standpoint. A bit of steam should come off demand after interest rate increases implemented by the central bank to ward off pressures in the economy, but it won’t be enough to derail the demand.
Currently the outlook for 2022 looks very much the same as 2021. With the ongoing pandemic, limited supply and insatiable demand due to extremely low borrowing costs the upward pressure on prices will remain. The only sustainable way to moderate the continued price growth amongst all home types will be to bring on more supply. In 2022 you will continue to see new product of all home types come to market throughout the GTA and beyond.
With condominiums being the primary new home type, developers continue add new an innovative amenity to their buildings that are making them more appealing to everyone from young professionals, to families, downsizers and retirees, to name just a few.