In a report issued late last week, the Toronto Real Estate Board (TREB) announced that Toronto real estate prices were up 6.5% for the month of August compared with the same month last year. The price growth was primarily driven by the low rise segment of the market which grew at an annual rate of 15%.
15% price appreciation is a crazy rate of growth especially given the predictions of many economists that prices were already in need of a 15% downward correction. Price growth beyond the rate of inflation is dictated by the laws of supply and demand and that’s exactly what we saw happen in Toronto last month. The number of new listings reported in August were down 5.5% compared to the same month last year. Fewer listings mean more hungry buyers competing for fewer properties. The competition drives up sale prices which in turn drives up new listing prices.
In addition to the price increase TREB reported a 12.5% drop in year over year unit sales. The drop is partly a result of fewer homes on the market and partly because many buyers can no longer afford to buy. Affordability has not only been hampered by higher prices, but also by tighter mortgage rules which at this point doesn’t seem to be having its intended effect.
By implementing tighter mortgage rules, the Department of Finance was trying to moderate real estate prices to avoid the likelihood of a bubble. The problem is that the new mortgage rules don’t apply to those who easily qualify for a mortgage or to those who don’t need a mortgage at all. Instead, it appears that tighter mortgage rules are only increasing the divide between the “haves” and the “have not’s”.