Toronto’s property market may be better positioned than previously thought to weather the expected financial downturn this year, but remains volatile, according to a new analysis by property firm Re/Max. The situation is likely to continue.
A new report compares the average price and value of new mortgages in various markets across the country from Q3 2012 to Q3 2022.
In Toronto, we found that the ratio of loans to value hovered around 53% in the third quarter of 2022, compared to 63% a decade ago. People are spending a higher percentage of their new homes than they did 10 years ago..
The loan-to-value ratio is used to express how much a person owes an asset compared to the value of the asset. The higher the percentage, the higher the liability level of the asset.
Back in the third quarter of 2012, the average home price in Toronto was $483,900, while the average new mortgage was $305,776, or about 63% of the loan value.
Toronto’s average home price was 1,079,957 in the third quarter of last year, and the average new mortgage was $567,441, about 53% of the loan value.
So what explains the fact that Toronto homebuyers are paying more, even though prices have skyrocketed over the past few years?
The price increase, Re/Max Canada president Christopher Alexander told CP24, is actually part of the answer.
“Some have created a lot of stock over the years,” he said, alluding to those who made hundreds of thousands of dollars from real estate as the housing market took off.
Several other factors also contribute to people having more money to invest in a home, the report said.
“There has been a phenomenon of remote work, where people are allowed to continue working and move to more affordable markets,” Alexander said.
“And a very big story is the ongoing transition of generational wealth. have played a major role in helping home buyers to purchase homes at much higher down payment rates. Make it easier to manage your payments. “
But while people in the Toronto area may appreciate the value of their homes more than they did 10 years ago, they say loans are still much larger than they were 10 years ago, nearly double in size. You can’t get around the facts. on average.
Given the steady rise in interest rates last year, the report notes that “banks have stepped up their lending practices and are proceeding cautiously when qualifying for borrowers today.”
Some banks’ valuations are lower than prices paid in recent months, and “buyers are scrambling to make up the difference,” the report said.
“Market stability will undoubtedly be tested with at least two more overnight rate hikes poised for the first half of 2023, but home buyers and sellers continue to adjust to new market realities. Therefore, the second half is expected to improve.”
A limited supply of housing and a steady stream of new immigrants to the GTA are expected to boost the housing market next year.
Supply remains “surprisingly low,” Alexander said, and some potential sellers may be holding off for now because they realize they won’t get top dollar on their properties. said.
“I think the majority of sellers want to get the most out of their money in the same way that buyers want to pay the minimum,” he said. There’s a lot of people, so hang on, and what you’re really seeing right now is situational transactions, people who have kids, people who are married, people who are divorced, who really have to take action. What’s missing are the people who are bringing products to market right now.”
He also said potential unemployment caused by the economic downturn could push more homes onto the market if people can no longer afford to pay.
The report notes that mortgage delinquency rates remain low in Canada.
“Challenges certainly exist in today’s high interest rate environment, but when homeowners own a larger percentage of their homes, the overall housing market risk factor is significantly reduced,” Alexander reports. said in a statement. “In the Canadian market, half of the loan-to-value ratio is in the range of He 50% to He 60%, so homeowners can withstand the downward pressure on home prices and have an upside down loan. Fewer people will be submerged.”
According to another report from Re/Max a few months ago, Home prices in GTA could fall about 12% In 2023, a bank recently Declared GTA a buyer’s market.
