Amid rising prices, average family can still afford home in Toronto

Home sales continue to rise in Canada , according to the latest monthly report by The Canadian Real Estate Association. Existing real estate purchases rose 2.7 per cent in September compared with August and up 11 per cent year to year. While sales slowed in other parts of the country – Canada’s largest metropolitan area experienced the most dramatic increase.

The number of resale homes sold in Toronto in September rose more than 20 percent over the same time last year. The average price of a home sold in Canada also rose 6.5 per cent to $352,600 since September of 2010. The average price in Toronto is much higher at approximately $460,000.

To find out what is driving this hot market and crystal ball if prices are going to drop, Global News spoke with Jason Mercer, Senior Manager of Market Analytics at The Toronto Real Estate board.

The Canadian Real Estate market is still going up?  

Right. Actually CREA [The Canadian Real Estate Association] released their latest monthly release today. Certainly what we’ve seen over the last year, if you are looking at year over year, at this time in 2011 compared to this time in 2010 we’ve seen increases in both sales and price. Certainly, if you drill that down or look at the Greater Toronto Area, we’ve seen price growth in the 8, 9, 10 percent range certainly through the spring, summer and early fall. At the same time we’ve seen the number of sales up somewhere in the neighborhood of 20 to 30 percent.

What is pushing the sales up? 

Well right now, if you think about the drivers of demand for ownership housing. One of the key factors underlying that has been the affordability situation in the Greater Toronto Area. So if you think about the percentage of income that is going towards mortgage principle, interest, property tax and utilities, on the average price home, that’s remained more or less in check over the last couple of years. So in and around the high 20’s to low 30 percent range and that’s in line with generally accepted lending standards. So the bottom-line is that a household making the average income can comfortably cover a mortgage on the average priced home. So that’s why we continue to see pretty solid sales growth, as well as an upward trend in the average price as well.

Now there are still historically low interest rates, does that help drive sales?  

Absolutely. If you think about what drives that affordability number I was talking about, the strong price growth that we’ve seen over the last few years has been mitigated to a great degree by the low borrowing costs, so If you think about what the outlook is for rates over the next couple of years, it’s changed quite a bit over the last few months. Certainly now, the outlook is not much in the way of interest rate hikes at least until the second half of 2012. Depending on who you are talking to, you know, that could be well into 2013, until we see the bank of Canada move back into a rate hike tightening.

Is the average priced home in Toronto becoming unaffordable?  

Well again, if you look at the $465,000 house and then assume that the average household income in the GTA is estimated to be over $100,000, if you think about what percentage of that income would be going toward mortgage principle, interest, property taxes and utilities, it’s a little bit over 31% and that’s still within the generally accepted lending guidelines. It’s also in line with what we’ve seen over the last decade or so. So it suggests to me, given that most people are purchasing a home using a mortgage, things still look pretty affordable and that’s why we’ve continued to see the type of price growth that we have.

Are the prices in Toronto inflated?  

We’ve heard a lot of different metrics, looking at whether or not, the prices are too high or what have you, but again, it’s difficult to look at price on its own, in fact, looking at price on its own is an abstract term because you have to look at how people purchase a home, and most people are using a down payment of some kind, or really covering the bulk of that purchase using a mortgage, so when you look at those mortgage payments relative to income, that ratio is still quite comfortable, so that’s why we’ve been able to see home price growth.

So you are not expecting the prices in Toronto to fall?  

No. again, if you look at, what the price level is, or what the price level should be, based on the affordability level, we’re more or less right in line with that. So looking forward into 2012, we’re not expecting to see double digit price growth, but certainly in the neighbourhood of 4 or 5 percent, given what we expect to see with borrowing cost, and that seems like a reasonable number.