CMHC resale report: multiple offer situations pushed prices higher

The Canada Mortgage and Housing Corporation published a report on the resale market last month and here are some of the highlights. You’ll note that some houses in Leslieville and Riverdale appreciated by $100,000.

Housing Now – Greater Toronto Area – (excerpt from CMHC report released July 2011) Resale Market – Tight markets and high end sales push prices higher

Activity within the market for existing homes remained robust in the second quarter, showing no signs of slowing down following the changes to mortgage lending policy introduced in mid-March. Sales put in their second best Q2 performance on record (behind 2007), maintaining the Q1 seasonally-adjusted annualized pace of 90,000 homes. New listings also held steady during the quarter, albeit at a level considered low by historical comparisons and 17 per cent below listings in Q2 2010. As a result, buyers continued to face strong competition and were compelled to bid prices higher. Adjusting for seasonal factors, average prices grew by an additional three per cent from the first quarter, bringing annual growth up to nine percent.

The mismatch between demand and supply that has created multiple offer situations and pushed prices higher appears to be concentrated in selected areas of the GTA. Fourteen out of the 86 Toronto Real Estate Board zones sold homes at an average of 101 per cent or more of asking prices. Neighbourhoods within the city that have seen significant transformation in recent years are in particularly high demand. The problem is that listings haven’t kept up. Reasons for homeowners showing a greater reluctance to sell are varied, although a declining turnover rate has been seen with neighbourhoods that become more established. Homeowners instead tend to focus their housing investment on renovation activities (for more on the renovation market please see sidebar article) which, combined with scarcer listings, tends to push values higher. As a result, houses in Riverdale/Leslieville that sold for around $500,000 at this time last year are now going for over $600,000.

All of the recent appreciation in prices can’t be attributed to pure market forces, as recent changes in the composition of homes sold has also affected average selling price statistics. Although single-detached homes have given up some share to condos in recent quarters, sales have decidedly moved more into the high end. Excluding condos, the share of homes sold for more than $750,000 jumped to 14 per cent in the second quarter after remaining flat at 11 per cent during the three preceding quarters. The rise in high end activity is reflected in price gains reported in the central core of the city, where single-detached prices were up by 18 per cent from last year to hit an average of $1.4 million.

Renovation Spending Should Stay Strong in 2011 – The release of CMHC’s latest Renovation and Home Purchase Survey revealed that households in the Toronto CMA spent a combined $8.7 billion on renovations last year.

The total was down from the record amount spent in 2009, although it grew by one-third compared to 2008. Furthermore, the average amount spent per household rose to a new high of $14,500. While intentions for 2011 indicate that the number of households undertaking renovations may continue to slide from the high bar set in 2009, overall spending should remain strong. Intentions to spend on alterations or improvements to the home are up, reflecting the past strength in housing sales (a large share of renovations occur within the first year of moving) and confidence to invest in the market after years of sustained price appreciation.

Home equity accumulation and low financing costs will continue to encourage higher cost renovation projects, which should also be supported by stable intentions to renovate from high income earners.