As 2015 slowly approaches I thought it would be worthwhile to take a look back at how Toronto’s real estate market performed in 2014 to see if it can offer us any insights into what the year ahead might bring.
Before jumping into what happened in Toronto’s real estate market this year I’m going to look back to 2012 to see how events that happened two years ago impacted the real estate market this year.
The real estate market in 2012 got off to a strong start with sales up 12% during the first six months of the year. Then in June of 2012 the federal government introduced several new changes to insured mortgages in Canada which impacted buyers with less than a 20% down payment. The biggest change was a reduction in the maximum amortization period on insured mortgages from 30 years to 25 years. The amortization period reflects the number of years it would take to pay off your mortgage assuming your interest rate and monthly payments remained unchanged.
Reducing the amortization period had a big impact on first time buyers because it effectively reduced their home buying budget by approximately 10%. A couple who could afford to spend $560K on a home under the old rules in June could only afford to spend $500K under the new rules in July.
The other significant change was that the federal government would no longer insure homes over $1M which meant that any buyer spending over $1M would need at least a 20% down payment. Before the rule change buyers spending over $1M could buy a home with just a 5% down payment.
These changes pushed many buyers to put their home buying plans on hold and we saw this reflected in the market as sales were down every single month between July 2012 and June 2013. Combined, sales were down 12% during those 12 months.
Then in July 2013 the market suddenly saw a surge in demand with sales increasing 13% and eventually jumping by 26% in September. This spike in demand lasted the remainder of the year pushing sales up 16% during the second half of 2013. This big swing in sales volumes suggests that it took roughly one year for many of the buyers who put their home buying plans on hold because of the mortgage rule changes in 2012 to jump back into the market.