The short black line in the chart above tells the story so far. Toronto house prices started 2011 at a respectable 4% higher than January, 2010. So far, early February results indicate a more dramatic increase in sale prices, in the range of 6% to 8% above last February’s values. In our survey of sales in central Toronto, about 40% of recent house sales went over the asking price.
The dotted line indicates my price projection for the year, which offers a baseline of typical market behaviour based on seasonal patterns. If the current enthusiastic buying continues till the end of February, it would seem that most of the year’s increase will have been achieved by then.
In fact, many agents are reporting a lack of listing supply at this time; a number of recent central area listings have sold with five, seven, or more offers. Clearly, more listings will come out on the next three or four months. Depending on how they are priced, these homes will sell quickly to the current group of buyers.
Mortgage rules
News analysts are connecting the current surge in sales with the recently announced tightening of mortgage rules. In fact, these rules are likely to affect only a small minority of borrowers (see our earlier post.) A large number of today’s qualified buyers are determined to act prudently, and are setting price limits for themselves that are lower than what lenders are willing to provide.
The real cause of the current rash of bidding wars in central Toronto is the shortage of homes to buy. This should be a signal to homeowners who are thinking of selling. The early bird may indeed catch the worm!
James and Joanne's Toronto 