A report released earlier today by the Toronto Real Estate Board (TREB) points to continued strength in Toronto's housing market, and a slight decline in the commercial real estate market. Throughout 2016—the second consecutive record-breaking year for Toronto home sales—113,133 sales were recorded through TREB's MLS® System, marking an 11.8% increase over 2015. Condominium apartment units experienced the strongest rate of sales growth of all housing typologies in 2016, followed by detached houses. Among the many months during 2016 that saw year-over-year increases in sales recorded, December included 5,338 home sales, an 8.6% increase over December 2015.

TREB, housing report, TorontoToronto skyline, image by Matt MS via Flickr

"A relatively strong regional economy, low unemployment and very low borrowing costs kept the demand for ownership housing strong in the GTA, as the region's population continued to grow in 2016," said Toronto Real Estate Board President Larry Cerqua. In regards to well-publicized concerns about foreign buyers impacting Toronto's housing market, Mr. Cerqua stresses that "it is important to point out that the strong demand that we experienced in 2016 was very much domestic in nature. TREB recently commissioned Ipsos to survey its Members with regard to the level and type of foreign buying activity within the Greater Toronto Area. The results of the Ipsos survey suggest that the level of foreign buying activity is low in the GTA. Only an estimated 4.9 per cent of GTA transactions, in which TREB Members acted on behalf of a buyer, involved a foreign purchaser. In the City of Toronto, the share of foreign buyers was five per cent." The full results of this Ipsos survey will be released to the public at the end of January along with TREB's annual Market Year in Review and Outlook Report.

Much of the recent demand is evidenced in the annual rate of growth for the MLS® Home Price Index (HPI) in the TREB market area, which more than doubled from 10.7% in January 2016 to 21% in December 2016. The overall average selling price for 2016 reached $729,922, a 17.3% increase over 2015's figure. The pace of this figure's growth saw several spikes throughout the year, including a 20% jump in December.

"Price growth accelerated throughout 2016 as the supply of listings remained very constrained. Active listings at the end of December were at their lowest point in a decade-and-a-half. Total new listings for 2016 were down by almost four per cent. In 2016, we saw policy changes and policy debates pointed at the demand side of the market. If we want to see a sustained moderation in the pace of price growth, what we really need is more policy focus on issues impacting the lack of homes available for sale," said Jason Mercer, TREB's Director of Market Analysis.

Regarding the aforementioned policy focus, TREB's position is that policies such as the City of Toronto's Budget Committee proposed increases to the Land Transfer Tax could have a negative impact on housing affordability. According to information supplied by TREB, this increase could result in average-priced home buyers being forced to pay an additional $750 to the City, on top of the $11,000 already paid to City Hall and the $12,000 paid to the province.

"The last thing people need is to dish out another $750, on top of the $11,000 that they already pay City Hall. The City should be looking for ways to make housing affordability better, not worse, especially for first-time buyers who could go backwards, or at best, be no better off," said Mr. Cerqua. "The Budget Committee should stop this proposal in its tracks and instead enhance the rebate for first-time buyers."

In contrast to the booming housing market, TREB's new report on commercial market statistics shows a mix of decline, growth, and stagnation. Throughout Q4 2016, the total amount of newly leased commercial space declined 5.1% compared to Q4 2015, with a combined 5,849,174 square feet of industrial, commercial, retail, and office space leased. Of this number, industrial space accounted for a large percentage of leasing activity. The average industrial lease rate on a per square foot net basis rose 2.1% over Q4 2015 now sitting at $6.23. During the same period, the average commercial/retail lease rate increased on a year-over-year basis, while the office lease rate declined.

TREB, housing report, TorontoOffice buildings in Toronto's Financial District, image by Lori Whelan via Flickr

The combined number of industrial, commercial/retail and office property transactions declined in Q4 2016, with 253 transactions compared with the 337 recorded in Q4 2015. Owing to a greater number of large property transactions in some of the more sought-after areas of the city, average selling prices on a per square foot basis, increased for the industrial and commercial/retail market segments. A decline in the average selling price for office properties for Q4 2016 is being attributed market factors in addition to a change in the type and location of properties sold.

"The demand for commercial real estate has a lot to do with businesses' outlooks on the future of the economy, in general, and the direction of their particular economic sector. Growth in the economy was somewhat volatile in 2016. On top of this, there may remain some uncertainty with regard to the impact of the US elections going forward. It is likely that many GTA firms have taken a wait and see attitude towards property investment until the trajectory of the Canadian economy becomes more certain," said Mr. Cerqua.