The past decade has been one of the best on record for residential real estate in the Toronto area.
While the question remains whether the next decade will even come close, historically, homebuyers have never had such a prolonged period of rising home prices, according to a study released recently by ReMax.
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Prices of resale homes from 1997 to 2007 increased by 78 per cent for a 5.9 per cent compounded annual rate of return, according to the real estate firm. Unit sales were also 61 per cent higher in 2007 over 1997.
“The Canadian real estate market has surprised a lot of people, especially given the challenges we’ve faced from a high-tech meltdown, the 9/11 crisis, SARS and a credit crunch south of the border,” says ReMax spokesperson Christine Martysiewicz. “Over the past 10 years, real estate has shown incredible resilience.”
The run-up in prices is the longest sustained increase in house prices in recent history, the realtor says.
The average price of a home sold in Toronto in 1997 was $211,307.
That has risen steadily every year, reaching $376,236 at the end of 2007.
ReMax says good economic growth and consumer confidence, fuelled by low interest rates, created the buoyant conditions.
Immigration has also played a major role, with the Toronto census metropolitan area increasing by 20 per cent over that period to more than 5 million.
But the impact of increased property taxes and a slowdown of the economy could have a significant impact this year.
“You may get some decent returns moving forward, but you don’t have the same conditions moving into the next decade as the last,” says Derek Holt, an economist at the Royal Bank of Canada. “We are past the peak in terms of expectations and the drivers behind them.”
Holt says pent up demand from early this decade has been largely satisfied as the market moves to “the cooling side of the slope. We will revert closer back to long-term averages.”
The last up-cycle in the ‘80s was actually more dramatic, with prices rising from an average of $76,762 in 1983 to $146,965 in 1989 — a 93 per cent gain — before crashing. Prices fell by 28 per cent over a six-year period before turning around in 1997.
Few predicted the length or depth of the current cycle.
One clear difference over the past decade is at the upper end of the market. In 1997, million-dollar homes were extremely rare, with only 175 homes exchanging hands for $1 million or more. Last year, 2,309 such homes were sold.
ReMax says many of those homes are in non-traditional neighbourhoods. For instance, a detached home in the modest community of Leaside that sold for $470,000 in 1997 sold again (after renovations) in 2007 for $1.55 million.
The past 10 years has also seen a rise, to 35 per cent from 30 per cent, in condominiums as a percentage of the resale market.
Still, to put things into perspective, Toronto didn’t even make it in the top 10 markets nationally in terms of price appreciation over the past decade.
Canada-wide, house prices were up 98.7 per cent, or 7.1 per cent annually, which put Toronto below the national level.
However, ReMax doesn’t factor in inflation, which averaged 2.3 per cent over that 10-year period, which would have substantially eaten into returns.