You may not know it, but you might be suffering real estate headline fatigue. Despite the fact that it’s good news for real estate markets, you’ve probably stopped reading articles with headlines like “Record House Prices in Toronto” or “New High for Home Sales”.
But there was one recent ‘real estate record’ headline in the Globe and Mail about the markets in Toronto and Vancouver that had nothing to do with prices or numbers of units sold:
According to Investopedia, the law of demand states that, “all other factors being equal, as the price of a good or service increases, consumer demand for the good or service will decrease, and vice versa”.
It’s a fairly simple concept. Using one of the most popular consumer products of all time, the Apple iPhone, as an example, at about $300 (with a data contract), it sets record sales with each new version release. But imagine how few sales the iPhone would have if its price was 300% higher, or $900, especially with the added coast of the data contract.
But, interestingly, despite a 363% increase in the cost of homes in Toronto since the current run of steadily increasing prices began in 1996, and a 60% increase in spending just the past two years, the Globe & Mail article points out that there were a record number of new housing starts in Toronto in June.
In the article, the Canadian Mortgage Housing Corporation reports that housing starts across the country rose 16.96% between May and June this year to a total of 218,333. But, when you look at what’s happening with provincial and local economies across the country, you quickly realize that it’s the Toronto and Vancouver real estate markets that are almost exclusively responsible for the national increase.
In the Atlantic provinces, where they are suffering through a slow economy, housing starts actually dropped by 21.8% in June. Alberta and Saskatchewan are also struggling with an economy slowed by weak prices for resources.
By contrast, in British Columbia, housing starts grew by an astonishing 38% in the month. The increase in Ontario was lower, but still a healthy 27%.
Why Demand for Housing is Rising in the Face of Record High Prices
How has the housing market managed to break the law of demand? In a way, it hasn’t. There are two main underlying factors fueling the price of homes. Primarily, mortgage rates have been near record lows for seven uninterrupted years and there are no strong indicators that they will increase in the near future.
So the unique situation we find ourselves in is that the high cost of homes hasn’t yet dented the demand for low cost mortgages.
The secondary factor driving up house prices is the relatively low supply of homes in Toronto and the GTA, including here in Markham and York Region.
While some homeowners are taking advantage of the high prices to ‘cash in’ and move to lower priced markets, those staying in the area know that, even though they will get a high price for their home, they will have to pay an equally high price for a new one. So many people are staying put, which decreases the number of homes on the market.
To meet the ongoing demand for homes, builders kicked things into high gear in June and set the record for new housing starts.
But it’s worth noting that in both Vancouver and Toronto, condo buildings accounted for the bulk of the starts, with single-family homes, like detached, semi-detached and townhomes, edging up just slightly.
Markham and York Region have new developments under construction featuring all types of homes. So, as usual, whether you’re looking for a new home, or you’re a homeowner, you’re in the right place.