Toronto real estate isn’t demonstrating the same bullish moves it was making just a year ago. Numbers from the Toronto Real Estate Board (TREB) show prices are still higher than last year. A quick deceleration of price gains, declining sales, and rise in inventory however, have the market less than a point from being an official market crash.
Toronto Real Estate Prices Are Up 9.72%
Toronto real estate prices are still higher than last year, but they’re tapering quickly. The composite benchmark, which is the price of a typical home across all segments, is now $747,800 across TREB. That’s up 9.72% from the same month last year. In the City of Toronto, that number is now $790,300, up 13.29% from the same month last year.
Source: TREB.
The big story is how quickly prices are decelerating, and price gains are tapering. The $747,800 price point across TREB is down 9.29% since the peak in May 2017. The year-over-year gain of 9.72% is also the lowest since July 2015. Yes, we’re in correction territory. Yes, we’re now less than a point away from this being an official real estate crash.
Source: TREB.
Toronto Real Estate Sales Are Down Over 26%
Sales across Greater Toronto were also on the slide. TREB reported 7,118 sales, a 26.73% decline from the same time last year. Breaking that number down, the 416 has 2,885 of those sales – down 22.34% from the same time last year. The 905 had 4,233 of those sales, down 30.06% from the same time last year. Remember that sales should be dropping when prices get higher, this is typical. However, this is a pretty large drop in sales.
Source: TREB.
News outlets have been placing emphasis on the jump in sales from September to October. Month over month changes are a pretty useless indicator. Every October it jumps, and every December it drops. This shouldn’t be a surprise, it’s what happens almost every year. Last year was a fairly rare exception for October.
Toronto Real Estate Inventory Is Up Over 78%
Inventory is on the rise across Greater Toronto. New listings across TREB reached 14,903, an 11.8% increase compared to the same time last year. Active listings reached 18,859, which is a whopping 78.5% increase from the same month last year. There’s two things that should be noted when looking at these numbers in my opinion: One, last year had very low inventory, relative to the historic trend. The jump was slightly expected. Two, inventory rising while sales decline is not good for prices.
In a healthy market, prices climb resulting in a decline in inventory and sales. As homes get more expensive, less people can afford to upgrade, so they experience “buyer gridlock.” The rising prices should also mean that less and less people can afford to buy, so sales drop. In this market, we’re seeing elevated prices, an increase in inventory, and a decline in sales. We have more people looking to sell as prices get higher. Broken mechanics tend to sort themselves out, and usually it’s not pretty.
As always, we’ll be breaking down the market segment by segment over the next few weeks.
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Thanks for this. On the news they kept talking about the jump in buying in October, which made it seem like the market was recovering. Such sleazy pieces of crap. Do you have any good recommendations for Realtors? They all said the spring lull was the lowest it will go, that’s clearly not the case.
I’ve literally never seen so many houses for sale in my life around my neighborhood. What I don’t understand is where everyone is moving. The suburbs can’t be *that* appealing.
Same in my part of the city … for sale signs are everywhere. We might see more inventory hitting the market in the next 3-4 months. Unless huge number of buyers miraculously appear (not likely due to new stress test rules) the trend will continue and likely to remain in accelerated state.
They’re not necessarily moving… there’s a lot of investors and speculators trying to offload their inventory before prices go down even further. Dead cat bounce was expected in September and price of average detached homes are on their way back down in October compared to September (nearly $65+k drop in a single month and that’s in the 416 area).
The Re/Max Right Choice saga is a pretty good indication of the desperation ahead as many speculators (many of them agents and brokers) who bought in the past few years, thinking that real estate prices would go up forever, are now coming to terms with how stretched their finances are in a falling market.
The bankers offloaded their homes between June and October 2016. Smart investors and more savvy realtors are offloading now. The tsunami will hit when the average Joe speculator comes to grip with the situation.
Come January home prices will tank a lot farther… the new lending regulations implemented by the Federal Finance minister, specifically the one which forces hopeful lenders to qualify at a rate 200 basis points above posted rates (2% higher) drops affordability of purchasers by 16%. This means home prices will drop by a minimum of 16% more in 2018 (I personally believe the drop will be a lot more as a lot of investors and people who are at that point seriously in the red will bail on their investment). That’s not all. The new lending regulations also state that financial institutions will need to confirm that spending to pay for the mortgage, property taxes, utilities, etc. (pretty much anything associated with the new asset being purchased by the individual/family) does not exceed 42% of their total income and these days no one, not anyone I know anyhow spends less than 42% of their income on their home.
There are several loopholes that have been identified already. One such loophole involves qualifying for a variable rate mortgage (at the benchmark rate) and then immediately switching to a fixed rate mortgage (no need to requalify). If anything, there will be a slowdown in early 2018 as the dust settles and purchasers better understand the impact of the new legislation. Then activity will pick back up again mid-2018 and prices will spike again due to the pent-up demand and lack of supply
Although the average resale price for homes in the GTA rose 2.2% from Oct. 2016 to Oct. 2017, inventory is still very low at 1.7 months – a modest rise from 1.2 months of inventory reported in October, 2016. In addition, despite the average resale price rising over 6% in the City of Toronto from Oct. 2016 to 2017, inventory has actually dropped to 1.4 months from 1.5.
Expect home sales in the GTA to increase substantially to January before the new mortgage rules become applicable. This will further drive down supply and increase price points.
What’s the logic behind rushing to buy just before everyone’s buying power gets significantly reduced?
A reduction in purchasing power may affect higher priced product (SFD homes). It will drive up the demand for lower priced product (condos) which makes up the majority of sales in Toronto.
If you’re a low-mid income earner who wants to own a home in Toronto you’d definitely feel the pressure to buy a condo before home ownership gets further out of reach. This is compounded by the lack of available rental stock in the city as well.
I’d be careful gambling on a drop. I sold my place outside of Vancouver about 6 months after the foreign tax and conditions there were similar (slight recovery with condos holding etc) thinking that prices would drop further.
Since then, prices have hit record highs, and the condo I sold for $455k is now worth over $550k just 6 months later.
A 33% increase in prices didn’t damper demand. Prices are lower now – what will be the difference in affordability in January compared to April?
Also, if demand leaves the purchase market it will hit the rental market. We are seeing huge month over month increases in average rent (now more expensive than Vancouver) since these new rules hit.
It will be interesting to see what happens. An economic shock or massive interest rate increase would cause a big drop, but what we will likely see is either a sluggish market continue or a massive spike again like what happened in Vancouver after fear subsides. Nobody really knows. I’ll never forget the drive to sell houses in Vancouver before the Olympics as prices were supposed to tank once the games were complete. The discrepancy between house prices and incomes in Vancouver is largely attributed to the wealthiest homeowners not reporting income. Not sure if Toronto is the same.
The mortgage rules should be good in the long term but could have in-intended consequences