[8 reasons why] the Toronto real estate market will land softly and not crash

It has been an interesting trip for the Toronto real estate market, which earlier this year hit exponential heights in a long hike of value accumulation.

In light of all of it, the media was scrambling with a wild interest in and an ominous slant of coming doom and the question, “Will the Toronto real estate market crash?”

The Toronto housing market will not crash.

I’m so sure of that fact, that I’ve created a comprehensive list of 8 reasons why the Toronto real estate market will land softly and not crash.

#1 – Decline in the number of home sales, in the Greater Toronto Area, by 37.3%

As one of the most obvious signs of a slowing market, the Greater Toronto Area saw a 20.3% decline in home sales, year-to-year in May.

It’s even more evident in June, which saw a gigantic 37.3% decline in sales year-to-year.

That is a three month trend of year-to-year decline, if you include April’s small 3.2% decline

That’s a whole quarter of slowing down.

Toronto recently being infamous for it’s recent hyper-appreciation, was driven by a booming market, a massive demand and nominal listing numbers.

Being not only a booming domestic market, but a highly affordable one compared to other major global markets, made Toronto and the GTA an excellent investment opportunity.

Many have argued that if supply was increased we could alleviate the built-up demand and with consistent supply.

Slow the market by relieving a demand responsible for the hyper-appreciation of Toronto homes.

A [37.3% decrease in sales] is a major sign of a market headed towards a cooling trend.

Less sales = less demand = cooling market

#2 – For sale Toronto home active listings were up 59.6% and new listings were up 15.9%

It isn’t just a reduced demand that is a clear sign of the coming cooling state of Toronto real estate, but a healthy increase in supply.

I say healthy for two reasons:

  • Plenty of listings!
  • No huge rush to list on the market!

What do I mean?

Well, in May [for sale Toronto home active listings] were up 42.9% and new listings were up 48.9%.

That means there was nearly half as many for sale Toronto homes in May than the year before.

That’s a market in a state of shift.

More active listings, means more for sale homes and less sales, without statistically referencing the decline in sales.

More new listings, means more people selling their property, a sign of a rush, the count your eggs and get out.

That’s why June is so different. Not only does the huge 59.6% active listings mean more supply and therefore an alleviated demand, but its a byproduct of a previously declining demand.

But what makes June so different is it’s decline in new listings.

This could mean two things:

  • A market showing signs of heating up again after a slow down as it tightens the faucet on more coming supply.
  • A market showing signs of a conscious cool down.

It wouldn’t be too smart to list right now.

So with a decline in the market as a result of home buyers holding off we now see homeowners holding off.

A hold off that is a nice healthy reaction, with no panic to exit the market.

A very healthy sign that not only will we continue to see a continued slowdown in Toronto real estate. A slowdown that might just do that, steady it’s declining effects.

#3 – The average price of Toronto homes fell [8.1%]

That’s RIGHT, and not just one month, but two.

If that isn’t a sign of a cooling and correcting market then I don’t know what is.

Just as steep and impulsive as the recent boom so might be it’s short decline.

That is if it stops.

But if one thing is for sure it fell short of being a nominal increase from June last year.

The average home price saw a steadier increase year-to-year [6.3%], the smallest price increase since January 2015,

But don’t let a continued year-to-year price increase make you think the market’s still hot.

I will reiterate, it’s the lowest price increase since the mark of 2015.

That’s an important percentage increase because the rest of 2017 has been pretty wild in comparison, even in previous cooling months.

But a smaller and steadier price increase can be a very misleading way to present a cooling market.

So lets look at these number different.

Instead of considering the smaller and steadier year-to-year increase, let’s consider the decrease in the average Greater Toronto Area home price month-to-month.

A month-to-month decline of [8.1%] from an average price of $863,910 to $793,915.

And if that wasn’t enough to convince you of the cooling TREND, then what do you think about 

two consecutive month-to-month declines in the average price of Toronto property?

If that still wasn’t enough evidence of the cooling real estate market, I still got 5 more excellent points to be made.

#4 – The conscious speculating homeowner and the homebuyer standoff, a self-correcting market

Call it whatever it may be,

conscious homeowners,

physiological byproduct from Wynne’s Fair Housing Plan [a plan with no real impact on supply], 

or a market correcting itself. 

In April the market showed small signs of cooling, which in turn caused an obvious rush in speculating homeowners to cash in on their investment asset while it was peaked.

That combined with the usual Spring listing rush and blossoming resupply of the market, especially after a cold, dry and lonely winter.

This was obvious in May’s huge surplus of new listings, an obvious byproduct of conscious selling, in light of small sales decline.

That sales decline isn’t really a conscious one, it’s more than likely the tipping point of the market.

A point where it just became too inflated in value.

A point where it pushed much of the demand away, resulting in a two month decline in the average price of Greater Toronto Area homes.

#5 – The Canadian economy is a very different ecosystem than our neighbour

You’ve probably heard it.

That comparison of Toronto real estate to that of the American housing bubble.

Where’s the comparison?

Markets in different scenarios.

The Canadian economy is regulated by the safe momentum of our banks.

An excellent excerpt from Macleans details this fact.

The excerpt is quoting Carolyn A. Wilkins, Senior Deputy Governor of Bank of Canada.

Those factors:
 American lenders were giving money to anyone,
 whereas Canadians must do much more
 to prove they can afford their payments;
 delinquency rates in Canada are extremely low;
 and Canadian laws punish anyone who tries
 to walk away from a loan, meaning
 “households have a greater incentive to hang on,” Wilkins said.


Finally, there is none of the wild financial engineering
that Wall Street undertook to profit 
off America’s housing mania at the turn of the millennium. 

“We have much less securitization,” Wilkins said. 
“It’s public and it’s plain Jane.”

Macleans

That’s a verdict.

The recent surge in the Toronto real estate bubble was sure anomalous, but in no way systematic.

It’s literally a market that simply has, for the past decade, shown a trend of excellent returns.

“If I went down to Wall Street and told people I could make them a 30% return on their investment, I’d be rolling in clients.” – AJ Badour

An excellent metaphoric remark to why there has been a Toronto real estate bubble.

Not only a coveted place to live.

But a market with excellent guaranteed returns in a short couple of years.

Yeah that’s going to cause a rush of prospective buyers and young adults to jump into the pool before it’s too late, left to watch people have fun in the water slipping through those sticky banded pool chairs.

#6 – Home sales across Canada see largest monthly decline in near 5 year span

Well it should be obvious.

Provincial Liberal’s unveil a 16-point “Ontario Fair Housing Plan.”

One that planned to directly cool the Greater Toronto Area real estate market.

One that, instead, psychologically affected the consciousness of consumer and homeowner, and even industry professionals.

I personally believe the Ontario Fair Housing Plan has done little, outside of it’s conscious provoking media storm.

So what’s so obvious about the connection of the psychological effects of Wynne’s Ontario Fair Housing Plan and Canada’s recent decline in home sales?

Canada is Ontario.

Popcorn goes flying. Albertans are throwing a fit, the Maritimers are headed for the door, B.C. is winking and Quebec didn’t show.

Ontario being 13.6 million people, it’s just over a third of Canada’s population.

The GTA being nearly a half of that third, it’s no wonder that with a dramatic shift within the Greater Toronto Area that we’d see ripples in the ambiguous Canadian realty statistics that cover a variety of anomalous markets.

No wonder we’d see such a decline in home sales just months after the housing plan implementation and wild storm of Toronto real estate media storm.

In the height of Toronto real estate, it’s no wonder people would be weary when the province’s (country’s) wave-maker of a market was flying at dangerous heights.

That reality mixed with a government legislation has created a season of weary buyers, waiting for the dawn and clarity to come to the market before taking their hard earned money and down payments to any market.

Major decline in Toronto sales + decline in Ontario sales = large portion of Canadian home sales decline

The number of residential properties sold
 nationwide fell by 6.2% in May compared to April,
 the largest month-to-month decline in nearly five years,
 the Canadian Real Estate Association said Thursday.
 The industry group for real estate agents noted
 sales were down a whopping 25.3%
 month-over-month in the GTA.

Toronto Sun

#7 – RBC predicts a coming buyers market

In RBC’s Canadian Housing Market report for May, they predicted a coming buyers market.

“Don’t be surprised if the Toronto area market moves into a buyer’s market territory in the coming months. This would not signal an imminent price collapse. It would in part simply be a reflection of changing sales tactics in the face of more patient buyers. We continue to expect that the next phase in the market will be a soft rather than hard ‘landing’.”

A month ago they couldn’t have been more right.
37.3% decline in June sales = patient buyer

This month they have a more definite but similar conclusion.

“Our view is that the cooling thus far is positive for the longer-term stability of the Toronto-area market,” said Robert Hogue, RBC Senior Economist, in RBC’s Canada’s Housing Market report for June.

If that wasn’t enough to convince you of a cooling market with a soft landing.

Dismissing a thick cloud of media smog, focused on fear-bait titles surrounding an impending or possible Toronto real estate crash, RBC responsibly addresses the topic of crash:

“While there’s a risk that a negative feedback loop for prices might be triggered by the current market correction, we believe that it is remote at this point.” reports Hogue.

“As long as the economy lends a supportive hand, we expect the adjustments to the new policy measures to remain orderly and a soft rather than hard ‘landing’ for prices to unfold.”

So in plain English,

As long as the economy is in a good place during this decline there will be a cushion to catch the current market correction before it slips into a downward spiral.

When the market falls to a more affordable range,
buyers, in a stable economy,
can be expected to return.

A transition into a buyer’s market.

A buyer’s market that will most likely react the same way Vancouver’s market has.

A downturn and re-up, at a steadier rate of growth.

“The experience in Vancouver following the introduction of a foreign-buyer tax last August shows that prices faced downward pressure for a period several months before mild upward pressure resumed once the market fully adjusted to the new measures. We expect a similar pattern for Toronto in the near term,” finished Hogue

#8 – Interest hike could further cool Greater Toronto Area real estate – [Bank of Canada]

If you didn’t think the obvious signs of a cooling trend were evident.

Or that a market could correct itself in conscious buyer’s.

Buyer’s I note are evident and have shown a clear sign that people do have a limit for what they are willing to pay for Toronto real estate.

But let’s not get off track.

Let’s just say the final nail in the coffin could be an interest rate increase.

Now don’t let that idiom get the best of your fears.

This isn’t the mainstream media. I’m not here to promote a moral panic over Toronto real estate.

An interest rate expected this Wednesday, will be just another dial on the A/C on Toronto’s Summer-17 stay cool Toronto real estate.

Next Wednesday, Bank of Canada will announce 
its trend-setting interest rate, 
and the signals from governor Stephen Poloz are strong enough
that economists are nearly unanimous in predicting the rate will rise, 
likely by 0.25 per cent.

A quarter-point increase is "not huge," 
but would contribute to the real estate slowdown, said Sherry Cooper, 
chief economist of Dominion Lending Centres.

CBC

 

 

 

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