Toronto’s Splendid Housing Bubble Turns to Bust

Wolf Richter,

Market freezes up at the top. Average price of detached house plunges C$175,000 in 12 months.

Home sales in the Greater Toronto Area (GTA), Canada’s largest housing market, and among the most inflated in the world, plunged 32% in April, compared to a year ago, to 7,792 homes, according to the Toronto Real Estate Board (TREB), a real estate lobbying group. The sales plunge affected all types of homes, even the once red-hot condos:

  • Detached houses -38.4%
  • Semi-detached houses -29.3%
  • Townhouses -22.1%
  • Condos -26.0%.

The sales slowdown was particularly harsh at the higher end: Sales of homes costing C$2 million or more collapsed by 64%. The market is freezing up at the top.

Prices follow volume. Both types of prices the TREB publishes – the average price and its proprietary MLS Home Price Index based on a “composite benchmark home” – fell from April last year. This is a confusing experience for the real estate industry, sellers, and buyers, since prices have ballooned for 18 years, interrupted by only one brief dip during the Financial Crisis, and the rule has been that prices will always go up and that you cannot lose money in real estate.

The average price in April for the Greater Toronto Area (GTA) plunged 12.3% year-over-year to C$804,584. A drop of C$113,600. By market:

  • In Toronto itself: -8.2% (-C$76,860) to C$865,817.
  • In the rest of the GTA without Toronto: -15.2% (-C$137,070) to C$767,359.

Detached houses – which are generally more expensive than other home types – got hit the hardest:

  • Detached houses -14.4% to C$1,030,103 (down by C$175,000)
  • Semi-detached houses -6.4% to C$792,385
  • Townhouses -7.8% to C$645,172
  • Condos +3.2% to C$559,343

While Condo prices still gained 3.2%, that gain was down from a 6.1% gain in March, and down from double-digit gains earlier.

The average price was impacted by two factors, the TREB said: by “changes in market conditions,” and by the sales collapse at the higher end of the market, which changed the mix of sales, and therefore affected the average price.

The TREB’s proprietary Home Price Index, which is based on a “composite benchmark home,” and which “strips out” the impact of these changes in mix, “was down by only 5.2%” year-over-year.

The inventory of homes for sale surged 41% from a year ago, to 18,206 active listings. At the rate of sales in April, this worked out to a supply of 2.3 months, up from 2.1 months in March. The average days-on-the-market before the home is sold or before the listing is pulled without sale more than doubled to 20 days, up from 9 days in April last  year.

Months’ supply and days-on-the-market show that the market is cooling from its red-hot phase, that sellers aren’t panicking just yet, and that potential buyers are somewhat more cautious and reluctant, as the “fear of missing out” is being wrung out of the market.

The TREB tried to put a positive spin on the declining home prices: “April’s price level represents a substantial gain over the past decade.” That’s true – as noted above, prices surged without much interruption for the past 18 years. But all good price bubbles come to an end.

And there is always hope to somehow keep the bubble inflated: “A strong and diverse labor market and continued population growth based on immigration should continue to underpin long-term home price appreciation.”

So too bad for the millennials who’ve been shafted by this housing bubble, and too bad for systemic risk to the financial system, but the housing bubble must go on.

The TREB outlines its lobbying efforts. Even as the Bank of Canada and policy makers and regulators at federal and provincial levels have been trying for over a year to cool the runaway housing bubble with interest rate hikes, policy changes, and tax changes, the TREB, lamenting the “current policy-based volatility,” wants them to back off, and exhorts its members to fan out and apply pressure on politicians and policy makers:

With a provincial election campaign about to begin, GTA REALTORS® hope that all of the provincial parties will make housing issues a priority.

In recent months and years, there has been significant intervention in housing markets by all levels of government, through regulatory changes and taxation. We believe the next step should be tax relief, especially from Land Transfer Taxes….

Because no one is allowed to try to tamp down on a housing bubble that is threatening the financial system and has elevated Canadian households to top levels of the world biggest debt slaves.


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