The mighty tug of war between economists and analysts, and the never-give-in real estate industry, is at a stalemate. In CREA’s latest report the number of resales in February fell 2.1% nationally from January and 15.8% from last year (15% for the GTA). The average price of all homes slipped by 1% from a year ago. Is this the beginning of the 10-25% drop expected by the serious thinkers and major institutions: the IMF, Fitch and Moody’s?
My focused research on 2-bedroom condos in three areas: downtown, midtown, and near north shows the price decline in condos continuing (Chart 1), despite selling more quickly in February (Chart 2). TREB reports a 20% drop in sales in the 416 area in February, with a 4.7% drop in downtown prices from a year ago.
For the 905 area, TREB reports the same 20% drop in sales, but says that prices are up. Hmmm…My research shows prices in the core Markham/Richmond Hill area along Highway 7 continuing to trend down (Chart 1).
For condos, the fundamental imbalance continues – more condos than buyers. There’s no panic yet, but there are sellers dropping prices and negotiating to get ahead of the curve. Same with developers, holding prices but offering buyer incentives and bonus commissions. (For my special offer to buyers send me an email or text.)
Houses tell a different story. First, There’s been a 50% drop in low-rise construction in recent years. Developers build what sells, and that’s been condos. Empty-nesters were expected to free-up inventory, but the healthier and wealthier majority are staying put for a while longer, perhaps well into their 70’s. In a few years hundreds of condo couples will be looking for more space to start families. The cash hoard from overseas and multi-generational families remains in play. Interest rates remain at historic lows to help the struggling economy. And what about the funding bump of the surging stock market?
Put all that upward pressure against the downward pressure of excessive price to household debt and price to rent ratios and you get … “buyers and sellers in a standoff”, according to real estate expert, John Andrew, business professor at Queen’s University, as reported in the Globe & Mail. “Sellers are holding out for their prices and buyers are waiting for deals. I think it’s too early yet, but there will be a correction.” (For my special offer to sellers send me an email or text.)
Perhaps. But not until after a spring bounce. Although February sales were down 16-17% Y-O-Y in the GTA, warmer days and spring blooms stir many a buyer’s spirit. Debt be damned.
Minister of Finance Flaherty and BOC Governor Carney have been holding their ground against the real estate industry of brokers and banks in their battle for the buyers’ wallet. The two are pleased there is at least a standoff.
In last month’s CTV Question Period, Mr. Carney commented: “We’ve seen the adjustment in the housing market. We think there’s a bit more to come over the next couple of years.” He advised that Canadians shouldn’t count on home prices to be their main source of wealth gains. “Real wealth is built through innovation, and it’s gained through hard work.”
Mr. Carney’s view is supported by the TD Bank in their recent report. It forecasts home price gains averaging 2% over the next decade. Hopefully, that will keep pace with inflation, but is likely to make real estate the worst performing asset class compared to stocks and bonds.
My philosophy, as lived: a home that meets your needs and is full of love is the true worth of real estate. All else is secondary.
Real Estate Sales Representative
call or text: 416 436-5851
Recent news stories
Cracks in housing's foundations grow more ominous - Globe and Mail Mar 11
Don't rush into housing market just for a low mortgage rate - Globe and Mail Mar 4
Household debt hits another new record - Toronto Star Mar 15
Is it bloom or bust for real estate this spring - Toronto Star Feb 16
More adjustment to come in home prices, Carney - Globe and Mail Feb 17
Toronto home resales sink in February as rebound proves elusive - Globe and Mail Mar 5