Though sellers see less gain, they'll pay less for next home
Homes resales in Toronto took a 45% dive in December, 2008, compared with the same month a year earlier and figures from the Toronto Real Estate Board also show that the average price of a property selling in December was $361,415, down from $394,931 a year earlier.
"The figures have all essentially been telling us the same thing for a while," says Adrienne Warren, economist and real estate market specialist at Scotiabank. "The market is cooling off but I think in most areas it's a fairly orderly cooling off. The cyclical end of a housing boom and just a gradual cooling off in the Canadian economy."
This drop in sales needs to be viewed against the exceptional numbers for 2007.
"The city has seen significantly lower pace of sales; mind you, that's on the back of a 2007, which was a phenomenal year for sales," says Pascal Gauthier, economist at TD Economics. "A lot of sales got brought forward into 2007 because of the land transfer tax. That created a bit of a distortion ... when we look at the figures, for example, for the fourth quarter ending in December 08."
The end of the boom times should provide some relief for buyers, as property in the GTA becomes more affordable. On the other hand, Mr. Gauthier says it is not all bad news for sellers.
"Sellers are usually on both sides of the transaction ... people selling their home are often buying [another] home," says Mr. Gauthier. "They might see less of an appreciation to an existing asset but they're facing a lower price in purchasing the next one, so usually on net they're not that much worse off."
Prices for resales and new-build are expected to fall further as more new home construction completions come on to the market.
"New listings actually climbed from year-ago levels in December in Toronto," notes Douglas Porter at BMO Capital Markets, Economic Research. "A rather large warning siren for the price outlook."
As well as existing homes coming on to the market, data
from the Canada Mortgage and Housing Corp.(CMHC) shows new home starts in December, 2008, in Toronto rose by 27% compared with a year earlier. All the focus was on the condo sector, with 2008 being a record year. According to CMHC, a 137% annual increase in this segment boosted total new home construction figures (of course, much of this construction was the end result of sales that took place a year or two prior to the construction phase). Low-rise housing, such as singles, semis and townhomes all recorded a fall in home starts.
But analysts are eager to point out that while inventories of unsold homes will increase, the rise in levels is manageable.
"Inventories are not at levels that we're particularly concerned about. They are not at the oversupply of empty new housing units that we saw in Toronto in the early 1990s," says Ms. Warren. "We're certainly not at the level we're seeing in some of the most overbuilt U. S. markets, but they're definitely trending a little bit higher."
Slower sales, increased inventories and moderating prices are sure signs the market is cooling.
"The equilibrium or balance in the market certainly has shifted and it's occurred rather swiftly," says Mr. Gauthier. "Some of that is confidence; people tend to list their homes and test the market, while potential buyers tend to sit on the sidelines waiting to see how much further prices will drop -- as consumer sentiment has shifted to being rather pessimistic because of the global recession."
Ms. Warren and Mr. Gauthier both agree this housing downturn is cyclical with reduced affordability driving down sales at the same time as the recession is starting to bite.
"Economic recovery will be relatively slow the next couple of years because there are structural challenges in the Canadian economy," says Ms. Warren. "This will be a down year [for housing] and going into 2010 and 2011, you're looking at a number of flat years, bringing affordability back to the market."