Ash­ley Csanady – National Post

Hous­ing sales in the GTA fell by 34% in July com­pared to the same month last year, the Toronto Real Estate Board (TREB) has reported.

There were 6,564 sales last month, down from a record 9,967 sales in July 2009. New list­ings also took a hit, drop­ping to 10,825 — the low­est level for July since 2002.

Com­ment: Remem­ber, we are com­ing off record highs, we are still hav­ing a good year. The mar­ket is not col­laps­ing, do not worry.

Despite the lag, total sales for 2010 are still up 12% from last year. A com­bi­na­tion of fac­tors played into the sud­den dip, accord­ing to Jason Mer­cer, senior man­ager of mar­ket analy­sis for TREB.

Com­ment: So even with cur­rent months drop­ping, we are still hav­ing a record year. And peo­ple seem to for­get that in a tra­di­tional real estate cycle, sales always slow through the sum­mer. In fact, real estate agents used to take July off. We are just going back to nor­mal, but all peo­ple remem­ber are the anom­aly years, the record years.

“There’s been a lot of talk about the HST, but I think on bal­ance, in the real estate mar­ket you’re see­ing more of an impact from inter­est rates,” Mr. Mer­cer said. He explained many Ontar­i­ons were con­cerned about the addi­tional cost of the har­mo­nized sales tax on their real estate trans­ac­tions, but two other mon­e­tary poli­cies fueled the buy­ing frenzy in the first half of the year.

Com­ment: The HST might not be impact­ing the real estate mar­ket, but the per­cep­tion of it is. Peo­ple think they have to pay it when they don’t. There is not HST on resale real estate pur­chases, for instance. You will have to pay it on com­mis­sions and home inspec­tions, though. The prob­lem is that the gov­ern­ment did a bad job of com­mu­ni­ca­tion it to the pub­lic, thus they are afraid to buy because they are afraid to be taxed. Once the facts come out in time, peo­ple will get back to buying.

And inter­est rates are not a major prob­lem. Again, it is per­cep­tion. Peo­ple see the prime rate go up twice and they get spooked. But even with prime at 2.75% and vari­able rate mort­gages in the 2% range, that is very low. And fixed rate mort­gages can be found for less than 4%, back near the record low for that type of loan. Peo­ple just need time to adjust and see that rates are very good, not scary like so many “experts” say.

For much of the year, the fed­eral gov­ern­ment was warn­ing Cana­di­ans that inter­est rates would start ris­ing in the late spring or early sum­mer, which, Mr. Mer­cer explained, spurred a lot of peo­ple into sign­ing fixed-rate mort­gages. The government’s new mort­gage lend­ing poli­cies, which require all mort­gage recip­i­ents to qual­ify for a five-year fixed rate loan even if they opt for a vari­able rate, also pushed many buy­ers into the mar­ket in the first quart of 2010.

Com­ment: And when they see that vari­able rates are still low and fixed rates are near the low­est ever, they will start to buy again. Peo­ple just need to spread the good news rather than keep with the naysaying…

The aver­age price of a house rose 6% from July last year to $420,482, a num­ber that’s down from the aver­age sell­ing price so far this year. Since Jan­u­ary, prices have jumped 12% annu­ally to $432,253.

Com­ment: Huh? Prices are up since last July and since Jan­u­ary – where is the down? And remem­ber, the prices above are for the 416 and 905 com­bined – the aver­age price in Toronto proper is a good 10% higher.

For Mr. Mer­cer, the decline is no a cause for panic but a sign the mar­ket is sta­bi­liz­ing. “We were start­ing to see pretty big increases [in sales] as we moved into a recov­ery period, and now we’re start­ing to see them bal­anc­ing out.”

Com­ment: Right, the mar­ket is sim­ply bal­anc­ing,  noth­ing more. This is not a bub­ble burst­ing, as there was never any bub­ble. This is a not a col­lapse. It is sim­ply the mar­ket mov­ing from record break­ing hot chaos back to where it should be.

The drop in prices has lit­tle to do with a glut in the mar­ket, as list­ing rates slipped as well.

“It took a while for list­ings to turn around after sales have recov­ered [from the reces­sion],” Mr. Mer­cer said. “If you’re look­ing at new list­ings, in response to [the per­cep­tion of sales drop­ping], seem to have dipped.”

“There’s been a lot of cov­er­age over the past few months that sales haven’t been as strong so that might have influ­ence people’s deci­sion as well,” he added.

Com­ment: Sure, every­thing thinks the mar­ket is going down the toi­let and they want 1998 prices. Not gonna hap­pen. Peo­ple can­not hold out for­ever. And fewer list­ings will mean more bid­ding wars and then we are back to that craziness.

Some may fear a return to an abysmal 1990s-style hous­ing mar­ket, Mr. Mer­cer said, but the over­all hous­ing cli­mate is much stronger than two decades ago. In the 1990s, the afford­abil­ity rate — the per­cent­age of one’s income allo­cated to mort­gages, prop­erty taxes and other main­te­nance expenses — soared above 50%, which caused the down­turn in the real estate mar­ket. Today’s rate remains between 30% and 35%, accord­ing to Mr. Mer­cer it’s a sign that the mar­ket will remain sta­ble one it set­tles from the eco­nomic tumult of the past two years.

“[The high num­ber of sales in the early part of the year] was sort of a recov­ery from very low sales in the sec­ond half of 2008 and the first bit of 2009,” he said. “There’s been sort of this volatil­ity as we’ve gone through this stage of the eco­nom­i­cal cycle.”

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