Toronto Real Estate: 17% Drop In Resale Value May Not Spell Disaster
The Huffington Post Canada – Daniel Tencer
In the first half of July, the average resale price of a stand-alone home in Toronto was $720,808.
A month later, in the first half of August, it was $597,093 — a 17% drop.
A sign the real estate apocalypse is upon us? Not exactly. Not yet, anyway.
Comment: Are you insane or just stupid? Averages are just that – averages. One big sale in Rosedale and the numbers get skewed. You are also picking one type of home out of all of them, detached only as compared to semi-detached, townhouses and condos. Detached homes made up only 352 of 1,201 total sales in the 416, and only 11% of all sales in the GTA. For half of a month. I have rightly accused many people of cherry-picking the stats, but this takes the cake! I could point out that condo prices rose from $351,040 to $355,513 during the same period. I could also repeat the stats that all real estate industry people know, prices peak around May and then settle down during the rest of the year. We will likely see prices bump up again when things heat up during the fall market. But I know this because real estate is what I actually do every day, for a living. I do not get paid to attract eyeballs, to create news, to spin things to make them seem worse in order to sell ad space. And I trust that my clients and people who visit this page are smart enough to know the difference.
But the surprising figure in the Toronto Real Estate Board’s latest mid-month report does suggest that the city’s real estate market is undergoing some pretty large shifts, and observers who fear Canada’s housing sector is in a bubble have more reason to worry.
Comment: No one in their right mind thinks there is a bubble. Prices rising 5–10% annually (minus 2% for inflation) is not a bubble. What happened in 1989 when prices jumped 127% in little over a year, now that is a bubble. Not the same thing.
Not all the statistics in the TREB’s report are as alarming as the one above. Compared to the same period a year earlier, the average resale price was down only 7%. And prices in Toronto’s suburbs — the 905 — actually posted a year-on-year increase of 9% for the same period.
Comments: None of them are alarming. I invite everyone to go an read the actual document here – http://www.torontorealestateboard.com/market_news/release_market_updates/news2011/pdf/MID_MONTH_AUG_2011.pdf and decide for yourself. Sales were up 22.5% over the same period last year, with prices up 7%. Year to date sales are almost indentical, only 0.5% different. Wow… scary stuff!
Jason Mercer, senior manager for market analysis at TREB, cautioned that the numbers may be deceiving.
“You do see average selling prices dip in the summer months,” he told HuffPost, noting that there tend to be fewer high-end homes on sale during the summer, which can skew average numbers.
Comment: Whoa, what have we here? A completely rational explanation for the one skewed data point this writer has decided to blow out of proportion.
But an analysis of TREB’s numbers shows that the summer dip was much more pronounced this year than last. While the average resale price in Toronto dipped $51,000 from May to August last year, this year the same period saw a decrease that was more than three times as large: $177,000 was wiped off the average price from May to August of this year.
Comment: What? Seriously, WTF? Average price for the first two weeks of August was $443,078 in the 416, $440,150 for the entire GTA. May averages were $535,807 for the 416 and $485,520 for the GTA. That means there were drops of $92,729 and $45,370 respectively. Where the heck does $177,000 come from? Check the August stats through the link above, the May stats are here – http://www.torontorealestateboard.com/market_news/release_market_updates/news2011/pdf/nr_market_watch_0511.pdf I assume you can do the math yourself and see the great error.
We have also had it explained, both by myself and by Mr. Mercer that prices traditionally drop in the summer. As they did last summer. And the summer before. And so on before that. This is nothing new and certainly not news.
May 2010 to August 2010 say prices in the 416 go from $493,265 to $421,407 – a difference of $71,858 and NOT the $51,000 stated above. So we have a drop of $72,000 compared to a drop of $93,000 – VERY different from $51,000 and $177,000. Someone is working the calculator wrong methinks. Or is simply trying to outright deceive people.
Again, check the numbers for yourself, I have nothing to hide:
May 2010 – http://www.torontorealestateboard.com/market_news/release_market_updates/news2010/pdf/nr_market_watch_0510.pdf
August 2010 – http://www.torontorealestateboard.com/market_news/release_market_updates/news2010/pdf/nr_market_watch_0810.pdf
The numbers are so staggering that they prompted business journalist and former Member of Parliament Garth Turner to wonder if they were a typo. (They weren’t.)
Comment: Do not even get me started on how moot his opinion is. And how wrong it has been for the past 10 years. I had a client once who was so glad they did not take his advice and not buy in Leaside. They would have lost $800,000 if they had followed his advice.
Toronto’s economy, like its housing market, is giving off mixed signals. While July unemployment in Ontario was at 7.5%, lower than the 7.7% a year earlier, Statscan reports that the total size of the province’s workforce shrank by 36,000 in the 12 months to July.
That suggests an economy that may not be able to support increases in real estate values for long.
Comment: Huh? Unemployment is down, our loonie is up, the TSX is better than it was before the mini dump of last week. Oh yeah, our economy sure is hurting.
For all that, the TREB doesn’t seem worried. Mercer described the Toronto resale market as “stable,” and said he expects the average numbers to pick up in the coming months. He noted that sellers are by and large getting their asking price, suggesting a market where supply and demand are aligned.
Comment: With so few listings, sellers are getting their asking price and more!
Mercer also notes that this month’s underwhelming average resale price was determined on the basis of only 352 sales — a small sample size for a market this large.
Comment: Which anyone knows. Small samples equal useless results. That is why we compare yearly data.
He added the TREB projects a total of 90,000 home sales for Toronto this year, making it the second-best year on record, in terms of sales volume.
Bank of Canada Governor Mark Carney and Finance Minister Jim Flaherty are expected to update Parliament on the country’s economic situation on Friday, and given the softness of recent economic indicators, observers expect Carney to affirm his commitment to keeping interest rates low for the foreseeable future. That’s a far cry from just last month, when the economy was seen as being good enough for economists to speculate about a rate hike.
Comment: And low rates help people buy homes, keeping the market rolling. Do you not see how that works?
Signs have been emerging for some time that Ottawa is concerned that historically low interest rates, combined with relatively easy access to mortgages, have been distorting the real estate market and potentially inflating prices.
Comment: Which is why they have kept tightening mortgage rules, and yet everything stays safe and stable and people keep buying.
Flaherty announced new mortgage rules earlier this year that would reduce the maximum amortization period on government-backed mortgages from 35 to 30 years. The finance minister also reduced the maximum amount Canadians can borrow against their homes, to 85 per cent from 90 per cent.
Recent statistics show Canadians now hold the highest household debt-to-income ratio among the developed countries of the OECD, surpassing even the peak American households hit before the U.S. housing market collapsed.
Comment: Yes, that is the one point that is worrisome, I will concede that.
Contact Laurin Jeffrey for more information – 416−388−1960
Laurin Jeffrey is a Toronto Realtor with Century 21 Regal Realty. He did not
write these articles, he just reproduces them here for people who are
interested in Toronto real estate. He does not work for any builders.
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