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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​.toron​to​re​alestate​board​.com/​m​a​r​k​e​t​_​n​e​w​s​/​r​e​l​e​a​s​e​_​m​a​r​k​e​t​_​u​p​d​a​t​e​s​/​n​e​w​s​2​0​1​1​/​p​d​f​/​M​I​D​_​M​O​N​T​H​_​A​U​G​_​2​0​1​1​.​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​.toron​to​re​alestate​board​.com/​m​a​r​k​e​t​_​n​e​w​s​/​r​e​l​e​a​s​e​_​m​a​r​k​e​t​_​u​p​d​a​t​e​s​/​n​e​w​s​2​0​1​1​/​p​d​f​/​n​r​_​m​a​r​k​e​t​_​w​a​t​c​h​_​0​5​1​1​.​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​.toron​to​re​alestate​board​.com/​m​a​r​k​e​t​_​n​e​w​s​/​r​e​l​e​a​s​e​_​m​a​r​k​e​t​_​u​p​d​a​t​e​s​/​n​e​w​s​2​0​1​0​/​p​d​f​/​n​r​_​m​a​r​k​e​t​_​w​a​t​c​h​_​0​5​1​0​.​pdf
August 2010 – http://​www​.toron​to​re​alestate​board​.com/​m​a​r​k​e​t​_​n​e​w​s​/​r​e​l​e​a​s​e​_​m​a​r​k​e​t​_​u​p​d​a​t​e​s​/​n​e​w​s​2​0​1​0​/​p​d​f​/​n​r​_​m​a​r​k​e​t​_​w​a​t​c​h​_​0​8​1​0​.​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.

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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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