After a long period of remarkable home sales and home price growth, the Toronto Real Estate Board( TREB) reported that the Greater Toronto Area’s housing market posted the first of this year’s decline in May, 2017, in a market that’s been hot for at least the last two years. But will this be a one-month blip, or a turning point that could be accompanied by falling prices and sales in the coming months?
Forecasting real estate marketplace performance is a tricky business. But a closer look at the TREB data seems to provide enough support for a reasonable call – sales and costs will continue to fall for at the least two or three more months.
In its news release, TREB states that home sales in May 2017 were down 20.3 per cent from the same month last year. This was a second month in a row of falling sales as in April 2017 sales reduced year-over-year by 3.2 per cent. Single-detached home sales fell 26.3 per cent in May, 2017, while condominium apartment sales were off 6.4 per cent.
At the same time, new home listings continued on rising–up on a year-over-year basis by 33.6 per cent in April, and then a whopping 48.9 per cent in May, 2017.
When the supply is growing and the demand is declining, prices are bound to fall. Indeed, the average cost of homes sold in the GTA dropped for the first time this year by 6.0 per cent in May, 2017 compared to April, 2017.
Analysts assume that the main reason for the changes in May was the set of measures intended to cool the GTA’s “overheated” housing market as announced by the Ontario government in April, 2017. Moreover, a closer look at the TREB statistics suggests that the cooling-off tendency started earlier. This is well illustrated by an indicator which is traditionally a good predictor of future sales and prices – the ratio of sales-to-new listings, i.e. the ratio of demand and supply for homes.
If the ratio–expressed as a per cent–is, shall we say, 40 per cent, it simply means that in a given month there are 40 sales for every 100 new listings. Traditionally, a ratio in the 40 to 60 per cent range is considered a sign of a “balanced” market, while a ratio above 60 percentage indicates a “sellers'” market. This ratio reached a record high of 81. 5 per cent in the GTA in February 2017, a figure well above the balanced market threshold, and one that provided the sellers a strong advantage over purchasers in the sale and negotiation process.
However, in the following months, the sales-to-new listings ratio has declined–first to 70.8 per cent in March, then to 53.8 per cent in April, and finally to 39.5 per cent of the members in May, 2017. This represents a clear and steady downward trend. It will most probably remain within the “balanced” 40 to 60 per cent in near future. At least for the next few months, there could be a continued downward pressure on home prices.
Whether this pressure extends into the autumn and becomes a prolonged trend, we do not yet have a well-founded answer. But one thing is clear – the bidding wars in the GTA will stop, at least for the next few months. The Toronto home price growth is soon halted. This is good news for the Toronto real estate market. It is our best hope for a so-called soft landing, instead of a hard landing or “crash” of a clearly overheated Toronto housing market.
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Source: Maclean’s Magazine
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