Toronto Real Estate: Will Prices Drop Further?
Since the implementation of the Ontario Fair Housing Plan, Toronto real estate shifted, with year over year listings spiking 48.9% in May 2017. Home sales declined 20.3% and the Canadian Real Estate Association (CREA) to cut their forecast for Ontario.
The average price dropped 6.1% from April to May, mostly a result of many buyers staying on the sidelines to see the effect of the Ontario Fair Housing Plan. Toronto realtors claim that buyers are ‘holding back’ because they believe the market might fall.
Despite the month over month price drop, Toronto-area home prices are still up 14.9% year over year in May 2017, and the average days on market (DOM) reduced 26.7%, meaning that homes are getting sold quicker. Keep in mind, approximately 40% of Canada’s 300,000 immigrants settled in Ontario – contributing to the heated demand amid relatively low supply levels (Bloomberg).
In fact, the average price from December 2016 – May 2017 is up 18.3%. In a period of only 5 months, Toronto-area home prices experienced significant growth – even after 6.1% price decline from April to May (the average price in Toronto is $863,910 as of May 2017, a $133,438 increase from December 2016).
However, there are two flaws with only looking at the 42.9% increase in active listings:
- According to TREB, May 2016 experienced the lowest number active listings in 15 years (May 2016 can be considered as an outlier). The 42.9% is a rebound from this record low.
- Double counting of listings: TREB defines new listings as those entered into the TREB MLS system between the first and last day of the month/period being reported. If an agent were to de-list and relist, this would count as two listings.
This is a major flaw within the calculation of new listings, as David Fleming has pointed out. Some agents purposely under-list the property, to stir up a bidding war. If the asking price vs. selling price strategy doesn’t work out as expected, many would de-list and relist the property.
Even though listings shot up 42.9%, homes were still selling faster. The average home sold in 11 days in May 2017, compared to 15 days during May 2016. Typically, more listings leads to homes taking a longer time to sell – as the market becomes less competitive for buyers.
I’ve seen some houses being taken off the market due to weaker offers – sellers aren’t experiencing the frenzy experienced earlier the year. This strategy became more common after the Ontario Fair Housing Plan was released.
Will the Toronto real estate market heat up again? The market has certainly balanced out, and cooled down – something that would benefit many first time home buyers. However, Canada’s economy continues to grow and Toronto’s job market continues to remain strong – some of the factors that contribute to housing prices.
The summer market is historically a popular time for home shopping – we’ll see what’s next for Toronto’s real estate market. If Vancouver’s foreign buyer tax were to indicate anything, Toronto’s home prices are bound to heat up again within a year.
Recently, Vancouver home sales are nearing record levels, despite the foreign buyer tax. When Vancouver’s foreign buyer tax was introduced, sales and inventory declined, keeping the prices relatively steady. In other words, the foreign buyer tax is a band-aid solution to Toronto’s underlying supply shortage.
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Writer: Jelani Smith
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