GTA homes on brink of bear market
DON’T EXPECT POLICY REVERSAL, DESPITE SLIDE
TORONTO• Prices and sales continue to slide for existing homes in the Greater Toronto Area, but for now there doesn’t appear to be much chance government will ease up on measures designed to cool the market in Canada’s largest city.
On Thursday, the Toronto Real Estate Board reported the average price of a home in the GTA sold for $746,218. That’s up 4.6 per cent from a year ago. But at the peak of the market — at the end of April — that figure was $ 920,791, an almost 19 per cent decline.
TREB said there were 5,921 transactions in July, a 40.4 per cent decline on a year-over-year basis and part of downward trend that coincides with a decision by the Ontario government to introduce its Fair Housing Plan, a 16-point program to slow the market that included a 15 per cent non-resident speculation tax
Thought not directly aimed at the housing market, the Bank of Canada stuck another pin in the sector last month when it raised the overnight lending rate by 0.25 per cent. The moved was matched by banks who all increased their priming lending rate from 2.7 per cent to 2.95 per cent.
“I don’t think policy has been tightened too far and I don’t think actions are called for to stop the cool off,” said Craig Alexander, chief economist with the Conference Board of Canada. “These are early days after the recent policy changes. The bulk of the market reaction is purely psychological. In the coming months, listing are likely to fall and the decline in sales will moderate. I suspect that the Bank of Canada will be pleased to see the cooling, and will monitor the risks of a sustained downturn. I don’t think they will hike again at next meeting, but another quarter percentage point increase should occur before the end of the year.”
The slide in Toronto prices does not show any sign of abating. The average price of a detached home in GTA is close to breaking through the psychological $1 million barrier. TREB said the average detached home in the GTA sold for $ 1,000,336 last month, a 4.9 per cent increase from a year ago and well below the $1,205,262 average in April.
TREB statistics do show more moderately priced segments of the market like semi- detached homes and condominiums are performing better as the GTA market cools. The average condo unit in the GTA sold for $ 501,750 in July, up 23.2 per cent from a year ago. That price was off f rom $519,784 in June.
Christopher Alexander, regional director, RE/ MAX INTEGRA Ontario- Atlantic Canada Region, said the government’s intervention has been a failure. “Maybe the intentions of the plan were good but I don’t know if what they really tried to do has taken effect — the whole purpose of the plan was affordable homes and condos are over $ 500,000. That was the affordable option. Sales under $ 500,000 across the board are down since the first quarter,” he said.
Doug Porter, chief economist with Bank of Montreal, said the “steep pullback” in the detached segment is much more a statement on how the market went too far earlier this year. “It needed a jolt back to reality. I think it’s far too soon to be thinking about reversing the measures. If Vancouver is any guide — and it is probably a good one — it suggests activity will soon stabilize,” he said, adding the Bank of Canada has to consider the national economy when it comes to further rate increases and not just the Toronto housing market.
The housing sector could face further cooling if the Office of the Superintendent of Financial Institutions follows through with changes that would impact low-ratio mortgages or people with more than 20 per cent down payments. New rules would force those consumers to qualify for mortgages based on the rate on their contact plus two percentage points.