National Post (National Edition)
The ups and downs of the housing market
Toronto’s existing homes market is seeing a massive decline in prices — or is it? The latest numbers from the Teranet-National Bank Composite House Index look like they tell a different story.
The index, released Monday, shows Toronto prices actually rose 2.1 per cent from June to July and national prices were up two per cent from a month earlier. The Toronto results, at first glance, appear out of sync with Toronto Real Estate Board results which show prices have declined almost 21.5 per cent from a peak hit in mid-April before the province put in measures like a foreign buyer tax to cool the market in and around the city.
A HOUSE PRICE CORRECTION IS ALREADY IN PROGRESS.
But Marc Pinsonneault, an economist with National Bank, said his index needs to be examined more closely and, as his firm went out of its way to explain in a note, that the index reflects a threemonth rolling average, or what it calls a ‘smooth index’. The 2.1-per-cent increase was an average of May, June and July and therefore not fully reflective of the falling Toronto market.
Monday, it also released a so-called unsmoothed index, which offers a better snapshot of July, comparing it to June. The result was 0.3-percent decline for all dwellings in the Toronto region.
“When (the index) was built, people wanted to soften the monthly fluctuations,” said Pinsonneault, adding the main index number might not reflect a quickly declining market like Toronto is now seeing. The Teranet-National Bank index also focuses on final sales while TREB initial numbers focus on agreements to purchase — the 30-60 days it might take to close a sale creates a lagging effect.
Still, the index results were enough to convince some that a major correction is coming in Toronto, potentially far beyond what has already been seen.
“While homeowners (in Toronto) enjoyed substantial house price gains over the past several years, fuelled mainly by lower interest rates and riskier forms of mortgage-lending activity, the recent plunge in resale housing activity over the past three to four months illustrate that a house price correction is already in progress,” said David Madani, an economist with Capital Economics which has been predicting a housing crash since 2011, in a note Monday. “Future price declines could potentially erase the majority of the cumulative price gains over the past decade.”
The Toronto market can also be broken down even further. While a straight comparison of July to June shows prices down 0.3 per cent, removing condos from the equations increases that decline to 1.6 per cent and reflects the divide in the market.
“There has been loosening (of prices of) condos but not to the same extent (as low-rise homes). You also have lower sales of high-end homes and more sales of condos which are less expensive. The average price of transactions will be amplified by the change in the composition of sales,” said Pinsonneault.
It’s also worth noting the national numbers, although heavily influenced by Toronto, may also be getting a boost from hot summer markets in Montreal and Ottawa-Gatineau, where the index rose two per cent and 1.6 respectively, from June to July.
Realtors have been saying for a few months that the Toronto condominium market is still strong and it’s more detached homes that have been stung, especially among foreigners hit by Ontario’s 15-per-cent non-resident speculation tax.
“The condo market is still growing. Prices are actually up about double-digit in some areas. You take out condos and the picture is different,” said Christopher Alexander, regional director, Re/Max Integra OntarioAtlantic Canada Region. “(Low-rise) homes had the biggest gains (a year ago). The condo sector was doing well but not as well.”
Derek Holt, vice-president and head of capital markets economics of Scotiabank Economics, said summer sales numbers even seasonally annualized are probably a poor way to analyze the market.
“How much are we going to attach to this (month)? I think you’ve got to get into six or 12 months of data and a meaningful housing market environment,” said Holt. “The sales numbers do show the market (correcting) but I do think in my heart of hearts that it’s going to be a transitory shock (in Toronto) like the one in Vancouver. You will start to rebound.”