Update on the Deflating Housing Bubble in Toronto

by Wolf Richter, Wolf Street:

Missing Chinese money? Hardest hit is the priciest segment: detached houses.

Home sales in the Greater Toronto Area plunged 35% in September compared to a year ago, to 6,379 homes. The plunge in volume was spread across all types of homes. Even condos got hit:

  • Detached houses -40.4%
  • Semi-detached houses -30.2%
  • Townhouses -34.4%
  • Condos -27.5%.

As total sales plunged, new listings of homes for sale rose 9% year-over-year to 16,469, according to the Toronto Real Estate Board (TREB). And the total number of active listings of homes for sale soared 69% year-over-year to 19,021.

While Toronto’s housing market is still not drowning in listings, the plunge in sales volume and the surge in listings combined is a major change in market direction. And prices have followed.

The report tried to brim with industry hope: “The improvement in listings in September compared to a year earlier suggests that home owners are anticipating an uptick in sales activity as we move through the fall,” And it grabbed at straws: “Consumer polling undertaken for TREB in the spring suggested that buying intentions over the next year remain strong.”

Alas, “in the spring” – precisely in April – Toronto’s housing bubble peaked with a final and phenomenal melt-up of home prices: The average price had soared 30%  year-over-year to C$920,761! And the mood of the housing market was at its most buoyant.

So how did the plunge in volume and the surge in listings impact prices?

The average price of all homes in the Greater Toronto Area, at C$775,546 in September, is down 16% from the crazy peak in April. Year over year, the average price is now up only 2.6%.

That’s a lot of backpedaling from a 30% year-over-year increase in April. To cool the housing market euphoria – and the risk it poses to lenders and homeowners – and to put a lid on ballooning affordability issues, the Ontario government introduced a laundry list of measures on April 20, including a 15% transfer tax on nonresident foreign speculators. That appears to have done the trick.

What has gotten hit the hardest is the most expensive segment: The market for detached houses. As sales volume plunged 40% in September, the average price plunged 16% from the April peak to C$1.015 million, which is still very high and still makes Toronto one of the most inflated housing bubbles in the world, but it’s now flat year-over-year – after having been up 33.4% year-over-year in April.

On the other end of the spectrum, the average condo price in September edged down only 2.1% from its peak in May to C$520,411 and is still up 23% year-over-year.

After the surge in the first seven months of the 12-month period, the growth in average prices by segment still looks mostly positive, but a lot less positive than just a few months ago:

  • Detached: 0%
  • Semi-detached: 7.4%
  • Townhouse: 7.1%
  • Condo: 23.2%

The TREB’s special concoction, the “benchmark price,” fell 0.6% in September from the prior month and is now down 8% since May, but is still up 12% year over year.

The TREB refuses to publish median selling prices. Median price means half sell for more, half sell for less. It’s one of the standard measures in the US housing market. But the TREB, which has the data, doesn’t want this measure to circulate.

Canadian real estate site Zolo, however, publishes the median price for the Greater Toronto Area, and it’s down 17% from the April peak of C$800,000 to C$665,000 in September.

That sales and prices of detached houses – the most expensive segment – have been hit the hardest so far doesn’t necessarily mean that high-income Canadians who can afford to buy these homes have suddenly run into a rough spot. It’s more likely a consequence of the policies by Ontario, announced on April 20, that attempt to tamp down on wild speculation, particularly on speculation by nonresident foreign investors, which in Toronto is largely Chinese money.

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