Toronto Real Estate Prices Down 15% in October

John Pasalis in Toronto Real Estate News

The average price for a home in the city of Toronto dropped by 15% during the first half of October, eclipsing the 6% decline we saw last month.  The average price dropped to $375,804 from $441,878 during the same period last year.  Prices in the city of Toronto continue to decline at a much faster rate than the surrounding 905 Region.  Average prices in the 905 area dropped by 8% to $337,671.

Sales in the GTA declined by 18% during the first half of October.  The city of Toronto saw a bigger decline in sales dropping by 21% to 1,140.

Prices in the city of Toronto are declining at a faster rate than the 905 region because of events that occurred last year in Toronto's real estate market that did not occur in the 905 region.  Specifically, the city of Toronto land transfer tax which took effect on January 1, 2008 resulted in a sudden increase in real estate sales during the last quarter of 2007.  Real estate sales typically decline during the final few months of the year.  Purchasers of higher priced homes scrambled to buy before the land transfer tax came into effect to save the 2% that the tax would have added to their closing costs.  The sudden increase in sales of higher priced homes skewed the average sale price up during the final quarter of 2007.

Consider the fact that the average sale price for a home in Toronto jumped by 28% in December 2007.  The average price went from $351,941 in December 2006 to $449,541 in December 2007.  Was the average home in Toronto suddenly worth $100,000 more in just a single year?  Of course not. The 28% increase in December’s average price was caused by the disproportionately high number of expensive homes that sold that month as purchasers rushed to avoid the land transfer tax. So the drop in Toronto's real estate prices this year is exaggerated by the fact that average prices towards the end of last year were skewed higher by the land transfer tax.  I'll be following up with some more detailed analysis to corroborate this point.

Having said that, there are clearly other factors at play that are contributing to the slowdown in prices across the GTA.  The uncertainty brought on by the global credit crisis and the recent crash in financial markets has pushed many home buyers to the sidelines.  In a recent interview with Charlie Rose, billionaire investor Warren Buffett said:

In my adult lifetime I don't think I've ever seen people as fearful, economically, as they are now

It’s not surprising that in a period of such economic uncertainty and fear, a new house is the one purchase many people are quick to put on hold.  I suspect that we will need to see some more stability in our world markets before we see any dramatic improvement in our real estate market.

Read the Toronto Real Estate Board's full press release.

John Pasalis is a sales associate at Prudential Properties Plus in Toronto and a founder of Realosophy. Email John

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Comments

[patrice]

so maybe 30% by the end of the month?

Incredible!
That will really help freak out the remaining of the market!

How many investor condos are going to flood the market?

[dontcallmeshirley]

Please don't scapegoat the land transfer tax. No one is going to bend over backwards for 2 points.

The explanation is simpler. 40 yr amorts are history and lenders won't lend.

If you're jammed on a flip property please consider:

1. Finding a tenant
2. Defaulting on your lender if your downpayment exposure is nominal
3. List it on for sale by owner and save the nickle commy.

Please, please do not squander precious time in denial.

[Jesse]

Hi John,

Great blog, been reading it for months. Are you still optimistic that the Toronto housing market will recover soon, or do you think this will be a prolonged downturn. The numbers aren't looking so good.

[Jesse]

Hi John,

Great blog, been reading it for months. Are you still optimistic that the Toronto housing market will recover soon, or do you think this will be a prolonged downturn. The numbers aren't looking so good.

[John Pasalis]

@dontcallmeshirley

Defaulting on your lender if your downpayment exposure is nominal is not very sage advice for Canadian home owners. Unlike the US, we can't just walk away from our homes and wipe our hands clean of our relationship with our lender.

@Jesse
Glad to hear you enjoy the blog.

For starters, I hope I didn't give the impression that Toronto's real estate market would continue as it has for the past ten+ years. I may have been more optimistic than many of our readers but that's not surprising given that many of them still believe that Toronto's real estate market is a bubble.

What I was optimistic about was the outlook for Toronto's real estate market relative to other Canadian cities. Here, I am not alone. Most of the negative outlooks about the real estate market have been focused on Canada as a whole. But even the most pessimistic economists agreed that Toronto's prices were not out of line.

Up until last month, the main thing that threatened Toronto's real estate market was a slow down in our economy.

Now we suddenly have something else to worry about. The global credit and economic crisis has had a big impact on consumer confidence. Many people don't want to buy a house when they hear analysts comparing this crisis to the great depression.

In the short term I think the outlook for our market is going to depend on how this credit crisis progresses. In the medium term, it will depend on how much our economy slows down and what impact that slow down will have on our market. Is Toronto as vulnerable as Windsor?

[Toronto Condos Dude]

There is no rationality in the markets right now. Fear is taking over and both buyers and sellers are making irrational decisions.

Everyone is being overly REactive to the news headlines of the week, or even the day. Buyers are basing their decisions to buy or not buy based on if the stock market went up or down 400 points that day.

Let's all take a deep breath and wait 3-4 months to see how this thing plays out.

[Don't Buy It]

So John

Does a -15% drop in prices constitute a "crash"?

Your insite appreciated.

DBI

[Greg]

you probably know this but I also think it should be mentioned that a better gauge of the health of the market and the volatility is to measure the median price rather then the average price.

The media loves to use average price because it has more possibility to have wild swings, but the median price is the more accurate measure.

Greg

[John Pasalis]

@DBI,

You tell me. If prices during the first two weeks of October jump 15% in the US, can we mark that period as the end of their housing crash and the beginning of their next housing boom?

@Greg
You are correct; unfortunately the Toronto Real Estate Board does not publish median prices in their press releases.

[Molson67]

I fear this is just the beginning indicators for the drop in residential realestate right across our nation. Those areas worst hit will be those simply which have ballooned that last 3 years.

I would estimate an over 40% drop on prices while Toronto who let's face it has been up and down a few times will be slightly more resilient guessing 25%-30%.

The US is in deep trouble as realestate continues to lag behind Wall Street with even greater losses coming over the next 4-6 months.

We as Canadians who rely on a great numbers of exports to the USA which are commodity driven can only get hit hard as demand retreats.

We lag behind US by about 6 months to buckle up.

[dontcallmeshirley]

John,

Realtors habitually cast results in a positive light. Your analysis saying the Toronto decline is less than it seems due to super-normal buying spurred by the land transfer tax, Maureen O'Neill's descriptor "moderated considerably" are examples.

Is your greater priority to keep buyers active, to motivate sellers to list or is it equal?

Greg,

If the distribution of house prices is "normal" the average = median. But since it's actually weighted to the lower end the median would be lower than average and the monthly changes between it and the average should be the same (ie. the median is down 15% too)

Good luck to all - may the force be with you.

[Dont Buy It]

John,

Yes the Toronto market has "crashed". A 15% year/year decline is huge. Toronto is probably leading the country in year/year declines for October.

If the US average jumped 15% year/year, yes that would mean they are at the end of their slump. With all due respect, we will not see a 15 % year/year increase in the US for a while. Maybe +2-4% at the beginning.

DBI

[John Pasalis]

@dontcallmeshirley
"Is your greater priority to keep buyers active, to motivate sellers to list or is it equal?"

Neither. My greater priority is to give our readers some more insight into Toronto's real estate market. I don't think that one variable, average price, always tells the whole story about our market. If average prices drop 15% in one month does that mean that every house in Toronto is suddenly worth 15% less? Maybe, maybe not.

There is no doubt that the land transfer tax skewed average prices in Toronto towards the end of last year and we are seeing that today, in the disparity between price changes in the 905 region and Toronto. I don't make up the statistics, I just try to present the data in a way that paints a better picture of what is really going on in our market.

[dontcallmeshirley]

John,

"Neither. My greater priority is to give our readers some more insight into Toronto's real estate market."

Fair enough.

"If average prices drop 15% in one month does that mean that every house in Toronto is suddenly worth 15% less? Maybe, maybe not."

I think it means there's drastically lower demand in the market, implying a particular house could drop price by more or less than 15%.

In any case I don't mind admitting I envy what a full time, busy agent earns.

In your shoes, I would be encouraged by a demand sag. This pull back will squeeze "hobby" agents out, freeing up the easy buy-side commissions they've been picking up the last few years.

Regretfully, I didn't make a penny off this run, and like other contrarians i'm bitter about it. Applauding the market busting is therapeutic for guys like me.

Cheers.

[T]

If you take a look at the numbers from Sept to Dec 2007 you'll see a crazy spike month over month, followed by a huge dip in January 2008 that supports the lax transfer tax hypothesis. Compare this to the Sept to Dec 2006 number where prices were relatively flat and you'll see a lot of this appears to be the tax shake out.

Compared to 2006 Q4 prices, the numbers are basically flat.

Of course 15% drop gabs headlines and sparks discussion

[CinToronto]

Yes, the numbers are basically flat compared to Q4 2006. But the market has only just started to slow down in Toronto, yet we are already back in 2006 territory. It's easy to imagine inventory at 30,000 units in spring 2009, and prices don't have much to fall to take us back to 2005 levels.

[T]

Assuming the condo investors and 'up and coming area' flipper don't flood the market, in the next couple months trying to get the hello out of dodge, the supply should sort itself out as potential sellers hold on to their properties so they don't take a shin kicking.

Considering the rental market is still pretty heated downtown, the smart invetor shouldn't be panicking.

Great time to be a first time buyer though.

[Mo]

I agree the Land Transfer Tax help play a pivotal role in the slow down of a booming downtown Toronto marketplace. It doesn't help with the amount of new supply coming market now as well. Hopefully that same "fear" effecting the US doesn't creep into the Toronto Real Estate marketplace and cause people to hold back on investing in Toronto.

[Jill Stewart]

Hey John. Got a nice conversation going on here. To some of you commentors (dontcallmeshirley). It is our job to support our clients confidence when a time like this comes. Looking purely from the "I´m also a human being just like my client" view, There are good time and bad times and people will always need a home in any time. So those who wish to buy themselves a place to live have nothing to fear actually. And the low price isn´t bad eithe, if you know how to play you cards and use some brains when managing your money. Sitting on our behinds waiting for the storm to pass is a waste of everyones time.

[dontcallmeshirley]

Jill,

Umm...I believe we're in agreement.

There is a downswing in the market - check
Prices will be lower - check
This is an opportunity for buyers - check

What are you advising clients who have listed with you to do - sit on their behinds until the spring or go ahead and sell now?

cheers.

[Rob]

I'm sorry John ... pls provide who these wizards are:
"But even the most pessimistic economists agreed that Toronto's prices were not out of line."

No economist even called for more than a 5% correction, even Benjamin Tal ... we're at 15% already and heading into a traditionally weak season.

In many ways it all comes down to what people define as a 'crash' and 'correction'. Toronto is certainly well beyond it's multiples on price to income ratios alone -- there is a lot of fat there. Considering how many speculators were buyers in the last few years, this is especially prescient. And with the 0/40 out of the way last week, I really have to doubt the 'sideways' talk.

For 'T' prices seldom hold the line after a big change like this, up or down, so the 15% drop is almost definitely part of a trend, this is not a panic, merely the catalyst.

Newsflash people, Ontario is in recession and will be for several quarters, while Vancouver and the west in general, will 'crash'.

If inflation really does bite down on the economy in mid or late 2009 and all of the other investment markets continue to suck, then we'll see if real estate regains it's bloom, but until then it's going to at least 'correct' substantially.

Hopefully after all this happens, mirroring the stock market, there will be some transparency regulations introduced in the real estate industry in our country and the crooks manipulating it found out, unceremoniously fined and dumped if the market doesn't do it the old-fashioned way.

[dontcallmeshirley]

The inability of people to borrow as much as they did in 2007 will compress house prices too. With banks being squeezed on all fronts they have to tighten up on what they lend.

Would any intrepid RE agents care to comment on whether or not their buy clients are running into speed bumps at the bank?

Pretty please...

[Ryan-Garland Home Loans]

That was a good news for all those people who were expecting to buy in Toronto. This 51% was really exciting for them who are seeking to buy homes in Toronto.

[chris]

These declining numbers look big. Do you dare to make a prediction of whether it will continue to fall in the months ahead?

I have assessed equity markets and the economics/stock market don't look good at all. Toronto is only catching up to the reality of a recessionary market.