Toronto Real Estate Sales Drop 50% in November 2008

John Pasalis in Toronto Real Estate News

The Toronto Real Estate Board recorded 3,640 sales in the Greater Toronto Area for November 2008, a 50% decline over the 7,313 recorded in November 2007.

Prices are also down over last year but it's no surprise that the entire decline is coming from the city of Toronto, not the 905 region.

Here's a copy of TREB's market watch report.

From the Toronto Real Estate Board:

Over 3,600 Greater Toronto Area Resale Housing Sales in November

TORONTO, December 04, 2008 -- Greater Toronto REALTORS® recorded 3,640 transactions last month, from 7,313 sales in November 2007, Toronto Real Estate Board President Maureen O’Neill announced today.

Year-to-date sales figures for the Greater Toronto Area show 72,086 transactions in 2008, from 88,695 sales recorded in the same January to November period a year ago. By contrast, the 2008 year-to-date average price in the GTA is $379,489, from $375,445 in 2007.

“Its important for the public to understand that while sales activity has moderated in 2008, due to current economic conditions, the average price of homes has increased from 2006 still making real estate a solid long term investment,” said O’Neill.

In the 416 area, 1,523 transactions took place last month, from 3,426 sales recorded in November 2007. From a year-to-date perspective, there have been 28,806 sales in the 416 area this year, from 36,804 transactions a year ago.

In the 905 Region 2,117 homes changed hands last month, from November 2007’s 3,887 sales. The 905 Region’s year-to-date figures show 43,280 transactions this year, from 51,891 sales recorded during the same period in 2007.

“Homeownership in the Greater Toronto Area continues to be an affordable, stable and secure investment,” said Ms. O’Neill. “Home buyers and sellers should be confident about their bricks and mortar investment which provides shelter and a place to raise a family.”

“Home prices are affordable, interest rates are at historical low levels and the supply of homes for sale is good providing additional reasons for buyers thinking of entering the market,” added O’Neill.

The average price of a home in the GTA last month was $368,582, from $393,747 noted in November 2007. In November 2006 the average price was recorded at $355,727.

In the 416 area, last month’s average price was $390,225, from $433,859 noted in November 2007. The average price recorded in November 2006 was $381,188. From a year-to-date perspective the 2008 average price in the 416 area is $411,155, from last year’s $411,640.

In the 905 Region, the average price recorded last month was $353,012, from $358,391 recorded in November of 2007. In November 2006 the average price was $335,522. The year-to-date average price in the 905 Region this year is $359,245, from $349,774 in 2007.

The average number of days a home currently remains on the market in the GTA is 41, from an average of 32 days last November. There are currently 27,037 homes listed on the TorontoMLS system compared to 18,309 available properties in November 2007.

“While homeownership offers immediate benefits and long term value by way of equity, it also provides tax benefits over time,” said Ms. O’Neill. “If you bought a house five years ago, it would be worth more than 20 per cent more today.”

“As REALTORS®, we help build communities and will continue to do so even during challenging economic times,” added Ms. O’Neill. “It’s important to consult with a REALTOR® to get accurate local market information.”

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

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Comments

[itsjustme]

Am I missing something?

27,037 homes listed / 3,640 transactions last month

seems like a lot more than 'average number of days a home currently remains on the market in the GTA is 41'

There is almost 10 months of inventory!!

[To close for comfort]

I hope when I bought with 5% down last year I wasn't standing on the edge of a cliff.

[lipstickonapig]

John - Why is there so little attention being paid to the fundamental value of real estate? If I buy a house now and I pay fair value for it, I am less concerned if the broader market falls 10% or even 20% in the next two years...all assets including houses have price cycles that follow their long-term mean. A recent WSJ article stated that the long-term (ie. 100 year) average home price should increase by inflation plus a percent or two; meaning if long-term inflation is around 3% you should expect to earn about 5% on your home year over year over the long term. Home prices should always revert to their mean. Take a look at what happened to the average home price for the GTA in the years 1986, 1987, 1988, and 1989; they increased 27%, 36%, 21%, and 19% respectively. Way higher than the long-term mean of 5%. This was driven in part by a period of high inflation and immigration. Reversion to the mean demanded that house prices "correct" for this period of abnormal price appreciation and as could be predicted, house prices in the GTA declined over the next seven years by an average of 4%. So if you take an average of the two periods, you get 6.6% year over year increase which is still higher than the mean but can be expected given the structural shift in demand resulting from immigration patterns. So what about today? From 1997 to 2007, home prices in the GTA have increased 6% year over year. This is slightly higher than the long-term mean of 5% but not by much. So on a fundamental basis house prices in the GTA don't deserve to go through a large correction as they did back in the early 1990s...there is a big difference between a fundamental price correction and a decline in prices due to consumer sentiment. The current state of the real estate market is more related to the latter than the former. If you take a normalized Toronto home price from 50 years ago and grow that home price by 5% until today, our current home prices are only slightly above that trend line and by no mean represent a bubble. And if you think the long-term average price increase should be 6% and not 5%, we are actually under the long-term trend and one could argue Toronto real estate is fundamentally undervalued! The bottom line is there is a big difference between fundamental value and market value. John, how about some fundamental analyis instead of the "less buyers in the Winter" analysis?

[simon]

Lipstickonpig,

Regarding your numnbers.

The avg inflation 1997-2007 was 2% (not 3%). Thus, using your figures, the true appreciation should have been 1.04^10 (=1.48) vs the actual 1.06^10 (=1.79)

Based solely upon these numbers the price correction should be 1.48/1.79, or a drop to 82% of present values.

Personally, I think we'll see drops higher than that. But I just wanted to add in the math to your good analysis above.

=

[lipstickonapig]

simon - I think you have to use the 100 yr average inflation rate which is what I was using in my analysis

[simon]

Lipstick,

Actually, I think you're mistaken...

The historical real rate of return is 2%. Thus, that is the relevant rate (and not the 5% nominal rate which derives in part from the historically higher 3% inflation rate)

The key figure in the appreciatiion of any asset is the real rate of return net of inflation during the period the asset is held.

I'll also point out that I'm an actuary, and so the theory of interest is my area of professional expertise.

regards

[Lewis]

Right, so I should be totally fine no matter what, as long as I hold on to a house for 100 years.

Yeesh.