The Toronto Real Estate Board released their statistics for the first half of March and it's no surprise to hear that sales in the GTA are down again, this time 14% over the same time last year. However, prices continue to rise.
While TREB continues to blame the snow for this slow down, I think that story has run its course. The slowdown in sales is not just about the snow.
Back in September I wrote a post called Extended Amortizations and Toronto's Real Estate Market: Real Opportunity or Bubble Booster where I discussed the impact the 40-year mortgage was having on our market. When CMHC moved the maximum amortization period from 25 to 40 years, a lot of people who had been priced out of the market could suddenly afford to buy.
This influx of home buyers helped push the number of home sales in the GTA up to over 93,000 in 2007, roughly 10,000 more than the number of homes sold in 2004, 2005 and 2006.
So are sales slowing down because Toronto is set for its own housing collapse? Not likely. The record sales reached in 2007 were largely due to the shock caused by the introduction of 40-year mortgages in Canada. Now that most of the home buyers who were sitting on the sidelines bought houses, sales volumes are expected to return to more sustainable levels.
Another big issue is the slowing down of the Canadian economy, with experts now predicting that Canada will follow the US into a marked contraction. Ironically, one of the biggest dampeners on the Canadian housing market may not be the troubled US housing market per se, but related woes in the financial markets. The ensuing "credit crunch" has restricted credit globally, led to higher fixed interest rates and decreased affordability for all consumers.
The US housing crash has also had a spillover effect on consumer confidence - and here again the impact on the Canadian housing market is indirect. As US consumers lose confidence in the "borrowing power" of their home and other real estate assets, they will restrict spending. This will have significant ramifications for Canada as our GDP is largely dependent on exports to the US.
As Canadians worry about how our companies and jobs will fare, some of us, particularly those whose livelihoods are more exposed to the current downturn, will begin to reconsider and even postpone major financial decisions like buying a home. Several people have already indicated to me that this personal stock-taking has begun.
March 20, 2008Market |