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.
October 17, 2008Market |