Three weeks ago I gave a talk in Vancouver about the local real estate market. Eight hundred people showed up. They hoped for the best, feared the worst and went home depressed. House sales in the past few months have collapsed by 30 per cent, and prices dropped 15 per cent in six months. A year ago properties sold in hours. Now there’s a 13-month supply. Some people wonder if this is a harbinger for the GTA.
Sales of existing houses in Toronto in August declined 12.5 per cent from the year before. But the spinners at the Toronto Real Estate Board are quick to tell you the average price of $479,095 is up 6.5 per cent from the same month in 2011. Of course averages often suck when it comes to accuracy.
More relevant to folks dwelling in the rarified ’hoods where this magazine lands is what a typical single-family detached home is fetching in 416. Recently that’s been $746,300 — a premium of almost $200,000 over a similar place in 905. But the price trend tells another tale. The table above indicates what a 416 single-family home (SFH) has commanded so far this year. So, should homeowners worry about a $85,000, or 10 per cent, price dive at the same time sales have fallen? Or is this just a seasonal pattern?
Probably both. Yes, the summer is a bummer time for flogging a house in Forest Hill or Thornhill. But this is no normal year. The spring was characterized (as I told you at the time) by bidding wars, greedy vendors, rapacious realtors, mania and delusion. Asking prices turned into opening bids, and thousands of buyers were repelled by the process. Then Ottawa started its War on the House, alarmed by excessive borrowing and bubble behaviour.
The 30-year mortgage bit the dust in early July. CMHC then refused to extend mortgage insurance to any houses selling for more than $1 million, meaning buyers needed to cough up at least 20 per cent in cash, plus closing costs. Then the bank regulator killed off cash-back mortgages and set a higher bar for property appraisals and borrowers’ incomes. Finally, new condo sales in Toronto collapsed by 50 per cent while 18,500 units sat empty.
First-time buyers in the GTA have been thumped hard, and though they don’t pony up the average $1.4 million that houses in midtown have been commanding, they are the fuel that keeps the fires burning. Without a steady supply of new virgins, the market eventually loses momentum, with falling sales and softening prices the inevitable result.
This is just what’s happened in Vancouver. The average SFH touched $1.2 million in the spring and has dropped back to the million mark, with enough downward thrust to shed 20 per cent more. The laws of economics came face to face with human emotion and won.
Luckily, we’re immune. Right?
Post City Magazines’ real estate columnist, Garth Turner, is a financial author, investment advisor and former MP. His daily blog is greaterfool.ca.
