What It Was Like to Get Caught in Toronto's Housing Slump
(Bloomberg) -- Toronto’s housing market has seen a stunning slowdown in the past year. Now one brokerage has cataloged the damage for 988 homeowners who got caught in the eye of the hurricane.
In the space of four months last year, the homeowners lost a collective C$135 million ($107 million) as the median house price slid 18 percent, a faster decline than any major market during the U.S. market crash, according to Realosophy Reality Inc.
The story goes like this: The median house price surged 30 percent from January to peak at C$765,000 in March, largely driven by investors who were pouring money into the market for quick returns, Realosophy said in a report. To tame the beast, the government instituted a series of regulations, including a foreign buyers tax, starting in April.
Some 866 homeowners had clinched a sale but were not able to close, eventually selling to another buyer later in the year for C$140,200 less on average. Some buyers had to walk away as they weren’t able to sell their own homes or the banks appraised the house for less than what they agreed to. Another 122 sellers sold their houses for an average $107,325 lower than what they bought it for earlier. By the time the dust had settled in July, the median price had dropped to C$626,000 from C$765,000 in March.
To put that 18 percent four-month decline in perspective, it took major U.S. cities 20 months on average for prices to fall 18 percent from their peaks between 2005 and 2006, with Miami the shortest at 12 months, according to the report.
“The rapid rise in investor demand coupled with their rising negative cash flow suggests that a speculative mood hit Toronto, reflected in investors who appeared to believe they could make easy money by buying what they perceived to be a safe and secure asset, single family homes,” Realosophy President John Pasalis said in the report. “When the market unwinded, the areas with the biggest decline had the highest percentage of investors.”
Investor demand accounted for 17 percent of all low-rise houses purchased in the first quarter of 2017, a 65 percent jump from the same period a year earlier, the report said. The investors were responsible for 171 percent of the increase in the number of low-rise sales during that same period.
The Toronto homes that Realosophy tracked were low-rise, largely detached homes with an average of 135 days between the first and second transactions. The average decline in prices for the properties was 12 percent, though some Toronto region suburbs saw a deeper plunge than others. A total of 1,784 properties that were sold in 2017 and subsequently relisted did not sell, according to Realosophy.
This February, Toronto led the drop in Canadian home prices falling for the first time since 2010, a consequence of the housing downturn which saw additional mortgage lending rules put in place this year amid higher interest rates. For now, prices have largely stabilized for detached-homes. But there’s a new hot spot to watch out for: Toronto’s condominium market has seen prices soaring about 20 percent since last February and is a target for speculative investment.
“The condo segment is probably the one thing that’s potentially going to cause some vulnerability in the market in Toronto,” Pasalis said. “But everyone’s been calling for a condo crash in Toronto for 10 years -- it’s hard to predict.”
©2018 Bloomberg L.P.