Housing sales figures may be declining in Toronto and Vancouver, but with listings remaining scarce, economists are warning that significant gains in affordability may prove elusive.
Existing home sales in Toronto fell 15.1 per cent in June, a second-consecutive monthly decline that left resale activity 42 per cent below its March peak, according to a report from TD Economics.
June sales were also weak in Vancouver, falling 4 per cent from the previous month and 29 per cent below their February 2016 high, after a recovery blip petered out.
But when it comes to prices, the declines haven’t been nearly as dramatic, and likely won’t be until more houses hit the market.
“Toronto cooled in terms of sales quite abruptly, on par with 2008-2009 recession but you didn’t see much of a decline in prices because the market still remains short on supply,” said TD economist Diana Petramala. “When listings grow faster than sales, it will put downward pressure on prices.”
Desjardins senior economist Jimmy Jean said the slowdown in existing home sales has lowered prices slightly but agreed that further reductions are in doubt.
According to the Canadian Real Estate Association, sales dropped by about 14 per cent from April to June.
Still, Jean noted Toronto prices are still above last year’s average by 6.3 per cent. “That speaks to how high we’ve been and how fast that growth was. We’re erasing the growth we had but it hasn’t been erased yet. The same way it was moving fast on the upside, now it’s moving down and, I think, by the fall, we should see some flattening.”
Despite the rapid price increases seen in Toronto earlier this year, there isn’t a serious price reduction in sight, Jean said.
“The bidding wars you’re seeing might not be the case any longer but it won’t curb demand fundamentally. The market will remain tight because people are coming to the city…. Prices have been out of reach for years and growing much faster than incomes, so it will take more price declines and income growth before we have a situation where the market can be deemed affordable.”
“We’ll still have very lofty prices in Toronto and Vancouver. If we’re expecting the market to become instantly affordable that’s not going to happen. Given the low interest rates and rapid population inflow, they will still be expensive markets but we’re moving away, thankfully, from the days where there was incredible pressure for buyers to get in before prices grew another 40 per cent,” Bank of Montreal senior economist Douglas Porter said.
For now, rising interest rates and targeted taxes, such as those on foreign buyers, should work to “bring activity down to normal levels,” Bank of Montreal economist Robert Kavcic said. Higher rates should slow resale activity and the foreign buyer’s taxes should reduce the incentive for speculation.
Beyond that, Royal Bank of Canada economist Josh Nye said it’s down to psychology: “People in the market, foreign buyers or not, see the government stepping in to limit price growth. That impacts the way they behave. It means people say ‘Well, the government sees 30 per cent price growth, and that’s not sustainable, and they’re stepping in, so maybe it’s time to cash out and put the house up for sale.’”
At present, that doesn’t look likely and there isn’t much policy makers can do to boost listings, Petramala said.
While noting that the regulation had helped cool the market, she cautioned that interest rates may soon have to do most of the heavy lifting.
“The impact of the foreign buyer tax is in our rear-view mirror, it usually only lasts 2-4 quarters, so it’s really higher rates that will hold the market down, going forward.”