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The Bubble Is Deflating

A surge of new supply seems to have mellowed Toronto’s hot housing market

Less than two months ago, Toronto’s housing market was roaring. Just a single new listing on the market, especially of single-detached homes, would send buyers into a feeding frenzy, clamouring over each other to view properties and upping their bids by as much as 30 to 40 percent in some cases.

“I’ve never ever seen a surge like this before.”

Sure enough, in February this year, Toronto home prices, which have been on a steady increase since mid-2014, reached a ridiculous high — a 25 percent spike from the year before. There are many reasons for that, but what stood out that month was the utter dearth of homes available for sale. February saw just 9834 new homes come onto the market, a 12.5 percent decrease from the year before. In January, there were 7338 new listings on the market, down by 17.6 percent from the year before.


Then in late April, in a move that some say was unnecessary and politically-motivated, the Ontario government intervened to cool the housing market, by slapping a 15 percent tax on foreign buyers, whom they believe were using the rising market to engage in speculative activities. That rule came alongside 15 other new regulations under Premier Kathleen Wynne’s Fair Housing Plan.

Soon after, there seemed to be a sudden surge in the number of residential real estate listings in Toronto and nearby towns like Barrie and Newmarket.

“There were 140-plus listings in the downtown core alone earlier this week. I’ve never ever seen a surge like this before,” said David Fleming, a Toronto-based realtor with Bosley Real Estate. “April was a weird month too — we suddenly started seeing all this inventory creep onto the market.”

Figures from the Toronto Real Estate Board show that new listings shot up by 33.6 percent in April, compared to April 2016. Indeed, in the real estate world, it’s not too unusual for inventory to spike in Spring — that’s traditionally the season where sellers emerge from winter hibernation.

What’s odd though, is the fact that the number of listings that have come onto the market, based on anecdotal evidence alone, seems to be much higher than usual. “There was one and half months of inventory in the GTA in the first two weeks of May alone,” said Lauren Haw, CEO of Zoocasa, one of Canada’s biggest real estate websites.


“I think there’s a change in the psychology of home buyers and sellers, ever since the government intervened.”

Could this be the first sign of a cooling market?

Although Toronto’s real estate market has clearly been in bubble territory for at least the last year, the fundamentals that drive home price movement still apply. The higher the supply of homes available for sale, the more options people have, and the lower prices will be.

Granted, in a city as vibrant, safe and populated as Toronto, you’re not going to see prices go down anytime soon. But an increase in the number of listings is a clear sign that the lunacy of homes selling for up to 40 percent above their asking price, might be over.

“I think there’s a change in the psychology of home buyers and sellers, ever since the government intervened,” Bruce Joseph of Anthem Mortgages told VICE Money. “Perhaps the big cash out is at play now, people listing their homes and wanting to sell because they think prices are going to go down.”

Buyers too, seem to think prices are may taper off. One buyer, Oakville resident Vijayalakshmi Govindasamy was surprised to see that open houses in her neighbourhood were deserted. “I went to view three properties in Oakville over the weekend. In the first house, there were only two other people. In the second and third houses, I was the only interested buyer.”

Govindasamy says that she was told by one of the realtors present to make an offer for “even just $1 million”, despite the fact that the said home, a single-detached house, was being listed for $1.4 million. “Why are people desperate to sell in a supposedly hot market?”


Joseph, a mortgage broker in Barrie, Ontario, has long believed that Toronto and its surrounding towns never had a supply problem. “That’s just what real estate players want you to believe. Our home ownership rate is one of the highest in the world. If you just go on Kijiji, you’ll see that there is no lack of places for people to live in.”

So what then, prompted the freeze in listings earlier this year? Joseph’s theory is that it was a result of intervention by the Federal government in the mortgage market back in October, where lending requirements rules were aggressively tightened.

“My speculation, and it’s just speculation, is that nobody was listing their properties because there was this change in credit availability. People got spooked. They felt it was best to just hold on to whatever they had at that point.”

“It’s one of these situations where the new rules have created certain perceptions.”

May data from the Toronto Real Estate Board will be released early next month. The figures will be crucial in piecing together the extent to which federal and provincial intervention in Toronto’s housing market worked in slowing down the home price momentum.

“In the past, a house listed for $799,000 would have easily sold for $1.1 million. But now, and this is somewhat confusing to me, people are holding back offers, meaning that they are not in a hurry to have buyers submit an official bid for their home,” said Toronto realtor Fleming.

There is no one answer to the question of whether the housing market in Toronto is cooling. What’s evident at this point, is there is a high degree of trepidation in market — buyers are waiting to see if prices might actually go down, some sellers are worried that prices may go down and are desperate to sell, while others are holding out, banking on the usual uptick in Spring season sales.

“It’s one of these situations where the new rules have created certain perceptions, and those perceptions almost have the effect of cooling the market more than the rules themselves,” said Lauren Haw of Zoocasa.

“At some point the growth rate (of home prices) will have to come down. There might be a couple of years of flat growth or no growth, but the fundamentals of the market have not changed enough for home prices to decline.”

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