Toronto Home Price Bubble Bursts Into Bear Market

Authored by Wolf Richter via WolfStreet.com,

With surprise rate hike, Bank of Canada turns against housing market...

Home sales in the Greater Toronto Area, the largest housing market in Canada, plunged 34.8% in August compared to a year ago, to 6,357 homes, with sales of detached homes and semi-detached homes getting eviscerated:

Sales by type:

  • Detached houses -41.6%
  • Semi-detached houses -37.3%
  • Townhouses -27.5%:
  • Condos -28.0%.

Even as total sales plunged, the number of active listings of homes for sale soared 65% year-over-year to 16,419, with 11,523 new listings added in August, according to the Toronto Real Estate Board (TREB).

“The relationship between sales [plunging] and listings in the marketplace today [soaring] suggests a balanced market,” the report explained, adding hopefully:

“If current conditions are sustained over the coming months, we would expect to see year-over-year price growth normalize slightly above the rate of inflation. However, if some buyers move from the sidelines back into the marketplace, as TREB consumer research suggests may happen, an acceleration in price growth could result if listings remain at current levels.”

And the average price of all homes, at C$732,292 in August, plunged 20.5% from the crazy peak in April (C$920,761). By this measure, it has now entered a bear market.

The average price in April had shot up 30% year-over-year.

To cool this nutty business, the Ontario government introduced a laundry list of measures on April 20. It included most prominently a 15% transfer tax on nonresident foreign speculators. That appears to have done the trick.

Given the enormous price gains in recent years, the market remains hyper-inflated, and the four-month downturn into a bear market hasn’t even brought prices back to the year-ago level, with the average price for all types of housing up 3%, and the condo price up 21.4% year-over-year.

To cool a similarly nutty housing bubble in Vancouver, the government of British Columbia had passed a year ago similar legislation with a 15% nonresident foreign speculator tax. But worried about an outright implosion of the bubble, it has since been subsidizing with taxpayer money down-payments aimed at first-time buyers and condos, which has inflated the condo bubble and condo speculation to new heights.

Politicians – they’re desperately dependent on extracting property taxes from homeowners – don’t want the world’s most majestic housing bubble to implode. They just want it to remain stable so that taxes can be extracted from willing homeowners that have gotten rich off years of house-price inflation. But for now, the Ontario government is letting the market ride.

The TREB report said that the sharp drop in average prices “points to fewer high-end home sales this year compared to last.” So are speculators with the most money abandoning the market?

Even the Bank of Canada has been warning home buyers – particularly speculators – all year long about big potential losses. Then in July, it raised its target for the overnight rate by 0.25 percentage points. Another rate hike was expected in December, to match the Fed’s presumed rate hike.

But today, in a surprise move, it raised rates again by 0.25 percentage points, to 1% – and there are now expectations that it might raise its target rate a third time later this year. In response, the loonie jumped 1.3% against the US dollar this morning.

These rate hikes “would just further dampen” the housing market, explained Bank of Montreal chief economist Doug Porter, adding that the surprise increase so soon after July’s rate hike “accentuates” the Bank of Canada’s urgency to raise rates.

“So I wouldn’t brush it off – I think that will put a bit more upward pressure on some of the medium and longer-term mortgage rates as well, and of course the variable rates will move almost instantaneously,” he said.

Variable-rate mortgages account for about 30% of all mortgages in Canada. So these rates ticked up after the July hike; they will after this hike; and if there’s another hike later this year, they’ll tick up again. A 0.75 percentage points increase in the interest rate on a C$800,000 mortgage would raise the annual interest costs by C$6,000.

Homeowners with variable-rate mortgages will now have to come up with more money to pay for their homes. And potential homebuyers are looking at steeper costs – something they will likely keep in mind, now that easy price gains may no longer be so easy, and that the Bank of Canada, rather than just warning about it, is actively working to deflate the housing bubble.

And the housing bubble in the US? Read… The US Cities with the Biggest Housing Bubbles

Comments

PeeramidIdeologies Golden Showers Thu, 09/07/2017 - 20:53 Permalink

Pcchhh

5 blunts

https://m.youtube.com/watch?v=f277mWYmCZo

5 blunts...now lemme deflate my lungs,
Like the Toronto housing market,
This bitch is done,
Government rolled up,
hands full of guns,
We see whatcha got,
now give us some,

The cheap-money boom spilled out for miles around,
Pushing up prices on my stomping grounds,
Wtf Poloz, you fuckin clown
Exactly who's interests do you serve?
And who tha fuk is tryna take him at his fukin word?
This bank patsy paper popper has been throwing money out of helicopters,
This cocksucker, this motherfucker, blew a fukin cum bubble that's bound to pop now,
Never thought twice about ya mom and pop's,
or the new home buyers down payments dropped,
Countries still running a trade deficit,
How's that low loonie looking you hypocrite?
The BOC can suck my dick,
Man pass the fukin blunt I need a hit...
ooohhh

In reply to by Golden Showers

opport.knocks Thu, 09/07/2017 - 20:07 Permalink

Looks to be true.Older Toronto 1940s house down the street was sold for $650k a couple of years ago. New owner completely updated it and listed it for $999k in the spring. Didn't sell.  Just relisted for $788k today. Given that they updated everything, furnace, windows, roof, kitchen and basement, he will be lucky to break even.

847328_3527 jimcg Thu, 09/07/2017 - 20:51 Permalink

It's a mental disease this housing stuff.My friend bought a new house in Houston when oil was $100 and they paid $585k and put in $100 in upgrades, expecting to live in it for a couple of years then sell it t $1 million as oil rose and more energy peeples moved in.Well, things did not turn out that way. They had it listed most of last year for various prices with various doo dads in their ads with the realtor being beaten to death with open house after open house. Finally it sold for $650k after being empty for about a year.If you plan on retiring in a place, that's one thing; but this flipping stuff or job hopping from city to city can get you hurt.

In reply to by jimcg

Abbie Normal robertocarlos Fri, 09/08/2017 - 22:53 Permalink

The problem with those Canadian shows is they never follow up so the viewer never knows if the house actually sold for the market price or was auctioned off.  At least with the Flip or Flop shows, they mention at the end whether the house sold and for how much.  Canadian real estate is best described as catching a knife on the way up or down.

In reply to by robertocarlos

MD Thu, 09/07/2017 - 20:03 Permalink

> the four-month downturn into a bear market hasn’t even brought prices back to the year-ago level, with the average price for all types of housing up 3%, and the condo price up 21.4% year-over-year

So prices are still higher now than they were a year ago, and the article calls this a bust? I'm calling major BS. Down 20% from April? It's called seasonality, spring is always the best time to sell a house.

There's no bust here.

SRV MD Thu, 09/07/2017 - 21:35 Permalink

Exactly how homeowners go bankrupt... detached homes have dropped almost 45% in 4 months!This thing's goin down... and on top of everything so far, in a couple of months new regs will require mortgage and renewal approvals must be based on the mortgage rate PLUS 2%, to allow for future interest rate moves.The market has gone from insane blind auctions with agents laughing hysterically at even a single condition... to lawsuits all over the place over buyers refusing to close, crashing prices and sales, and offers chock full of conditions and lowball offers... all in 4 months!And rising interest rates will decimate many who only qualified through very low variable mortgages... some will not be able to qualify at the higher rate.All that Newton physics stuff can often be put on hold and delayed, but at some point... well, that's now! 

In reply to by MD

jbwilson24 MD Fri, 09/08/2017 - 19:29 Permalink

No. Sales and prices have both crashed big time. This isn't just seasonal. Listings are way way up right now.  Do you really think listings spike in september??? Nuts.  Listings are up 64% or more, sales are down 40% or more. That is not usual. Nice spin. You must own a toronto house.

In reply to by MD

johnnycanuck Thu, 09/07/2017 - 20:06 Permalink

When you are as old as I am, this is like watching reruns.  Except for the ZIRP aliens.  That's a whole new dimension from somewhere out there in outer space. I blame the Ferengi and their millenias old obsession with capturing the Money Changing markets..

FrankDrakman Thu, 09/07/2017 - 20:35 Permalink

We just signed a 5-year closed for 2.95% for $800,000 on our (previously valued) $1.4 million home. Monthly is $3200 and change. Consdering we live in the heart of midtown, I think that's amazingly cheap  for a semi-detached 2,000 sq ft home with a detached garage; a decent 3-bedroom is at least $2500 out in the burbs; in midtown, you'd be looking at $4,000 and up.

jimcg FrankDrakman Fri, 09/08/2017 - 07:48 Permalink

Insane zero interest rate monetary policy, people's greed, and a generally false peception of value created by the real estate industry and with the aid of the media has made accurate price discovery impossible...intentionally so.Sorry, but it was never worth $1.4M...some moron may have paid $1.4M, but it was never worth that. 

In reply to by FrankDrakman

abgary1 Thu, 09/07/2017 - 21:04 Permalink

That's what happens when you have total fucking retarded central bankers who pursue perpetual economic growth and inflation.Put an ednd to central banks.How's that zero interest policy working for pensions?

johnnycanuck abgary1 Thu, 09/07/2017 - 22:08 Permalink

He had the tools at his fingertips to mitigate the damage Stephen Harper's Consweratives looney tunes all in on resources and selling out Canada to foreign Corporations policies wrought on Canada's economy, but instead he drew his $350,000 per year salary and whistled past the graveyard while Bohemian Grove Harper sold out his country.I'm not talling about climate change, which btw you should take a gander toward Florida right now and think about that.

In reply to by abgary1

squid johnnycanuck Thu, 09/07/2017 - 23:56 Permalink

Oh fuck off.Its Harper's fault. SHeese......You live in Ontario, don't you?Voted for a Dyke Premier and 300 billiion in Provincial debt. Not you voted in Trans-lover wonderboy to do the same to the rest of the country. Mob rule parliament is what Canada is and if someone should get it that's West of Thunderbay, then he's Hitler. They did the same to Diefenbaker. Squid

In reply to by johnnycanuck