Toronto’s real estate market is the perfect reflection of Canada’s relatively sudden about face in consumer confidence. (See this week’s post entitled “Canada’s Consumer Confidence Shaky.”)

Those consumer confidence levels have dropped sharply in the last two months. In the Greater Toronto area, Canada’s largest housing market, both home prices and home sales have also dropped.

Overall, the number of home sales plunged 35% in February 2018 as compared to home sales numbers in February 2017. (This data source is the Toronto Real Estate Board.) Specifically, the number of detached home sales dropped 41.2%, semi-detached home sales dropped 28.7%, townhome sales dropped 26.8% and condominium sales dropped 30.8%.

Greater Toronto average home prices are following this same decline. Again according to the Toronto Real Estate Board, average home sales prices fell 12.4% overall in February 2018 compared to average home prices in February 2017. (The Toronto Real Estate Board “measures” by average prices, not median prices.) Specifically, the movement in average home prices showed a large disparity by home type. Average sales prices of detached homes declined by 17.2%; average sales prices of semi-detached homes fell by 8.6%; average townhome sales prices fell by 2.9%, and, here’s the surprise, average condominium sales prices rose by 10.1%.

For the last 18 years, home sales numbers and home sales prices have been inflating in both Toronto and Vancouver. Since the Great Recession didn’t touch this inflation, these changes in prices and volume are all the more dramatic.

Three major cause and effect elements seem key to these changes…

  1. Canada instituted a 15% transfer tax on non-resident foreign buyers at the end of last year as a way to make housing more affordable for local residents.
  2. The Bank of Canada has raised interest rates three times by 1.25% since the end of last year.
  3. There are now new “stress tests” for variable-interest mortgages (Canada doesn’t have a lot of 30-year fixed-interest mortgages as do we) for which buyers have to qualify every few years. Additionally, there is an additional 2.0% tacked on to the base interest rate…eg. If a buyer gets an offer from a lender for a 3.5% loan, the buyer has to really qualify for a 5.5% loan.

Could Canada’s changing housing market foreshadow happenings in the US housing market? Time will tell though already, according to Zillow, home prices nationwide have dropped 9.7% in February 2018 when compared to February 2017.

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