The real estate bubble in the USA exploded about two years ago. As a consequence, people interested in the real estate market in Canada came up with a query: “How will the things in real estate market in Toronto or Canada be developing in the future?”
We can identify two basic reasons for these concerns. The first one is based on the strong conjunction of the real estate market in Canada (and its whole economical situation) with the one in the USA. Second, Canadian housing market progression in the years 2006 and particularly 2007 showed the potentiality of a resembling bubble here. How does the situation seem nearly twelve months later?
I personally count myself among the optimistic part of the population, but apparently between years 2008 and 2009 we were only a minority against a lot of people who saw things rather pessimistically. Monthly year to year sales statistics showed a great drop, culminating at January’s -47% (compared to January 2008). Now we can declare that Canada has been hit by the “depression panic” from autumn 2008. People were afraid to make any crucial financial decision and our real estate market almost froze. Under these circumstances, some “experts” predicted Canada facing similar collapse as in the USA. However, the reality seems to be quite far from these predictions. Now we will focus on the 2009 statistics.
Number of sales and year-to-year change
These are the most important and closely observed figures. Looking at these figures, it is clear how the market froze in during the winter months. However, the sales volume between December and June grew more than four times. In the first six months of 2009, the first month when we could observe the sales volume growing was May, in comparison to May 2008. And in June, with its +27%, we could state that the Toronto housing market has fully recovered.
Days on market
Another important factor. While the previous ones draw the bulk of the market, Days on market indicates the speed and freshness. It’s the second side of the same coin – the overall volume of sales can’t tell you whether your property will be stuck on the market or not. Even in the most difficult times in January, the average “days on market” number was only some 14 days higher. Confronted with South Florida or Detroit, where days on market value got close to 120-150 days, our slowdown was ridiculous.
Active listings flow change
Indicates the housing market’s mood. If the amount of new listings is growing, it usually tells us that property owners are scared that their property price would fall and they want to save their investment. The opposite situation means that the dominating opinion is that this is a good period for buying property. It can foretell the future of other factors - we saw positive change in listings flow after January as a market turn sign.
Average price
This is the indicator that my real estate clients usually consider as the most important. Your house is the biggest part of your overall property and every move up or down means you lose or gain thousands of dollars. It was not until April 2009 that the price fall from the previous autumn was outdone.
Why the results are so positive?! We can still read bad economic news nearly every day. So how can we explain the fact that the real estate market has recovered so fast? Two main arguments can be named:
1. Failed expectations
The collapse of the US real estate market was watched by many Canadians, who then supposed the same would happen in their country too. But we have to remember that the crucial problem of United States was in the subprime sector. Few defaults at the beginning triggered a chain reaction. As the prices decreased, foreclosures and short sales were not covering toxic mortgages and pressured the banks to throw more and more foreclosured properties on the market and forced the prices more and more down. I dare to say that Canada has a very healthy financial system, which in conjunction with very small subprime sector where there are only a few foreclosures occuring makes our real estate market a secure one. Homeowners became aware of this fact very soon and calmed down.
2. Stabilized economy and buying opportunities
Have a short look at inflation, unemployment, GDP predictions and interest rate characteristics. If we focus on the real estate prices explanation, we can clearly see the importance of these numbers for the real estate market. We can clearly see from these statistics that even though our economy is slowed and stagnating, it is still quite far from a collapse - although of course the figures could look even more favourable. The winter real estate panic was also stopped after people began to be aware of all these facts.
Conclusion and the future
We can say that in addition to surviving the winter depression, Toronto real estate market has pulled together very quickly and now it is increasing again. We can even call the condo resale market as hot now. Low interest rates and reasonable prices after “one year break” offer great opportunity especially to first time buyers. There are also some very nice buildings on the market for investors, because the prices haven’t reached the previous level yet. Sellers can be calm too – the market is fast and their house will be sold probably within a month for a decent price. On the other hand, slower labor market and pertaining level of uncertainty will prevent unexpected price burst and bubble creation in next years. June’s 27% was extraordinary, but this means the market is trying to catch the weak months and we can expect stabilization soon. Toronto real estate market represents a solid foundation of stability for Ontario’s economy in wild times.
