Friday, October 3, 2008 6 comments ++[ CLICK TO COMMENT ]++

Toronto Real Estate Starts Correction

In what could be the start of a real estate correction in Canada, The Toronto Star is reporting that home prices in Toronto fell for the first time in more than a decade:

Housing prices in the Greater Toronto Area market fell for the first time in more than a decade, down by 3 per cent from year ago levels, according to figures released today.

Average existing home prices dropped to $368,549 in September, from the $380,132 recorded in the same month last year, according to the Toronto Real Estate Board.

The city of Toronto was hit even harder, with average prices falling six per cent to $393,647 from 2007's $420,182 according to the board.

Canada is unlikely to face a real estate bust similar to anything like the US (or Ireland, or Spain, or Britain.) Nevertheless, the correction is a sign of economic weakness.

As a Torontonian, my feeling is that houses may not be in a bubble (I don't follow real estate so this is just a wild opinion.) What may be in a bubble are condominiums. I work close to downtown and several big towers have gone up in the last few years, with several more being constructed right now. No doubt the area and lifestyle will be appealing to many but the prices are high. Low-income people like me clearly can't afford them, and even middle-class would have to stretch. The only ones that can really afford them are professionals but I highly doubt enough professional jobs have been created to account for the supply. So, my guess is that a lot of people are living outside their means by taking on high debt in order to live in these condos. The situation is nothing like the US, where tiny downpayments were permitted, but there is a possibility of condo prices declining quite a bit.

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6 Response to Toronto Real Estate Starts Correction

October 4, 2008 at 5:18 PM

While the situation is nowhere near as bad as in the US, there are relatively strong parallels between the subprime situation in the US and some of the creative financing schemes that became popular in Canada over the last three years, especially Harper's decision to allow 0/40 mortgages, as well as the growing popularity of interest-only mortgages in BC. If you're interested in Canadian real estate, you might want to add Garth Turner's "Greater Fool" blog to your reading list... he's been one of contrarian voices for quite a while now, and while I don't agree with everything he has to say, in general his view has been refreshing.

If Toronto is anything like Edmonton and Calgary (cities I'm most familiar with), the bust will start with condos and people will claim it won't spread to homes, but after a few months it will spread to homes.

October 4, 2008 at 7:08 PM

Do you live in the west coast? I can never make sense of BC, particularly Victoria and Vancouver. Those places are totally out of reach for working class people. I wonder how BC will fare once the Olympics boom tapers off.

Anyway, I would agree with you that Calgary, Edmonton, and the smaller towns reliant on oil sands (Fort McMurray, etc) are in bubbles. I remember reading an year ago that condo (or maybe single detached home?) price went up almost 100% in one year in Edmonton!! It generally takes almost 10 years for something to go up 100% yet here we have real estate going up in one year.

Toronto doesn't seem to be as bad as Alberta and BC. Part of the reason is that the Ontario economy has not been doing well for several years now. There will likely be a correction but it will probably be typical of any recession/slowdown.

October 5, 2008 at 11:11 PM

Etobicoke RE broker say inventory is up "a LOT" but prices haven't softened yet. I expect they will. 10% off current home prices is not a stretch for Toronto.

I expect a bank merger in next two years which will decimate the Toronto market with thousands of young urban professionals cast adrift.

October 6, 2008 at 12:06 PM


I share the same views about potential layoffs if there is merger between the banks. But I don't think it's going to happen. There is no support from the public and the way things are going, I think the bank merger is the last thing on anyone's list.

October 10, 2008 at 8:56 AM

If nothing more, a "correction" is far better than a bust or nothing at all. With RE market balanced our economists can focus on the more important things, like who will rescue the banks if they indeed crash. Us. That´s who. Another thing is that new constructions trend. Indeed I haven´t seen a low-income housing project in a long time. But then again lower prices mean that a mid-income person can afford a bit more expensive home. So everything that is happening has two sides. We just need to find the better one and use it.

November 25, 2008 at 3:57 AM

Thank you for sharing this information with us. Loved reading your post and the comments as well. Keep up the good work.

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