Is the house party over?

Some startling statistics today on the performance of the Toronto area housing market in May.  Data from the Toronto Real Estate Board (TREB) show a sharp decline in both sales activity and the average selling cost of homes during the month.

As often happens, the Toronto Star's headline-writing sub has failed to grasp the gist of the article.  The headline states that "The average home price last month was $863,910 -- $111,810 more than last May".  That's true, but the real story is that the average price fell by more than $55,000 in the month from the all-time peak of $920,000 reached in April.  The year-on-year percentage increase, which has been in excess of 30 percent for most of this year, fell to 15 percent in May.

There's more.  Listings of homes available for sale were up almost 10 percent from April to May, to stand almost 50 percent higher than in May 2016. However, the number of transactions completed fell in the month, with sales of detached homes down 26 percent from a year ago.

Given all of this data, can we conclude that the package of sixteen measures announced by the Province to cool the market back in April is having the desired effect?  It certainly looks that way, at least in the short term.  The rise in listings suggests that sellers may now fear they have missed the boat and are getting their properties to market before prices fall even further.  The fall in the number of completed transactions, meanwhile, suggests that buyers are now more inclined to take a wait-and-see approach, rather than chasing blindly after every available property, as had been happening previously.

The fall in sales of detached homes is particularly instructive.  Given the perceived lack of supply, this had been the category that had shown the most dizzying increase in the past year.  The fact that it has gone into reverse so quickly may be the clearest indication that a level of sanity has returned to the market.  Will it last? It is apparent that the Province's measures have introduced a degree of caution and uncertainty into the market that was not there before.  That's a good thing in itself.  However, lessons from the imposition of similar measures in Vancouver a year ago suggest that the pause may prove only temporary, lasting only as long as it takes for the market to strike a new equilibrium.  For sure, as long as mortgages are cheaper than dirt, it will be hard to rein the market in entirely.  Still, the May numbers are encouraging -- unless, of course, you're one of those people who waited just a bit too long to list your home for sale.