This is getting serious

Another month, another decline in Toronto-area house prices.  The Toronto Real Estate Board (TREB) reported today that home prices in the region fell 6 percent in July.  That's the third straight monthly decline since the Ontario Government introduced a package of measures aimed at reining in the market.  It's all but impossible these days to find anything attempted by the provincial government that goes according to plan, but this surely has.

TREB is trying to put on a brave face.  It notes three factors that, at least in its view, mitigate the pain.  First, prices are still higher year on year, by about 5 percent.  This is true, but it won't stay true for long if the month-on-month declines continue.  Second, it argues that the summer season is usually quiet, with activity often picking up after Labour Day.  That's not much of a mitigation, given that a year-on-year price comparison is by definition measuring the change between comparable periods (i.e., presumably the market was quiet last July also).  Third, it notes that a similar sharp pullback was seen in Vancouver last year, when the provincial government there also imposed market cooling measures.  That market has now begun to see prices rises again, albeit at a modest pace.

Is that Vancouver experience likely to be repeated in Toronto?  The very sharp decline in sales (down a remarkable 40 percent from July 2016) and the rise in listings (up 5 percent) seems to suggest that the entire direction of the Toronto market has changed.  There must be very few potential buyers out there right now who don't think they can afford to wait a little longer in hopes of getting an even better deal.  Moreover, the fact that the Bank of Canada has started to raise interest rates, together with the prospect of tighter regulation of the mortgage market in the coming months, also argues against a sharp rebound.

Recent reports estimate that there are close to 50,000 registered realtors in the Toronto area, although many of them seem to pursue it as a side gig, doing few if any deals.  Despite the number of chancers who have jumped into the "profession" in recent years, real estate fees remain at sky-high levels, close to 5 percent.  Realtors directly contributed to the price spiral seen in recent years, encouraging bidding wars at every turn in order to boost their own incomes*.  Despite their stoical public posture, TREB and its members must be starting to feel very queasy indeed.  It's hard to feel sorry for them.

* As this article reports, fees associated with home sales now account for almost 2 percent of Canada's GDP.