In 2007, when we faced the American property bubble burst, all the Canadian property market participants began to wonder: “What is going to be the prospective progress on the real estate market in Toronto or Canada?”
There were two basic arguments for this uncertainty. The first one is based on the strong attachment of the property business in Canada (and its whole economical situation) with the one in the USA. Furthermore, we could see from the way the Canadian real estate business was progressing in 2006 and especially in 2007, that a similar bubble could appear here too. So what is the situation almost a year later?
The way how things were developing between 2008 and 2009 didn’t actually appear too satisfying, which only strenghtened all the pessimistic prophecies and only a few people still managed to keep their light-hearted attitude. If we look at the monthly year to year sales figures, we can identify a great fall with its peak in January 2009: -47% compared to the same month last year. Apparently, the “depression panic” from fall 2008 came to Canada. No wonder that most Canadians were anxious about making any fundamental financial decisions, resulting in the housing market almost coming to a standstill. Looking at these conditions, no wonder that some “experts” foretold that Canada would end up in the same collapse as the USA. However, the truth is quite different. Let me cite some of the 2009 numbers.
Number of sales and year-to-year change
These are the most representative and closely monitored indicators. We can clearly see how the market froze in during the winter. However, June sales reached more than four times higher than December ones. In the first half of 2009, the first month when we could notice the sales volume growing was May, in comparison to May 2008. And in June, with its +27%, we could declare that the Toronto housing market has fully recovered.
Days on market
This is another key indicator. Whereas the before mentioned ones illustrate the market volume, the “days on market” is showing the speed and freshness. These are key characteristics, since if we had only the general market volume figures available, we wouldn’t be able to predict how long any property would be out on the open market. It is like another side of the same coin. During the hardest days in January, it took just 14 days more to sell your home. In comparison to other regions such as South Florida or Detroit, it shows that our market was still quite in shape, because there it took even 120 – 150 days to sell a property.
Active listings flow change
We can estimate the mood of the housing market when looking at this figure. While rising inflow of listings usually means owners are scared of value fall and prefer to save their investment, opposite flow means we all think now is the favourable time to buy. The future of other market’s factors can be predicted from the active listings flow change. For instance the positive change after January was interpreted as a market turn signal.
Average price
This one usually attracts the most attention from my real estate clients. Their home forms the largest part of their whole property, meaning that every change in the market means losing or gaining thousands of dollars. The price fall of autumn 2008 was already overcome in April.
Why the results are so good?! In almost every newspaper every day, we can still find some pessimistic economic news. So how can we explain the fact that the housing market has improved so fast? Two basic reasons can be identified:
1. Failed expectations
A lot of Canadian citizens supposed their housing market would collapse, as they saw the situation in the USA. But we have to be aware of the fact that the basic problem of United States was in the subprime sector. Few defaults at the beginning caused a chain reaction. In the beginning, the prices declined. Therefore, toxic mortgages could not be covered by foreclosures and short sales. Logically, the banks had to throw more foreclosured properties on the market, which resulted in the prices falling even lower. Very small subprime sector with a small amount of foreclosures and healthy (I am not afraid to call it exceptionally healthy) financial system secured the Canadian real estate market. As soon as property owners realized this, they calmed down.
2. Stabilized economy and buying opportunities
Have a short look at inflation, unemployment, GDP predictions and interest rate characteristics. If we look at the real estate prices explanation, we can clearly see the importance of these numbers for the real estate market. Despite the fact that these figures concerning employment or economic growth could look even much better, we can be quite calm: our economy is far from a collapse, it is only slowed down, in a stagnation period. All these facts also helped to stop the winter real estate panic.
Conclusion and the future
Toronto real estate market has first very well sustained the pessimistic mood during the winter months, and then it has recovered very quickly. Now it is increasing again and condo resale market can be even evaluated as hot in the present. The previous “one year break” has resulted in low interest rates and favourable prices, which means especially first time buyers can enjoy huge opportunities. Now it is also good period for investors to pick some cherries, as their prices still haven’t recovered. Vendors can be calm too – the market is fast and their property will be sold probably within a month for a good price. On the other hand, slower labor market and pertaining level of uncertainty will hinder unexpected price burst and bubble creation in next years. As the market grew exceptionally fast in June (+27%), it is clearly getting to catch up for the previous weak months and soon it will probably be stabilized again. Toronto real estate market forms a solid foundation of stability for Ontario’s economy in wild times.