The real estate bubble in the USA burst about two years ago. As a result, people interested in the property market in Canada came up with a demand: “How will the conditions in real estate market in Toronto or Canada be developing in the future?”
There were two main causes for this anxiety. The first one is based on the close conjunction of the property market in Canada (and its whole economical situation) with the one in the USA. The second reason is originating from the development of the property market in Canada between the years 2006 and mainly 2007. The figures showed a potential for a similar bubble to occur here. How does the situation appear almost twelve months after that?
The way how things were developing between 2008 and 2009 didn’t really appear too satisfying, which only reinforced all the negative prophecies and only a few people still managed to keep their confident viewpoint. The sales figures from each month demonstrated a huge decline, which culminated at -47% in comparison to January 2008. So it’s obvious that the “depression panic” from fall 2008 has reached Canada. No wonder that most Canadians were worried about making any crucial financial decisions, resulting in the property market almost coming to a halt. Under these circumstances, some “experts” foretold Canada facing similar collapse as in the USA. Nevertheless, the reality is quite different. Now we will see the 2009 statistics.
Number of sales and year-to-year change
These are the most characteristic and closely watched indicators. We can clearly identify how the market slowed down during the winter. Nevertheless, the sales volume between December and June grew more than four times. May was the first month in this term when we watched sales growth (compared to the same month in previous year) and June’s +27% showed the Toronto property market is back on the horse.
Days on market
Another crucial factor. While the previous ones illustrate the bulk of the market, Days on market show us the speed and freshness. This number is important because from the whole market volume figures we cannot tell how long it would take for your property to get sold – it just gives us another viewpoint of the same problem. During the most difficult days in January, it took just 14 days more to sell your property. In comparison to other places such as South Florida or Detroit, it tells us that our market was still quite working, because there it took even 120 – 150 days to sell a house.
Active listings flow change
Indicates the property market’s atmosphere. It is based on observing the number of new listings on the market. If the home owners are worried that their property value would decline and they want to save their investment, the inflow is naturally rising, while the opposite situation is generally considered as a favourable time to buy property. The future of other market’s attributes can be forecasted from the active listings flow change. For example the positive change after January was interpreted as a market turn signal.
Average price
This is the number that my real estate clients usually consider as the most important. Your home 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 decline from the previous autumn was overcome.
Why the results are so good?! In almost every newspaper every day, we can still find some bad economic news. So what is the reason for the real estate market getting better this soon? We can see two basic factors:
1. Failed expectations
Many Canadians observed the collapse of US real estate market and expected the same scenario at home. But we have to realize the crucial problem of United States was in the subprime sector. A chain reaction originated out of a few omissions that were not dealt with at the beginning. In the beginning, the prices dropped. Therefore, toxic mortgages could not be covered by foreclosures and short sales. Logically, the banks had to throw more foreclosured houses on the market, which resulted in the prices dropping even lower. Very limited subprime sector with a small amount of foreclosures and healthy (I am not afraid to call it extraordinarily healthy) financial system secured the Canadian real estate market. Homeowners realized this fact very soon and relaxed.
2. Stabilized economy and buying opportunities
Have a quick look at inflation, unemployment, GDP predictions and interest rate figures. Real estate market largely depends on this figures, as follows from real estate prices explanation. Although I can think of much more favorable statistics for employment or economic growth, our economy is slowed, stagnating, but for sure not collapsing. All these arguments also helped to stop the winter real estate panic.
Conclusion and the future
We can say that in addition to resisting the winter depression, Toronto real estate market has got well very quickly and now it is increasing again. We can even call the condo resale market as hot now. Low interest rates and good prices after “one year break” offer great opportunity especially to first time buyers. It’s also great period for investors to pick some cherries, which prices haven’t recovered till now. Due to the market speed, most properties are now sold during the first month on the market and the selling price is usually quite good. So the vendors can feel relaxed too. In the next few years, sudden price burst and bubble creation are quite unlikely, due to the pertaining level of uncertainty and slower labor market. As the market grew especially fast in June (+27%), it is clearly getting to catch up for the previous weak months and soon it will probably be stabilized again. Even in wild times, Toronto real estate market represents a compact base for the economy of the whole Ontario region.
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