Toronto Market Becomes A Bit Less Hot

After three months of constantly accelerating price increases, the Toronto market has finally slowed down a bit. Prices fell in May as compared with April for the first time in many years, though May prices were still 15% higher than the same month last year. The supply of homes for sale has also increased significantly, with sales down 20% versus last May while homes for sale were up by 43%.

But let’s keep everything in perspective here. The market was basically out of control between February and April, with prices increasing in an unsustainable way, and we needed a slowdown to bring things back in line. For the total year-to-date, prices are now 24% higher than in 2016; this is down considerably from the 33% year-over-year figure in April, but still much higher than at this time last year, when year-to-date prices were “only” 15% higher than  in 2015.  And at the time, we thought the 2016 market was pretty crazy!

Prices_May_2017

The inventory of homes for sale has risen sharply, from a vanishingly small 0.7 months’ supply to just under 2 months. This is still, however, very deep in sellers’ market territory. The bottom line is the market is still extremely strong, but not totally insane anymore. Interest rates remain ultra-low, and there are still plenty of buyers who want to own homes in the Toronto area.

Inventory_May_2017What seems to have happened was a double whammy of news that caused many sellers to move up (or create) their plans to put their houses on the market. First we had the March prices reported by the Toronto Real Estate Board at the beginning of April. The 33% year-over-year increase in prices was loudly trumpeted in the media and taken by many as evidence that the Toronto market was in a bubble that was about to burst. Then, just a couple of weeks later, the Ontario government announced their multi-point plan to make housing more affordable in the province, which just added fuel to the fire. The result was a surge in listings, with the predictable result that the balance between sellers and buyers has shifted, at least temporarily.

The unknown factor in all of this is buyer psychology. If the prevailing sentiment among buyers is that we are experiencing a sea change in the market, and that prices will continue to fall, this could become a self-fulfilling prophesy as more and more buyers move to the sidelines to await more attractive prices. As buyers pull back, the inventory of unsold homes could grow even larger, and buyers will become even more convinced that there’s no hurry to buy, and… well, you can see where this goes. I believe that this is an unlikely scenario, that the market is still much too strong for this sort of sentiment to take root, but time will tell. The fact that we are now moving into the normal seasonal slowdown in the summer could make the next few months very interesting…