Toronto Housing Market to Decline 10% according to Scotiabank

 

Scotiabank just published a report stating that Toronto prices will drop 10% over the next 3 years. Does that make sense?

 

On 8 August 2012, Scotiabank released a Special Report on Canadian Housing. Here are some excerpts:

 

•        National home sales and prices in Canada have cooled in the first half of 2012, with resales easing back toward the decade average of around 460,000 annualized units and prices generally flat. 

 

•        Record prices combined with incremental regulatory tightening are reducing affordability and the housing market’s earlier momentum, notwithstanding the lowest borrowing costs on record. Pent-up demand has been effectively exhausted after a decade-long housing boom, with Canadian home ownership at record levels.

 

•        Canada’s housing market is expected to avoid the sharp downturn witnessed in the United States and Europe.

 

•        Affordability will be increasingly strained for existing and potential homeowners when mortgage rates eventually drift up.

 

•        In this environment, we expect average Canadian home prices will eventually decline a cumulative 10% over the next 2-3 years, as housing demand softens and buyers’ market conditions re-emerge for the first time in over a decade. 

 

•        The correction will be concentrated in the Toronto and Vancouver markets, where supply risks and affordability pressures have the potential to trigger larger price adjustments. In contrast, we continue to anticipate relatively more favourable demand and pricing in many other regional markets facing more balanced conditions.

Please refer to the entire Report which you can find at:

 

http://www.gbm.scotiabank.com/English/bns_econ/spaug8.pdf

The report itself does not distinguish between Toronto and the GTA, nor does it distinguish between Vancouver and the Greater Vancouver Area. And, over three years, that’s a long time for the 10% to take place as an adjustment.

The 10% is intended to be cumulative. So, that might be .0333% for three years running, or, naturally it could all occur much sooner.

But, what’s the starting point? And, precisely when does this end? In neither case does the Report offer much guidance.

Let’s have a look at some of the monthly numbers this year. The average price for a single family home in the GTA peaked at $516,359 in April. In fact, the decline since April has been 7.63%. May, June and July all reflect a steady decline.

Let’s add a little more perspective to this. Last year the market peaked in May at $485,362 and dropped to $450,694 in August. That was a 7.14% decline over that time period. However, it subsequently recovered. And, that trend seems to repeat itself annually. We could see a further decline over the month of August, which Scotiabank could point to as confirmation of its prediction.

Here’s what we find when we look at some numbers over the last two years:

April 2011 ~ $476,802                                                                                  

November 2011 ~ $477,573

July 2012 ~ $476,947

That looks fairly stable. We roughly have the same price now as we had last Spring. If we were to take the longer term prediction to heart and start at the time Scotiabank issued its report, we would see a decline of $47,695 in total, and an average house price on 8 August 2015 of $429,252.

So, what do you think Scotiabank meant?

Brian Madigan LL.B., Broker is a Manager at RE/MAX West Realty Inc., Brokerage 416-745-2300.
www.OntarioRealEstateSource.com

 


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