When the Toronto Market Drops

Summers are good times for the real estate market doomsayers. They have plenty of material to work with and they are often prolific in the messages of distress.

The trouble, of course, is trying to decipher when they are actually right and when they are just like “the boy crying wolf”.

Let me share with you some basic facts:

·        The Toronto and GTA real estate markets are active each Spring

·        The market peaks in either April or May

·        The market then experiences a decline, usually until August

·        The market resurges, and peaks again usually in October

The particular facts that we are measuring are the average home prices as recorded at the end of each calendar month.

Let’s have a look at the past few years, and see what really happened. When did the market peak in the Spring, then, how long did it fall, and by how much?

The first month is the peak for the year. The second month is the lowest point in the year. The percentage is the decline between the high and the low.

2004

May to August decline: 6.45%

2005

May to August decline: 6.70%

2006

April to August decline: 7.77%

2007

May to August decline: 5.46%

2008

April to October decline: 11.47%

2009

June to August decline: 3.84%

2010

May to August decline: 7.97%

2011

May to August decline: 6.97%

That took us back 8 years. Prior to that, the statistics may be a little less reliable since there were fewer annual transactions.

The market peaked in the Spring during the month of May on 5 occasions out of eight, twice in April and once in June.

With some hindsight, please remember that in 2008, worldwide stock markets crashed losing about one half of their values and numerous banks, insurance companies and financial corporations were in jeopardy. The North American auto bailout took place in the Spring of 2009.

So, in 2008 after seeing an upswing in the late Summer (September) as we usually do, the real estate market reached its lowest numbers for the year in October. The market acted normally (that is, predictably following its usual pattern) until the October crash. Then, we saw a major decline in the year from the April peak to October of 11.47%. That was significant.

To be fair, the average price fluctuated somewhat and reached its low in January 2009. The total measured decline from the April 2008 peak was 13.81%. However, once we reached February, the market surged forward and the recovery was well underway.

The October 2008 CRASH: total measured decline ~ 13.81%

So, now I’m sure that you want to know how long it took for the real estate market to recover? Actually, by June of 2009, the market had fully recovered and exceeded the April 2008 high.

And, you probably want to know what’s happening NOW!

2012

April to July decline: 7.85%

What does this mean? There’s a lot of “bad news” out there. It’s being reported everywhere.

When you look at the previous 8 year period, the average decline was 7.07%, and this year, just to July, it’s already 7.85%. No one is really doing business in August, everyone is on holidays. We might reasonably expect to see a further drop in August. That won’t confirm any kind of crash, just the normal seasonal and cyclical nature of real estate. And, if it were a crash, you could see a 6% further decline. Also, the tailspin, if it were to match the October 2008 worldwide financial crisis would be over by June 2013.

But, that’s all based on having the numbers speak for themselves and they don’t.

You really can’t predict the future, just analyze what’s already happened.

Give your RE/MAX West agent a call, if you would like to discuss the market!

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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