Vancouver’s real estate prices drop—will Toronto’s be next?
With repeat warnings that Toronto, like Vancouver, Montreal, Calgary and other Canadian cities, may (emphasis on may) be trapped in a housing bubble, signs of a softening real estate market in other cities can be something of a canary in the coal mine. So when word came out yesterday that the Vancouver housing market—one of the strongest in the country—dipped last month, we took note.
According to the Globe and Mail:
Vancouver’s recovery has far outstripped that of other Canadian cities, with prices jumping 21 per cent in the past year alone – more than double the gains seen in the rest of the country.
But the latest home-sales figures point to a slowdown. The number sold dropped 21 per cent in July from June, and prices edged 0.1 per cent lower to $630,251 for a typical detached house, according to the Real Estate Board of Greater Vancouver. Listings of properties for sale in the city are increasing, while bidding wars are becoming less common.
The slowing real estate scene in Vancouver is adding to concerns that the rest of the country’s housing market will cool off as well against a backdrop of global economic uncertainty and gyrating financial markets.
Sure enough, later that same day news broke that Toronto’s market had cooled as well. In fact, from on month to the next, the market here has cooled even faster than Vancouver’s, which is surprising given that Vancouver has recently looked more like it’s in a bubble state than Toronto. Of course, nobody seriously thinks Canadian real estate isn’t overvalued to some extent, so the question for Toronto isn’t whether or not home prices will fall—it’s by how much before the market recovers. Which, in turn, raises another question: when exactly is that?
• Home-buying blitz in Vancouver shows signs of cooling [Globe and Mail]
• Toronto housing market cools in July [Globe and Mail]
(Images: Toronto skyline—Seekdes (Mike in TO); bubble—Rhett Maxwell)
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With repeat warnings that Toronto, like Vancouver, Montreal, Calgary and other Canadian cities, may (emphasis on may) be trapped in a housing bubble, signs of a softening real estate market in other cities can be something of a canary in the coal mine. So when word came out yesterday that the Vancouver housing market—one of the strongest in the country—dipped last month, we took note.
According to the Globe and Mail:
Vancouver’s recovery has far outstripped that of other Canadian cities, with prices jumping 21 per cent in the past year alone – more than double the gains seen in the rest of the country.
But the latest home-sales figures point to a slowdown. The number sold dropped 21 per cent in July from June, and prices edged 0.1 per cent lower to $630,251 for a typical detached house, according to the Real Estate Board of Greater Vancouver. Listings of properties for sale in the city are increasing, while bidding wars are becoming less common.
The slowing real estate scene in Vancouver is adding to concerns that the rest of the country’s housing market will cool off as well against a backdrop of global economic uncertainty and gyrating financial markets.
Sure enough, later that same day news broke that Toronto’s market had cooled as well. In fact, from on month to the next, the market here has cooled even faster than Vancouver’s, which is surprising given that Vancouver has recently looked more like it’s in a bubble state than Toronto. Of course, nobody seriously thinks Canadian real estate isn’t overvalued to some extent, so the question for Toronto isn’t whether or not home prices will fall—it’s by how much before the market recovers. Which, in turn, raises another question: when exactly is that?
• Home-buying blitz in Vancouver shows signs of cooling [Globe and Mail]
• Toronto housing market cools in July [Globe and Mail]
(Images: Toronto skyline—Seekdes (Mike in TO); bubble—Rhett Maxwell)){kind=link}
I actually have not seen repeated warnings that Calgary may be trapped in a housing bubble. If anything, reports such as the one from TD economics suggests that Calgary is solid. Firstly, Calgary has not even recovered to house prices from the boom peaks (so increases have been moderated). Second, there is a substantial increase in movement of people to Calgary. Third, and this is the underlying reason for #2 above, is that the job market is expanding in Calgary. Just read reports from earlier today and you’ll see that Alberta is ‘carrying’ the Canadian job market.
References:
Calgary to buck national trend (Calgary Herald)
http://www.calgaryherald.com/business/Calgary+buck+national+trend/5183782/story.html
Alberta churns out 12,000 jobs in July (Calgary Herald)
http://www.calgaryherald.com/business/Alberta+churns+jobs+July/5211989/story.html
To put the 12K July number in perspective, Ontario lost 22,400 jobs in the same month. Alberta also has mid-5% unemployment. Not as good as it used to be, but better than most places.
Now I don’t mean to be putting other places down. What I am meaning to point out is, you can’t paint all Canadian cities with the same brush.
bye from Nenshi land
Real Estate Price correction happens all the time. When prices go up drastically in a very short period of time, (like in Vancouver) sharp decline in prices can be expected. So how far do the prices have to come down before buyers will be interested again? Most of us seem to think that Real Estate in Canada is over valued but everytime we see a relatively normal price correction, we find local markets on a rebound.
http://calgaryrealestate.ca/calgary-real-estate/2011/08/canadian-housing-bubble-burst/
Please look up “seasonality” before writing an article like this. In Canada, sales volumes always go down in the summer, and rise again in the fall.
There is no doubt that a correction is coming, but this June-July reaction is not it (yet).
When the prices adjusted in 1992 The fell almost 30% but it was not overnight, It took almost 4 years.
During that timeline there were thousands of homes listed that remained unsold. That does not appear to be the same dynamic with a 21% reduction in the number of listings when comparing YOY numbers.
BUT who cares about numbers and facts when you can scream a headline and scare people into looking at what your selling.
David Pylyp
Accredited Senior Agent Toronto
Prices actually peaked in the GTA four months ago, with the average hitting $485,520. So the July number of $459,122 represents a drop of 5.4% in little more than 100 days – which looks like a 15% annualized haircut to me…
It’s actually stabilizing. The Vancouver real estate prices were too high earlier this year. Source: http://www.myrealsearch.ca/canadian-real-estate-market-on-the-rise-blog-190728.html
To avoid a housing bubble, the Canada Central Bank needs to raise interest rates. Home buyers don’t look at how much total debt they are taking on, they only look at the monthly mortgage payment. A sustaining low interest environment is sure to brew a real estate bubble. Canada should look at what happened to the U.S. housing market and learn. In the meantime, the housing market is not going to correct much as long as the interest rate stays low. And it would encourage every potential home owner to jump in which brews a bigger bubble. And what happens next would be tragedy. So start raising the interest rate!
hello, as an american,I can tell you that Canada is in a severe housing bubble. In my state of california I watched my house go from 220,000 to being valued at 400,000 in less than 2 years. This was not a result of limited supply but unlimited amounts of cheap credit(loans). Your prime minister has instructed the CHMC to insure all mortgages, so even if that sounds safe because candians are paying mortgage ins., if all housing loans are built on sand, then the whole system faulters because people are buying houses way beyond their meansand hoping interest rates to not rise which is complete lunacy. Also reported in reuters several months ago was that canadians have a higher household debt than americans because they are using their high valued homes as ATM machines. this is a complete replay of what happened in the US, Spain, Ireland, and now Australia. Candians wake up and smell the coffee. If i buy a rental and cannot rent it to cover the mortgage, (based on current rental market prices) then that property is overvalued. Please dont fool yourself into believing that PM Harper is telling you the truth since he will have the taxpayers bailout your banks when real estate begins to tank. good luck!!!
Sept 24th, 2011
I’m a first-time home buyer who’s interested in purchasing a pre-construction condo at River City; a new development that is slated to be the first step in revitalizing the Toronto waterfront. It is also the site for the athlete’s village for the Pan-Am games in 2015. All of this back and forth, uncertainty and pessimism has me even more dumbfounded. I don’t want to make a decision that I’ll end up regretting. It is a big purchase for me and I want to yield a good return on my investment. Any advice, for or against, would be greatly appreciated, since I haven’t committed yet.
I AM PLANING ON BUYING A HOUSE CASH BUT HAVE HEARD THE PRICES VARE GOING TO FALL BUY AT LEAST 30 PERSENT.IS THAT LIKELY AND SHOULD I WAIT TO GET MY HOUSE CHEAPER.THANKS FOR ANY HELPFULL RESPONCE.SORRY ITS IN CANADA THOUGHT THAT WOULD HELP THE AWNSER SINCE THEY ARE SAYING THERE IS A BUBBLE.AGAIN THANKS.
For anyone interested please read Garth Turners blog
“The greater fool”
if anyone knows real estate GARTH KNOWS
From my point of view, the Canadian Real Estate market is quite different than the US an Europe.
To begin with, interest paid on the mortgage are not tax deductible (unless is for renting it). The Canadian goverment seems to have more control in terms of new developments, so if there is an indication that there is oversupply, they reduce the new housing.
Compared to other markets, in Toronto’s GTA area you can buy a nice house for 500K to 700K. In the US you won’t get a similar house close to major city. In Europe won’t get anything for that money.
Canadian immigration policy brings newcomers every year. Some of them with very good purchasing power. And off course they need a house where to live. In the US if you don’t like the value of your property you give the keys back to the bank and becomes the bank’s problem. In Canada you have to declare banckrupcy in order to have that option. Here it is not that simple.
The good standing of Canada during the economig turmoil brought foreign investors into play.
Now, with all of this, we haven’t seen dramatic increases in prices. I guess between 50% to 80% in the last 8 years.
Is only when you compare to the stock market performance that this return looks extremelly good. But keep in mind that in the US and some european countries was the other way around. The real estate crash cascaded into a stock market crash. We haven’t seen this in Canada. Typcal Mortgage in Canada is for 25 years. In the US seems to be longer..
In my view, if you are planning to buy your dream home and you can afford the mortgage payment as of today, give yourself some room for mortgage rates to rise to 8%, and if it still works, buy it. If you are planning to use the increasing value of your house to pay for your monthly espense, you would propbably end in troubles. I think that a dramatic increase in value will not happen either.
I’ve read several people who claim that they are sure the government will step in to save homeowners who are in over their heads when the crash comes, as in the U.S. They say that the government would NEVER let homeowners down…
What they are not considering is that in Canada, we have health care and social services the U.S. does not. In an atmosphere where those programs are at risk, and health workers and teachers, etc. are underpaid, the problems of foolish homeowners who bought a long-term asset without thinking of the long term will take a very serious back seat.
And they also need to remember that, even with bailouts, the majority of overwhelmed homeowners lost their homes. Plain and simple.