Star investigation warns that home prices could drop by 25 per cent—we’re starting to miss 2010’s optimism
Not that we want to be accused of looking for clouds behind every silver lining (and yes, just today CIBC reported that Toronto’s economy is leading the country), but we’re still a little concerned about the Toronto Star’s weekend story on home prices. Economists interviewed by the Star agree that next year is going to be a bad one for home prices—it’s just a question of how bad.
Analysts agree the cycle of exceptional appreciation will be broken in 2012, but disagree about the severity of the downturn—some believe house prices will flatline, others forecast a drop of up to 25 per cent by 2013.
If that forecast comes true, it will put an end to a spectacular run-up that saw prices more than double in cities such as Toronto since 1996…
A situation in which prices flatline is for some analysts the best-case scenario. Other bank economists and non-bank analysts have said prices will drop by anywhere from 10 per cent to 25 per cent over the next two years.
A drop of 10 per cent, while not severe, could still wipe out the equity for some buyers who have saved to put the minimum down on their home.
And those 25-per-cent drops on home values could be downright disastrous for homeowners—though it’s possible that a flat or declining real estate market could give renters a break for a while, and a decline might let some people snap up deals in some cases (See? Silver linings!). It might also force politicians who’ve been touting our banks’ sage and sober lending practices to eat a little crow, which is always fun to see. We like the final words given to Paul Swartz, a Toronto realtor: “I always tell my clients that it’s important to remember that the good times don’t last forever.”
4 thoughts on “Star investigation warns that home prices could drop by 25 per cent—we’re starting to miss 2010’s optimism”
Let’s be clear about this latest round of fear-mongering. Condo prices will correct over time. I doubt that the house market will see a drop in prices only because supply is limited and the numbers of new houses appearing on the market just aren’t on the same level as new condos.
When there is a surplus of a commodity on the market, stock is diluted and prices drop in hopes of liquidating the stock. That’s what we will eventually see with condos. You cannot continue to build new condos on every street corner and not expect the market to saturate. Fact is that developers are more likely to put up dense residential housing rather than single family houses and it’s obvious why. That’s the trend these days.
Look on MLS right now and you will see that the supply of resale houses is low. As a result, you have that many more potential buyers pouncing on the few houses currently available in a given area. What follows is a multiple offer bidding situation. That drives up the price of houses with every subsequent sale.
I swear the Toronto Star has a specific agenda because most of their articles these days either bash Rob Ford or predict doom and gloom in real estate.
My partner and I were shopping for a house a couple of months ago and went through the same situation described by James. Houses listed below market value (or perhaps at market value) were being bid on and often times the property would sell at up to $150000.00 more than it was listing at. We were waiting at a listing broker’s office during an offer presentation for a house in which there were 12 interested buyers all bidding! Look around the room and I would say 80% of them were Asian…and probably 60% of those were just agents speaking nothing but Mandarin bidding on behalf of their rich offshore clients. Let’s be very clear here. If you aren’t willing to pay insane amounts of money for a house, someone will…and it likely won’t be someone who lives in Canada.
China is in an economic boom right now. Lots of people with a lot of money to spend and invest. Toronto is more like Vancouver than it is, Edmonton or Calgary. We know how ridiculous the market is like in Vancouver and Toronto is just starting down that path. Corrections? Whatever.
Other agents we spoke to on our search all said that stock had been low for the time of the season, which means that everyone is fighting for the same few properties. While prices are absolutely ludacrious…I don’t see a slowdown in the house market. Condos are definitely a different story. We sold our condo after buying our house and the level of interest was certainly more lukewarm compared to the insanity when we bid for our house.
Toronto’s problem is all about Crazies: Crazy media,crazy realtors,crazy people who think paying $700 per sq ft for a box is cool,crazy banks who are preapproving crazy people for $400K mortgages on $60K income. Bernie so right about all the doom & gloom being dashed by the media. But the Rob Ford one is justify…look closely at this guy and you still see a councillor, not a mayor of all Torontonians. Oh well, democracy rules – Toronto gave him the chain if command.
Try this. Open Google and type in “Toronto Star House Prices Drop” and see what you find. You will find article after article stating we are in a bubble and house prices are set to drop. This has been reported over and over and typically towards the end of the article there is some disclaiming statements saying that they could be wrong and that a series of events needs to occur for this massive failure to occur. Eventually it could come true and then of course they will say “I told you so” but until then it surely helps them publish papers.
Look at the market this way. We have the same amount of land as we had last year. We have massive immigration (aka more people on the same amount of land). Employment is positive. Banks continue to lend prudently (unlike what the US did). Crime, in comparison to other world class cities such as New York, Tokyo, London, and Paris is significantly lower. Property prices compared to these same cities is lower. Toronto is a world class city that is a bargain in comparison, safe and offers employment opportunities’, who wouldn’t want to live here!
Add the home renovation incentives the government offered and many people either took the money and stayed put in a nice homer or they did the upgrades, sold and reaped the profits. So fewer homes and more buyers coming everyday and basic economics says prices have to go up (supply and demand).
I expect prices to level off but a drop of 25% doesn’t make sense unless we are aimed for a massive recession. Stories about house prices increases or leveling just don’t sell many magazines or newspapers.
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