Toronto Real Estate Market Recovered Faster Than We Hoped

July 9, 2009

When the US real estate bubble burst some two years ago, many Canadian home owners, perspective buyers and professionals began to ask:”What will happen to Canadian real estate market now?”

The concerns were based on two basic ideas. First, Canadian real estate market, as our whole economy, has strong connections to the situation in the USA. Second Canadian housing market development in the years 2006 and especially 2007 indicated the possibility of a similar bubble here. My attitude to these concerns can be found in older article The Future of Canadian Real Estate.

How does the situation look like almost one year after the article was written?

The situation around the turn point of years 2008/2009 gave power to the arguments of many pessimists, against us, optimists. Monthly year to year sales indicators showed huge decline, culminating at January’s -47% (compared to January 2008). Clearly, the “depression panic” from autumn 2008 arrived to Canada. People were afraid to make any big financial decision and our real estate market almost froze. Under these circumstances, some “experts” foretold Canada facing similar collapse as in the USA. However, the truth is quite different.  Let’s see the 2009 numbers.

Number of sales and year-to-year change
The most representative and closely watched indicators. We can clearly see how the market froze in during the winter. However, June sales were more than four times higher than December ones.  May was the first month in this period when we noticed sales growth (compared to the same month in previous year) and June's +27% demonstrated the Toronto real estate market is back on the horse.

Number of sales

Sales change (compared to the same month of previous year)

Days on market
Another important factors. While the previous ones draw the bulk of the market, Days on market show us the speed and freshness.  It's the second side of the same coin – the overall size of sales can't tell you whether your property will be stuck on the market or not.  During the hardest days in January, it took just 14 days more to sell your property. Compared to South Florida or Detroit, where days on market value reached 120-150 days, our slowdown was ridiculous.

Days on market

Active listings flow change
Indicates the real estate market's mood. While rising inflow of listings usually means owners are afraid of value decline and want to save their investment, opposite flow means we all thing now is the good time to buy. It can foretell the future of other indicators - we saw positive change in listings flow after January as a market turn signal.

New listings flow change

Average price
Price usually interests my real estate clients on the first place. Your house is the biggest part of your overall property and every move up or down means you lose or gain thousands of dollars. The price drop of autumn 2008 was already overcome in April.

Average price

Why the results are so positive?!
We can still read negative economic news almost every day. So why has such a quick the real estate market recovery occurred? There are two basic reasons:

1. Failed expectations
Many Canadians saw the collapse of US real estate market and expected the same scenario at home. But we have to realize the basic problem of United States was in the subprime sector. Few defaults at the beginning caused a chain reaction. Since the prices dropped, foreclosures and short sales were not covering toxic mortgages and pressed the banks to throw more and more foreclosured properties on the market and pushed the prices more and more down. Very small subprime sector with minimum of foreclosures and healthy (I am not afraid to call it exceptionally healthy) financial system secured the Canadian real estate market. Homeowners realized this fact very soon and calmed down.

2. Stabilized economy and buying opportunities
Have a short look at inflation, unemployment, GDP predictions and interest rate data. These are especially important for real estate (look at real estate prices explanation). Although I can imagine much better numbers for employment or economic growth, our economy is slowed, stagnating, but definitely not collapsing. This was another reason to stop the real estate panic from winter.

Conclusion and the future
Not only the real estate market in Toronto sustained the negative psychology in winter, but it has recovered very quickly and shows again healthy growth; condo resale market can be even called hot in these days. Low interest rates and good prices after "one year break" offer terrific opportunity especially to first time buyers. It's also great time for investors to pick some cherries, which prices haven't recovered till now. Sellers can be calm too – the market is fast and their house will be sold probably within a month for a decent price. On the other hand, slower labor market and pertaining level of uncertainty will prevent sudden price burst and bubble creation in next years. June's 27% was exceptional, but this means the market is trying to catch the lost months and we can expect stabilization soon. Toronto real estate market represents a solid base of stability for Ontario's economy in wild times.

Toronto real estate market data source: TREB market watch reports

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