The Cooling Housing Market – The Toronto Star


On Friday, the Economic Club of Canada, who had invited the chief economists from Canada’s five largest banks and the New York-based chief economist for European bank BNP Paribas to share their views, were warned of an imminent decline in construction jobs and a reduction in consumer purchases by homeowners. The end result from this chain reaction would mean that low interest rates would make saving for retirement more difficult.

You can see the Toronto Star article by clicking HERE.

There’s no question that the global financial windfalls of the late 1990s and 2000’s were a product of a collective greed on the part of financial institutions who targeted marginalized citizens with the prospect of easy wealth, while policymakers turned a blind eye with limited and inappropriate regulation. The introduction and practice of approving higher-risk property loans to marginally-qualified buyers not only fueled the U.S. housing boom by making home ownership falsely affordable, but it became inextricably linked to global financial markets. These mortgage debts, which were packaged as mortgage-backed securities and collateralized debt obligations to third-party investors across the Globe, became the catalyst for a significant financial market correction. Since the U.S. housing bubble burst in 2006 and prices started to drop, the escalating defaults and foreclosures by homeowners and the ensuing tightening of available capital has caused a ripple effect in the global credit markets and banking systems. The flood of foreclosures onto the U.S. market, combined with an already high percentage of vacant property purchased solely for speculation, resulted in a substantial over-supply that walloped the values of the American real estate market, and spurned further losses in the global financial markets. It turned out this was a tipping moment which nearly brought the world’s ‘house of cards’ down catastrophically, had global governments not intervened by slashing interest rates to fuel the flow of capital and printed huge sums of money for stimulus packages.

Canada was fortunate in a sense, because its stricter policies and lending practices protected it from sustaining massive losses though. In an ironic twist, Canada’s fiscal credibility subsequently spurned international investors to pour their capital into one of the world’s safest havens, Canada. As Canada’s real estate market became scorching hot, it fueled more global capital into our system which pushed housing prices to spike to thresholds that exceeded the purchasing power of many local buyers. As the flow of international capital into the Canadian real estate market began to slow, and local buyers began showing resistance, our markets began to show signs of an adjustment. Vancouver’s cooling market is particularly indicative of this.

This infusion of international capital coincided with a decade long trend where three generations of Canadians were collectively moving residences in an era with the greatest transference of wealth between generations. The baby-boom cohort and their parents were transitioning out of their long time domiciles at the same time their children (or grandchildren) were entering the market, often with tax-free ‘gift’ capital provided by parents or grandparents. The size and affluence of this active market contributed to the growth of the Canadian housing market when other global centres were experiencing a drop in values.

It also coincided with a significant shift in the demand for, and supply of, housing for singles. Instead of renting, the availability of centrally-located,affordable condominiums provided ownership opportunities geared to the single income. With younger buyers entering the market sooner, more men and women purchasing before marriage, and the increase in the divorce rate spurning the demand for two residences, home ownership for singles became an entrenched ideal in our property market. However, small condominium units have also been popular with investors for rental and speculation which, given the number of condominiums still under construction or to be built, this segment of the market remains under risk of an over-supply and price correction.

As realtors operating within the original City of Toronto, urbaneer believes the demand for central freehold housing will continue to outstrip the supply, given there are very few new freehold properties being built. Our very livable city of neighbourhoods with its efficient transportation system is popular with urban professionals, setting the tone for the continuing gentrification of former working class neighbourhoods. In a city that is destined to keep growing, a freehold property in a demand location will remain a solid long term investment. However, like the economists predict, this doesn’t necessarily mean an owner of a freehold dwelling is insulated from a market adjustment. Toronto could see property values freeze, or increase in value in very small increments. Given the hefty costs associated with buying and selling property (especially with Toronto’s massive double-land transfer taxes), people aren’t going to move with the same frequency as they used too. We may no longer be climbing the property ladder, but opting for the good old-fashioned ‘Buy and Hold’ approach.

Canada, like most countries, has a flat-lining economic forecast which means we’ll be managing at a sluggish pace far slower than the boom cycle we experienced through the 1990s to mid -2000s. Canadians, like most other global citizens, are going to have to effectively pay the penalty for the fury of capitalistic expansion that went unleashed for well over a decade. As the media keeps reminding us, Canadians have maxed out their debt borrowing and unfortunately, most of those indebted folks already made their real estate purchase over the past decade. In the near future they may, or may not, have much equity, meaning Canadians are going to have to collectively adjust to living within the dynamics of a slower market with much smaller gains in value. Just like the old days.

Over twenty years ago when I began my real estate career, Toronto property prices declined upwards of 35 percent from their peak 1989 values over a six year period. Once the market stabilized in the mid-1990s there were a few years where the steady pace, called a ‘normal market’, meant your property would be for sale for around 60 to 90 days before it attracted a satisfactory offer. It’s been almost fifteen years since we lived in those market conditions, free from bully offers and bidding wars. Amazingly, the majority of licensed realtors have never operated within these conditions, which means a lot of the industry players and consumers are going to be learning a new way of doing business.

With economists offering sobering thoughts about the end of a boom cycle, where records were set both for the volume of real estate traded and the price point attained, it does not mean we’re going to all suffer through a significant crash ‘n burn. The ongoing relocation of multiple generations will continue to occur, immigration will keep the city growing, singles will buy affordable condos, and professionals will demand quality urban housing. What is shifting are the dynamics of the housing market, where it will take longer for property to sell, and for prices to rise. Buyers will be more conservative in their negotiation, more prudent in their due diligence, and less willing to plunge into a market that no longer guarantees a quick flip and guaranteed return should life circumstances change. Sellers will have to be realistic in their expectations, acknowledge that it may take longer to find that ‘right’ Buyer and, if they’re protecting their asset with caution, choose a seasoned realtor who has experience operating in these changing market conditions.

As realtors who monitor trends and markets in housing, we offer consumers insight and assistance in making rational and educated decisions about real estate. If you are thinking about buying or selling, call us for a pressure-free consultation that will quickly put the realities of today’s housing market in perspective. Offering savvy insight and expertise for over 22 years in Toronto, we are your pro-urban housing specialists. Specializing in renovated and restored character dwellings, low-maintenance living, revenue-producing income properties, and loft conversions, call us now at 416-322-8000.

~ Steven and the urbaneer team

we’re here to earn your trust, then your business

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