When it comes to housing markets, Vancouver and Toronto are poles apart. The March update on housing sales suggest signs of some stability in Toronto’s market, where almost the same number of units were sold in March 2019 as in March 2018.
Vancouver presents a different and more dismal picture. The number of transactions in greater Vancouver last month was down 31 per cent from the tally recorded in March 2018. Vancouver has not seen such a lacklustre March since 1986.
Housing advocates and some industry observers had suggested that a decline in housing prices would be a boon for those who had previously been priced out of the market. It was argued that declining prices would bring in a rush of buyers who had waited on the sidelines for years for an opportunity to own a home. The evidence for such a narrative is lacking in Vancouver.
Ashley Smith, president of the Real Estate Board of Greater Vancouver, believes that housing “demand today isn’t aligning with our growing economy and low unemployment rates.” She holds regulatory changes responsible for the declining market trends in the greater Vancouver.
Smith is of the view that the host of government interventions that introduced new transfer taxes and stringent lending regulations have effectively sidelined “potential homebuyers in the short term.”
Garry Bhaura, president of the Toronto Real Estate Board, echoes Smith’s concerns. Bhaura also believes the OSFI-mandated stress test, which requires borrowers to qualify for a higher rate than the contracted mortgage rate, and other regulations have impacted “home buyers’ ability to qualify for a mortgage.”
The MLS Home Price Index composite benchmark price for Vancouver, which compares prices of similar homes over time, was down by 7.7 per cent year-over-year (YOY) in March 2019. The benchmark price for detached homes at $1.43 million was down by 10.5 per cent (YOY). Prices of condominiums and attached homes were also down.
While prices have been dropping in Vancouver, buyers also have a richer set of choices. Compared to March 2018, the number of houses listed for sale was 52 per cent higher in March 2019. The sales-to-listing ratio was 13.5 per cent for all property types and 9.4 per cent for detached homes.
More choice and lower prices should have attracted more buyers. But that’s not what usually happens in real estate markets. When prices fall, potential buyers stay on the sidelines in the hope that prices will drop even further. This reduces demand and puts additional downward pressure on prices resulting in even fewer sales. Remember, sales in March were down 31.4 per cent (YOY) in Vancouver.
Buyers in Vancouver could also be looking at the long-term trends in housing prices. Despite the recent declines, the benchmark prices in Vancouver are up by 61 per cent over five years and 102.5 per cent over 10 years. If housing prices in Vancouver had risen rapidly in the past 10 years, buyers might be expecting the prices to regress further towards the long-term average.
Toronto’s housing market is not posting declines in prices, yet the gains are, at best, modest. Composite benchmark prices in Toronto were up by 2.6 per cent in March (YOY). At the same time, new and active listings were down (YOY) in Toronto.
Toronto’s sales in March also reveal the urban-suburban divide. Save for a small number of townhouses, sales in Toronto proper were down for detached, semi-detached, and condominiums. In comparison, the surrounding 905 suburbs showed resilience as sales were up for all housing types. Also, the average housing prices in Toronto’s suburbs were up for all housing types except detached homes, which were down by 1.2 per cent (YOY).
Interestingly, March sales of homes under $400,000 represented a mere 7.5 per cent of the residential transactions in Toronto, which suggests that the regulatory changes that made lending tighter have been followed by a reduction and not an expansion in the sale of low-priced homes.
The housing forecasts for Canada suggest a march towards recovery in 2019. However, local markets may experience different outcomes, as is seen from a comparison of Toronto and Vancouver. The urban-suburban divide in large urban markets suggests that buyers should focus on local and not national-level trends in their decision-making.
Murtaza Haider is an associate professor at Ryerson University. Stephen Moranis is a real estate industry veteran. They can be reached atwww.hmbulletin.com.