Toronto Real Estate

Soft or Hard Landing for the Toronto Real Estate Market?

June brought more declines in sales and prices to the Toronto real estate market, but are we in the midst of a soft landing or the beginning of a housing crash? Fortunately, the data suggests that the former is more likely.

Based on Toronto Real Estate Board (TREB) data for June, sales of homes were 37.7 per cent lower compared to  June of last year. This was the steepest monthly decline in the downtrend of the last three months (down by 3.2 percent in April and another 20.3 percent in May). Single-detached home sales fell 45.0 percent in June (26.3 percent in May) while condominium apartment sales were off 23.4 percent (6.4 percent in May).

At the same time, the supply of new home listings is still running at a higher rate than last year–up by 15.9 percent in June (33.6 percent in April and 48.9 percent in May). As a result of growing supply (new listings) and sharply declining demand (sales), home prices declined on a month-to-month basis for the second month in a row: 8.1 percent in June following a 6.0 percent decline in May. On a year-over-year basis however, home prices were still up by 6.3 percent in June 2017 (14.9 percent in May).

TREB claims that there are two main reasons for the moderation in year-over-year home price growth:

“A better supplied market has certainly been a key factor influencing the moderation in price growth. However, the average selling price has also been impacted by the fact that the greatest home sales declines were for more expensive home types, most notably detached houses. This means the change in the mix of homes sold this past June compared to a year earlier has also had a substantial impact on the overall average selling price.”

Indeed both factors played a role but in relative terms, the weight is strongly on the “better-supplied market,” i.e., the sharply increasing new home listings. The second reason (the mix of homes sold) shows that in June this year 43.9 percent of sales were detached units while in June last year the comparable share was 50.2 percent–a  difference but not a huge one.

Looking ahead, summer months traditionally bring a slowdown in real estate business, but is the slowdown more likely to affect sales or new listings? This is a crucial question and the answer will ultimately determine the fate of home prices. In order to shed more light on the matter, the table below shows a month-to-month change in sales, new listings and prices. Although month-to-month changes are affected by seasonality (real estate business traditionally peaks in the spring), we can ignore seasonality in this case as we are interested only in the relative differences in the rates of change of sales and new listings (rather than the absolute volumes). Furthermore, there is no valid reason to believe that seasonality affects sales more than new listings.


After peaking in March 2017, home sales were on a steep declining trend in the following three months as buyers started to doubt the sustainability of strongly rising home prices. In contrast, new home listings kept on rising in April and May as sellers remained mainly oblivious to buyers’ new sentiments. However, June brought a turnaround–new listings not only dropped for the first time this year but the drop was steeper than for sales (24.1 vs. 21.8 percent).

This is good news as it indicates that former discrepancy in expectations between buyers and sellers is disappearing and that more balance is returning to the market (the lack of balance in the first half of the year was directly reflected in recently declining home prices). Sellers will most probably continue to catch up with buyers’ sentiments during the summer months because sellers, similar to buyers before them, should remain skeptical for more than just a month. Thus as new listings continue to decline in the coming months, the rate of decline in home prices will moderate and the market can reasonably expect a “soft landing” this summer.

  1. Toronto is going to crash. Hard. Look at history and how it repeats itself.

    Even though prices are coming down due to increased listings and a decline in sales, they are still completely inflated and this just isn’t sustainable. Prices have a lot further to come down. People are in over their heads with their mortgages and debt and it won’t be pretty.

    This won’t be a soft landing. When do real estate bubbles like we see in the Toronto market ever end in a soft landing? Never!

  2. I’m surprised Novak that as an economist you’d be so concerned with the rate of change of new listings without looking at the more important ratio of Sales to New Listings that barely decreased from May and remains at the lowest level since the ’08 correction.

    Of course, in ’08 Real Estate wasn’t such a dangerously large component of Canada’s GDP as to create a feedback loop in the wider economy, but it is now and that is extremely concerning.

    But more importantly, the ’08 recovery was on the back of a 3% drop in BoC’s overnight rate, something that is simply not possible now. In other words, there are very few tools to prop up demand while every piece of data and governmental action (whether implemented or planned) is to either reduce demand further or increase supply.

    Furthermore, there wasn’t such a huge inventory of empty homes in Toronto and the GTA to put further downward pressure on prices by increasing supply down the line (already on the way in the detached rental market if you look at areas like Willowdale or Lawrence Park). This is a major issue few people have talked about or are talking about.

    They declared the number of empty homes in London (UK) at “crisis levels” a few months ago… different numbers have been thrown out recently for the number of empty homes in Toronto and the GTA, ranging from 20,000 to 90,000 (depending on the census or utilities) but either way Toronto is has somewhere between 4 to 20 times more empty homes than London on a per capita basis… mind boggling numbers for any objective observer.

  3. I don’t understand why people keep saying GTA real estate is going to crash. Employment in GTA is not going to crash. Population in GTA is not going to crash. Land supply is not going to change. Then why the GTA real estate has to crash? Are we going to see the real estate price fall back to the level when minimum wage was at $8 per hour and when the population was half a million less? Can you roll back the accumulated inflation from past five or ten years? Seriously!!!

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