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One of Canada’s biggest banks says Ontario’s Fair Housing Plan “looks like a policy win” after the release of the Canadian Real Estate Association’s (CREA) latest data that shows Toronto home prices and sales continued to slide in July.
“It’s now vividly clear that policy changes, regardless of the precise number of non-resident investor transactions they’ve impacted, have worked to alter market psychology that was bordering on dangerous through 2016 and early-2017,” writes BMO Senior Economist Robert Kavcic in a data response.
In April, the Ontario provincial government introduced the Fair Housing Plan, which included a foreign-buyer tax of 15 per cent for the Greater Golden Horseshoe, a 30,000-square-kilometre region that includes the Greater Toronto Area.
As in Metro Vancouver when the BC government slapped a similar foreign-buyer tax on the area in August last year, observers suggest many potential homebuyers and sellers in the GTA stepped to the sidelines to see how the market would respond.
The cooling trend appears to have continued in the GTA this July.
Some 5,704 homes changed hands in the GTA last month, down 5.4 per cent from the previous month and 40.7 per cent from a year ago.
Meantime, the benchmark price of a GTA home was $773,000 in July, representing a decline of 4.6 per cent from June but still up 18.1 per cent from a year earlier.
Benchmark prices in Toronto have not fallen by that much on a month-over-month basis in at least 17 years, according to BMO.
“Notably, price declines have begun to spread through the condo and attached segments of the market,” says Kavcic. “This looks like a policy win, unless you were in the camp that through prices should/could/would run at 31 [per cent year-over-year] forever.”
CREA suggests that Greater Golden Horseshoe homes sales activity, though still declining, has nonetheless been moderating recently.
“July marked the smallest monthly decline in Greater Golden Horseshoe home sales since Ontario’s Fair Housing Plan was announced in April,” says Gregory Klump, CREA’s chief economist, in a statement.
“This suggests sales may be starting to bottom out amid stabilizing housing market sentiment,” Klump adds.
The fact that the Bank of Canada increased its overnight rate, which influences the mortgage market, in July might have played a part in the dampened declines in home sales recorded last month.
“Time will tell whether that’s indeed the case once the transitory boost by buyers with pre-approved mortgages fades,” Klump states.
CREA President Andrew Peck further explains, “July’s interest rate hike may have motivated some homebuyers with pre-approved mortgages to make an offer.”
The increase was the first of its kind in seven years and another is widely expected before the year is over, largely on the shoulders of the Canadian economy’s better-than-anticipated performance of late.
If the current rate of home sales in the Greater Golden Horseshoe persisted unabated — and no new listings came to market — inventory would completely sell out within 2.6 months.
“While this remains below the long-term average of just over [three] months, it is more than triple the all-time low of 0.8 months reached in February and March,” CREA notes.
While these conditions are decidedly more balanced, BMO’s Kavcic suggests Toronto home prices aren’t finished their descent.
“The market balance in the city stabilized in July, but at a level last seen during the 2008/2009 recession, suggesting that the price correction still needs time to play out,” Kavcic writes.