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September 26, 2017

House Prices Falling?

Recently a number of people have wished to discuss how GTA house prices are “falling”. The consistent narrative is this – “they put up taxes on foreign buyers, made it harder to borrow”. One fellow told me that houses in his neighbourhood in Mississauga went from “$950,000 to $750,000 in just a few weeks”.

Of course this is total rubbish.

There is often a big difference between the price a house lists for, and what it sells for. Some people – especially those who wish to boast – like to list their house at an inflated price, and then tell the story to friends, family, random passers-by. Would the house sell at the price listed? Maybe, time would tell. As many real estate agents like to say, “It only takes one.” But in reality, the prices I see on my SALES printouts follow a distinct pattern, and that pattern has only a few outliers.

I stress my printouts are for SALES – not LISTINGS. Listings are far more transient than sales, as they do not truly reflect what a house is selling for on a given day. Consider listings more “hopes and wishes” rather than reality.

If you list your house during crazy frenzied times (like spring 2017) – you can more often find people willing to pay a price that is non-sensical. Just because a single house sold on your street for WAY more than expected … this is an OUTLIER. It means that the sellers got LUCKY, and the buyers were DESPERATE. This can happen when the psychology of the real estate market makes people do things that are not economically sound – often referred to as a “mania” (or in the terms of real estate agents, a “Sellers’ Market”).

Apparently we are now in a more “balanced” market, according to real estate agents. If by “balanced” they mean houses often sell in 2 weeks instead of 2 days, I agree. But prices are still highly elevated from where they were even a couple years ago. To suggest that prices are “falling” … I guess it depends on the time frame you are referring to. But it seems unlikely that prices will “fall” to levels that remove the appreciation of even the single year of 2016.

We must remember that housing in the GTA is still affected by ALL the underlying factors it was before – a shortage of vacant land, solid employment prospects, traffic congestion, and steady immigration. Has any of this changed? No!

If we wish to see where the GTA market will head in the months ahead – I would expect it to do exactly what Vancouver did after its move to tax foreign buyers. Specifically – a sharp and immediate drop in sales activity, coupled with a noticeable slowing of price appreciation, and then after a period of months a steady increase in both sales activity and prices.

In my opinion, anything accomplished by foreign buyer taxes is temporary.

I expect that the only thing that will stop the GTA from resuming its steady price appreciation is a nasty recession, a DRAMATIC rise in mortgage rates – or both.

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