Wednesday, October 15, 2008

Toronto & the end of Overprime

Lots to address in the latest release from CREA...

1) First Toronto
Toronto is easily Canada's largest city and much of the English Canadian media is based there. It is the financial capital of Canada and it where most of the financial industry is located. The area around the GTA (if you include Hamilton, Oshawa, etc..) represents over 20% of Canada's population. Toronto matters. As I mentioned before, the negative housing articles will really pick up steam once Toronto goes negative. (While I am a Montrealer, unlike most Montrealers, I have no axe to grind with Toronto and I even lived there for almost four years.)

Toronto was down 3% YoY, a sharp decline over previous months. Conveniently, CREA chose to ignore that news in its press release. Nation was down 6.2% YoY.

Let's update a little summary that I prepared a few months ago:

Let's start from West to East with all cities over 1 million:

1) Vancouver: Down 8%
2) Calgary: Down 6%
3) Edmonton: Down 6%
4) Toronto: Down 3%
5) Ottawa: Did not see the number
6) Montreal: Up 4% (down from 6% in August)

I also wrote 2 months ago:
I would expect to see Calgary, Edmonton, Vancouver and Toronto all negative by October latest.
This was accomplished in September.

CREA always keeps talking about how most markets are up. In June, it was 21 of 25. In July it was 20 of 25. Now it is 17 of 25. This is meaningless in the big picture. 4 of the top 6 markets, and all 5 of the most expensive markets (Vancouver, Victoria, Calgary, Edmonton and Toronto) are all negative and sinking fast.

2) October 15th

Today is October 15th: No more 40 year amortizations. No more 0% down. Overprime Lite begins today. CREA even reports that activity picked up in September (favoring the sellers as buyers bought ahead of October 15th). This means that the Q4 numbers are going to stink, especially when you throw the sinking stock and credit markets in to the equation.

3) Update to the lag

I mentioned that Canada was lagging the US by about 1 to 1.5 years using an apples to oranges comparison. Using that same comparison, Canada is now where the US was back in September 2007. Since I know that it is apples to oranges, it is likely that this lag is probably a little greater. The US had more foreclosures in September 2007 than Canada does today, but part of it may be that CREA's data is different than Case-Schiller, and part of it is that Canada's housing market is imploding faster than the US did and that foreclosures are likely to skyrocket in the coming months.

4) My new predictions

My prediction of 6 to 9% down by year end has already been accomplished. Look for the lower end of the range (-9%).

I don't have a number yet for 2009 but I would expect it to be worse than 2008 and in the negative double digits.


BBC said...

Hi Adil,
I agree you about -9%. What is your feeling about the mortgage rates (fixed)? I, unfortunately, need to renew my mortgage and I don't know where things are going.... I am guessing/assuming 'up' but I don't want to lock in for too long if things go down. Enjoy your blog. Thanks for you insight during these crazy economic times!

Anonymous said...

Changing GTA Resale Housing Market Reflects Economic Times

October 17, 2008 -- Activity in the Greater Toronto Area resale housing market moderated considerably during the first half of October with 2,700 homes changing hands, Toronto Real Estate Board President Maureen O’Neill announced today.

Sales volumes in the GTA decreased 18 per cent compared to the first half of October 2007, when 3,297 transactions were recorded and are down 10 per cent compared to the same period in 2006 when 3,007 sales took place.

In the City of Toronto 1,140 sales took place in the first half of this month. This represents a 21per cent decline from the 1,446 sales that took place in the same period a year ago and a 13 per cent decrease from the 1,312 transactions recorded in the first half of October 2006.

In the 905 Region there were 1,560 sales in the first two weeks of this month, a 16 per cent decrease from the 1,851 transactions that took place during the same timeframe in 2007 and down eight per cent from the 1,695 homes sold during the first half of October 2006.

House prices declined throughout the GTA during the first half of the month. The average priceof a GTA home is currently $353,772, down 11 per cent from $399,013 recorded the comparable period in 2007.

In the City of Toronto the current average price $375,804, a 15 per cent decrease from the $441,878 average recorded at mid-October 2007.

In the 905 Region the average price of a home is currently $337,671. This represents an eight per cent decline from the $365,527 average recorded during the first half of October 2007.

With 27,559 properties currently listed on the TorontoMLS system, there is now 30 per cent more available stock from which to choose as compared to a year ago when 21,182 homes were listed.

“More choice can mean slightly longer wait times for sellers whose homes are now on average, selling after 34 days on the market as compared to 29 days a year ago,” said Ms. O’Neill. “The list to sales ratio is 97 per cent of the list price.”

Increased sales activity was noted in specific pockets located throughout the GTA.

Sales in Oshawa (E16) increased 15 per cent compared to the first half of October 2007, based mainly on solid sales of detached homes.

In Brampton West (W24) sales in the first half of October increased 21 per cent compared to the same period a year ago mainly due to strong attached row house sales.

Downtown East (C08) experienced a 16 per cent overall increase in activity compared to mid-October 2007 primarily as a result of condominium apartment sales.

Newmarket saw a 17 per cent increase in sales compared to the first half of October 2007 as a result of strong condominium apartment and semi-detached home sales.

Previous news releases have incorporated 2006 comparisons. This was necessary in order to place the market statistics in a broader context. We will be referencing 2006 in its entirety at the end of the month when it will be more relevant.

“While we continue to watch the economic picture globally, it is the local real estate climate that will determine our market place,” said Ms. O’Neill. “After the 2007 record highs, 2008 is an encouraging market for buyers.”

Adil Burney said...

BBC: I don't want to give specific advice, as you can probably appreciate, but this is a very tough call. I will try to address this in a posting real soon!

wow! Toronto looks to be getting hit hard in the first half of October. I doubt that CREA will show numbers such as -11% for the full month, but it does mean that things were certainly ugly. Not totally surprising given the carnage in the market in the week ended Oct 10th (one of the worst weeks ever!)