Chilling News For Canada's Housing Market

The great slide in Toronto housing accelerated into July with the average sale price down 17 per cent from the frenzied record highs of the spring.

The Toronto Real Estate Board’s mid-month numbers, provided to realtors but viewed by BNN, show an average sale price of $760,356 during the first 14 days of this month. That’s a more than $159,000 discount compared to the average sale price of $919,589 when the market hit its peak in April.

As of mid-July, sales volumes had plunged 39.3 per cent from the same period last year. The detached market is taking the hardest hit, with the number of homes changing hands down almost 45 per cent compared to June 2016.

The country’s banking regulator, OSFI, is taking aim at the uninsured mortgage market — where homeowners make a down payment of 20 per cent or more. The Office of the Superintendent of Financial Institutions is proposing stringent stress tests for those borrowers, in line with what’s already happening in the insured market.

Mortgage market observers say such a move could slash a buyer’s purchasing power by up to 18 per cent.

My view:

Housing prices are rapidly unwinding in the over valued Toronto market.  The net worth of buyers who purchased in April has taken a $159,000 hit on average.

We are now seeing that housing is not the store of value some have suggested.

Further, with the banking regulator threatening to squeeze larger down payment buyers with stress tests, some experts suggest this has double the impact of the recent raising of interest rates by the Bank of Canada.

It would appear that the housing trend of higher prices has reversed with vengeance.  Further deleveraging will occur as housing prices fall.  It appears that Canada is at the beginning of experiencing something similar to the US housing market bust of 2006-2008.

Those who are wise in overvalued markets like Vancouver and Toronto could consider selling to preserve capital and rent as an alternative.  While this is not an easy decision, historically speaking, we could see much larger declines in prices and net worth of home owners in these markets.