Teranet: Toronto Real Estate Prices Stop Declining, “Entirely Due To Condos”

Teranet - Toronto Real Estate Prices Stop Declining, “Entirely Due To Condos”

Toronto real estate finally stops hemorrhaging… kind of. The TeranetNational Bank of Canada (NBC) home price index update shows Toronto prices have stopped declining. Great, the Home Price Index (HPI) declines are over! Not exactly. Toronto’s HPI saw an increase due solely to soaring condo prices, while other segments continued to drop.

Composite Real Estate Prices Across Canada Increase 0.27%

The Composite 11, a weighted aggregate of Canada’s 11 largest real estate markets, posted a gain. The index increased 0.27% in January, bringing the 12 month total 8.73% higher than the same month last year. Despite the increase, the composite is still down 1.74% from August, when it reached an all-time high.

Toronto Real Estate Prices Increase 0.21%

Toronto real estate, the largest component of the index, stopped dragging the index lower. Prices in Toronto rose 0.21% in January, the first increase following five months of declines. This brings the 12 month gain to 8.37%, which is very large growth – just not compared to what we were seeing last year. Prices are still 7.30% below the July 2017 peak.

Source: Teranet-National Bank of Canada. Better Dwelling.

It can’t be stated enough times, that periods of excessive price growth should be followed by periods of low price growth. This is how markets become “balanced.” That said, 7.3% is still unrealistically high to maintain – and slower price grown in the future shouldn’t be surprising. The median annual pace of growth for Toronto’s Teranet HPI is 6.05%.

Here’s What You Should Know About This Month’s Numbers

Despite the positive news, this is one of those readings that requires unpacking. There’s two important details to take away from Toronto’s numbers. The first is why it’s rising, and the second is the change in annual growth.

The Teranet-NBC team led with headline Toronto “stopped trending down,” but there was more to that. National Bank’s Marc Pinsonneault noted the increase in Toronto was “due entirely to condo dwellings.” If condos moved enough to drag the whole index higher, the “excessive exuberance” the CMHC has noted last week, may be  concentrated to condos. Corrections are necessary after extended periods of growth. Without one in the condo market, prices will become increasingly precarious, in my opinion.

Source: Teranet-National Bank of Canada, Better Dwelling Calculations.

Despite the fact that Toronto “stopped trending down” on the monthly index, it’s still very much declining in annual terms. Toronto’s 8.37% is performing below the national average of 8.73%. The annual rate of growth has also continued to slide lower, and is now at the lowest number since July 2015. Unless we’re going all Zimbabwe with a period of hyperinflation soon, this number will likely fall below the median rate of growth for a while. Note: No one expects Canada’s central banks to start acting like Zimbabwe’s.

Slowing growth is expected after such a large increase, and it wouldn’t be surprising to see this dip into negative territory. A negative movement would be a healthy balance, from the massive increases we have seen over the past few months.

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  • Reply
    Mica 6 years ago

    At what point do Toronto real estate buyers realize that a condo won’t cost as much as a townhouse… ever. It’s pretty amazing to see the lunacy at play.

  • Reply
    David 6 years ago

    Old news. Toronto real estate prices, especially in the condo market, have recovered. The frenzy at open houses already begun, and this spring is going to be more scorching than last.

    • Reply
      Raging Ranter 6 years ago

      Some people will be getting scorched alright.

    • Reply
      Joe 6 years ago

      Actually the majority of the market (non-condo) has consistently declined, and open houses are barely getting any bites at all. Right now condos are the only thing people are getting approved for.

  • Reply
    vnm 6 years ago

    Here’s a typical bit of advice from a U.S. financial adviser, chosen at random, in this case Jim Cramer, who I gather is also a popular TV personality.
    And Canadians think Americans are whacked?
    Rules of Thumb: The quickest way to estimate a reasonable range for your home purchase is to multiply your annual salary by 3 on the low end and 4 on the high end. So, if you make $80,000 a year, you should be looking at homes priced between $240,000 to $320,000.

    You can further limit this range by figuring out a comfortable monthly mortgage payment. To do this, take your monthly after-tax income, subtract all current debt payments and then multiply that number by 25%. For someone making $80,000 a year, that will come out to $1200 a month or less, depending on where you live and your debt load. That number may seem low at first, but it’s the only way to guarantee you can afford your home while also balancing other priorities like saving for retirement or your child’s education. Let alone taking family vacations each year.

  • Reply
    Functioning Brain 6 years ago

    Wait till September when the additional interest raises have settled in and all the pre-approved mortgages pre-stress test are well and long flushed out of the system and see what happens.

  • Reply
    C 6 years ago

    The sad, last gasps before the housing market sinks. Completely underwater….
    Why are people doing this to themselves?

    • Reply
      Joe 6 years ago

      Because it’s like the Titanic right after it hit an iceberg. The ship is going down, but it is still in the early stages. So let the band play on… what else are they going to do?

  • Reply
    Condox 6 years ago

    Unless we see an increase in supply for condos the prices will hold it’s value. Right now the only thing propping up the prices for condos is the low supply. In order for more supply to be released onto the market the investors will have to get scared. Once they do you’ll see the condo market come down hard and fast. Current C01 active units on MLS is only 326. This needs to be at around 800 units to see prices slow down.

  • Reply
    Michael 6 years ago

    I guess what I’m missing is how much did the market go down when condo price increases are taken out of the equation?

  • Reply
    Beh G. 6 years ago

    The Teranet index is the most useless metric in the history of mankind, as the Donald would say! 😉

    Local real estate board data lags the market by up to a month and in a dynamic fast changing market, even that’s pretty useless (TREB stopped releasing their mid-month data for a reason).

    This Teranet index is like publishing the S&P 500 index 3 or 4 months after everyone already knew what it was!

    These guys at the National Bank should just stop wasting their time and find something useful to do, like maybe gathering and publishing real-time month-to-date data instead of ancient history.

    • Reply
      Alistair McLaughlin 6 years ago

      Not quite. The Teranet index is definitely stale-dated as you say, but it’s not useless. In fact, as Canada’s only “paired sales index”, it just might be the most useful historical record of resale housing prices, making it the most useful index to determine how much housing prices have changed from one era to another.

      So “useless” is in the eye of the beholder. As a real time index of housing market activity it is completely useless. By the time Teranet shows a drop in prices, they’ve been going down for several months. (See Toronto this spring for an example.) As a historical index of housing prices over time, it is invaluable.

  • Reply
    Has the Music Really Stopped ? – Accurate (Peel) Appraisals Inc. 6 years ago

    […] could go wrong ? The attached articles are most informative , if read with an eye on the prize. https://betterdwelling.com/city/toronto/teranet-toronto-real-estate-prices-stop-declining-entirely-d… Please free to call or email anyone of our 3 offices if you have any […]

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