Toronto Real Estate Is Officially Crashing… Kind of

Toronto real estate just wiped out a year of price gains in just four months, here’s what you should know about the pricing volatility.

Toronto Real Estate Is Officially Crashing… Kind of

Toronto real estate just wiped out a year of price gains by some measures. Numbers from the Toronto Real Estate Board (TREB) show that prices are making substantial declines. These declines are being accompanied by declining sales, and rising inventory. Is it a crash? Let’s dive through the numbers.

Toronto Real Estate Prices Dropped Up To $52,000

Toronto real estate prices are dropping, and it would be a stretch to find positive news in this release. The composite benchmark price fell to $755,400, a 14.25% increase from the same time last year. While this number is up from last year, it’s also down 7.4% from the peak composite price established in May 2017. By this measure, it’s a correction, but not crashing.

Source: TREB.

Over the past few months, the average price has been dropping quickly. The average sale price in August 2017 was $732,292, a 3% decline from the same time last year. This is a massive 20.1% drop from the April 2017 peak established. Prices are now back to April 2016 levels, wiping out more than a year of gains made on this metric. By this measure, this is definitely crash territory, and possibly market capitulation.

Worth noting here that average monthly price declines are showing deceleration. Prices dropped by 1.87%, which is the smallest decline since April 2017. This doesn’t mean that it will reverse, and prices will start climbing soon. It does stack the odds in favor of a smaller loss (or even slight increase) in September though. Expect increased volatility, and big swings in prices until the monthly channel shows smaller swings.

Source: TREB.

Prices Declined $52,000 In Some Neighborhoods

Every single neighbourhood in Toronto saw the benchmark price fall. The greatest monthly drop was observed in C02, which is the Yonge and St. Clair/Annex North region. The C02 composite benchmark is now $1,166,100, a decline of $52,000 from the month before. The smallest drop was in C01, Downtown Toronto. In C01,  the composite benchmark fell to $630,000, a $1,200 decline from the same time last year.

Active Listings Are 65% Higher Than Last Year

Inventory continued to build, but new listings slowed down. August saw 11,523 new listings, a decline of 7% from last year. Active listings rose to 16,419 listings, up 65% from the same time last year. Active listings were heavily gamed in 2016, so don’t put too much stock into the massive increase. However, cancelled listings over the past four months have been higher than any number seen over the past 5 years. Something worth noting, as this cancelled inventory may appear sometime in the future.

Source: TREB.

Sales Dropped 35% From Last Year

Toronto real estate sales were higher than last month, but showed declines from last year. TREB reported 6,357 sales, a 7% increase from the month before. This represents a 35% decline from the same time last year. Breaking that number down, the 416 saw 2,480 of those sales, down 27% from last year. The 905 saw 3,877 of those sales, a massive 39% decline from last year. Sales are dropping across TREB, but much faster in the suburbs than the proper City of Toronto.

Anyway you measure it, Toronto real estate isn’t throwing bullish numbers. Average prices have now declined for 4 consecutive months, with few signs the market is firming up. One of those few signs is the gap between sales to new listings is narrowing. As this gets tighter, the market could find better footing.

As always, we’ll be breaking this down segment by segment over the next few days.

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  • Reply
    V. L. 10 months ago

    Brace yourself…butthurt real estate agents are coming…

  • Reply
    BB 10 months ago

    It’s only early September … wait until mid/end of October, the slide will accelerate even further. BoC interest rate hike will likely discourage those planning to dip into GTA market this fall.

    • Reply
      Jack 10 months ago

      Totally agree, not even mentioned in the article, increased interest payments and hawkish boc tone, will only depress prices further. My friend is an agent and says people get more serious about selling in September, so I’m willing to bet more listings will come this month, combined with more expensive debt will only sink house prices quicker than any of the previous 4 months. Personally I’m pissed that our homes have become speculators toys, meaning those who can buy cant afford to be anything more than house poor and those of us waiting to buy won’t lose our shirts. Feel bad for those legit families who bought at the height of the market though, speculators looking to get rich quick, not so much.

  • Reply
    Beh G. 10 months ago

    Another great article Kaitlin… been enjoying the Better Dwelling articles since almost the start. Just a few quickies:

    * In the article you say “active listings were heavily gamed in 2016, so don’t put too much stock into the massive increase”. What it should say is that “new listings” were heavily gamed last year so don’t put too much stock into the slight decline. Active listings are a measure of supply and are therefore the most important metric as they also play into MoI. Last year people were cancelling their listings at an unprecedented rate and relisting (we were one of them). This year people have been leaving their homes listed through the summer hoping to sell. Because of that, new listing are lower but inventory is building up.

    * People keep comparing Toronto to Vancouver and incorrectly assuming that Toronto prices will bounce back because Vancouver prices did so. What’s almost left out of all articles (except in Better Dwelling) is that Vancouver’s bounce back was entirely due to the subprime loans handed out by the BC Liberal government and driven by the under $750k semi-detached and condo market. We’re also seeing some resilience in the condo/semi market in Toronto. This is simply a result of the lag in investor/speculator psyche and/or market awareness in the condo/semi versus the detached market. Investors/speculators in the higher priced segment of the market tend to be more educated (for lack of a better term) or at least more aware of rapidly changing market conditions whereas in the condo market there are a lot more average Joe’s. Also, the condo market (for the most part) did not slide into negative returns as a rental investment until much more recently so again, there’s a lag there and the interest rate increases and rent controls will start to affect this market heavily in the coming months.

    For these reasons, I think a very important metric to analyze at this point is the price of detached homes only (stripping out condos and semis) in Toronto, GTA, Vancouver and GV. My understanding is that the average price of detached homes in Vancouver is again on a serious decline and about 10% below the peak – as the effect of the subprime loans starts to wear off as evidenced by the drop in applications. Vancouver detached prices are obviously not in bear/crash territory but nonetheless going through a serious adjustment/correction.

    Another important metric to include in discussions right now is the MoI for detached homes particularly for GTA and more specifically for certain areas in the GTA (for example Markham) where there was significant speculative buying. I think an analysis involving the MoI and prices for detached homes is going to paint a very grim picture of the situation.

    The industry has been trying to paint a rosy picture of the situation, desperately grasping at any positive bit in increasingly negative reports. I believe they’re headed for a rude awakening when the droves of buyers they’ve suggested are on the sidelines don’t show up to Open Houses in the next couple of weeks.

    On the other side of the coin, the sellers who’ve been sitting on the sidelines and waiting for the market to bounce back in the fall at the advice of the industry will all hit the market at once.

    I believe sales for September will be up slightly over August and possibly close to what they were last year but both new listings and MoI will be much higher than both August and last September and prices will continue their downward slide if not in September soon thereafter.

    It would be interesting to see how the industry’s going to spin this one off… are they going to tell sellers not to list and wait until buyers come back in the spring market?! Are they still going to ignore the price drop in the detached segment in the Vancouver market and keep suggesting the Toronto market will be on its way up like Vancouver?!

    There’s a lot of downside risk to the Toronto real estate market now with absolutely no upside… debt is at record levels and half of Canadians are living pay-cheque to pay-cheque… interest rates are increasing… the empty homes tax is likely to be introduced in mid/late fall as the city needs to make up for the loss of revenue from the LTT…

    … capital is still flowing back to China in reverse of the trend in the past two years and there’s no better place to see the effect than the Toronto commercial market [report released yesterday and it was much worse than the residential report but received no attention at all]…

    And the scariest thing is that all of this is negligible compared to the changes proposed by OFSI on both the new stress tests and mortgage bundling . I mean even the industry’s suggesting this will be the final nail in the coffin of the Canadian Real Estate, albeit in not so many words.

    • Reply
      Jack 10 months ago

      Interesting analysis. Being at the age where I have a baby, my wife and I are keen to buy a house, have the income and a large down payment to buy a house, but to me, the prices make no sense at all. Housing seems like an awful way to tie up 8-900k (we live in montreal), for a very modest home, which is at the mercy of a potentially aggressive interest rate climb through 2018. This bull run has been ongoing so long, people dont remember where prices were in the 80’s and 90’s, and that what goes up must come down. I think for all the reasons you listed, the housing market is on the verge of a serious correction, but hey, ive been saying that for years and ive been wrong very time.

      All that said, I hope you’re right, as my wife is keen to buy next year….

      • Reply
        Beh G. 10 months ago

        Regardless of where the prices go Jack, if you look at a house as an investment rather than just a place to live in, you should always analyze renting versus buying and see if it makes sense.

        For example, I can tell you that you can rent a home purchased in Toronto for $1.6M in March (our neighbor’s) for around $2,500 (it has been listed for $2999 for 3 months now). If you do the math on that with even a 25% down-payment your monthly interest payments alone would be $2,500! Of course, you have property taxes on top of that ($400 per month) and if you amortize your land transfer tax ($56,200) and commissions on selling (say $75,000) which works out to another $1,100 per month, it made absolutely no sense to purchase this house other than for speculative reasons.

        Even after 10 years, you’d still be paying $1600+ in just interest! Of course, we haven’t even taken into account the returns on the $456,000 that you would have made by investing the money while renting. And there are ton of properties like this in Toronto now.

        I do realize that a lot of people like the “safety” or perceived safety having a place of their own but like you said, you’re tying up a lot of money in a single asset so it’s best to be logical rather than emotional about it.

        By the way, we sold our house in Toronto in March anticipating exactly what has unfolded and bought something better in Spain for 1/4 of the price! Again, you have to be very rational about such huge amounts of money… we would have already lost $300-$400k had we gotten greedy or waited more.

        • Reply
          Tommy 10 months ago

          LOL, nowhere in Toronto can you rent a $1.6 million house for $2500/month.

          Try $4000 – $5000/ month

        • Reply
          Jack 10 months ago

          Glad you got out while the market was hot, 20% drop on $1M is massive. Totally agree with your comments, people have this fantasy that owning is forced savings, and they take solace in calling something theirs. The fact is the house belongs to the bank until your mortgage is paid off.

    • Reply
      Tienchi 10 months ago

      I was renting out the master bedroom in my downtown 3 bdrm condo with shard kitchen for $1300 during the weekend. Initially I felt embarrassed to ask for such ridiculous amount, but so many people came and bid to rent. The highest offer was $1700.

  • Reply
    Justin Thyme 10 months ago

    What will be really telling is if there is a September bump or not. If there is, business as usual. If not, if sales continue to drop off, there is a disturbance in the model.

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