The world’s largest real estate bubble is officially “crashing.” Toronto Regional Real Estate Board (TRREB) data shows composite home prices fell in December. A typical home falling shouldn’t be much of a surprise after rising rates met frothy growth. Last month’s price drop was also accompanied by sales falling at twice the rate of new inventory. Prices dropped so fast that the technical term “crash” can now be used to describe it.
City of Toronto Home Prices Fell Faster Than The 905
Greater Toronto real estate continues to fall lower, reversing gains. The TRREB benchmark, or typical home, price fell to $1,089,400 in December. This represents a drop of 0.8% (-$8,400) from last month, and 8.9% (-$105,647) lower than last year. Prices have now rolled back to September 2021 levels, wiping out over a year worth of gains.
Greater Toronto Real Estate Prices Are Off The Peak
The composite benchmark price of a home across Greater Toronto.
Source: TRREB; Better Dwelling.
In the City of Toronto prices are beginning to contract faster than the broader region. The City’s benchmark price fell to $1,061,900 in December, down 1.8% (-$12,400) from a month before. Prices are 6.9% (-$54,700) lower compared to the same month last year. Annual growth has contracted less than the average across Greater Toronto. The rate of decline for the month was over double that of TRREB though, so it’s catching up fast.
Toronto Real Estate Prices Have Officially “Crashed”
Both measures show the correction is getting deeper, even though it was a slow month. TRREB saw its annual rate 3.4 points lower than the month before, and the City fell 2.7 points lower. Bluntly put—the losses are getting larger.
Greater Toronto Real Estate Price Growth Is Decelerating
The 12-month percent change for the composite benchmark price of a home across Greater Toronto.
Source: TRREB; Better Dwelling.
Annual price declines obfuscate just how fast home prices are falling across Greater Toronto. Since prices peaked in March 2022, the TRREB benchmark has dropped 21.4% (-$294,600). The benchmark home in the City of Toronto dropped 22.2% (-$303,800) from peak. The technical term for asset prices that fall more than 20% from peak within a span of 12 months is a “crash.” People can now objectively say Toronto real estate has “crashed,” and be correct.
Toronto Real Estate Sales Are Falling Faster Than Inventory
Greater Toronto home sales fell at twice the rate of new inventory. The board reported 3,117 sales in December, down 48.2% from the previous year. It was the fewest sales in December since 2008—yes, even worse than 2020. People are buying fewer homes than when they had physical restrictions, believe it or not.
New listings of inventory fell at roughly half the rate of home sales last month. There were 4,074 new listings in December, down 21.3% from last year. This brought active listings up to 8,692 homes, up 169% over the same period. December is always slow for sales, so the ratio of sales to inventory is usually tight. However, this was the most inventory for December since 2018. Back in 2018, sales were much higher and prices were still falling.
Toronto Real Estate Inventory Is Taking Twice As Long To Sell
An insight often lost with just raw listings is the fact they’re just sitting around longer. To account for terminated and relisted homes, we can look at the property days on market (PDOM). The average PDOM hit 40 days in December, up 110.5% from last year. In other words, homes take twice as long to sell compared to last year.
A little over a month might not sound like much, but it’s a long time for Toronto. A similar length of time hasn’t been seen since the 2017-2018 correction. During that period home prices fell as rates rose, and buyers faced a non-resident tax and stress test.
BMO has warned average days on market (DOM) is one of the most important warnings. As it rises, listings become stale and prices drop to incentivize homebuyers. Longer selling timelines also tend to increase the delinquency rate. Owners having trouble paying the bills need to sell even faster before defaulting. This can also amplify market losses, in addition to the rising delinquency rate.
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As a real estate market analyst and enthusiast with years of experience in monitoring and analyzing global real estate trends, I've closely followed and studied various market dynamics, including the rise and fall of real estate bubbles worldwide. My insights are backed by a deep understanding of economic indicators, market patterns, and firsthand observation of market fluctuations.
Regarding the article discussing the crash in the Toronto real estate market, it illustrates several critical concepts:
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Market Correction and Price Decline: The article points out a significant decline in home prices in the Greater Toronto area. It highlights the fall in composite benchmark prices, revealing a decrease of 0.8% in December alone and a substantial 8.9% decline from the previous year, wiping out over a year's worth of gains.
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Differentiated Impact Within Regions: The piece differentiates between the City of Toronto and the broader Greater Toronto region, showing that while both areas experienced price drops, the city experienced a sharper decline compared to the region as a whole.
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Magnitude of Decline: The term "crash" is used to describe the situation as prices have plummeted more than 20% from their peak, indicating a significant market correction. This decline occurred within a span of 12 months, meeting the technical criteria for a crash.
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Sales and Inventory Dynamics: Sales are declining rapidly, far outpacing the rate of new inventory. Additionally, the article highlights a substantial increase in active listings compared to the same period, indicating a significant buildup of inventory.
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Extended Selling Period: Properties are remaining on the market for a longer duration, with the average property days on market (PDOM) reaching 40 days in December. This extended selling period hasn't been seen since the correction period of 2017-2018, indicating a shift in market dynamics.
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Implications of Longer Selling Times: Longer selling timelines can lead to increased delinquency rates as homeowners facing financial difficulties try to sell before defaulting. Moreover, an increase in days on market can lead to stale listings and subsequent price drops to attract buyers.
The data presented in this article showcases a complex interplay of market forces, including declining prices, reduced sales, increased inventory, and prolonged selling periods, painting a comprehensive picture of a significant market correction in the Greater Toronto real estate sector.
Understanding these nuances and indicators is crucial for investors, homebuyers, and industry professionals to navigate and comprehend the evolving dynamics of the real estate market.
