TORONTO — Home sales in the Greater Toronto Area plunged 37.3 per cent last month compared with a year ago, the largest drop in eight years, the city’s real estate board said Thursday following the introduction of rules aimed at cooling one of the hottest housing markets in North America.
The Toronto Real Estate Board said 7,974 homes changed hands in June while the number of new properties on the market climbed 15.9 per cent year-over-year to 19,614.
The average price for all properties was $793,915, up 6.3 per cent from the same month last year, but down 8.1 per cent from May.
“There’s no doubt the market has changed,” said Christopher Alexander, regional director at Re/Max Ontario-Atlantic Canada.
The data comes after the Ontario government implemented rules intended to dampen Toronto’s real estate market, where escalating prices have concerned policy-makers at the municipal, provincial and federal levels.
Ontario’s measures, which were retroactive to April 21, include a 15 per cent tax on foreign buyers in the Greater Golden Horseshoe region, expanded rent controls and legislation allowing Toronto and other cities to tax vacant homes.
“While we are seeing a substantial dip in sales over the last couple of months, it doesn’t look as if foreign buying activity or a pullback in foreign buying activity was at the root of this,” said Jason Mercer, the director of market analysis for the Toronto Real Estate Board.
“I’d argue it’s more on the psychological side of things, whereby people see a new major policy pointed at the housing market and take a bit of a step back, temporarily reassess where they are in the marketplace before perhaps moving back into the market.”
The tumble in the number of property transactions comes on the heels of a 20.3 per cent year-over-year decline in sales in May. It largely mirrors what happened in Vancouver after the B.C. government introduced a 15 per cent foreign buyers’ tax last August.
“Any time the government intervenes drastically, you see consumers just kind of wait it out and see how it’s going to take effect,” Alexander said.
“But the market fundamentals in Toronto are still really strong. Lot of demand, lot of immigration, low interest rates. It’s a great city to live in. All those things will start to take hold again, probably in mid-August.”
The rise in new listings is likely due to a number of factors, he added, including the fact that inventory was at a record low last year and that soaring prices may have motivated some homeowners to put their properties up for sale.
“A lot of people saw prices going up considerably and were probably like, ‘Maybe this is my time to cash out,’” Alexander said.
“But buyers have taken a big pause and they’re not willing to pay as much as people were back in the first quarter, and sellers are still expecting those numbers, so I think that’s why we’re seeing a huge spike.”
There have been growing worries that overheated prices in Vancouver and Toronto could be a problem for the broader economy, especially if there is a sudden fall in housing prices sparked by higher interest rates.
The real estate board also revised its outlook for the year downward to between 89,000 and 100,000 transactions and is expecting that the average selling price in 2017 will be up by 13 to 18 per cent.
Mercer said the board decided to change its outlook in light of the recent housing changes and growing expectations that the Bank of Canada could raise its interest rate next week for the first time in seven years.
Provincial Finance Minister Charles Sousa wasn’t available for comment, but in a statement he said he was encouraged to see that supply is increasing and annual price growth is moderating — signs he said that the measures are having their desired effect.
Toronto Mayor John Tory said people who purchased properties in April and therefore may have lost money “on paper” should not focus on short-term fluctuations.
“You can’t look at blips up and down,” Tory said. ”You have to look at the long term. And I think people who have invested in real estate in Toronto are in an excellent long-term position. This is a growing, dynamic city that is a magnet for people along the world and investment from around the world.”