The overheated Toronto housing market has been a significant concern for economists and policymakers for some time.
Now, it appears prices in the market are set to decline according to a prediction model based on the ratio of sales to new listings.
According to Bloomberg, that ratio declined in May to 41%.
Bloomberg says “the 3-month moving average of the sales to new listings ratio explains almost 60 percent of the variation in Toronto benchmark home prices five months later. A sustained ratio of 40 percent implies small, single-digit annual price declines in about half a year.”
It is also noted that the current prediction model assumes a “soft landing” for the market, where prices would decline slowly rather than collapsing rapidly. That view is backed up by the approach of Bank of Canada Governor Stephen Poloz – though Central Bankers often say “everything’s fine” even when a crisis is just around the corner.
With that in mind, Bloomberg notes that there are concerns there will be a “hard landing,” in the Toronto housing market, considering the fact that “There’s been plenty of speculative demand in the market, and any fear of a correction could send investors running for the exits.”
Foreign buyers tax and removal of restrictive land-use policies
The recent move by Ontario to implement a 15% foreign home buyers tax is a good idea, but it’s not enough. Restrictive, big government land-use policies amount to social engineering that artificially restricts the number of available homes and drives up prices. The government should remove those restrictions, and let the housing market re-balance itself to match true supply and demand among Canadian home buyers/sellers.
It’s essential to remember the lesson of the 2008 Financial Crisis, and realize that true long-term wealth cannot be built on an artificially inflated housing market.