April 3, 2019 -- Toronto Real Estate Board President Garry Bhaura announced that Greater Toronto Area REALTORS® reported 7,187 residential sales through TREB's MLS® System in March 2019. This result was inline with 7,188 sales reported in March 2018. For the first quarter of 2019, sales were down by one per cent compared to Q1 2018.
So, sales are flat but what about prices???
From Orangeville to Bowmanville and all points in between, average prices using the Home Price Index are UP by 2.6%. That's better than inflation and whatever terrible returns the banks are offering these days too. It's not crazy like we saw in 2016 and earlier but it is not the stagnant market we've experienced since the Fair Housing Plan and new mortgage rules were announced in 2017.
The Demand-side economics policies behind these plans have had a lot to do with a decline of sales and prices we've witnessed over the past 2 years. I learned in Economics 101 that supply shifts are much more effective long term than than demand shifts. The Wynne government obviously didn't take that class but I'll explain it very briefly.
In the housing market, a decrease in demand from by artificial stimulation (see Panel B) will yield lower prices in the short run. When prices come down, less people will sell their home (decrease in supply Panel D). Less listings means in the short run means more competition among buyers. As competition increases among buyers increases, prices go up and you're back where you started.
The policies enacted to reduce demand are being offset by a corresponding response from home owners to be less inclined to sell their home until the prices are attractive enough to do so. This is precisely the case right now.
Demand decreased because of legislation, then supply of new listings dwindled causing scarcity. Not enough inventory causes greater competition for buyers and now prices are above what they were 2 years ago when all this started.
I am all for making homes more affordable for people but this program doesn't address the underlying cause of the out-of-control price growth that led to the plan being created: lack of supply. You will see shortly that home buyers are not better off now and tenants are far worse off when you see how rental prices have exploded.
If you want housing to be more affordable you need more housing being built ( see panel C-> increase supply). Though a sudden influx of housing starts would cause a price drop, a long-term plan to allow more development of home types at all price points will lead to a stabilization in prices. Relax laws preventing people from renting out an apartment in their home. If there are options for people that will controle pricing. Nothing else that our governments can do will work.
Mark my words, there will be rapid growth in the whole GTA again over the next two years. Prices in Toronto are up 6% on average across all home types compared to a year ago. It's only a matter of time before buyers venture outwards to find more affordable housing in the 'burbs again.
Check out what Jason Mercier has to say on the subject. He's more eloquent and provides great insights.
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