House prices have been falling in Toronto. Yes, falling.
To many people, that comes as a rude shock. Prices rose for so long that it seemed as if it were the natural state of affairs. The idea took hold that Toronto was somehow unique, its housing market immune to the corrections and crashes that have afflicted just about every city (Toronto itself included) at one time or another.
Even now, real estate hucksters and sanguine economists say the current downturn is merely a pause in an unstoppable ascent. All the factors, they insist, point up, up, up. Throngs of people from around the country and across the globe are clamouring to live here. The economy is robust. Canada is a safe haven in a troubled world. Toronto is a booming city with rock-solid banks. The supply of housing and land is limited, the demand ever-increasing. All, to an extent, true: Toronto's fundamentals are excellent and the price drop so far is modest. But similar things were being said about London or Orlando before the British and U.S. housing markets hit the skids a few years ago. No commodity keeps gaining value without interruption. The price of housing experiences the same peaks and valleys as gold, stocks or orange-juice futures.
The fundamentals are only part of the picture. Psychology plays a part, too. People have a tendency to get carried away when things are going well and panic when they threaten to turn bad.
It is nothing to be shocked about. In fact, the real estate downturn we are seeing now is, on balance, a very good thing.
To begin with, the fever has broken. The wild run-up in prices over the past year was a sort of sickness. Seized by the belief that prices could only climb further, buyers afraid of missing the boat were paying obscene amounts for little, rundown houses. Bully bids, bidding wars, inflated over-asking prices – all the symptoms were there.
That has changed over the past few weeks. Sales are off and prices are down from their stupid heights of this spring, although in the first half of June the cost of a house was still above where it was a year before. A degree of sanity has returned.
That is good for people, especially the young, who want to buy but despair of ever finding a place. Some will decide they can afford one now. Others will decide that if prices can suddenly drop like this, housing isn't such a great investment after all. That's a good thing, too.
Toronto has developed an unhealthy obsession with real estate. Owning a place is considered the be-all and end-all. Conventional wisdom and peer pressure say you simply must get into the market.
If you don't, you're sunk. People pour a huge proportion of their wealth and energy into owning and maintaining bricks and mortar. If you don't have granite countertops in your kitchen, well, what have you really achieved?
There are other ways to live. Renting is a perfectly acceptable alternative to the expense and burden of home ownership.
In many European cities, renting, not owning, and apartments, not houses, are the standard. That helps limit urban sprawl and the bruising of the environment that comes with it.
Even for those who already own a place, the downturn is not such a bad thing. Years of rising prices made homeowners feel like millionaires, which, on paper, they often were.
Egged on by greedy lenders handing out home-equity loans like handfuls of Halloween candy, many found themselves deep in hock.
Household debt as a share of income rose to record levels. The recent news from the housing market is a useful caution to those who have been treating their homes as cash dispensers.
Governments, too, will be forced to change their ways. Toronto's, for one, has come to rely on the hundreds of millions of dollars it collects every year from a tax on land transfers.
Officials have been warning with rising urgency that the city is in for a reckoning if that windfall should dry up.
Now that it looks as though it might, city politicians will face pressure either to find other sources of revenue or to trim the city's expenses – all to the good, either way.
Toronto real estate has been on quite a ride. If it is finally coming to an end, it's no reason to lose heart. The price of a semi in the Annex isn't the only measure of the city's worth.
House prices go up, house prices go down.
It happens everywhere. Whether they decline further, crash, roar back, or simply flatten, there are plenty of other reasons to feel confident about Toronto's future and plenty of better things to worry about.