The average price of residential properties sold last month in the GTA fell from a record high in April as Canada's largest housing market feels the psychological impact of a tax on foreign home buyers.
The figures released Thursday by the Toronto Real Estate Board (TREB) show the average price of homes decreased 13.8 per cent in June from April's high. They also show the number of homes sold in the Greater Toronto Area fell 37.3 per cent from a year earlier. The drops come after Ontario's 15-per-cent tax on foreign home buyers took effect on April 21.
The feverish mood, widespread bidding wars and scarcity of listings earlier this year in the GTA have given way to a market in which buyers are hesitating and sellers are no longer in the driver's seat, especially as the Bank of Canada signals higher interest rates are looming. Already, the Royal Bank of Canada has raised fixed-term mortgage rates.
The tax on foreign home buyers applies to the Greater Golden Horseshoe Region, a sprawling land base that surrounds and includes the GTA. The move came eight months after the B.C. government imposed a similar tax on foreign purchasers in the Vancouver region.
"There's a risk that a negative feedback loop for prices might be triggered by the current market correction," RBC senior economist Robert Hogue said in a research note, although he added that the chances of such panic in the GTA appear remote for now.
"The experience in Vancouver following the introduction of a foreign-buyer tax last August shows that prices faced downward pressure for a period several months before mild upward pressure resumed once the market fully adjusted to the new measures," Mr. Hogue said.
"We expect a similar pattern for Toronto in the near term."
The Ontario government said this week that foreign buyers accounted for 4.7 per cent of home purchases in the Greater Golden Horseshoe region, close to TREB's recent finding of 4.9 per cent in the GTA.
While the average price for various property types rose 6.3 per cent over the past year in the GTA to $793,915 in June, that is down 7.9 per cent from May and a 13.8-per-cent decline since setting a record of $920,791 in April.
Within the City of Toronto, the average price for detached houses sold last month reached $1,386,524, down 7.8 per cent from May and a 12.2-per-cent drop since April's record of $1,578,542, but up 10.1 per cent from June, 2016.
Toronto Mayor John Tory said he isn't concerned about the city's softening housing market. He said that no matter what the short-term moves are, in the long-term, investors in real estate in Canada's largest city are in an excellent position.
"I think Toronto property values are going to be solid going forward. You can't look at blips up and down," Mr. Tory said.
In January, TREB forecast between 100,000 and 115,500 residential transactions in the GTA this year. On Thursday, the board downgraded its outlook to between 89,000 and 100,000. Last year, there were 113,133 sales in the region.
The GTA's sales volume of 7,974 in June is down 34 per cent from 12,077 in March – the last full month before Ontario's tax on foreign home buyers took effect.
"I think if there's any lesson from the Vancouver experience that would be shifted over to Toronto it's that you certainly did see buyers take a step back in Vancouver," Jason Mercer, TREB's director of market analysis, said at a news conference in Toronto. "I would argue that you're seeing it here but you start to see people moving back in, in short order, because if you're not a foreign buyer, you're not really affected by this move except psychologically."
TREB suggests that the tax on foreign buyers had an immediate but not necessarily lingering effect, saying the market is better supplied and more homeowners have been willing to part with their properties, feeling that price growth has peaked.
Ontario Finance Minister Charles Sousa said he recognizes that affordability has been a major concern. "We're glad to see that the recently released TREB data shows that more supply is becoming available and that there has been a more moderate pace of annual price growth," Mr. Sousa said in a statement.
Consumers who purchased at the peak are wondering what will happen next. Take Jonathan and Angeli Dumrique, who bought a $575,000 townhouse in the Toronto bedroom community of Pickering.
The couple, who moved into their 21-year-old unit last month, have watched housing prices in the region weaken since they bought in April.
Mr. Dumrique, 28, figured they needed to jump into the market because they believe prices will go higher in the long term. "There is no point in waiting anyway. The prices just aren't going to go down, right? That is where our mindset is," Mr. Dumrique said in an interview. "No regrets."
They bought in early April, before the foreign-buyers tax kicked in. Mr. Dumrique said getting into the housing market is about compromises, and "for our situation, it was just time to do it. We even thought about going as far east as Oshawa."
Mr. Dumrique, a retail sales manager, and Ms. Dumrique, 26, who works for a chartered bank, took three years to save for a minimum down payment and now carry a mortgage of nearly $530,000. He works in North York and she is located at a bank branch in Scarborough, so they have long commutes that involve sharing one car and taking public transit.
The Toronto board considers the benchmark price – which is the industry's representation of typical homes sold – to be a better indicator of trends. By that measure, the benchmark price for detached houses sold in the City of Toronto slipped to $1,205,400 in June, down 1.9 per cent compared with $1,228,500 in May, though up 19.8 per cent from June, 2016.
With files from reporters Jeff Gray and Justin Giovannetti in Toronto