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A realtor's sign is placed on the front yard of a home for sale at 138 Barton Ave. in Toronto on March 20, 2017.

Fred Lum/The Globe and Mail

December seems to be starting off as a fairly halcyon month in the the Greater Toronto Area's real estate market. But brace yourself for January, when the "whipsaw effect" begins to unfold.

Cameron Forbes, general manager of ReMax Realtron Realty Inc., says December is already showing signs of meandering along at a slower pace than a lacklustre November. "It's not a crazy December and it's not a dead December."

Mr. Forbes forecasts that the GTA will see approximately 4,500 sales in December, which would represent about a 15-per-cent drop from the 5,300 transactions in December of 2016. That pace would put the market in line with the level of activity in 2014 or 2013, he adds.

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But a chill is likely to descend in the first month of 2018, Mr. Forbes says. First, new rules from the Office of the Superintendent of Financial Institutions will come into effect on Jan. 1. The banking regulator's requirement that the lenders under its watch will have to impose a stricter "stress test" on buyers who take out an uninsured mortgage could dampen activity, Mr. Forbes says.

Some of the buyers are moving up their purchases by making sure they sign a deal in 2017 while others may choose to hold off and save a larger down payment or build up more equity in an existing property. Some will settle for buying a less expensive property and another contingent may seek out lenders which aren't governed by the OSFI.

"I do think people will adjust very quickly," he says.

More disquieting to many will be the shock of seeing prices in January tumble from the same month a year earlier. Mr. Forbes predicts that the average price in January will fall about 20 per cent from January of 2017. That trend will continue month after month until May, when the year-over-year comparisons stabilize again.

The first part of the year is going to look especially grim because the first four months of 2017 marked the height of the "fear of missing out" frenzy, when buyers were lobbing astounding amounts of money at a property just to secure a deal. Prices were climbing at a dizzying 33 per cent a year at the peak.

Mr. Forbes expects that some house hunters are going to be unsettled. "I do believe that people are not used to hearing prices have decreased and they won't understand it."

At the same time, homeowners may be spooked enough to delay listing their properties. "I think we are going to have a very slow first quarter of 2018," he says. "I don't see a flood of new listings."

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In spring of this year, as red alarms about the market exuberance grew louder, the Ontario government introduced measures designed to calm the market. On April 20, the province imposed new policies, including a foreign buyers tax of 15 per cent.

At the same time, the market had already begun to show signs of cooling as buyers began to back away from the intense heat. By May, sales in the GTA were in steep decline. Mr. Forbes expects the market to wake up again in March.

Sellers will feel more confident in listing – especially as green leaves and spring blossoms reappear.

"I really do see a whipsaw effect," Mr. Forbes says.

For all of 2017, he estimates that sales in the GTA will total 91,608 units, with an average price of $832,403. Compared with 2016, that tally will mark a 19 per cent drop in unit sales and a 14-per-cent increase in the average price.

In 2018, Mr. Forbes is forecasting 86,000 sales, for a dip of 6 per cent from 2017. The average price will edge down one per cent next year, he estimates. "The reality of prices is they don't adjust much."

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Looking at the overall economic picture, Mr. Forbes points out that the U.S. economy is doing very well and stock markets are performing strongly. "There's a wealth effect associated with stock markets," he says. "That's very positive."

That strength will likely buoy consumers confidence, he says.

Meanwhile, he is not expecting the Bank of Canada to hike interest rates.

Mr. Forbes also expects the strong demand for condo units in the GTA to remain robust in 2018.

He estimates that the condo segment will account for 36 per cent of sales in 2017 in the GTA. That's more than one in three, he points out.

He only expects the proportion to increase in 2018 because condo units – with an average price around the $550,000 mark – remain significantly more affordable than single-family homes.

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Condos will make up an even larger proportion of sales in 2018, he says. "Absolutely, that's going up – not going down."

As for homeowners who are thinking about putting a property on the market, Mr. Forbes says the best time for doing so varies by neighbourhood and price range.

As 2017 winds down, Mr. Forbes expects sales of houses and condos in the 416 area code to remain healthy – especially for any property under about $1.3-million.

Sales in the inner ring of the 905 area code are still fairly brisk, he says, but activity in the more distant suburbs is sluggish. A $900,000 house in Richmond Hill or Markham, for example, is a sought-after property, but a house above $1-million in those areas may sit longer.

In Stouffville and Keswick, where the houses tend to be newer and there's not much to distinguish them from competing listings, sales are slow.

He points to the example of one Stouffville house listed for sale by an agent in one ReMax office for about $1-million six weeks ago. At the time, it was the only property in the area around that price level. Since then, three or four very similar houses have arrived on the market.

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"Activity dropped to zero," he says of the number of potential buyers who requested showings.

The agent cut the price to about $880,000 but still the buyers aren't coming to a house that would have gone for $1.1-million in the spring.

The slowdown is quite typical of this time of year, says Mr. Forbes, so he's recommending that the agent talk to the sellers about taking a break and listing again in the spring.

But for homeowners who are thinking about selling in the 416 area code, he thinks they might want to take a shot at listing now – particularly if there aren't any nearby houses up for sale. "That way you get the advantage of people looking to purchase before Jan. 1," he points out.

Benjamin Tal, deputy chief economist with CIBC World Markets Inc., says the Canadian housing market is in an important transition period – most notably in Vancouver and Toronto.

Mr. Tal says the market will likely stabilize and perhaps soften in the coming quarters as people adjust to recent and upcoming regulatory changes.

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"But when the fog clears it will become evident that the long-term trajectory of the market will show even tighter conditions," Mr. Tal says in a research report.

He predicts that the lack of supply in Vancouver and Toronto will worsen while demand is higher than the official statistics indicate because of the way non-permanent residents such as students and foreign workers are sometimes left out of the tally.

The housing market is about to face its most significant test in a decade as the combination of higher interest rates and regulatory changes will work to reduce purchasing power, Mr. Tal says. The impact will be noticeable but probably short-lived, he adds.

David Madani, senior economist at Capital Economics, warns that excessive household debt and unravelling housing market conditions are likely to make things more challenging for Canada's labour market next year – especially if negotiations to alter the North American Free Trade Agreement fail and businesses overreact.

With that backdrop, he expects the Bank of Canada to hold its key interest rate at one per cent.

After raising interest rates twice this year, the central bank suggested last month that it will be more cautious in making changes to rates in the future, he notes.

This sought after two-bedroom penthouse suite in the Candy Factory Lofts in Toronto sold in just one day.
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