In April, Ontario introduced a plan to cool down the housing market in the Greater Toronto Area and surrounding regions. Now, a month later, real estate brokerage Realosophy Realty Inc. has calculated that sales in the GTA have dived.
Looking at data for freehold homes (detached and semi-detached homes only), the brokerage determined sales had dropped 26% from April 20 to May 20 when compared to the same period last year. It’s reminiscent of what we saw happen in Vancouver after the foreign buyer tax was introduced in 2016. Even the percentage drop in activity was almost the same. However, where Toronto and Vancouver differ is the reason why sales have suddenly stalled, according to Realosophy’s president, John Pasalis.
“While it’s certainly possible that the tax had some impact on sales — I’m not convinced that it’s responsible for the decline we are seeing,” he writes on the company’s blog. “I believe the big declines we are seeing in York Region are in part driven by a big decline in demand from investors.”
Unlike in Toronto, research showed that foreign investment definitely played a big role in the Vancouver housing market before the tax, but in Toronto there is very little data on just how many non-resident buyers there are. Pasalis says there’s some evidence of foreign activity when breaking down home sales by municipality — he found that the areas with the biggest drops in sales happen to be areas popular with buyers from China, which is the main source of foreign real estate money in Canada.
That aside, Pasalis thinks the real culprits behind the sales drop are investors. As prices got higher, investor demand only got bigger, but with sales slowing down and new housing regulations in play, many investors are likely taking a step back to see if Toronto housing is still a guaranteed payday.
And among those just looking for somewhere to live, Pasalis speculates that the relentless pace of price growth and difficulty in finding a suitable home has simply turned too many buyers off of trying to find a home in the city right now.
Overall this sales drop is exactly what we need, Pasalis says. He anticipates the Toronto market will be bumpy for the next three-to-six months but eventually settle into the balanced but competitive market we saw several years ago, an opinion shared by top economists at the Bank of Montreal.