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September 6, 2017 | GTA Home Prices in Bear Market (even before BOC’s hike today)

Danielle Park

Portfolio Manager and President of Venable Park Investment Counsel (www.venablepark.com) Ms Park is a financial analyst, attorney, finance author and regular guest on North American media. She is also the author of the best-selling myth-busting book "Juggling Dynamite: An insider's wisdom on money management, markets and wealth that lasts," and a popular daily financial blog: www.jugglingdynamite.com

Asset prices that roar up have a time-tested tendency to crash down.  Case in point, a decline of 20% in greater Toronto average home prices over the four months between April and the end of August, was enough to wipe out nearly all of the preceding 40% jump year over year to April 2017, even as the average home increase remained 3% positive year over year.  Still, already the math of paying too much on over-valued housing has been sending negative ripple effects through Canadian households, and the mean reversion here is likely only started.  See: The math of paying too much, for some perspective.

Worthwhile noting is that the price and spending declines to the end of August, took place before the Bank of Canada’s brave (or willfully blind?) .25 rate hike this morning that will serve to elevate consumer carrying costs and pinch debtor cash flows, all while helping to reduce demand for our exports (on stronger loonie).

Lower shelter costs are necessary and inevitable to restore affordability among the available pool of buyers, but unfortunately elevated household debts endure and grow on interest costs while the asset prices fall.  Hence the balance sheet destruction that ensues.  This is the rock and hard place that years of central bank largess has wrought.

The average selling price across the Greater Toronto Area in August was $732,292. That was three per cent above year-ago levels, but 20.5 per cent below the April high of $920,791. A price decline of 20 per cent from a peak is commonly referred to as a bear market.

It marked the fourth straight month of sequential price declines as would-be buyers moved to the sidelines waiting to see how the provincial government’s so-called Fair Housing Plan, built on taxing foreign speculators and 15 other measures, would shake out. Here is a direct video link.

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September 6th, 2017

Posted In: Juggling Dynamite

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