Just a while ago the housing market in the Toronto area had seen a big increase in housing prices and sales. The market was headed for a good incline, but earlier this year the Toronto Real Estate Board (TREB) reported that the Greater Toronto Area’s housing market is set for the first of this year’s declines. This was the first decline in a market that has been hot for two years. In its news release, TREB states that home sales in May 2017 were 20.3 per cent lower than in the same month last year.
The question that needs to be answered here is, what were the causes that lead to this decline in the first place? Why did the market decline suddenly? The reason was the implementation of some taxes and new mortgage rules set by the government. The government set these rules in order to control the rapidly increasing and booming housing market, but many experts argue that there may be more than meets the eye in this regard. Some experts argue that many foreign buyers were reluctant to invest in property due to these taxes and rules. However, according to recent statistics collected by TREB, currently the share of foreign homebuyers in the market is approximately 5 percent. This means that the assumption that foreign buyers were reluctant to buy is incorrect, granted that the main target of the tax were foreign homebuyers, there number however are too few to really make a difference in the market and its trends. The actual reason was that regular buyers and residents of the area. Since the tax was imposed they decided to wait and observe rather than get involved more actively in the trends. They wanted to see where the market trends were going before taking on a more active role.
Another cause is believed to be declining interest rate. When the house prices increased, the interest rates dropped causing more people to enter the market and make house purchases. A decreased interest rate is not a good sign for lenders and investors. Experts argue that lower interest rates are attractive for the buyer, they are bad for the market in the long run. One of the reasons why the taxes were imposed to cool down the market was to bring up the interest rate, and prevent a total crash of the market.
Another cause is believed to be lack of supply, as there was an increase in buyers, there was a shortage in supply for the houses being offered for sale. The new rules and tax would have been a way to decrease the demand, so they match the levels of supply and the market could be in the state of equilibrium. These are some of the causes that are said to have contributed to the decline of the housing market in Toronto. The question that arises now is that will the market remain in this decline or will it rise again.