Letting Vancouver show us Toronto’s Future

This blog focuses on Toronto real estate because it is what we study and strive to better understand. However, when it comes to Canadian home prices everyone knows there is another city to watch: Vancouver. Vancouver is worth mentioning right now because something is going on there. Sales have plummeted (down over 35%), and prices are beginning to follow. The situation in Vancouver sparked our interest because it would not be the first time a housing action occurred first in Vancouver only to shortly follow in Toronto. Let’s look at the recent history.

Both Toronto and Vancouver experienced healthy price gains throughout the 2000s and into the current decade. Vancouver was then the first of the two cities to really heat up and see annual price gains over 30%, which prompted the city to implement a foreign buyer’s tax to cool the market. Nine months later Toronto realized its own 30% price gains and at around the same time Ontario employed its own foreign tax. For Vancouver, immediately after the tax was in place prices dropped. Not too surprisingly, Toronto then went through the same experience. It can be debated whether in either case it was a true ‘post hoc ergo propter hoc’ (Latin for: after this, therefore because of this – great Latin phrase); however, that was the order of events for both markets. After months of moderate declines Vancouver eventually started another climb and prices set a new high a year later. A similar order of events happened in Toronto, though the same rebound has yet to occur in the 416 (that said, October prices seem to be gaining a lot of momentum, so we will continue to monitor).

The graph below leverages information presented by Better Dwelling from TREB and the REBGV to track detached house prices in both cities. The price lines paint a picture of two cities experiencing the same swings, even if one is moving in advance of the other. For Vancouver there is no Canadian city it can look at to forecast what is coming next, but for Toronto we may be able to see our future coming.

Van TorSource: TREB, REBGV, Better Dwelling

In a friendly Canadian rivalry way, neither city would ever admit to following the other; however, the graph shows a different picture. In July 2016, the Vancouver housing market peaked only to fall back down through the remainder of the year. In April 2017, Toronto experienced its own price run up only to see it come right back down. Since then both cities have been steady with prices remaining high.

All of this leads us to the current situation with the housing market in Vancouver showing signs of weakness. At present that is all it is, signs of weakness. Prices have dropped slightly but far from significantly. However, if sales continue to drop and the active listing number keeps growing it will only be a matter of time before prices start to drop as well.

This brings us back to the city we focus on, Toronto. The price histories would suggest we have been seemingly mimicking Vancouver at every turn, just a few quarters later. If this is true and Vancouver does start to experience a meaningful price drop over the upcoming months, can a similar situation for Toronto be far behind?

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