Fewer Sales is costing the GTA Billions

Forecasting is more of an art than a science, so in theory it is unfair to base too much off a prediction for the future. However, when forecasts come from subject matter experts, they tend to carry a lot of weight. Such is the case when TREB or CREA provide outlooks for the upcoming year. Many decisions get made based off of their guidance, and thus, there are consequences, both positive and negative, when those predictions are off.

For the GTA in 2018, the sales forecast by TREB is tracking to be off by just over 10%, while the price estimate appears to be closer to the mark, being within 5%. Unfortunately for the general productivity of the economy, each prediction from TREB will end up being high this year, meaning the benefits from the estimated higher sales and higher prices have not materialized for the region. This is a problem for the GTA because the financial spinoffs from housing equal significant dollars pouring into the economy.

TREB has estimated the economic output from each home sold in the Greater Toronto Area to be $68,275. This figure includes spending on items like renovations, new furniture, moving expenses, legal fees and taxes. With the region on pace to see nearly 12,000 fewer homes sold this year than TREB’s forecast of 90,000, over $800 million worth of anticipated related spending will not materialize.

TREB members themselves might actually be the hardest hit by the reduced volume of sales. Typical commission for a realtor in Toronto is 2.5%, with most deals having a listing and buying agent involved for a total of 5% of each home sale. As a result of the lower than anticipated average sale price and the weaker sales volumes, TREB realtors will be out over $600 million in commission revenue by the end of the year. These two elements of economic output from real estate alone have cost the GTA more than $1.4 billion this year.

The impact of fewer sales is most notably hitting the total volume of dollars being spent on resale real estate transactions each year in the GTA. Total spending on home purchases peaked in 2016 at $82.5 billion and has since fallen each of the last two years. Depending on how the year ends, 2018 could erase all gains made since 2015, ending above $60 billion. That represents a decrease of over $20 billion since 2016 and roughly $15 billion from last year.

Housing transactionsSource: TREB, Six Housing Sense

The GTA housing market has been an incredible performer for almost a decade now. Year after year it has been a sure bet for strong price gains and endless confidence. Perhaps this trend will only continue, but it does appear issues are starting to emerge. The economic impacts of fewer sales are real and will start to negatively influence the local economy. To what extent that influence will be felt and impact the housing market will only be determined with time.

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