Forecasting Toronto’s future from Vancouver’s present

The justification for Toronto prices to remain high despite sales dropping has been that inventory levels remain low.  New listings are falling in line with sales, and thus excess supply is not building up.  Interesting theory…let’s look into that starting with the detached market.

As we have been doing for the past few months, we will once again leverage Vancouver’s housing market as a comparison for Toronto.  Vancouver provides a great comparison  for Toronto as it encounters the same national economic and financial decisions as Toronto and, according to our analysis, Vancouver real estate tracks nine months ahead of Toronto.

For both cities, it is important to remember when each city experienced their largest detached homes price run.  For Vancouver it was in 2016, ending around July, while for Toronto it happened in the following May.  It is important to remember these dates because the sales and new listings peaks for each city time in direct relation.  In each case, total sales peak the year before the price run, while new listings hit their highest mark in the same year as prices.

Annual Sales Totals

Year Vancouver Toronto
2014 13,993 11,900
2015 17,275 12,115
2016 14,655 12,421
2017 11,518 9,573
2018 7,194* 7,636*

Source: REBGV, TREB, Six Housing Sense – *as of November data

Annual New Listings Totals

Year Vancouver Toronto
2014 22,958 19,754
2015 23,450 19,573
2016 25,193 17,862
2017 23,013 19,937
2018 20,622* 16,799*

Source: REBGV, TREB, Six Housing Sense – *as of November data

From these tables we see that both sales and new listings are down for each city; however, neither city has a balanced drop between the two.  For Vancouver, sales are down 27% since the July 2016 initial price peak over the city’s five-year average, while new listings have only fallen 4% during the same period.  In Toronto, sales have dropped 25% over the last 19 months in comparison to the five-year average, but new listings are only down 5%.  These varying reactions between the sales and new listings is what is causing the build up of inventory for each city and putting downward pressure on prices.

For Toronto, Vancouver’s story might be signalling more trouble ahead for 2019.  Vancouver’s sales peaked in 2015 and in the following two years fell by one-third.  Unfortunately, the sales drop did not end there falling even further in 2018.  Total sales for the detached market in the Vancouver area now down 55% from the 2015 sales peak.

Toronto finds itself on the same path.  Detached sales reached their high in Toronto in 2016 and now two years later are down 36%.  If the city continues to match Vancouver, sales will drop again next year likely to the 6,500 range.  New listings may also continue their smaller slide lower; however, this rapid drop in sales will only continue to build inventory for the city.

Why does this sales projection matter for Toronto?  Because Vancouver’s detached prices are 7% year over year and tracking lower if the city’s inventory continues to build.  Toronto’s prices have leveled off over the past year since dropping from the May 2017 price peak; however, with Toronto’s sales in line with Vancouver’s the city could be positioned to see another drop in detached prices.  Watching sales totals will be vital as 2019 arrives, as it is apparent that the drop in new listings is not happening at the same pace.

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