Low Sales in 2018 cost 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 ended up being high by 14% (90,000 to the actual 77,426 sales), while the price estimate was closer to the mark, being 5% above. Unfortunately for the general productivity of the economy, with the prediction from TREB having ended up being high for 2018, the benefits from the estimated higher sales and higher prices did not materialize for the region. This is a problem for the GTA because the financial spinoffs from housing could have equaled significant dollars for 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. As the region saw roughly 12,500 fewer homes sold in 2018 than TREB’s forecast of 90,000, nearly $860 million worth of anticipated related spending did not materialize.

realtor commissionsSource: TREB, Six Housing Sense

TREB members themselves might actually have been 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 were out roughly $630 million in commission revenue by the end of the year. These two elements of economic output from real estate alone cost the GTA nearly $1.5 billion in 2018.

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. In fact, 2018 erased all gains made since 2015, ending just under $61 billion. That represents a decrease of over $21 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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