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Toronto Housing Market: Cooling Off or Reaching Equilibrium?

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There is some consensus among real estate speculators online that the Toronto housing market in particular is poised for a major cooling-off period with regards to sales. TREB and CREA statistics both illustrate an extremely prosperous Spring, with home sales in the GTA surging in April and May, which is likely the result of expected homebuyers stalling their purchases until Winter temperatures subsided.

Opinions are divided as to the factors contributing to the predicted sales slowdown. There are some analysts who suggest that any visible slowdown in GTA home sales this summer is a naturally reoccurring phenomenon that we should come to expect every year. According to some, typical seller behavior involves prepping a home for sale in January and February, ensuring that it is show-ready for the busy Spring months. Looking at overall sales trends the past few years, a slowdown in Summer sales is normal after this spring buying surge, with sales picking up again in the Fall. There are others that suggest that 2014, in terms of GTA home sales, presents an interesting case study, or exception to the observed sales trends of last year. Some argue that any noticeable cooling off period in sales is actually the market attempting to reach equilibrium and return to “normal” levels. It is inaccurate to suggest that sales are plummeting, when drawing comparisons to sales in April and May, which were statistically some of the strongest months Toronto has ever seen.

The best indication of this slowdown in home sales, according to Susan Pigg of the Toronto Star (read here), is a noticeable reduction in the number of multiple bidding wars, as ”buyers take a breather and sellers start to feel just a little less cocky.” This “breather” potential homebuyers are taking is essentially an exercise in patience, with buyers walking away from homes that are too pricey, waiting weeks or sometimes months to see whether natural market forces will drive the price down, possibly due to lack of interest.

Carolyn Ireland of The Globe and Mail (read here) suggests an alternative explanation for the visible cool-down in home sales, arguing that potential homebuyers are still eagerly house hunting, but are far more reluctant to play by what she refers to as the “offer night” rules. As opposed to Pigg, who suggests that prospective buyers are being “scared off” from buying a home because of high prices that are only further escalated due to aggressive bids, Ireland suggests that many are still throwing offers into the ring, but are not overly eager to do so. Rather than place a bid the first available opportunity, once again, buyers are exhibiting patience, waiting to see how prices fluctuate based on demand and availability of homes nearby. Ireland discusses the importance of timing, arguing that playing the “waiting game” is advantageous for homebuyers, who could see the price of their dream home go down as time goes by and other homes in the area go on the market. The listings boom in the Spring has an effect on the psychology of the prospective homebuyer, making them less desperate to find a home and immediately place a bid.