Photo: James Bombales

For years, the Toronto housing market has been a story of supply and demand, with too little of the former and too much of the latter driving prices to record heights. But according to one economist, that hasn’t been the case in 2018.

“On the demand side, Toronto home sales slumped again in February, and seasonally-adjusted sales look to have slid more than 30 per cent in the first two months of the year,” writes BMO senior economist Robert Kavcic in a recent note. “One the supply side, however, the February housing starts report showed on of the strongest ever raw levels of new construction in Toronto…on the resale side, active listings are nearly three times higher than a year ago.”

The reason for the shift? Kavcic writes that various policy changes over the last year have all had a role to play in what he calls a “supply-demand U-turn in Toronto housing.” He cites the Ontario government’s Fair Housing Plan and a new mortgage stress test as two reasons why sales have fallen in the last few months.

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“Indeed, one notable result of the [Ontario Fair Housing Plan] was that, although it technically targeted the demand side, the impact it had on speculative psychology likely helped unleash pent-up listings as well,” he writes.

But not every segment of the GTA housing market fits neatly into this narrative. Kavcic notes that while single-detached prices have fully corrected since last April, condo prices rose 19 per cent year-over-year in February.

“This highlights that, while the high-end of the market is undergoing an asset-price adjustment, underlying unit demand continues to support construction activity and prices in the mid-range of the market,” he writes.

Plenty of industry experts are still concerned that the current shift in supply and demand is a temporary one, and that the GTA will need more supply to meet the demands of a growing population.

“As we move further into the spring and summer months, growth in sales and selling prices is expected to pick up relative to last year,” wrote Toronto Real Estate Board director of market analysis Jason Mercer, in a statement released last week.

Mercer predicts that, especially in the condo market, supply won’t be able to meet demand later into the year.

“Expect stronger price growth to continue in the comparatively more affordable townhouse and condominium apartment segments,” he writes. “This being said, listings supply will likely remain below average in many neighbourhoods in the GTA, which, over the long-term, could further hamper affordability.”

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