Photo: James Bombales
On the surface, the GTA housing market seemed to have a rough month in March, as sales dropped 39.5 per cent year-over-year. But according to one economist, the market might have finally adjusted to the new mortgage stress test that came into effect earlier this year.
“On the surface, [home sale numbers] continued to point to significant weakness in activity on a year-over-year basis in [the GTA],” writes RBC senior economist Robert Hogue, in a recent note.
But, says Hogue, the real question is whether activity continued to slump in the GTA, following activity declines in January and February. His answer? “Probably not.”
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“In the GTA, the sharp year-over-year drop in home resales in March was only modestly more pronounced than the 35 per cent decline recorded in February,” he writes. “Considering that March had two fewer working days this year than a year ago, it wouldn’t surprise us to see resales rising slightly month-over-month on a seasonally adjusted basis.”
If that was the case, it could be an early sign that the GTA is over what Hogue calls the “stress test hump.”
Hogue says that average prices can also be a poor gauge of underlying price movements when the composition of sales is changing. The average price of a property in the GTA fell 14.3 per cent year-over-year in March, the largest decline in 27 years.
“In the past year, there’s been a significant shift in GTA sales from the more expensive to lower-priced properties,” writes Hogue. “This phenomenon has exaggerated the average price decline.”
Hogue writes that the MLS Home Price Index is a better gauge of how prices are faring — it was down only 1.5 per cent year-over-year in March.
“There’s evidence that we’re near the bottom of the price cycle in the GTA,” writes Hogue. “The index rose for a second-straight month on a month-to-month basis in March. We believe that it will continue to climb at a very modest pace in the period ahead consistent with the fact that the GTA market has been balanced for almost a year now.”
At the end of the day, it’s still unclear when the GTA market will fully recover from the effects of the stress test.
“It will take a little longer to ascertain how much of the impact is temporary and how much is permanent,” writes Hogue.