Skip to main content

The Globe and Mail

New Brunswick real estate offers a lesson on peak housing prices

Patrick Brethour is former editor-in-chief of Brunswick News and a former editor and reporter with The Globe and Mail.

There isn't much that Toronto real estate watchers can learn from Saint John, but here is one important lesson: Anyone worried about a drop in housing prices is worried about precisely the wrong thing.

The dramatic surge in Toronto real estate, particularly over the last year, has raised fears of a bubble and a crash in prices. Yet, as the last few years in Saint John attest, the real peril after a market peak is a logjam in sales, with sellers pining for prices past and unwilling to capitulate to wary buyers.

Story continues below advertisement

It's easy to understand why sellers would fixate on past prices, particularly if they bought at the top of the market and are facing a loss of capital, not just foregone capital gains. Others are simply not willing to accept that the price their neighbours nabbed several months ago is no longer attainable.

Tool: Our house price data centre shows home prices trending in your neighbourhood

Taken to the extreme, the real estate market simply seizes up. The cycle of trading up to a bigger home is interrupted, with buyers unwilling to take the risk of purchasing immediately and carrying two mortgages for a protracted period. Empty nesters, too, are faced with the unpleasant choice of giving up equity or simply hanging on to an unneeded home. Even first-time buyers can suffer, if they cannot find a seller willing to let go of dreams of cashing in on peak prices.

The broader economic consequences are obvious: All the consumer spending triggered by a new home purchase is also thrust into deep freeze.

That was certainly the case in Saint John, after hopes for construction of a second oil refinery faded late last decade, puncturing the optimism that had pushed housing prices to a 2009 peak of $188,500. (Although ludicrously low by Toronto standards, that peak represented a 30-per-cent gain in just two years.)

Then came the bust. But prices barely fell. Instead, sales plummeted, and the key measure of months of inventory on market soared. By January, 2014, the real estate market was so anemic that listings were the equivalent of more than 18 months of sales.

When I started looking to buy a home in the Saint John area in the spring of 2014, it was common to see houses that had been on the market for more than two years. Years! And, still, sellers were unwilling to capitulate on prices. The average selling price in 2014 was essentially unchanged from 2009.

Story continues below advertisement

It wasn't until 2015 that prices began to drop – and that was when the logjam in the Saint John real estate market finally broke. After six years, sellers had finally adjusted to the unpleasant reality that if they wanted to sell their home, they would have to accept a lower price. By the spring of this year, sales were higher than in 2009, and prices were strengthening as well.

The same pattern manifested itself in the Toronto real estate crash of the late 1980s and early 1990s. Between 1989 and 1990, the heat certainly came out of the Toronto market after housing prices more than tripled in the eighties. Sales fell by nearly a third; but prices dropped a mere 7 per cent. It was not until 1996 that real estate sales volume matched the peak of 1986. By that year, Toronto real estate prices had fallen markedly, down more than 28 per cent from the peak of 1989. And that set the stage for sustained growth in Toronto, straight through to 2017.

And history may already be repeating itself. In April, prices continued to rise, but sales fell slightly, a drop that the Toronto Real Estate Board chalked up to the Easter holiday falling in April rather than March this year.

That trend accelerated in May, as the Ontario government's efforts to cool the Toronto market started to take effect. Prices rose, but sales tumbled by more than a fifth – with an even more pronounced drop for detached homes in the urban core – during what is supposed to be the height of the spring market.

So, worried about Toronto housing prices falling? Don't be. In fact, pray for a drop – the sooner it comes, the more quickly the market will recover.

Video: Money Monitor: Home renos on the rise amid soaring house prices (The Canadian Press)
Report an error
Comments

The Globe invites you to share your views. Please stay on topic and be respectful to everyone. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.

We’ve made some technical updates to our commenting software. If you are experiencing any issues posting comments, simply log out and log back in.

Discussion loading… ✨

Combined Shape Created with Sketch.

Combined Shape Created with Sketch.

Thank you!

You are now subscribed to the newsletter at

You can unsubscribe from this newsletter or Globe promotions at any time by clicking the link at the bottom of the newsletter, or by emailing us at privacy@globeandmail.com.