When the Toronto-area housing bubble burst last spring, 988 home owners lost $136 million in less than five months, according to a new study.

That cost was borne by sellers caught in real estate transactions that didn’t close after property values began dropping last spring, says a new report on the fallout from the extradordinary rise and fall of the Toronto region’s recent housing market.

The study, released Thursday, is believed to be the first to quantify the impacts of the housing bubble that deflated almost immediately upon the introduction last April of the Ontario government’s foreign buyer’s real estate tax.

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John Pasalis, president of Toronto’s Realosophy brokerage, manually tracked 866 home listings (excluding condos) that sold in the Toronto area in 2017 and then appeared back on the market by the same seller by the first quarter of this year.

Those were households that sold their home only to have the purchaser walk away without closing on the deal, prompting the vendor to re-list the house.

Buyers walked away in some cases because the value of their purchase dropped below the deposit amount they would forefeit when they failed to close on the property. In other cases, the buyer simply couldn’t get the financing when property values began falling in April 2017.

The median price declined 18 per cent between March and July last year, but have since flattened out.

The other 122 sellers caught in the bubble were buyers who purchased a home and re-sold it within a year for less than they paid.

Although some buyers completed their deals and others backed out of their agreements, there were probably many who negotiated a lower price with the sellers in order to complete the transaction.

The region’s housing market had been rising at above-average rates for about two years when it peaked in March 2017 with a 34-per-cent year-over-year price increase. But as soon as the Liberal government launched its Fair Housing Policy to cool the property market, sales and prices fell, leaving purchasers on the hook for real estate that was dramatically lower in value.

There is no comparative data from previous market periods as far as he knows, says Pasalis, likely because there was no cause to collect it.

Even in the U.S. sub-prime housing crisis, the decline was less dramatic.

“In the U.S., people just stopped buying houses and prices declined. You didn’t have this whole issue of deals falling through. (In Toronto) this was a combination of people (who) bought at this crazy peak and prices crashed,” says Pasalis. “I’ve never heard of this happening in any significant numbers in the past. I’m sure it’s happened before in one-off cases, but this is the first time we’ve heard about it anecdotally from a lot of people.”

When homes re-listed after the first sale failed to close, those owners got $140,200 less on average than the original failed purchase price.

The financial impact varied dramatically within the Toronto area, says Pasalis. Sellers who had to re-list took an average of 12 per cent less on the second sale of their homes. But in Newmarket, sellers took 21 per cent less — $238,866 less on average. Brampton prices depreciated by about 7 per cent or $54,502. In Toronto, the second sale was 13 per cent lower on average, about $162,000.

Pasalis’s 988 total includes 122 homes that sold for less than the owner had paid within the previous year. Those cases averaged a $107,325 price drop.

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Another 1,784 homes purchased in 2017 were re-listed and failed to sell again through the first quarter of 2018, says the study, A Sticky End: Lessons Learned from Toronto’s 2017 Real Estate Bubble.

Its findings are aimed at the public as a reminder there are risks in the housing market, says Pasalis, who is working on his doctorate of business administration.

“We see all these people doing stupid things without really thinking. A lot of these are bad real estate decisions,” he says.

There were clear signs that the market was in dangerous territory and that it was being driven up by speculators rather than the prevailing industry narrative that there was too little supply to meet the Toronto-area’s growing demand.

But a market psychology gripped the region in 2016, says the report.

“In a market where house prices are rising 20 per cent or more, investors believe that the $700,000 property they’re buying today is going to be worth at least $840,000 a year from now,” writes Pasalis.

He says he noticed a change in the buyers who were using his brokerage. Many were parents buying homes for children still in elementary school because they feared their kids would never get on the property ladder. His agents counselled buyers about the likelihood of losing on those investments.

By the first quarter of last year, the average monthly loss on investment properties rose to $1,650 from $1,121 the previous year, says his report.

The Toronto-area housing market is still overvalued, says Pasalis, who notes that even when prices fell, only three months of appreciation — the growth from January to March 2017 — was lost.

The pressure to buy affordable homes continues to skew the housing market with affordability challenges, pushing up prices of condos as detached homes falter.

“These have eventually negative effects because people get over-leveraged … People are buying 800 sq. ft. apartments downtown that are $800,000. In the suburbs you’re getting a three-bedroom — at least a semi,” says Pasalis.

It’s usually these micro-trends that trigger a bigger decline. House sales in York region have suffered the most in the last year.

“That could easily happen to condos tomorrow,” he says. “In three years, when there’s a lot more inventory and a lot of couples who bought condos have kids and need to move to the ’burbs, then you have a dramatic shift, potentially, in the condo market. If prices fall in the condo market you have over 100,000 pre-construction buyers who are going to impacted by that.”