Question 2 (15 points} Please discuss the following excerpt from a recent news article from the McLeans web page. Highlight the key economic principles that are in the article. It's ofcial: after a long period of extraordinary home sales and home price growth. the Toronto Real Estate Board {T REE) reported that the GreaterToronto Area's housing market posted the first set of this year's declines in May for a market that's been hot for at least the last two years. But wilt this be a one-month blip. or a turning point followed by falling prices and sales in the coming months? Forecasting real estate market performance is a tricky business But a cioser look at the TREB data seems to provide enough support for a reasonabie all: sales and prices will continue to fall for at least two or three more months. In its news release. TREE states that home sales in May 201'? were 20.3 per cent lower than in the same month last year. This was a second month in a row of falling sales as in April 2017 sales dropped year-oversyear by 3.2 per cent. Single-detached home sates feil 26.3 per cent in May. while condominium apartment sales were off 6.4 per cent. At the same time. the supply of new home listings kept on risingup on a year-over-year basis by 33.6 per cent in Aprii. and then a whopping 43,9 per cent in May. As any student of economics 101. will tell you. when the supply Is rising and the demand is deciining. prices are bound to fall. Indeed, the average price of homes sold in the GTA dropped for the rst time this year by 6.0 per cent in May compared to April. Analysts who hack the market often assume that the main reason for the change of trend in I'd-anr was the set of measures intended to cool the GTA's "overheated' housing marketas announced by the Ontario government in April. However, a closer look at the TREE statistics suggests that the cooling-off trend started earlier. This is well illustrated by an under- recognized indicator which nevertheless is traditionally a good predictor of future sales and prices: the ratio of sales-to-new listings. i.e. the ratio of demand and supply for homes. If the ratioexpressed as a per centis. say. #0 per cent, it simply means that in a given month there are-40 sales for every 100 new listings Traditionally. a ratio in the 40 to on per cent range is considered a sign of a "baianced'l market. while a ratio above 60 percent indicates a \"sellers\" market. This ratio reached a record high of 81.5 per dent in the GTA in February 2017. a gure well above the balanced market threshold. and one that gave sellers a clear and strong advantage over buyers in the sales negotiation process. However. in the following months. the sales-to-new listings ratio has declinedrst to 70.8 per cent in March. then to 53.3 percent in April. and finally to 39.5 percent in May. This represents a clear and steady downward trend that cannot be ignored. Even if this ratio siarls to graduaily rise in the coming summer monthswhich is far from likely. because buyers should remain skeptical for more than lust one month-it will most probably remain within the \"balanced\" 4D to 60 per cent range.'l'his suggests that, at least for the next few months. there will be a continued downward pressure on home prices. Whether this pressure extends into the fall and becomes a prolonged trend is a crucial noestion forwhich we do not yet have a well-founded answer. But at least one thing is clear: the bidding wars in the GTA will stop. at least for the next few months. To paraphrase Alan Greenspan's famous expression referring to the dot-com bubble of the late 1990:, the "irrational exuberance" of the Toronto home price growth is presentiy halted. This is good news for the Toronto real estate market. It is our best hope in: a sosmlled soft iandlng, as opposed to a hard ianding-or \"crash" of a clearly overheated Toronto housing markeL