If you followed the financial drama of 2008-09, you might remember "the scariest chart ever" — a graphic comparing U.S. jobs losses during the crisis to those in previous downturns. The '08-'09 crisis was by far the worst since the Great Depression.

That "scariest chart" is now history as the U.S. has regained all those job losses. But Capital Economics has published a new one that might just might deserve that same name — if you're a real estate owner in Greater Toronto.

The chart compares Toronto house prices, as measured by the Teranet house price index, to the city's sales-to-new-listings ratio — basically the number of homes sold as a percentage of new homes coming on the market.

The chart shows that house prices follow the ratio up and down very closely — what happens to the ratio happens to prices a few months later. And right now, for Toronto, that ratio has dropped off a cliff:

Now, don't panic just yet. What this chart shows is that house prices are in for a decline on the scale seen during the financial crisis — from which Toronto's market quickly bounced back.

But the risk is that even more homeowners will put their houses on the market, and/or demand for homes will decline even further than it has already (sales dropped by a steep 20.3 per cent in May).

And if that happens, prices will likely fall even further.

"The housing boom is over, with a correction in prices coming."

— David Madani, Capital Economics

David Madani, Capital Economics' senior Canada economist, recently predicted a 40-per-cent price drop for the Toronto area — likely the most pessimistic prediction out there.

"Overall, the incoming data suggest that the housing boom is over, with a correction in prices coming," Madani wrote in a client note Wednesday.

"With banks pulling back, alternative mortgage lenders getting squeezed and tighter regulatory policy curbing demand, housing will likely become a drag on the economy this year."

But that price correction hasn't quite arrived. Although Toronto's average house price dropped in May, that number tends to be volatile from month to month, and the benchmark price of comparable homes continued to rise last month.

The May edition of the Teranet-National Bank house price index, released Wednesday, recorded a 28.7-per-cent increase from the same month a year earlier. Month to month, Toronto recorded its strongest price growth ever, with prices rising 3.6 per cent from April to May.

All the same, the sudden decline in sales and equally sudden spike in new listings has most analysts predicting at least a cooling off — something that might actually be welcome news for homebuyers, as Toronto's affordability levels have hit historic lows.

"That trajectory is exactly what the region needs,' CIBC Capital Markets economist Benjamin Tal wrote earlier this month. "A market that is falling due to the force of its own gravity as opposed to an external shock."

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