Real Metrics

Dec

November sales volumes rise but so have listings

Overall, it was a steady month of activity in the Toronto real estate market. While November volumes declined year over year, the pace of the decline lessened compared to prior months, as some buyers look to lock in deals before new mortgage stress tests (B-20) take effect in January 2018. In the GTA, there were 7,374 transactions in November for all home types which was a 13% decline from last year. Still, this compares favourably to an average decline of 33% since April of this year. For detached homes, there were 3,123 transactions which was a 19% decline, but again compares favourably to the 39% average decline from May through October (see Exhibit 1). In addition, these sales volumes are 24% and 11% higher than historical norms for this time of the year.

All in all, it suggests that buyers are coming out either to secure a good deal and/or to try and lock in a purchase before B-20 rules are implemented in January. Whether this trend continues is to be determined but is nonetheless encouraging.

That’s the good news. The bad news is that inventory remains high, as sellers expecting an Autumn rebound have pushed listings up. Total listings were 18,197 (all home types) in the GTA, an increase of 111% from a year ago when listings were near record lows. Compared to historical levels, inventory is around 19% higher than typical.

Average transaction prices in the GTA declined 2% for all home types – the first time the overall market has fallen on a year over year basis since 2009. This was driven by a decline of single family detached dwellings which fell 6% from last year, and the second consecutive month of price declines for detached homes. Over the next few months, we anticipate that year over year percentage price changes will continue to be negative. Why? Not necessarily because housing prices are falling, but because comparatively, prices will be lower than the record high prices that were paid earlier this year. In other words, over the next few months, even if home prices are exactly the same as they are right now, comparatively they will be down from last year. So, be prepared to see some dramatic percentage drops which should garner hyperbolic newspaper headlines.

Comparing Housing Cycles

This month, we look at the current housing cycle and compare it with the last, significant downturn back in 2008 and 2009. While there are key differences, there are some interesting similarities between the two periods – at least when we look at the graphs. Exhibit 2, shows a pricing overlay of the two periods (2007-2009 in red, 2016-2018 in blue). For 2018, we make the assumption that prices stay flat (dotted blue line). In the last cycle (red line), it took approximately 9-10 months from the peak in early 2007 to the trough in early 2009 – prices fell on average around 14% before starting a recovery. In the current cycle, we are approximately 7 months into the down cycle and prices have fallen 16% from the peak. Exhibit 3, shows the same time periods but overlays the year over year percentage price changes. As we indicated earlier, even if prices don’t change from current levels, the year over year comparisons in 2018 will look negative due to the high prices set in early 2017 (as you can see with the blue dotted line in Exhibit 3).

Could prices fall further? We don’t have a crystal ball, but it’s possible. Nonetheless, barring any economic shocks, we are anticipating the market to show stability and recovery in 2018 (likely towards the back half of the year). Current economic realities are reasonably healthy with continued job growth, low inflation, and low interest rates which should support the market.