December 2018 charts: 2018 limps to the finish

Here's your Toronto real estate market report for December. A couple of difference this month: I'll do some reflecting upon the full year, as well as look at the broader GTA instead of just the 416. 

Below is what I saw in November. As always, these are just selected highlights. The full set of market charts is available on SlideShare.


1) Year-end GTA year-over-year results (kind of sucked)

Here are the final TREB stats for the year, per its press release. As I've been noting all year long, 416 has been doing better than 905.

Source: TREB News Release

Overall sales volumes are down 16.1%, but that's 16.7% down in 905 and 15.0% down in 416. Here's the 2018 growth (actually, shrinkage) breakdown by region, with 2017 figure in brackets:
City of Toronto -15.1% (-14.5%)
Halton Region -12.8% (-9.2%)
Peel Region -15.6% (-20.0%)
York Region -20.6% (-32.5%)
Durham Region -19.7% (-12.0%)

As you can see, York Region continues to come down the hardest. And Halton Region is holding up the best (Oakville, Milton, Halton Hills). In fact, of these 6 areas, Halton is the only one to have more transactions in 2018 than it did in 2013. Overall TREB volumes are down 11% compared to 2013, but Halton's are up by 15% in those 5 years.

On the average price front the GTA was down 4.3%, but 416 held steady (+0.1%) while 905 dragged things down going -7.1%. A lot of that was due to composition in the areas. You can see that detached houses were the only type to decline everywhere year-over-year (YoY). In 905 detached were 55% of sales, but they were only 27% of 416 sales. Condo apartments were the highest gaining type YoY. The 416 was helped because condo apts - the strongest segment - were 55% of sales, but it didn't make a huge difference in 905 because they're only 14% of sales there. 

Source: TREB News Release

Overall for the region it's 70% lowrise and 30%. Note that's just as far as re-sale transactions on TREB's MLS is concerned. As I recently blogged about, the actual housing stock is different, with condo apartments making up less than 21% (but they turn over more quickly).

I examined the year-end Market Watch report to see how different price ranges were affected by the 16% sales drop. As you see below, declines were different across price bands. As previously mentioned on Twitter, sales of homes $1.5 million and more were down by 40%.

Other observations:
The $500K to $799K band (43% of total sales) was only down 3.2%
Everything under $500K (24% of sales) was down 24.0%
Everything under $1 million (82% of sales) was down 12.1%
Everything over $1 million (18% of sales) was down 30.7%

The entry level $500 to $799K makes sense as that's a major part of the entry-level market right there. I'm not sure why the under $500K band was down so much - other than it could be a lot of studio and one-bedroom places in that price range, which are often owned by investors and I could see there being a lot less investor demand these days. The over/under $1 million split makes a lot of sense, as does the 40% decrease in places over $1.5 million. The detached market was the weakest and if you didn't have to sell now then why would you? And there are probably more potential buyers in this space taking a wait-and-see attitude, whereas entry-level buyers are just happy to get into the market (many escaping escalating rents).

2) GTA results in historical context

We've mentioned the 77.4K transactions for the year were 16% below 2017's number. You could forgive 2017 for peeling back somewhat from 2016 as 2016 was a new record. Before 2015 the record number of transactions was 93.2K in 2007, and then in just two years that record was increased by over 21%.

But you see above that 2018 was the lowest year since 2008. It's pretty crazy that volumes have come down by 31% in two years and we're not even in a recession. Yet.

Source: IMF News via Steve Saretsky

So that doesn't look encouraging. Though you will notice above that volumes dropped a lot in 2008, while below you'll see that the last big Canadian recession didn't officially hit until the end of 2008.


Source: The Canadian Encyclopedia

Here is another look at the TREB historical volumes from above, this time in terms of the annual percentage change. Two things that struck me were:
1) these past two years were the largest percentage declines since 2008
2) consecutive annual declines has only happened once before in the past 50 years (1989 and 1990).

The interesting thing about the last time we had two consecutive volume drops was that prices peaked in 1989 as volumes fell (I don't have monthly data before 1996 so I can't tell where the turning point was). Then average prices fell for 4 straight years, and 6 out of 7, finally ending the skid with an upturn in 1997. That was the beginning of 21 consecutive years of average prices increases that finally ended in 2018 (a corner was turned in April 2017 but the early gains in 2017 were enough to make the whole year higher than 2016's average).

I'm not optimistic about volumes in 2019. Here's how the year ended up for the 416 on a rolling 12 month basis. The 29,870 is the lowest the total has been since July 2009. 

It stabilized for 7 months this year, but dropped off the last couple with poor comparisons to the pre-stress test rush at the end of 2017. I can see it stabilizing for 2019, but I do not see a sharp uptick happening. The current number is 7% below the long term 23 year average of 32,185 (a time in which the population has grown a lot: for the 20-year period from 1996 to 2016 the Toronto CMA grew 39% from 4.263M to 5.928M). It's also 14% below the 34,810 average of the last 10 years (the 10-year period from 2006 to 2016 saw the Toronto CMA grew 16% from 4.263M to 5.928M).


3) Continued weakness in the Freehold market

I've been discussing weak sales in the freehold market for a lot of this year. On a couple of important measures, freehold (i.e. non-condo) sales are the worst in 10 years. On some, like sales, 416 freeholds just had the worst year in the last 23 years.

I've shared this before, but on a rolling 12 month basis, 416 freeholds have been sitting at 23-year lows for several months (bottoming out in May, but just 75 sales above that now).

In terms of pricing, the average freehold price usually drops from November to December (17 of 23 years). But this year had the steepest fall-off (-12.6%) in the last 23 years: 

You can see the steep drop below. It's unusual that 2018 prices were above 2017 prices for the last 5 months, and above 2016 prices all year long, then in one month dove right down below both of them. December is a very slow month for transactions (only 340 for detached), so it could be partially due to a low sample size. We'll monitor in January to see if it rebounds.

As was the case in November, 416 freehold months of Inventory (MOI) is the highest it's been since 2008. And although its usual for MOI to increase from November to December, the 0.59 increase this month was the highest since 2008. Interestingly, this is being driven entirely by detached houses which are at 3.8 - the highest mark since February 2009 (4.7). In contrast, Semis are sitting at 1.3 months and Rowhouses are at 1.9, which are both at or below December 2017.

Finally, days on market (DOM) are sitting at 27, which is the highest December since 2012.

4) Condos weaknesses beginning to show

Condo sales aren't as historically low as freeholds, but in the last month they reached their lowest point on a rolling 12 month basis since February 2015. They have now also fallen below the average of the last 10 years (18,607) and they're off 26% from the recent peak. Again, not as bad as freeholds (off 33% from the recent peak). December condo sales were the lowest they'd been since 2013. Definitely heading in the wrong directions.

Another metric that's turned in the last couple of months is sold over asking (SOA). For the first time this year, the SOA is sitting below both 2016 and 2017 numbers, and December was the first month in 2018 to fall below 20%.

I found it interesting that 416 condo new listings were only 902 in December. That's the first time any month has been below 1,000 since December 2002 (960), and the lowest month since December 2001 (780). I'm not sure of the significance yet (condo owners holding back like house owners and "waiting until the market picks up"?), but I will be monitoring it.

However, active listings remain very low (35% lower than the 7-year average) and MOI remains at low levels historically. So that should keep prices stable in the short term.

5) Heading into the new year

I wrote a recent post laying out what I see to be all the headwinds and tailwinds facing the market in 2019. [Spoiler alert: there are more headwinds than tailwinds.] We've seen freeholds be lame for a while now - driven by detached housing, especially at higher price points. But now we're starting to see more condo market weakness. That market has been held up by having the most affordable price points and having very low inventory. Is that enough to support it in early 2019?


As always, you will find the full set of market charts (for this month and prior) on my SlideShare.



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About Scott Ingram CPA, CA, MBA

Would you like to make better-informed real estate decisions? I believe knowledge is power. For that reason, I invest a lot of time researching and analyzing data and trends in the Toronto real estate market. My Chartered Accountant (CPA, CA) side also compels me to dig a lot deeper into the numbers on individual properties my clients are interested in. The better the information you have, the better decisions you will make. If you're interested in talking about your real estate situation, call me or reach out via the Contact Me section of my homepage.

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Scott Ingram

Scott Ingram

CENTURY 21 Regal Realty Inc., Brokerage*
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