July 2018 charts: pick your spin

Here's your Toronto real estate market report for July. The year-over-year (YoY) comparisons are starting to look good these last couple of months - but things still look slow compared to long term averages. So you can pick a side and show support for your narrative. Here's TREB's narrative, attributed to Director of Market Analysis, Jason Mercer:

“We have certainly experienced an increase in demand for ownership housing so far this summer. It appears that some people who initially moved to the sidelines due to the psychological impact of the Fair Housing Plan and changes to mortgage lending guidelines have re-entered the market. Home buyers in the GTA recognize that ownership housing is a quality long-term investment.”

Because of course they take the rosiest view.

Here's what I saw in July. As always, these are just selected highlights. The full set of market charts is available on SlideShare.

1) Half empty: Still mired in a sales slump | Half full: on the upswing

I've been noting this sales slump for a while, particularly with freeholds, which are at their lowest levels in the 23 years I have history for. The last four months have dipped below the 23 year average of 32,219 transactions (note this is just for 416, not the overall TREB number which peaked at 113,040 transactions in 2016). But if you're looking on the bright side, the slide has subsided and you can see the little upturn at the end, with July's rolling 12 month number at 30,746 sitting 4.6% below the long term average (it was 5.5% below at June). I expect this chart to go roughly sideways for the next few months.

In this tweet I project 77,000 to 79,000 GTA transactions this year, which would make it the worst sales year since 2008. Speaking of TREB and its rosy outlooks, they projected between 85,000 and 95,000 for this year. 

2) Half empty: Freehold SOA is low | Half full: it's better than last year

The problem with year-over-year (YoY) comparisons is that sometimes you're comparing to an irregular year so it skews things. For instance, 2017 (at this time of year) was really bad, so you're going to look good in comparison. And 2016 was a record year with 113,040 TREB transactions as mentioned above, so comparing to that year (second most transactions was 101,213 in 2015) is also going to be skewed. That's why I prefer to look in a broader context.

When you have more years to look at, you can see just how crazy the spring of 2017 was, and how generally strong 2016 was. Below is the percentage of freeholds (non-condo ownership) that sold at 101% of the asking price or more. I use this as one indicator of market "hotness" as you're not going to use that "holding offers" strategy to get bidding wars if the market (or neighbourhood, or housing type) isn't strong.

So the half empty view notes that things are only above the crappy part of 2017. But to try to spin it positively, it's the second month in a row above 2017 and 2015 and 2016 were strong years, making comparisons difficult.  

Or if you were looking at positives, the condo market (which is about 60% of 416 transaction volume) just had the hottest July ever in terms of SOA. Bidding wars on condos were generally not that frequent up until about the spring of 2016, when they moved up from happening on about 10% of sales to the 20% to 30% that seems common now (with the exception of the crazy spike in 2017).

3) Half empty: 4 of 5 SP/LP ratios are falling | Half full: 4 of 5 SP/LP ratios are > 100%

Here's a Sales Price to List Price chart for freeholds. Note they're all pointing downward.

But on the other hand, it's a seasonal thing. You'll also notice Detached is at 98%, so below 100%. First of all, it's actually weird historically to be above 100%, and secondly it's better than last July (96.7%), so that's positive.

Here are condo SP/LP ratios:

The negative is that Condo Apartments turned down. The positive is that Condo Townhouses are actually up in the last month and both are above 100%.

So is it a good market or a bad market?

It depends on how you want to see it. Not everything in life is pure black and white. There are enough statistics to support both sides and bears are going to bear and bulls are going to bull. I tend to be more moderate and am calling it mixed - with a large caution flag out for the low volumes. People haven't been rushing in to sell so inventory levels haven't risen too much and that has kept prices in check for now. Long term I still think the Toronto market has a lot going for it, and I always check with my buyers on their time horizon for their purchase, but I'd say in general there is more risk right than normal currently (due to affordability levels, risk of rising interest rates, and place in the economic cycle).


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.

Your home is the single largest investment you'll make—trust it with an accountant.

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Scott Ingram

Scott Ingram

CENTURY 21 Regal Realty Inc., Brokerage*
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