May 2018 charts: continued conflicting signs

Here's your Toronto real estate market report for May. The year-over-year (YoY) comparisons remain ugly, but it was expected it to look bad for a few months when compared to the four month February to May 2017 bubble period. Things peaked in March and April so May 2017 was already easing off from the peak and comparisons are now looking "less bad" than they did a couple of months ago. At least on a year-over-year basis. That's not necessarily true when compared to recent (7 years) history. As per usual, this blog is 416-focused and conditions do vary across 905 regions (particularly the often-picked-upon York Region).

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

First, the strong signs

The blog post mentions conflicting signs. Here are the ones that point to a market pointing in the right direction.

1) The Home Price Index was up for the 8th straight month.

It wasn't only the Composite that was up - it was up for each of the four underlying indexes (Single Family Detached, Single Family Attached, Townhouse, and Apartment). Each of those underlying indexes looks at a typical benchmark property, and the Composite is a weighting among the four types (condo apartments are over half of Toronto re-sale home transactions. I'll note that Apartments are above last year's peak number (and have been since November) and the Townhouse benchmark is also in positive YoY territory ($632K vs. $628K). So the lower end of the market has recovered faster than the more expensive SF Attached (-4.0% YoY) and SF Detached (-8.5% YoY).

2) Average prices for 416 freeholds (detached, semi, rowhouses) had their largest absolute dollar value increase from May to April

The month-over-month increase was $60K. In the last 7 years, it was also the highest gain in average price from February to Man, and March to May. There could be a change in mix going on there, which is why like the HPI, but HPI is more of a black box and everyone can easily understand the average. Average prices usually come down from May to June, but as I mentioned last month, there's still the possibility that average house prices end up in positive YoY territory by June.

3) Days on Market (DOM) for 416 freeholds actually decreased from April to May.

The prior 5 years all increased or were flat. The last time it went down by more than this year's decline of 1.4 days was in May 2009. There's a caveat that DOM is a flawed stat in that it if a place is re-listed 3 times because it's not selling and they try different prices, only the DOM for the final listing is counted. Dumb, I know. But looking at terminations (which often come back as new listings) there were 1,575 in May 2017 and that number had reduced to 950 for May 2018. So I think this year's May number is less understated than last May's. (April 2018 to May went from 726 terminations to 950.)

4) The price gap between detached houses and condo apartments is back on the way up.

In the April charts I wrote "I always raise an eyebrow when realtors are always saying "Now's a good time to buy!" I'm not one that says that all the time, but ​these numbers do tell me if you're thinking of trading up from a condo to a house, this may very well be a great time to do that." In the last two months, that gap has risen from $704K in March to $754K in April to $823K currently. 

And now for the weak signs

As I have noted the past three months... 

1) Freehold sales are now at their lowest mark since 1996.

It could be longer, but the TREB monthly data that I have access to only goes back that far. The rolling 12 month (or trailing 12 month) number dipped below the 13,000 mark for the first time in February, and below the 12,000 mark in April. It may get awfully close to the 11,000 mark by next month. The average across the this 23 year period has been 16,507, so the May number of 11,331 is a whopping 31% below average.

​While the sales have been low this year, inventory has also been low, which has kept prices stabilized (actually slightly rising). But a concerning number for me in the May results is...

2) The freehold MOI climbed to 2.5.

That 2.5 is the highest May since 2008 (2.7) and the third highest May in the last 23 years.

So the number being high for May is one thing. But the thing that concerns me more is the jump from April to May of 0.6. April and May are usually very flat (the median for April is the same as May at 1.9 and the average is just a hair below May at 1.8). This year's April to May increase of 0.57 MOI is just behind last year's 0.64 to be the second highest in the last 23 years. And a rising MOI generally signals that prices will decline. Look at the freehold MOI chart above and note how MOI shot up from 0.8 to 3.3 from March to July, and how average prices dropped every month from April to August. So this bears close watching. Normally freehold active listings decline by 5%. In the first week this month they were flat (up by 2).

A stats caution heading into June

As I have been noting in recent months, freehold stats are getting "less bad" when compared YoY. For instance, average freehold prices were -17% YoY in Feb, then -16%, -14%, and -5% in May. Freehold sales transactions have improved from -38% in March to -29% in April and -29% again in May. Less worse. However, the slowdown started happening mid-April last year, so we're coming into the really weak part of 2017 - see below. 

That's why I like to show 7 years on my charts, and track the average of those years, because context is important. When you're doing a YoY comparison, you're only looking at two years. If one of those two is way out of whack (like last year was, and this year has shaped up to be), then things are going to be distorted. So while freehold sales transactions were -38% in March, -29% in April and -29% in May (less bad) on a YoY basis, if you look versus the 7-year average, they've gone from -29% to -32% to -40% (more bad). So dig a little deeper and don't be deceived if you start reading positive YoY results in the paper. Things will only be looking good because the back half of last year was crappy.

As always, you will find the full set of market charts on 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. To discuss how I can assist you with your real estate needs, 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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