November 2017 charts: Demand pulled forward

Here's your market report for November. I'm seeing this as another month of mixed messages, the same as October (and even the couple of months before that).

Like last month (which I called a mixed-bag), the media can't agree on the headlines:

Heck, they can't even agree on the sign - is it SOLD for FOR SALE? To me there's no hot or cold, black or white answer. As I told somebody on Twitter it's shades of grey - depending on your location, property type, and whether you're a buyer or a seller. 

TREB's messaging in its News Release with the monthly statistics included the following messages:

"an uptick in demand for ownership housing in the GTA this fall, over and above the regular seasonal trend"

"transactions through TREB’s MLS® System in November 2017... up compared to October 2017, bucking the regular seasonal trend.

On a year-over-year basis, sales were down by 13.3 per cent compared to November 2016

New listings... up by 37.2 per cent compared to November 2016

possible that the upcoming changes to mortgage lending guidelines, which come into effect in January, have prompted some households to speed up their home buying decision

MLS® Home Price Index (HPI) composite benchmark price was up by 8.4 per cent on a yearover-year basis in November 2017. The average selling price for all home types combined was down by two per cent compared to November 2016, due in large part to a smaller share of detached home sales versus last year. 

My overall take for November is similar to last month: it's a slow continual movement away from the May-July bottoming out. with some indicators looking bad, and some looking pretty good. As always, this blog post will give you some statistical highlights, but for the full set of Toronto market charts, visit the SlideShare report

There's still a 416/905 schism

That TREB stat above where sales were down 13.3% versus last November? Well the 905 was down 14.6%, while the 416 was down 11.2%

Those new listings up by 37.2%? The 905 had 48% more new listings than last year, while 416 was "only" 21% higher.

How about that year-over-year (YoY) price drop of 2.0%? The first time the GTA has been in the red since 2009? The 905 dragged that down by being down 4% over last year; 416 average prices (across all housing types) actually remained up by 2.0%.

Where things get really pronounced is in months of inventory (MOI). Detached houses have been faring worse than all other home types since the spring. Here are the latest MOI figures from select GTA regions. Note the GTA as a whole had a 3.4 MOI at the end of November (4-6 is considered a balanced market, lower is seller's market, higher is buyer's market):

So Toronto (416) is acting quite differently than the 905. I shouldn't pick on the whole 905 as most regions are fine. York Region continues to be the sore thumb in the GTA handprint. As the GTA market has generally been improving since it seemed to hit bottom in July, you'll note big reductions in MOI for Toronto and all its West/Central/East territories from September to November. Meanwhile 2/3 of York Region has worsened.

In the 416, 9 of 10 months this year have had lower sales than last year - but last year was a strong year. October was down 22%, yet that was the best month since April (last 5 months had been -24% to -42%), so things are getting less bad (i.e. I interpret that as down, but recovering).

Sales still aren't so hot in the 416 freehold market

Let's have a littler reminder of what the composition of the 416 freehold/house market looks like:

So since detached houses are 71% of all freeholds in the 416, as detached sales go, so will the house charts. (Note that in 905 it's not much different, with detached houses making up 74% of all freehold sales in 2016. Where the big difference lies is that condos are much more prevalent in the 416. Of all 2016 transactions, condos were nearly 60% of transactions in 416 last year but less than 20% in 905. So that meant detached houses made up 30% of the whole 416 transaction pie, but 57% of the 905 pie. So detached affect the freehold house charts about the same, but have a much bigger influence on the whole market in the 905.)

That all said, here's the 416 chart for freehold houses (all types) sales transactions:

You can see it's back within recent ranges for the first time since April. That's a plus. You'll also notice that the line went sideways from October to November, when it usually drops way down. This is what TREB was mentioning in it's "bucking the regular seasonal trend" comment. For all houses and condos combined, TREB sales from 1996-2017 have dropped an average of 9.2% from October to November. This year sales were up 3.2% month-over-month (MoM). That's the first time that's happened since 2010, and only the 4th time in the last 22 years.

What's causing this uptick in sales?

I first wrote about this with regard to the September market charts. I think it still holds very true now.

"potential macroeconomic factors such as OSFI's looming B-20 Guideline, and further Bank of Canada interest rate hikes. Actually, these factors might be pulling demand forward, i.e. buyers could be rushing out right now to buy before B-20 comes in (with its stress test for people putting 20% or more down) and before interest rates rise further. If that was the case, these September numbers are artificially high. I don't think we've heard much about it because the numbers are low. If September had looked strong I think people would be talking more about it as an explanation, but it's just as legitimate a possibility with poor numbers."

If we have been pulling-forward demand for the last 3 months then January and February are sure going to look brutal.

But back to the point about freehold sales not being hot. Despite total sales increasing from October to November (driven by condos, as houses were actually down 1.4%), November wasn't good in historical context. Versus the prior 5 years, 416 house sales were still 6% below average.

And similarly, it's different for freeholds and condos (which is why I always split my charts). Freeholds in the 416 actually outperformed this 11.6% increase by a lot (with sales transactions coming in at 23.6% over September) and it was the fourth highest increase since 1996 (the average increase is 12.4%). I'm not sure looking at my bar chart above if I'd call this a "sales rush" as the Globe did, but it's a possible positive sign.

Hand it to condos

As mentioned, condos were really driving the November sales figures. It's always tough to compare to the record 2016 for condos, so although November sales were down YoY, it was still the second best November ever for sales. Again, you can likely attribute some of that to the impending OSFI stress testing.

November was also a record 9th month in a row that condo MOI has been lower than house MOI (old record was 6 months in a row), so condos are doing just fine, thanks.

Why the increase in new listings isn't worrisome

Some commentators focused in on the large rise in new listings in the month that I showed TREB reporting at the top of this post (+37% YoY). Here you'll see there were definitely more houses listed than normal for November (38% higher than the prior 5 years' average). It's not only buyers that were trying to get ahead of OSFI, but sellers too, thinking that buyers would have more money to spend now. My neighbour is a good example of this. Back in October he specifically asked me about OSFI and whether I thought it would be a better time to list now or the spring, so it was definitely on his mind.

However, the inventory actually fell from the end of October to the end of November. Granted, active listings only fell by 55 when the average of the previous 5 years was a drop of 465.

However, these elevated inventory levels don't trouble me so much when they're moving. Note that MOI actually fell from October to November, despite all the new listings. And looking up the last 22 years of data, 2.3 is right on average for November.

Signs of continued recovery

Something I've mentioned before as a  sign of continued recovery is the continued rise of houses sold over asking, now up for 4 months in a row. On the flipside, they're not near last year's levels. But I prefer today's more civilized markets to having over half of house sales subject to bidding wars. I know this is a B.S. listing strategy so that saying you sold a house over asking doesn't mean much, but my theory is that you would only try it in a seller's market.

And here's YoY sales in the 416 for freeholds/houses and condos. Note they're continuing to get less bad! Though the caution is as above: how much of this is artificially inflated because of OSFI concerns? 

Revisited: What to expect in November?

Here's what I wrote last month:

I'm calling for more of the same. Some think that there have been more buyers rushing to beat the new stress test (like in the Globe headline), but I don't think this will change things in a big way, for a few reasons:
1) Buyers would've been doing this in September too, and even before, as the announcement was not unexpected so should've already been reflected in buyer behaviour
2) Sellers would be thinking along the same lines (i.e. I should get my house out there now while more people can afford it)
3) Only about 1 in 6 borrowers is affected, according to RateSpy. above. Not all of them are going to rush in now.

Looks like maybe I was off about how many buyers and sellers would be jumping into the market in November. I figured the information was already several months old, so why would everyone be rushing in at the end? Then again, I never pulled an all-nighter in university so I could see why I misjudged :)  Anyway, while I underestimated volumes, I think the bottom line didn't change too much as the increase in buyers and sellers largely cancelled each other out.

What to expect in December?

December and January sales numbers are so low that it won't take much to have big percentage swings to report. December's monthly stats will get buried in the year-end numbers. If I estimate December GTA sales to be 20% lower than 2016, then I come up with the following predctions for year-end numbers:

That's right - prices are up! Because TREB uses the numbers for the whole year, and prices were so elevated in the spring and took awhile to come back down (though you wouldn't feel like that if you bought a house in Richmond Hill in April). Though average prices have dropped since the spring peak, the amounts given back by houses are pretty in line with the amount of the run-ups. The market giveth, and the market taketh away. With condos, the give back has been way less severe. But at the end of November, both house and condo prices are up over where they began the year. It's been a wild ride, though! 

As always, keep an eye on my blog for further charts as the month unfolds, and you can view also view the full set of monthly charts in full size on my SlideShare



About Scott Ingram CPA, CA, MBA

Knowledge is power. I take a "Moneyball" approach to real estate - where both quantitative trends and qualitative information are important. Keeping on top of trends is especially vital in today's rapidly shifting Toronto real estate market. I will dig into numbers most realtors can't or don't, to help you make the right buying or selling decisions for your situation. You'll find my accountant-honed analytical skills and business strategy experience combined with my hometown knowledge and passion are great to have at your back: 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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