Some Toronto real estate market observers seemed to have been pointing to September as a make-or-break month, with the market either going to show strong signs it was "back", or falling flat on its face. So what did we get?
Taking a step back, In the July charts post, I talked about how many stats had returned to recent normal levels (i.e. not crazy seller's market levels). In the August charts post, I saw further evidence of stabilization (i.e. the declines had lessened) and even some signs of improvement. In the end, September to me was neither a success or a failure - it was a mixed bag that was pretty much a continuation of August.
As always, this blog post will give you some statistical highlights from the full set of market charts, which is available as a SlideShare report.
Condos are still doing just fine, thanks
This has been the story for several months so we'll just get condos out of the way quickly. Below are average prices. They "only" declined 8% from April peak to the July low, and have gone up two months in a row now. Average prices are still 21% above this time last year and have increased 18% since the beginning of the year.
This is despite sales volumes ragning from 22% to 30% lower than last year in the last 4 months (and down 7.8% on a YTD basis despite a torrid first 4 months):
But if you look at a longer term picture, September sales were down only 1% from the average of the prior 5 years. Comparing to 2016 is always going to be a tough one for 416 condos, as 2016 sales were up 18% on 2015 and up 32% on the average of the prior 5 years. This years's September YTD condo sales of 16,868 are actually 14% higher than the average of previous 5 years. Though with the proliferation of built condos the city has seen in the last two decades, these sales figures should keep generally rising as more and more of those "new" condos will eventually hit the resale market through TREB's MLS®.
The ability for the condo market to sustain it's prices at 20% above last year despite sales volumes declines stems from the continued low supply of active listings. As of September 30, the supply is almost back to 2016's levels, but it was the low levels of last year that really drove the historically high condo price increases (2016's 18% price gain was the second highest year in last 20 years). So September active listings levels were still about 38% lower than the previous 5 years - almost 2,100 less condos available for sale than the 2011-2015 average with more people looking to buy them.
Did the big rush of September house listings materialize?
The below chart shows the month-over-month (MoM) change in active listings. You'll see an uncharacteristic run-up in April and May (the "flood of listings" the papers talked about - even if they just brought things back to within normal ranges). Now check out August below. This year it appears home sellers were holding off listing, as active listings noticeably declined more than recent Augusts.
Here's a quote from an article in August that speaks to what I was also anecdotally hearing:
“The only advice I hear every agent giving their client right now is, ‘Wait ‘til September,” he says. “I think come… the day the long weekend’s over, you’re going to see eight million listings…I believe there’s going to be a few weeks of smokin’ deals for buyers.”
Last month, I wrote the two main reasons I could think of why people were holding back on house listings:
1) They were waiting for the September market when activity usually picks up
2) They are waiting until the market gets better, however long that takes
Well, September didn't see an onslaught of new listings for houses. It was pretty normal. In fact, the 2,679 was -7% lower than the average of the prior 5 years and only 2% higher than last year.
Average house prices rose in September, so that's good, right?
Well, prices always rise in September, so it would really have been more newsworthy if they didn't rise. The average price of a 416 detached home sale in August was $1,191K. In September that was up to $1,355K. Whoa - detached home prices jumped 13.8% in only 1 month! Relax, that's the problem with averages.
Just like individual homes didn't fall 19% from April's peak like this line from an August Globe & Mail article proclaimed, your 416 detached homes didn't suddenly bump up 14% from August to September. In August, there was 1 Toronto house sale greater than $6 million. In September there were 8 such sales (5 in the Bridle Path-Sunnybrook-York Mills community, including 2 over $10 million). Top-heavy activity like that can really skew numbers. As you see below, 8 houses contributed about $85K alone to the September detached average of $1,355K.
You'll notice the median price rise MoM was 9.3%, but that also takes into account that on the whole bigger and better homes come on the market in September than were on in the summer months. When you control for the type of home, using the Home Price Index (HPI, which I recently explained is a more apples-to-apples measure), the price of a single family detached (SFD) home actually decreased from August.
That's right, house prices actually fell in September
TREB/CREA track four different types of benchmark properties in Toronto. For September, three of them declined in price from August (SF detached, SF attached, and Townhouse), while Condos rose month over month. I'll be publishing more HPI data soon, but in the meantime, here's how SFD looked:
You'll note the HPI is down 11% from the peak (in May, instead of April for most TREB stats). That's a far cry from the "Toronto prices down 20%" articles (using TREB's GTA average price of $921K in April to $732K in August). You'll also notice it's up YoY. Here are the YoY increases for the 4 benchmark home types:
Single Family Detached: +6.6%
Single Family Attached: +8.7%
Condo Apartment: 26.0%
So is it a buyer or sellers market for houses?
I see it as mixed signals:
Statistics suggesting a buyer's market
- Sales down 36% YoY (worse than -29% in August)
Statistics suggesting a seller's market
- Sold Over Asking at 27% (4pp better than August)
Statistics with mixed messages
- Average prices up 2% YoY (better than -0.2% in August)
- Single Family detached prices up 9% YoY (worse than 11% in August)
- Single Family attached prices up 11% YoY (worse than 11.6% in August)
- MOI at 2.8 (worse than 2.5 in August, worse than prior 5 year average of 1.9, yet still considered seller's market territory)
- DOM at 20 (better than 24 in August, worse than prior 5 year average of 17)
And of course there's the whole "we've had a huge run-up in recent years so the market's overvalued" thing. And 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.
What to expect in October?
I anticipate about the same in October. For condos, that means it will sustain their value gains in the face of low sales due to low inventory. For houses, it will mean continued low sales but the rates of decline have stabilized or will slightly improve.
About Scott Ingram CPA, CA, MBA
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.