Roses are red,
cherry blossoms are pink.
Sales are down,
because real estate is like a squash.
Or so you may believe if you looked at the VREB’s press release which says “Local agricultural production has been delayed due to the late spring, and so has the local real estate market”.
I’d say the lowest inventory on record may have more to do with the market than soil temperatures but this is not a science. So where are we at?
Prices still trending upwards strongly. Medians are down from last month for detached and condos, but benchmarks are up across the board. However looking at months of inventory we can at least see that while we are still lower than last April, we are starting to carve out a bottom.
Let’s see if we can figure out a balanced way to report on these kinds of months. I don’t want to be a cheerleader but despite the 31% drop in sales there still is little weakness that can be found here. However we’re starting to see some cracks in the market. What used to be endless months of acceleration in every metric is now showing some areas of slowing. What’s the good bad and ugly of this market?
The case for more upside:
- Record low inventory and above average sales for any April since 1996
- Sales price to original price is at 100% indicating properties are being snapped up without price cuts (I’m honestly not sure if the VREB data system is broken but the last 4 months have been exactly 100%)
The case for a slowdown:
- There may be a decline in out of town buyers. Hard to tell at this point since markets are highly seasonal, but there is a drop in out of town buyers as a percentage of the total. And since sales are down substantially from last year, that means the absolute numbers of out of towners are down quite a bit. Absolute numbers being down have a large effect since out of towners are pure demand.
- Sales are down 31% from last year. Now that is easily explained away by saying inventory is also down 35%. But how do you explain that April sales are down 5% from March despite an increase in inventory?
Sales usually significantly increase from March to April as you can see in the chart below. The last time they decreased was 2010 and 2011 when the market was slowing down.
- The Home Capital meltdown may spread to other high risk lenders. The big banks are fine, but the history of regulatory tightening has driven more consumers to B lenders and shadow lenders. It’s the wild west out there and once confidence evaporates, these things collapse quickly as we’ve just seen. How much fraud is lurking out there? So far it’s very unclear how much of the panic is due to actual substance and how much is just people caught up in the stampede.
- Housing in Toronto may be bowled over by the new regulations. When that happens (due to regulations or just under its own weight) fear can take hold of the market and overpower any fundamentals.
Looking at what is selling, single family homes are not making up as much of the sales mix as they were previously. The high prices are likely sidelining a lot of potential SFH buyers, and those that have moved to condos have seen that there isn’t much choice there either.
So, are we cutting this runup short after just 2 years? Or are we just pulling back a lit from insane mode to just normal sellers market? Last time we had a hot market it persisted for about 5 years, but of course prices seemed a lot more reasonable back then.