August numbers are out and one thing that jumped out to me is that the MLS Home Price Index benchmark for detached homes is down, which dragged the overall index to a small decline as well.
It’s just one month, but the overall HPI index is generally pretty stable, and the last time we had a decline like this one in the index was mid 2014 when the market was in a balanced state. Generally you don’t expect price declines in a market that from a months of inventory standpoint, is still hot.
Looking closer at the detached market, it is definitely the core that is dragging it down. The westshore is flat month to month, and the peninsula is still up.
Again, one month is no trend, but this bit of evidence of flat core prices gets added to the flat or declining detached medians and average prices this year and flat sales/assessment ratios as well.
But a price decline still doesn’t make sense to me. All the indicators for the core SFH market are still pointing to a pretty active seller’s market:
- Average sale price to original list price is at 99.4% (versus 95% in a slow August, and just short of the record 100.4% last August). 43% selling at or over ask.
- Active detached inventory in the core in August was relatively low at 460 compared to double that 5 years ago.
- Months of inventory is up from the spring but at 3 is still solidly in sellers market territory. Same with sales to new listings at 64%.
- Properties are still selling relatively quickly with the median at 16 days to sell.
So I’ll continue to hold the line on this one and see what happens in the fall. Last year we had a few months of declining prices in this segment as well but it was all wiped out by a $140,000 jump in the median from December to January.
The rest of the market continues to appreciate with condos and townhouses seeing the highest rates of increase.
Sales to new listings ratio has backed off from the highs we saw last year, but we won’t know the true level of demand until inventory increases and we can be sure that sales are not being constrained by inventory.
Looking at the monthly conditions, new listings are at approximately the average level for August (however consider that if adjusted for inflation, they would be below average). Inventory is still at a record low, and sales are on the high end but off some 17% from the record August last year.
With unit sales, we are back down to about 2015 levels with a few more condos to make up for the drop in detached sales.
The VREB’s president, Ara Balabanian, expressed surprise at the August numbers in that inventory hadn’t climbed yet. I’m not sure why he is surprised, since inventory typically peaks in June and declines until December. In fact in the last 20 years, we only had inventory increases from July to August in 2008 when the market was actively collapsing, and 2004/5 when it was cooling slightly faster than the seasonal slowdown. The small decrease in inventory in August is totally normal.
Going into the fall, we have on the one side a low unemployment rate (rising somewhat recently) and relatively robust population growth put against the spectre of rising interest rates (maybe next week!) and the new stress tests for all mortgages. Nevermind what new housing policy the province could come up with.
Have a good long weekend folks.