29 Nov 2022

Week 143: When will the real estate market be normal again?

Week 143: When will the real estate market be normal again?


Benjamin Tal, the CIBC economist, always seems to get it right. And by “right,” I mean he’s never that alarmist pessimist who puts out a release to get people all riled up. He sees the market for what it is, gives a phenomenal, realistic opinion and forecast and goes back to being an awesome human being.

Anyway, I bring him up this week because he released his latest report, which discusses many things I’ve been talking about on this blog.

He opened the report with the following:

“Housing activity in Canada has declined for eight consecutive months before showing a modest improvement in October. This has been the longest stretch of falling sales on record. And it’s not really over yet. The sense of urgency to get into the market due to Covid induced ultra-low mortgage rates led to a wave of front-loading activity, with buyers borrowing not only money but also activity from the future. And in March 2022, the future arrived, along with the Bank of Canada’s first tightening move. As of October, unit sales were down by 35% from the February peak and the average price had fallen by close to 20%. So what is this? A crash, a correction, or simply a realignment and reallocation of activity over time?”

[You’re going to want to read right to the bottom on this one]

Urban Markets: Downtown & Surrounding Areas
House Average Price: $1,406,070
House Median Price: $1,202,000
471 Active Listings
50 Firm Sales This Week
Months of Inventory (MoI) ~ 1.78 (up from 1.72 last month)
Average Days on Market ~ 18.02

Condo Average Price: $848,892
Condo Median Price: $681,000
1554 Active Listings
73 Firm Sales This Week
MoI ~ 2.25 (up from 2.15 last month)
Average Days on Market (DOM) ~ 23.46

Remembering that these are National Canadian averages, we can zoom in on Toronto, and it doesn’t get much better in terms of the number of homes sold.

In the communities below, sales have dropped over 58% for houses and over 68% for condos. Some communities are down even more in terms of the number of sales.

However, the listing supply is extremely stable, with no new listings being added to the market week over week. In fact, we’ve seen a double-digit drop in available sales, even with approximately 60% fewer sales week over week.

I don’t know what will if that doesn’t show strength in the market.

Going forward, we’re keeping an eye on unemployment in the typical homeowner demographic to see how many, if any, new homes that brought to market as people run out of savings and no new jobs are created for a few months.

Urban North: Rosedale, Deer Park, Moore Park, Forest Hill, & Lawrence Park
House Average Price: $3,040,210
House Median Price: $2,875,000
144 Active Listings
9 Firm Sales This Week
MoI ~ 2.78 (up from 2.49 last month)
Average Days on Market ~ 31.44

Condo Average Price: $876,800
Condo Median Price: $930,500
210 Active Listings
10 Firm Sales This Week
MoI ~ 3.04 (up from 2.47 last month)
Average Days on Market ~ 28.9

I predict that our unemployment rate will increase from the mid-5 % range to under 7%, a far cry from the 16% unemployment we saw in early covid. You can track unemployment rates here and compare them to the US or any other country using their system.

But we all know that jobs lost early covid weren’t homeowners or potential buyers. They were primarily lower-paying, transitional jobs in the service industry occupied by people in the rental market.

Today, the bloated tech industry is feeling a severe pinch, and their overvalued, wasteful companies are tightening, and some are folding completely.

I’m happy to be aligned with a tech-focused but people-first technology company called Real Broker Ontario. A US firm with some serious upward momentum (agents, if you’re reading this, we should talk, we’ve built a strong community here and are helping agents scale even in a market like this)

I spoke about that in last week’s article. You can read that here. Perhaps I got a little too clickbaity in that one, as one of our regular readers aggressively pointed out in a heated email…haha!

Leaside, Davisville, Yonge & Eglinton
House Average Price: $1,285,000
House Median Price: $1,285,000
34 Active Listings
2 Firm Sales This Week
MoI ~ 1.70 (up from 1.35)
Average Days on Market ~22

Condo Average Price: $828,488
Condo Median Price: $682,000
144 Active Listings
8 Firm Sales This Week
MoI ~ 2.49 (down from 2.61 last mth)
Average Days on Market ~ 20.75

Regardless of how you felt about last week’s article headline, the truth is that we’re in for some more pain in the coming quarters, with relief to be hopefully seen as we close out 2023 and enter 2024.

But what does this “pain” everyone’s talking about actually mean? It means nothing to most Torontonians. Like, absolutely nothing. That’s the real message here.

Ya, money will be harder to access in the coming few quarters, and you may have to shelve those vacation plans for another 12 months or not buy those luxury items (oh, I’m interested in buying your Omega Speedmaster if you’re selling!)

Tal goes on to address the supply side of things and says:

“Zooming in on demand and supply conditions, the drop in unit sales has been the steepest on record (Chart 2, left), but the pace of the decline is starting to slow (Chart 2, right). That’s true for most cities, including Toronto and Vancouver. More interesting is the trajectory of supply of units in the resale market, which is down notably since the beginning of the correction (Chart 2, left), as sellers sit on their hands, showing hardly any signs of distressed selling to date.”

Although his data is much more macro than mine, seeing this across the board AND at the micro level further proves that homeowners are standing pat and not panicking. For now, anyway.

Birch Cliff
House Average Price: $980,008
House Median Price: $980,008
25 Active Listings
1 Firm Sales This Week
Months of Inventory (MoI) ~ 0.93 (down from 1.36)
Average Days on Market ~ 5

Another interesting point Tal made was when looking at the decline of 20% since February was how it compared to the upswing. If you’re focussed on the 20% drop since Feb (remember, this is Canada, Toronto’s urban communities have not seen this same decline across the board), it’s relatively mild compared to the upswing vs. past declines. See chart below

 

 

 

 

 

 

 

What’s super interesting is when you dig deeper into the data, you’ll notice that 50% of the 20% drop was due to the prices of detached homes. The most expensive segment of the market took the biggest hit while the properties average Torontonians are buying, and selling have been much more stable.

Kingston Rd Corridor to Highland Creek
House Average Price: $1,264,017
House Median Price: $1,008,100
67 Active Listings
6 Firm Sales This Week
Months of Inventory (MoI) ~ 1.45 (down from 1.56)
Average Days on Market ~ 19.18

Condo Average Price: $640,000
Condo Median Price: $640,000
64 Active Listings
1 Firm Sales This Week
MoI ~ 2.81 (up from 2.72)
Average Days on Market ~ 9

“…50% of the overall 20% decline in the average price since the February 2022 peak is due to the compositional factor, reflecting reduced activity in the low-rise (expensive) segment of the market. And the price mechanism is clearly reflecting that reality, with the largest drop in prices seen in detached houses and the smallest in the condo market (Chart 5, right).”

 

 

 

 

 

 

 

I’m feeling very good about the future of our great City and Country so let’s head into the Holidays with some epic positivity, calm, and love and come out of this down market better than we went into it…whatever that means for you!

So much more to discuss today, but let’s leave it at that! I’m in New York City taking in an amazing two-day workshop to help my team do epic things this year and beyond, so bear with me if my response time is a little slower today.

Any questions? The entire team and I are here to help. Email/comment/text/smoke signal, and we’ll get back to you.

Have a wonderful day, and I’ll see you next week. Don’t forget to subscribe to the blog so you get this in your inbox asap, and we’ll see you on Youtube!

(please subscribe to the YouTube Channel here, where I go over all of these reports in more detail)

 

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