Tell me if I sound like a broken record here, when I talk about the problem of “supply and demand” once again.
But tell me I sound like a broken record, and it won’t stop me from writing this blog post, or many more like it.
I’m tired of reading sensational media stories that try to prove a person, a group, or an idea is responsible for “unaffordable” house prices.
In the end, it’s basic, simple, logical supply and demand…
That’s why nobody wants to hear about it.
“Supply and demand” isn’t the answer that people want to hear when they ask the question, “Why is Toronto’s real estate market continuing to climb?”
We recently saw what can happen when you sensationalize an idea. Vancouver made one of the most questionable fiscal policies of all last month when they decided to ban foreign investment. I know, I know, they didn’t “ban” foreign investment. But by instituting a 15% tax on purchases, they’ve reduced foreign demand by approximately 100%.
Topic for another day, I know.
But the point is that whether it’s the media, the government, or the masses, nobody wants to believe in an “efficient market” and the fundamentals of supply and demand.
So over the weekend, I figured I would look at the first seven months of 2016, to get a sense of what’s happened with supply and demand.
What’s going on with the number of active listings?
How quickly are properties selling?
What’s going on with total sales?
And of course, how does this affect price?
Here’s a look at 2016 thus far:
Those are epic numbers.
You’ve got three months – May, June, and July, where supply is down a whopping 30%.
And April ain’t no slouch either, coming in at almost 27%.
Save for the month of February, “new listings” were down every single month as well.
And properties are selling faster as “days on market” plummeted by over a quarter by July.
With sales up dramatically – 21.1% in February alone, and an average of 12% per month from January to June, is it any wonder why prices are up double-digit percentages every month?
Supply (in the form of active listings) is down roughly 30%.
Demand (in the form of sales) is up roughly 10%.
Show me any other product or service where supply is down, demand is up, and prices don’t increase.
Now how do the 2016 numbers compare to last year?
Have a look:
What we see here is more of the same.
Active listings were down every month, as were days on market.
Total sales and average price were up too.
Not to the same extent, across the board.
Active listings were “only” down around 10%, compared to 30% thus far in 2016.
The average sale price was still double-digit in five of seven months, although we’re looking around 15% for 2016, and around 9.5% for 2015.
And now what of 2014?
Very similar patterns.
Active listings were down every month, once again.
Although it’s quite interesting to note that the high point of -16.4% was actually reached in January, and that number decreased virtually every month through July.
This was two years ago, and clearly a lot has changed in the 2016 market.
But these three charts show that inventory has dropped massively every month, every year, through the last three years.
The charts also show that sales are up, thus demand is higher.
And the result, as we all know, is higher prices.
Maybe the percentages aren’t enough for you.
We all absorb information differently, so while you might not be shocked on a percentage basis, take a look at the totals – and we’ll extend through to 2013 this time:
Those numbers are staggering!
Look at a month like May or June – you go from over 22,000 listings, to down in the 12,000’s!
Vancouver has thrown around words like “crisis” and “epidemic” to describe their market. Should we be calling this an “inventory epidemic” as well?
Same goes for sales – the numbers are staggering, they just work in the opposite direction:
Sure, January seems consistent.
But every single month has had substantially more sales in 2016 than in 2013 – and this is despite the lower inventory!
So to sum it all up, let’s see what’s happened with both active listings and sales from 2013 to 2016:
Just think, for a moment, about the month of June, where you have 44.5% fewer listings available, and 45.0% more sales.
What would happen to the price of, say, oil, if you generated 44.5% fewer barrels, but there was a need for 45.0% more from the consuming public?
Prices would skyrocket.
And in the case of real estate in Toronto, prices have done exactly that.
There is no “person” responsible for higher prices in Toronto.
There is no group of people, no wing of government, no idea, no ideology, and no policy responsible.
Supply has plummeted.
Demand has gone through the roof.
It’s simple, logical, basic grade twelve economics.
It’s time people start accepting that…