….and I think this is now a regular feature.
It’s not my favourite, to be honest. I’ve always preferred writing about my experiences out there in the real estate trenches, interacting with buyers, sellers, agents, and the entire cast of characters in this crazy industry.
But I know the TREB numbers are something many readers want to discuss, and if I wrote about free home evaluations or some-such topic today, the readers might hijack it anyways.
So let’s look at the numbers that were released (on time for once…) last Friday, and try to take the pulse of the market…
I’m constantly amazed by the amount of reader interaction here on TRB.
I started this blog back in early 2007, and as I’ve often mused, I basically wrote blogs exclusively for my mother and my friend back then.
Five days per week back then, I wrote blogs, when basically nobody was reading.
I enjoyed creative writing, and it was almost therapeutic to see my thoughts about real estate (and everything non-real estate related that I discuss here…) come up on the screen on a daily basis.
It wasn’t until probably three months into writing that I saw my very first comment.
I didn’t even know there was a comments feature on my blog!
Fast-forward a decade, and I have a friend who tells me, “Honestly, I don’t really even read your blog – I start with the comments.”
A quick scan of the “Top Posts of the Month” shows me a slew of reader feedback and interaction.
98 comments on the “UBS Global Real Estate Bubble Index” post from two weeks past.
85 comments on the “Toronto Is North America’s 13th Least Affordable City” blog post from last week.
81 comments on the “New Mortgage Rules” post.
And even 78 comments on the post about the September TREB numbers.
Real estate has never been a hotter topic.
It’s never been more contested, debated, and in some ways, controversial.
One look at the number of comments on this blog proves my point, as it’s easy, and at times, automatic, for readers to disagree.
It would seem to me that the topics that cause the most debate aren’t that specific in nature, ie. whether it makes more sense to buy a semi-detached versus detached, or buy in Riverdale versus Swansea. It’s the “big picture” discussions that people are so passionate about, and I think, in a way, that makes sense.
First of all, the bigger-picture topics often have the longest time horizons, and thus the opinions and answers aren’t as easily, or quickly proven.
Secondly, I think the bigger-picture topics are ones on which most people can provide an opinion, because you don’t have to own a detached house, or a detached house in Riverdale or Swansea, or even own a house at all, in order to offer an opinion on the direction, or future, of the Toronto real estate market.
When it comes to interpreting the TREB numbers, the debate is no different.
“You can make numbers say anything you want” is one of my favourite sayings, and it rings true when it comes to analyzing the Toronto real estate market.
So let’s look at the October TREB numbers that were released on Friday, and I’ll give you my two cents, before you give me your three…
Average Home Price Increases
Modestly, it’s important to note, but an increase, nonetheless.
In the spirit of making numbers say anything you want, why don’t we try that?
A pessimist says, “The average home price increased 0.6% from September to October. That’s a rounding error.”
An optimist says, “In the face of all the negativity, all the media articles, and even a true, bona-fide threat to the market like the OSFI changes, the market still increased.”
Have your pick.
The average home price, coming off a 6% increase from $731,532 in August to $774,623 in September, increased a modest 0.6% to $780,104 in October.
(N.B.: If these numbers look slightly off to you, it’s because the numbers provided in the Market Watch are always re-adjusted for the next month. ie. September’s average home price announced in the start of October was $775,546, but was adjusted to $774,623 for November. Same goes for sales, and just about every statistic.)
So what does that 0.6% increase in the average home price mean?
Very little, and a lot, at the same time.
As the pessimist/optimist argument above goes: the increase itself is insignificant. It truly is a rounding error, and I don’t think any home-owner feels richer for adding 0.6% in value. But as the optimist might suggest, in the face of constant negativity, and important regulatory changes, the average home price did not decrease.
Those changes of which I speak, of course, aren’t going to be implemented until next year.
But I’ve always believed that more important than buyer ability is actually buyer psychology. If buyers are too afraid to buy, it doesn’t matter what they can afford, or qualify for.
In my “September Predictions” post, I surmised that the average home price would increase in September over August, and that it would further increase in October over September. Check, and check, although the latter check is a cheap one. Did I mention the 0.6%? Yes? Okay…
As for my prediction that the average home price would increase 10% from the summer, that would mean we’d have to get to $820,000+ through the end of November.
And frankly, I just don’t see that happening now.
If I can point out when I’m right, then I can certainly admit (or predict) when I’m wrong.
I’m seeing a decline in the number of freehold listings, especially compared to condominiums.
I think it’s fair to say, that not a lot of home-owners target the month of December to list their property for sale, but as the condo market is less cyclical, and is actually hotter than the freehold market right now, fewer condo-owners will lament selling in the dead of winter.
I think by the time November and December are through, we’ll see the proportion of houses-to-condos sold in Toronto change massively. Since condos sell for less, on the whole, than houses, this will no doubt affect the average home price.
I have a host of would-be house-buyers that started their searches after Labour Day, who have yet to buy.
It’s not for lack of effort, or lack of affordability. It is, without question, lack of options.
Now what about those options?
Listings Were Down In October
Keep in mind, I’m looking month-over-month right now.
Year-over-year, it’s another story.
I was asked in an email last month why I’m using month-over-month instead of year-over-year, and it felt like the person asking had an agenda. It’s far easier to use year-over-year numbers to make a negative argument about the market, although to be fair, it’s far easier to use month-over-month numbers to make a positive one…
Active listings were down 30% in October, from September; 19,021 down to 13,331.
New listings were down only 9.5%, from 16,469 to 14,903.
I suppose this is to be expected.
In 2016, new listings were down 11.5% from September to October, which is in line with that 9.5% number.
But active listings were only down 6.1%.
The massive 30% decline in active listings this year is a bit of a surprise.
We do expect October to be slower than September every year. There is so much pent-up demand among buyers who either didn’t buy in the spring, and waited through the summer, as well as those buyers that made the decision in the summer to start their search after Labour Day. As a result, most home owners will wait until after Labour Day to list their properties for sale, many of them using the summer months to de-clutter, stage, and prepare.
But the drop in listings in October was much higher than expected.
Sales were 7,118 in October; up 11.6% from the 6,379 in September.
But it’s the sales-to-new-listings ratio that strikes me.
The ratio went from 38.7% in September (6,379 sales compared to 16,469 listings) to 47.8% in October (7,118 sales and 14,903 new listings).
This shows the market is getting a bit “tighter” with increased sales, decreased listings, and as a result, the average home price increased.
What Of Year-Over-Year?
Here is where the headlines are made!
Sales in October – down 26.7% from October of 2016.
New Listings in October – up 11.8% from October of 2016.
Active Listings in October – up 78.5% from October of 2016.
Average Home Price in October – up a paltry 2.3% from October of 2016. That’s from $762,691 to the aforementioned $780,104.
Our theme continues here, folks. You can make numbers say anything you want.
Sales “plummeted” in October.
Listings “skyrocketed” in October.
Average Home Price “fizzled” in October.
It’s all a matter of perspective, and the year-over-year numbers can cast the market in a completely different light.
So why use the month-over-month, instead of the year-over-year, or vice versa?
Aside from “making numbers say what you want,” I think it’s a matter of time horizon.
Most people want to know what’s going on right this second.
Or at the very least, they want to know what’s happening in this season of the market.
From August, to September, to October – that’s what’s happening now.
And while using month-over-month numbers to analyze the market risks being too short-sighted, I’ve yet to meet anybody, anywhere, who has come even close to predicting what’s going to happen in a 3-5 year window.
Every single bearish prediction over the last twenty years has been dead-wrong. Some of them (Garth Turner, Hilliard MacBeth, Nicole Foss) were laughably, catastrophically wrong.
And the last bearish prediction I made – when I slammed Lanterra Developments’ CEO, Barry Fenton, for his 2015 prediction that Toronto condos would appreciate 30-40% in 3-4 years, was in itself, incorrect.
I finally get bearish on a bullish prediction, and I’m wrong.
And in case you’re wondering, the average condo sale price since that December, 2015 post is up 38.7% in the GTA, or 38.3% in the 416.
So Mr. Barry Fenton aside, I have yet to see anybody accurately predict this market in a 3-5 year window.
Go ahead, take your shot.
For now, I’ll continue to monitor the month-to-month, and season-to-season ebbs and flows, first and foremost. That’s what my clients are asking about, and it’s primarily what real estate enthusiasts are discussing.
But year-over-year, the numbers show that our market shot up, and came back down.
The average home price is only up 2.3%, year-over-year, and that is the number that bearish newspaper headlines should be quoting.
I don’t care that sales are down 26.7%. I’ve never cared about sales.
Even in a raging-bull market where sales are up 40%, year-over-year, I still only care about the price.
Do you care if 100,000,000 shares of Apple Inc. trade on Monday, as opposed to 80,000,000?
That was rhetorical, and please save me the explanation…
Now, perhaps too soon for this topic, but it should be on your radar: