Dummy Inventory

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4 minute read

September 7, 2010

A few weeks ago, I wrote a blog post detailing my “predictions for the fall market.”

There were a few comments from my readers that attempted to poke holes in my thoughts and opinions, and I don’t blame them.

Most of the issues had to do with inventory, and now I’d like to propose a new spin on things…

inventory2.jpg

Don’t get me wrong – I don’t mind when readers post “negative” comments on my blog.

I moderate every single comment; even those that attack me personally and go beyond my professional boundaries.

Now when I see comments in which people call me out for what I write, that is constructive criticism!  I appreciate the back-and-forth amongst readers, many of which are highly educated and have fantastic insight!

In my “Predictions For The Fall Market” piece, there were a few readers who commented about inventory and suggested that some of my predictions contradicted themselves.

Upon re-reading what I wrote, I can see that.

Much of what I write is stream of consciousness like my good friend Holden Caulfield, and while something might make sense to me, it might confuse my readers.

I’d like to propose an idea that will insult many, many condo owners, and potentially further alienate me from future clientele.

It has to do with what I call “dummy inventory.”

Do you know what a “dummy variable” is?

I’m no math major, as some anonymous readers have clearly commented on my blog before, and it’s been so long since I’ve been in a calculus class that I don’t think I could work out an anti-derivative if my life depended on it.

A dummy variable is used in regression analysis to indicate the absence or presence of some categorical effect that may be expected to shift the outcome.  And that is about as far as I’m going to take this…

I believe that in our real estate market, there is such a thing as “dummy inventory.”

I believe that there is a large amount of inventory that simply stands to skew the statistics, as it takes on one or both of the following characteristics:
a) It is so far over-priced that it will never sell
b) There is substantially lower demand for this product when compared to the “average” product

It is my opinion that these two types of inventory shouldn’t really “count.”

This is “dummy inventory” at its finest.

For example, if I were to search for 1-bedroom condos in C01 between $300,000 – $330,000, and the search returned 87 results, I might immediately eliminate 70 of these properties.

I might eliminate these properties because they are incredibly over-priced, because they are in terrible buildings/locations, or both.

Therefore, these properties form what I call “dummy inventory.”

This inventory simply doesn’t count, in my mind.

Oh, it counts for statistics on the market in every single way.  When you hear about the “new inventory” as it compares to last month or the same period last year, I don’t think it’s fair to compare apples to apples.  I draw a line in the sand between “quality” inventory and that of the run-of-the-mill new developments that saturate our market.

In my example above when I say that I might ignore 70 of 87 total results, I’ll certainly ignore the 15 – 20 new listings at 38 Dan Leckie Way.  This is a new development that is right next to the Gardiner Expressway, essentially in a worse location than those buildings in my hated CityPlace.

I don’t like this building, and I never will.

I’ll likely never sell in here, just as I’ve never sold in CityPlace.

So if I would never consider showing these properties, then I would never truly consider these properties as “options.”

I don’t consider these properties to be anything but junk, and therefore, they represent “dummy inventory.”

When I see properties that have been on the market for 138 days with no price reduction, I know something is wrong.

True; our market is not as hot as it once was, but any 1-bedroom condo around $300,000 that is priced right (even those in CityPlace!) will sell in a week, a month, or maybe two.  Properties don’t take 138 days to sell.

So I consider over-priced properties that have been on the market for 138 days to represent “dummy inventory.”

I’ve always maintained that not all Realtors are created equal, and I’ve taken more than my fair share of flak for this.

But I think that one of the greatest value-added characteristics that I bring to the table as a professional is that I distinguish between bad properties and good ones; I don’t just lump them all together.

I know every condo in the downtown core, and I know them well.

No matter how you look at the property – from the investment standpoint, future appreciation, surroundings, amenities, location, infrastructure, construction, features/finishes, etc., I can give you the full rundown.

And when I look at 87 properties priced between $300,000 – $330,000, I surely will not hold back my opinions on which properties you don’t ever want to consider!

These properties make up the dummy inventory that I feel skews all the market data.

Sure, there are buyers for these properties, but not nearly as many.

There are ZERO buyers for a $270,000 condo priced at $330,000 that’s been sitting on the market for 138 days.  That’s the truest form of dummy inventory – the product that will NEVER move.

But people do buy properties at 38 Dan Leckie Way, why, I don’t know.

They sell, but not nearly as quickly and not nearly as the “good” properties.

I can skim through 87 properties and pick out the 15 – 20 “good” ones in a matter of minutes; it’s just a matter of looking at the addresses.

I’m sure there are Realtors out there that have no problem showing their buyer-clients properties at 38 Dan Leckie Way or one of the other fifty buildings that I refuse to sell in, but that’s why there are 30,000 Realtors in the GTA…

Maybe not every buyer looking at 1-bedroom condos in the downtown core will be interested in a condo at 230 King Street, but most will be.  And I’d lay money that if 90% would be interested in 230 King Street, then maybe 5% would be interested in 38 Dan Leckie Way.

And when these “dummy” properties are readily available, it adds more credence to what I’m saying.

A property at 230 King Street will hit the market and sell within two weeks.  A property at 38 Dan Leckie Way will sit on the market with the other 15 – 20 properties in that building for weeks and/or months at a time.

It is this thinking that leads me to believe that more than half of all condos available for sale in the downtown core at any time will represent dummy inventory.

Just don’t tell that to the people that live in these buildings…

Written By David Fleming

David Fleming is the author of Toronto Realty Blog, founded in 2007. He combined his passion for writing and real estate to create a space for honest information and two-way communication in a complex and dynamic market. David is a licensed Broker and the Broker of Record for Bosley – Toronto Realty Group

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8 Comments

  1. buk

    at 11:46 am

    totally agree! i’d say close to 50% of the inventory is not “real”.

  2. Kyle

    at 11:55 am

    Good article David (or should i say Dabed). Glad you’re back from your awesome trip.

    Be it condos or houses, there is always some percentage of “dummy inventory” baked into the numbers, screwing up the stats. I always take Economic predictions with a double dose of salt. I firmly believe any prediction, based solely on stats that have not stripped out the “dummy inventory” or tries to predict a direction for an entire country is junk. Real Estate is local and incredibly heterogenous. Trying to apply Widget Economic theories to a market as diverse as Canada simply doesn’t work.

  3. @@@

    at 2:04 pm

    I live at 39 Dan Leckie Way.

    You’re an asshole.

  4. Krupo

    at 1:26 am

    Man, I preferred the outpouring of resident-rage from that co-op building you slagged way back when compared to this. Someone’s not really trying – or doing a good gag/impression. 😉

  5. David

    at 3:27 pm

    I have friends who live at City Place and I love them dearly, but even they refer to it as “Shitty Place”. They’re also really glad that they rent.

  6. gina

    at 6:06 am

    as a potential buyer and not yet exposed to the toronto market this is quite a eye opener.

  7. Stephanie

    at 11:04 am

    Let’s face it, condos typically aren’t forever homes and really, it all depends on lifestyle.

    CityPlace does have location…. location and convenient lifestyle. Location can’t be beat if you enjoy things like being able to walk to Harbourfront, lake, ACC, Rogers Center, Entertainment District, ChinaTown, Kensignton, Queen & King W or jumping on the Gardiner, etc and there is a school and community center being built in the neighbourhood.

    230 King E is a great building but the location? Ghost town after 5pm. I wouldn’t feel safe as a single female living there unless you’re a hermit, a couple, or dependent on a car – walking in that area alone at night? No thanks. Other than the location, it’s a great building.

  8. Stephanie

    at 11:04 am

    BTW, you write well and I enjoy your blog. Where’s the subscription button?

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