That’s the million-dollar question.

Although for buyers who don’t have 20% down, maybe that’s the $999,999 question.  HA!  I just love a good mortgage joke…

There is a feeling out there that the market is going to cool come spring; not necessarily in terms of the prices, but the growth of price increases.

After the start to 2014 that we’ve had, I think a cooling off come April, May, and June is quite possible.  And for active buyers, it would be a welcome change…

“Don’t worry,” seemed to be the sentiment around my office for anybody complaining about a tough spring.

“Things will ease up,” a lot of people said.

“The market is going to explode,” said others, in anticipation of a post-March Break flood of new listings to the market.

“The levee is going to break,” said another agent, who was insinuating that we’d all be enjoying a bevy of sales come April, after so many agents continue to lose in bidding wars with would-be house-buyers.

“This can’t possibly continue,” said another agent, whose thoughts on the matter sounded more like wishful thinking than fact.

But what if it does continue, I wondered?

What if prices, which are increasing with each passing day, continued to climb higher through April, May, and June?

It can’t happen.  It just can’t.

Maybe it really is wishful thinking on my part, but I have to think that the true spring market will be a little cooler than the early spring market we’ve just endured.  And for those not familiar with real estate jargon – we don’t really have a “winter market.”  We have “early spring,” which is January, February, and the first half of March, and then “spring” which is April, May, and June.  Then we have “summer,” and then “fall,” which is basically September through December.  Yeah, it’s a bit kooky, but maybe all just hate winter…

In any event, the early spring market in 2014 has been insane.

Without exaggerating, it is, simply put: the hottest market I have ever worked in.

I’ve worked in some insanely hot markets in the past decade, and I remember when the condo market was so hot in 2009 that every slightly-above-average condo that hit the market had an offer date, and sold over the asking price!

But January and February of 2014 has shown me prices I’ve never seen before.

The Globe & Mail’s Tara Perkins wrote an article on Tuesday entitled, “Home prices to cool with warm weather,” and it got me wondering whether or not this was, in fact, wishful thinking on all our parts, or whether there was data to support this.

Noted in the column:

“The average selling price of existing homes that traded hands across the country last month was $406,372, up 10.1% from a year earlier.”

Geez.  Ten per cent!

But we need to determine WHY the spring market has been so hot, and if the tea leaves are telling us that this is going to continue.

The insane prices in 2014, bidding wars, and buyer frustration can all be blamed on one root cause, in my opinion: lack of inventory.

I always say, “I don’t care what statistics say with regards to new listings; I’d rather put my finger on the pulse of the market, and tell you what’s really happening.”  And it’s true.  Talking about quality listings is a different story from the overall number of new listings.

I think we’d all agree that for every renovated Bloor West Village home that hits the market, we likely see 75 listings for pre-construction condos, assignments, units in occupancy, and crap that 95% of the buyer pool wouldn’t touch.

Early 2014 hasn’t shown us a healthy supply of freehold homes, and the prices paid for some properties are smashing even the most optimistic projections.  Three houses sold on Rhodes Avenue in the last month, each one having an effect on the next.  It was like dominoes; the first one sold for a crazy price, and the next one followed.  I actually heard two neighbours talking, and laughing about the prices.  One neighbour remarked that he was going to move back East, and “take the money and run.”

I have a hundred anecdotes, just like that one, each explaining why the market thus far in 2014 has been the hottest I’ve ever seen.

But for those of you that want numbers to back it up, alright.

Let’s look at new listings for detached and semi-detached homes in Toronto Central, East, and West (TREB districts).

NEW LISTINGS:
January 2013 – 1,251 detached, 252 semi-detached, 1,503 total
January 2014 – 929 detached, 189 semi-detached, 1,118 total

Keep in mind – I’m just looking at new listings on MLS.   Not total active listings, not sales, and only detached and semi-detached homes.  These are the homes that we know are going crazy, and it’s numbers like this that tell us why.

New listings were down 26% from January 2013 to January 2014!  Imagine the effect that has on price?

So what about sales then?  Were they down 26% as well?

No.  Not even close.

SALES:
January 2013 – 502 detached, 147 semi-detached, 649 total
January 2014 – 463 detached, 134 semi-detached, 597 total

Sales were down only 8%.

So if new listings were down 26%, and sales were only down 8%, then it seems to reason that prices would be affected.

The buyer pool has barely shrunk, but the inventory certainly has!

Buyers have a lot more competition, and that’s why we’ve seen so many bidding wars featured in media, and why your colleagues at work are always talking about the house they just lost out on.

But is there light at the end of the tunnel?

What can we expect is going to happen with inventory in the spring?

Well here’s where the numbers don’t say what we want them to.

Yes, I did say earlier that I think the market will cool down a little bit as we move into spring, but I’m saying that despite historical data to the contrary.

The “sales to new listings” ratio is a metric I like to use to see how “tight” the market is.  The higher that number, the tighter the market.

Using the numbers above, we see that January of 2013 saw 649 sales versus 1,503 new listings, for a ratio of 43.1%.

January of 2014 saw that number climb to 53.4%.

I’ve already told you how hot January of 2014 was, so that increase from 43.1% to 53.4% should come as no surprise.

But what were the sales-to-new-listing ratios in the spring of 2013?

April 2013 – 1,679 sales, 3,059 new listings – 54.9%

May 2013 – 1,909 sales, 3,275 new listings – 58.3%

June 2013 – 1,517 sales, 2,485 new listings – 61.0%

Those numbers do NOT suggest that the market is going to cool!

Historically, the ratio of sales-to-new-listings is higher in April, May, and June, than January, February, and March, meaning there are a lot more buyers, and proportionately fewer sellers for those buyers.

Looking at these numbers, you might think that the market is going to cool at all as we move into April.

But call it a “gut feeling” if you will, I just have to think that with the craziness that took place through the first ten weeks of 2014, there’s nowhere to go but down from here.

I’m not saying that prices for freehold homes are going to drop.  I’m just saying that the growth rate is going to stop.

The average price of a Toronto home is going up 1% per month.  Can that possibly continue?

Those $599K houses that sold for $715K – can they sell for $740 by June?

I don’t think so.  I honestly don’t.

Or, maybe that’s just wishful thinking…