July 2018 Stats: Is the Market Hot Now?

Andrew la Fleur: Coming up on today’s show, we’re going to talk about the July stats for the Toronto Real Estate Board. Stay tuned.

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Okay, thank you again for tuning in. As I said in the intro, I want to talk about the July stats for the Toronto Real Estate Board. Those stats just came out. These are the latest stats we have to see what’s happening in the resale market. Always important, as condo investors, we’re buying pre-construction, but we always want to make sure we understand what’s happening in the resale market as well, of course. These two markets are, at the end of the day, one in the same and we do track both the resale market and the pre-construction market very closely. Wanted to give you my take on what’s happening. You can go to the Toronto Real Estate Board website, of course. I’ll include a link in the show notes for this episode. You can go there and get all the statistics anytime if you want to look at things in more detail.

But, once again, what I track the closest is what’s happening in the downtown condo market. The downtown condo market is something that I’ve been looking and tracking closely for over 10 years now. That is going to give us the best sort of sense of what’s happening in the condo market, but especially with the last couple of years with just the vast differences between the low rise market and the high rise market, between houses and condos, we’re tracking both of them a lot more closely as well.

So here’s a few things that I’m seeing from the stats that we’ve got for the month of July. Most of the headlines you’re going to be reading in the mainstream media probably and hearing on the radio and stuff, I just heard another one on [inaudible 00:02:42] news talking about, the real estate market is bouncing back and everything’s looking great and everything’s good. So the main headline that they’re going to pull is this number that sales are up. Sales are up significantly. I believe they’re up. Just checking my notes here. I believe they were up 18 percent from last year.

So sales are up 18 percent from last year. Prices are up as well. And so prices are up slightly as well, and so that’s the main headlines you’re going to hear is, you know, and lazy. Most of the lazy writers out there, they’re not going to dig much further than that. They’re just gonna tell you that, you know, sales are up, things are good, everything’s good. But again, that’s not what you’re here for on True Condos. And we’re here to give you more in depth insight than that.

So looking a little bit closer, the first point that I would say about the market overall before we get into the condo specifically, but market overall is looking good. It’s not, I would say it’s not as rosy as it seems. It’s not, you know, the headlines saying everything is up. There’s certainly nothing to be concerned about, but there’s not … I wouldn’t be expecting the overall market in particular, the low rise market, to be dramatically changing anytime soon. Yes. The numbers are looking a lot better than they were a year ago, but again, a year ago, July of 2017, you’re talking about the absolute lowest of the low in terms of the market sentiment and the feeling of the market at this time last year.

So just looking at the number of sales, like this year, we have just under 7,000 sales versus last year, just under 6,000 sales. So that’s the 18 percent bump. But if you go back to 2016, 2015, the years before, you had almost 10,000 sales in the month of July. So we are still, and again, those were the heady, heady days where prices were rising at an unbelievable pace. So we’re comparing against that. So sales are up significantly over the low, low point of last year, but they’re still way off in terms of the overall market. Still way off compared to 2015, 2016.

Again, a big trend that I’m watching overall is this pent up demand situation. A lot of it is because of the stress test and the government has basically forced people to not be able to buy because of this ridiculous stress test that they put in place this year. They’re really, this pent up demand is growing and growing and growing. The pace of sales in 2018 is way below the average pace of sales that you would typically see in the GTA, you know, over the last 10, 15 years.

So what this is adding up to is, again, a major pent up demand situation where we can only hold off this demand for so long. Eventually this demand will spill over, this volcano will erupt so to speak, and the demand is going to spill out and we will see at some point, I believe, a major upward shot and upward trajectory. That tends to be the way things go with housing markets. It tends to be either very hot or very cold. There doesn’t tend to be a lot of time that a market spends in between those two and UCLA illustrated well. And right now at the condo market, very, very hot still in the low rise market.

Overall, it’s, I wouldn’t say very, very cold, but it’s certainly not warm. It’s still a cold market compared to what it really should be or where it typically would be. The market is still, it’s slow, it’s cold, It’s not a hot market. Again, there’s signs of life, there’s signs of progress, there’s signs that things are moving in the other direction. Yes, but this pent up demand situation is very interesting to me to see how, you know, again, the pace of sales we’re on. It’s like we were at, you know, 20 years ago when we had two million less people in the GTA. So we have, you know, 2 million more people, but we’re selling at a pace that number of homes that are trading over is at a pace like we had 2 million less people.

So there’s major pent up demand at some point that’s going to spill over. Sometimes that curve is going to catch up. We’re going to revert back to the mean, so to speak. And that demand, it’s gotta go somewhere. Right now a lot of that demand is being forced into the condo market because of the stress test, but at some point that demand will go back into the low rise market, whether the stress test gets removed or whether the market just eventually just adjusts to the stress test, which were, you know, that’s one theory that’s out there as the market is just starting to adjust to the stress test.

So we’ll see how that goes. Talking again about the overall market, sales to listing 35 percent. 35 percent is the overall sales to listing ratio for the entire GTA. That compares to 32 percent at this point last year. So again, slightly up, but you’re still in that sort of not too hot, not too cold sort of category for the overall market. At 35 percent you should still expect prices overall to rise at a slower than usual pace. When the usual pace of the Toronto market has been, you know, 8, 10 percent over the last decade at 35 percent sales soliciting ratio for overall, we would expect overall prices to rise, you know, somewhere in the single digits, somewhere in the two, three, five percent sort of a range, which is a very healthy market overall.

Looking at the worst hit areas. The hardest hit areas, of course, being in the 905 for the market over the last year since the Fair Housing Plan. York region currently sitting at, that’s the hardest hit area. The Richmond Hill, Markham, that sort of area north of the city, that’s been the hardest hit of anything. And there we are still seeing a buyer’s market where the sales to listing ratio is only at 20 percent. So generally 20 percent and below, you’re definitely in buyer’s market territory. You’re in a market where prices probably are still not rising. They may be falling in some pockets of York region still, they may be stable in some pockets, but overall you’re not expecting prices to rise when the sales to listing ratio is at only 20 percent. That means there’s a lot of properties still out there and not a lot of buyers to buy them.

So 20 percent versus last year was 19, so virtually unchanged. Again, if we start to see York region showing a major change in that sales to listing ratio, to me that’s a bit of a canary in the coal mine. If we see the worst hit area make a major shift, then the overall market is probably going to be making a major shift. So I’m keeping my eye on York region. What’s interesting though, if you look at Peel region, so Mississauga, Brampton, west of the city, west of Toronto, that is interesting because the sales to listing ratio there is 41 percent versus last year was only 32 percent. That’s a pretty big jump. Nine percent jump compared to the last year. 41 percent you’re heading, you’re in balanced sort of territory, but you’re heading closer into seller’s market territory.

So Peel region takes off, most likely then York region will be next and most likely the entire region as a whole GTA will take off. So that is something to watch there. We’ll see how that goes over the next few months as we’re watching what’s happening in the 905. So that is sort of my first and main point, that overall, as you can see, there’s good things in the market, there’s not so good things in the market. Yes, the main headline you’re going to hear is sales are up 18 percent, which sounds huge, but again, we’re comparing it to a massive and historical low of last year. But overall the market is fine. The market is fine overall.

Now getting into the condo market, which as condo investors, that’s what we’re most interested in. Condos are still hot, no big surprise. Maybe the one surprising thing is how hot they are there. The sales to listing ratio for downtown condos, again, the stat that we track most closely, that I track most closely month to month, 64 percent strongly, strongly in seller’s market territory. Again, anything above 60 percent. You’re talking majorly strong seller’s market. So that’s reflected in the fact that, you know, most condos downtown are selling over asking. Rental market is also very hot. We’re not specifically talking about that, but condo market downtown, very hot.

Last year, sales to listing ratio was 54 percent. This year it’s 64 percent. 64 percent, by the way, for the month of July, looking at historically the last 10 years or so, average for July, it’s summer, it’s slower, it’s usually around 30 percent average. Many years it’s been, you know, 23, 25 percent. That’s been normal for the condo market downtown. And nobody’s saying the sky is falling or anything like that. In fact, no, the prices are still rising slowly at those kind of numbers, but here we are at 64 percent. So again, what should you expect? You should expect prices to continue to rise rapidly at a high pace.

So if you’re in the market looking to buy, if you by tomorrow you’re going to probably pay a lot more than if you buy today with the sales to listing ratio sitting at 64 percent. Looking at the supply side of the equation, this is very interesting. Just the lack of supply continues to be a major story here. While yes, the demand, the sales are healthy and strong, it’s really the lack of supply that’s the lack of properties for sale that’s driving this very, very high sales to listing ratio.

We have only 817 condos downtown available for sale, active listing, 817 condos in the entire downtown market. That is even lower than last year when we had 899 condos. So inventory ridiculously low. Again, it wouldn’t be uncommon in many years to have 1,600, even 1,800 condos available for sale in many, uh, July months over the last decade. So inventory is just unbelievably low. It’s really, that’s the number of condos available for sale right now. It’s the lowest point that it has been in the last 10 years. So this is the lowest inventory level that we’ve had in the last decade. And again, this is driving the rapid and continued run up in pricing.

So in terms of actual downtown resale condos, we’re pushing a thousand dollars per square foot on average for downtown. So this is for all condos downtown, old condos, 20 years old to brand new. The average for all condos downtown is pushing a thousand dollars per square foot. So if you say, you know, I’m looking for Andrew, can you help me find it? I want to move into a condo today. An average one bedroom condo in an average building in an average area, you’re pushing $500,000 just for an entry level point in a condo downtown right now for some context there.

So that’s the condo market, continues to do its thing, continues to be very hot, continues to rise, and it continues to be a reason why if you’re an investor, it’s better to buy now than it is to wait. Prices are still rising very rapidly. The final point I wanted to bring up is, again, looking at what’s happening in the [inaudible 00:16:02] gives us the statistics broken down by price point, which is nice. So we can now look at on a monthly basis what is selling at different price points. I’m most interested what’s selling on the upper end of the market because that was the segment of the market most hardest hit by the stress test and all the mortgage rule changes.

It’s just become a lot harder for people to get mortgages on properties, especially 1.5 million and up. So looking at the 1.5 million and up market for the month of July, across the GTA we had 388 sales this year versus 344 sales last year. So that’s a pretty significant chunk up. It’s more than 10 percent increase in the upper end. That’s a healthy thing to see. If the upper end of the market picks up that’s gonna drive the overall market, the movement in the market overall, but also most importantly going to drive the average price figure up, and when average price figures starts to go higher and higher and the media starts reporting on prices, average price figures that are rising, that has a major effect on the psychology of the market as well.

And more people, you know, begin to enter into the market when they start hearing headlines like prices are up, prices are up two percent, five percent, 10 percent, 12 percent. You know, the higher the percentage, the more people come into the market. So that is an interesting thing too. Another interesting thing will be keeping our eyes on in the months ahead is how the upper end of the market is doing and how people are adjusting to the stress test and new mortgage rule changes and just figuring out ways to get into those homes and condos in the 1.5 million dollar and up range, whereas over the last year, that segment of the market has really been hit hard.

I’m sure anywhere you live in the GTA, if you look around, you say are these houses that are sitting there and sitting there and not selling? Chances are those houses that are sitting are priced at 1.5 million and over. Prices that are under that 1.5 million mark, especially condos, it’s all moving very, very quickly and that hasn’t really been affected as much.

So there you have it. That’s my take on the July statistics so far. Hope you enjoyed this episode. Hope you found it useful. And once again, hope you’re having a great week. Happy condo investing. And we will talk to you soon.

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