Would it ever be reasonable to call our real estate market drilling?
I mean, the real estate market isn’t boring, nor will it ever be. It’s real estate! It’s the one thing that we all have in common, in that we all live somewhereand I would argue that Toronto real estate might give the Toronto Maple Leafs a run for their money in the “most talked about” contest over the last decade.
But comparatively speaking, is it possible that Toronto real estate just isn’t as interesting as it used to be?
Perhaps this is a good thing. Maybe we needed this.
Real estate has dominated the headlines for the last decade and it’s all anyone ever wants to talk about. It’s made some people rich while it’s made others feel inadequate, and all the while, I feel like where a person lives was never supposed to play such a large role in all our daily lives.
So compared to the market that we experienced in February, and the media attention that surrounded it, today’s market is, well, drilling.
Sales are down, prices are flat, the sexy “bidding war” stories aren’t being told with regularity by newspaper columnists, and thus there’s nothing for us to get all fired up about.
I spent years wondering why people were so interested in real estate stories, and to some extent, I still do. I understand there’s an element of fantasy to it all, and the human element is part of every story. There’s the interior design angle, the financial angle, and then just the sheer amount of spin and sexiness that the media puts into every story.
I recall a story where there were ten, fifteen, or twenty bids on a particular property, and one bidder offered a pair of Toronto Maple Leaf tickets to the seller if their bid was chosen. That’s sexy, right? Involve a major Toronto sports team, and you’ve got keywords, clickbait, and more eyes on the story.
But what about now?
What does the media do with a market that’s not red-hot, that isn’t bordering on mania, and that’s debatably drilling?
Well, it looks like they’ll continue to spin, continue to write eye-catching headlines, and continue to play on fears. Only this time, it’s not fear of missing outbut rather it’s fear of losing everything.
Case in point, here are merely six headlines from BlogTo over the past month and change:
And that’s just what I found in five minutes!
I’m continuously asked by clients and readers why BlogTo has such a hate-on for real estate, and I honestly don’t know. Those six articles were written by the same two authors, and I’m willing to bet neither owns their own home.
Spirit that seems to be what Toronto is about, sadly.
Those that don’t own or can’t get what they want are far more likely to hate real estate, hate real estate agents, argue that properties are over-priced, predict the coming “bubble burst,” and clamor for the government to “do something.”
So as I said: maybe this “boring” market is a good thing?
We’re two months through the fall market which is essentially a compact, quick, 3-month cycle. Sure, real estate does sell in December, but as a seller you’re not targeting that month. The only people who typically target December are buyersand that’s because they feel they can pick through the leftover bin and look for a deal.
I combed through the October TRREB stats last week, looking for something sexy, but all I found was drilling.
And if I had to pick one word to describe our market right now, it would be “stable.”
Perhaps stability is a better term, and despite talk of a recession, or your every-Saturday read about the real estate market collapse, the conclusion I drew when I looked at the TRREB number last month was that we’ve hit a point of stability.
Here’s the average GTA home price over the last four months:
That’s four months in a row of the average home price falling within a minuscule 1.37% band.
That, to me, is a trend.
That, to me, is stability.
Is stability the opposite of volatility? At times it is, but at other times, we grow accustomed to thinking that a market appreciating out of control is “normal,” and anything to the contrary seems concerning.
Our market is said to have “peaked” in February, with the average home price dropping on a month-over-month basis in March, April, May, and June. The average home price has increased in three straight months, but those increases (+0.4%, +0.7%, +0.2%) are so small that it’s of little significance. What ice significant, in my opinion, is that prices remain flat. This seems to be a new baseline for pricing, and whether the average home price goes up or down by 0.4% doesn’t matter as long as there is continued support at this level.
Now, not to undermine what I said above about those small price increases being of little significance, I was watching the October data to see if we witnessed a decline.
Increases of 0.4%, 0.7%, and 0.2% are insignificant in the grand scheme of things, ie. comparing to the peak in February.
But as it pertains to what usually happens from September to October, it’s important.
I’m always looking for outliers in the data as indications that the market is doing something unique, and in this case, a decline from September to October would have allowed us to draw conclusions about the market moving the other way.
Well, because of this data:
Only twice in the previous twenty years we saw a decrease in average home prices from September to October, and one of those years, 2008, was in the middle of a worldwide financial crisis.
Sure, the average home price only increased 0.2%. That’s a rounding error. That might as well be zero, right?
But we didn’t see a decline. That is the story here.
The fall market is typically quite frenetic and the momentum builds as time goes on. September is crazy and it leads to an exceptionally busy October, with prices usually following suit.
If we saw the October average home price decline, it would have signaled that September was the proverbial “dead cat bounce” in the market.
But in the end, we saw in the data what most agents felt out in the market, which is that despite a decline in sales, there’s no significant decline in price.
What of those saleshowever?
The media ran with this year-over-year decline of 49.1%, which surely is significant! There’s no way to sugarcoat or explain away that half as many properties sold this year compared to last year, although given the circumstances, it’s not like we expected anything different.
In a fall market context, however, the decline in sales on a month-over-month basis was surprising.
I do believe that the average price story is more important, but what can we say about the 1.5% decline in sales from September to October?
We could say that 1.5% is insignificant, but we could also say that in 15 of the previous 20 years, we saw an increase in sales in this market. Have a look:
Total sales decreased on a month-over-month basis but average price increased.
And all the while, “new listings” did what they always do:
An increase in new listings would have been a huge red flag. Is, in this case, a black flag, per the chart above, but you understand what I’m saying.
If this market is going to turn downwards like so many people think, then we’d be seeing a decline in average price, a decline in sales, and a huge increase in new listings.
Not so, however.
A lot of the media coverage has been on Canadian real estate, and when I look at the market in a Toronto context, I tend to tune out the headlines and media voices talking about prices coast-to-coast.
But I also think it’s important to look at the GTA market in the context of each individual region, so as a refresher, let’s check in and see how prices have fared since the “peak” in February:
The GTA-wide price is down 17.7% and that’s significant.
Prices were up a whopping 15.3% from December of 2021 to February of 2022, as we all know. That was the mania that started in 2022 and it’s part of the reason why we find ourselves where we currently do.
But with all this talk of a 17.7% drop from February, surely the December-to-February story must be told hand-in-hand, no?
Another story that should be told: the 416 is “only” down 9.7% since February whereas an area like Durham region is down almost triple comparatively.
All averages are made of other averages, and that 17.7% drop, GTA-wide, is made up in part by a smaller 9.7% drop in the 416, and a larger 27.3% drop in Durham, and a 21.3% drop in Peel, and so on, and so forth.
While I’m not trying to make this into an argument about how the 416 is more immune to price corrections than the suburbs, I think we can all draw the same conclusion, and I think we all could have predicted this in advance.
Now, what can we expect moving forward?
If previous years are any indication, we can expect a decline in average home price in November.
Only 6 times in the previous 20 years have we seen an increase from October to November:
So here comes another if.
If the average home price increases in November, not only will that buck the trend in the previous twenty years, but it will also represent four straight months of increases (albeit moderate) as well as continued “stability” in that average home price.
And even if the average home price declines, say, 0.4%, I’d still argue that stability exists.
Here’s the chart we looked at above, once again:
Any home price over $1,080,000 would still point to that “stability,” in my opinion. And while that only allows for a 0.86% decline, it’s not out of the question.
See you here in a month’s time to find out how smart we all are…
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