Greater Toronto, Ontario - Tuesday March 5, 2019 – Garry Bhaura, president of the Toronto Real Estate Board, this morning released the Board’s monthly “MarketWatch” publication. The report seemed ironically appropriate in that I’d noticed on the calendar just prior to opening it that today is Shrove Tuesday. I’m not even sure what a Shrove is, but grew up calling the day “Pancake Tuesday” and that’s what the February, 2019 MLS® Home Sales Statistics immediately brought to my mind: “Flat as a pancake.” Apologies for the syrupy intro… [By the way...I quickly “Googled” “shrove”. Top result was the definition: “Past of shrive.” There you go. I learned something today. Ish...]
Ahem. Back to Reality...ish...
Total sales - meaning all home types across all of TREB‘s entire market area - were 5,025 on the month, a little below “flat as” at -2.4% [5,148 last February]. The overall average price in February was 780,397, up a thin 1.6% [767,801 12 months earlier].
The time it took to sell a home in February? Uhhh...more crepe than pancake, actually: 0.0% change at 25 Days on Market, on average.
Inventory? Total Active Listings in February were changed less than a percent compared to the year earlier figure at 13,284 homes on the market [13,362 last March]. See? Pancakes. All figures herein are year-over-year comparisons unless otherwise noted.
Enough of that. How About waffles?
The “New Listings“ Numbers were down 6.2% compared to last February at 9,828 [10,473]. But we’ve said it before and I’ll say it again because it’s something we’ll never waffle on: Given the practice of terminating and re-writing listings - generally done when a home’s been on the market “too long”, and often coincident with a price “adjustment” - the new listings figure gets distorted.
Even if the argument’s brought that the practice has been around for so many years now the distortion’s already factored in, what can’t be easily accounted for is the amplification of that distortion caused by certain market conditions: In the overheated Spring of ‘17, for example, no listings were terminated/re-written: They weren’t on the market long enough. Under various conditions, the RATE of re-writing listings will vary. “Total Active Listings” versus “New Listings”? Apples & oranges. Pancakes & bacon. Ummmm...
The report also Notes “tighter market conditions“ given the inventory numbers, and citing those inventory numbers as support for prices. No kidding. For contrast, here are the inventory numbers for this February as well as last February; two Februarys ago [just before “The Peak”], and five years ago in 2014 [Ouch. Five years?!]:
[For each of the months: Total Active Listings; New Listings; Forward Inventory [= Total Active Listings / Month’s Sales]; Absorption Rate, or “Sales-to-New-Listings Ratio” [= Month’s Sales / New Listings]; Overall Average Price; and YoY Price Change]:
February 2019: 13,284; 9,828; 2.64 months; .511; $780,397; +1.6%
February 2018: 13,362; 10,520; 2.58 months; .492; $767,818; -12.4%
February 2017: 5,400; 9,834; .67 months; .815; $875,983; +27.7%
February 2014: 14,019; 10,897; 2.45 months; .523; $553,193; +8.6%
So, what’s all that mean? Well, the Forward Inventory numbers look pretty normal based on the sampling. Obviously the Spring of 2017 was unsustainable as we noted at the time. We also noted in February, 2014 that the FI figure of 2.45 months was “relatively tight” by historical standards. So do we have a “new normal”? Are we beginning a bounce-back from the post-peak correction? Are we just passing through “relatively normal” on the way to “hell in a handbag”?
Who knows? But talking to one mortgage person today, the “take” from that perspective is that we have a degree of “gridlock”: People want to buy up; people want to downsize...what’s missing is the first-time buyer. They can’t qualify for the first-time house because a] prices are still very elevated, and b] the interest rate they have to qualify at is 2% higher than they’re actually qualified for because those are the terms of the OFSI [Office of the Superintendent of Financial Institutions] “stress test". So, do the math.
A second mortgage person I talked to today said, “It’s pretty slow...mostly re-finances. But a lot of those even are staying put [not shopping the market] because, otherwise, they’d become subject to the stress test. So... they have to take what their current lender offers them.”
Deal, or no deal?
On top of that, I had a call from a US-based investor looking to buy into the Toronto area real estate market via single family homes - specifically a Bungalow on a decent lot that he could renovate and then rent out. He has $150,000 in cash as a down payment. Bottom line? Between the price levels, the Land Transfer Taxes, and the 15% foreign buyer tax, forget it. No deal.
It should also be noted that the "stress test" is "federal"; the foreign buyer tax is "provincial" - formally referred to as the "Non-Resident Speculation Tax", it was instituted as part of the Wynne government's Fair Housing Plan in the Spring of 2017 and applies to any transfer to a "foreigner" [as defined] of residential property in the Greater Golden Horseshoe. There are some limited provisions for exemptions and/or rebates.
I’m not saying there should be no stress test. I think it’s actually a good thing. Remember “The Big Short”? And I’m not saying the answer is to find “foreign buyers” who can afford to buy where “locals” cannot, just to break up the gridlock. What I’m saying is that, no matter how you cut it, either prices need to fall further, or huge “grants” need to be handed out to first-timers, or interest rates need to fall further. The second or third options aren’t going to happen. At least, not to any significant extent. The only other scenario to bring prices into line in the bigger - e.g. “international” - picture would be a big drop in the Canadian dollar. Maybe the stress test came too late.
There's an old saying in the real estate business: When the average buyer can't afford the average house, the party's over.
Just for clarity, I do not believe the problem & solution are under-supply & ploughing under all the farmland to build more houses. Why? Because, a] those houses are still going to be sold “at the market” - unless you can build a gazillion at once to flood the market...which drives down market prices, obviously… and b] we kinda need the farmland. We [still] live in interesting times...
Looking at the Major Home TYPES
The Detached group saw a 9.6% drop in the number of sales in Metro Toronto to 470 units at an average selling price of $1,294,936, up .8%. In “The 905“ area - the balance of the GTA - 1,701 Detached homes changed hands, +4.2%, at an average sale price of $894,147, down 1.9%.
Sales figures were actually very mixed by home style. The Semi Detached group in Toronto, for example, saw a 20% pop in sales to 174 units at an average sale price of $1,087,363, up 10.5%. In the balance of the GTA, 282 semi‘s sold, down 6.9%, at an average of $675,355, up 4.1%. Those figures illustrate the desire of buyers to want to be in the big city despite prices, double land transfer taxes, and so on: The price of a Semi-Detached house in Metro Toronto is 84% of that of a Detached house. Outside “The Big Smoke”, you can buy a Semi for just 75% of the price of a Detached...and, obviously, save big on the tax part. Hmmm...
Sales of Townhouses were down six percent across TREB‘s area; the actual selling price for those “Towns“ was relatively flat at -.5% to $635,693…you know…never mind...
Sales of Condo Apartment units dropped 6.7% in Metro Toronto to 1,064 units at an average selling price of $612,488, +7.4%. In the balance of the GTA, 472 sold, off 3.5%, averaging $448,711, up 3.1%.
From the report:
“The OSFI mandated mortgage stress test has left some buyers on the sidelines who have struggled to qualify for the type of home they want to buy. The stress test should be reviewed and consideration should be given to bringing back 30 year amortizations for federally insured mortgages. There is a federal budget and election on the horizon. It will be interesting to see what policy measures are announced to help with home ownership affordability,” said Toronto Real Estate Board President, Garry Bhaura in the report.
TREB’s Director of Market Analysis and Service Channels, Jason Mercer added, “Home sales reported through TREB’s MLS® System have a substantial impact on the Canadian economy. A study conducted by Altus for TREB found that, on average, each home sale reported through TREB resulted in $68,000 in spin-off expenditures accruing to the economy. With sales substantially lower than the 2016 record peak over the last two years, we have experienced a hit to the economy in the billions of dollars, in the GTA alone. This hit has also translated into lower government revenues and, if sustained, could impact the employment picture as well.”
Thanks for stopping by... Until next time - Andrew.
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