Our last blog looked at how market temperatures in the GTA Real Estate Market were applied throughout history using the Sales-to-New-Listings-Ratio statistic. There were questions surrounding an analogy we proposed that needs clearing up before we delve deeper into the meat of the matter.
63 is the New 50
"Another way to see it is to imagine a moving conveyor belt regularly dropping products off into a giant bin standing at just over 63 inches high".
A perfect market is where every listing registered onto the market sells. There is no need to cancel and re-list the property and not one listing ends up not selling. This imaginary market would have an equilibrium point of 50%. Anything over 50% would be a seller's market and anything below a buyer's market.
In an imperfect world not every listing ends up selling and listings are cancelled and re-registered back into the market place several times over. We have discovered that in our real-world market here in the Greater Toronto Area, a truly balanced market actually rests a touch above 63%. This is the true balance point.
That means that 13% of the listings ever recorded in the marketplace (as far back as statistics were made available) were terminated or expired and 87% of the listings that are registered do end up selling the first time around, based on past stats.
Continuing our analogy from last week's blog- there is a thin layer 13 inches high resting at the bottom of this bin where the available product right now currently rests atop. Consider it a residue of all the cancelled and unsold listings collected over the course of 21.5 years. How much of that 13% were truly unsold listings is up for discussion.
The Dynasty Group has created the world's first Real Estate Market Temperature reading tool for any Real Estate Market. Here we have an augmented "Remometer" to measure solely the Greater Toronto Area. Using this metric we can succinctly pinpoint exactly how hot or cold the market is and to what degree.
100°+ Boiling Point - This threshold was crossed every single time in the month of December. This spike is normal during the colder months as people pack it in for the holidays with what few buyers out there looking to get in before the year ends. But, Government policy also comes into play as it did when the Chinese Government looked to implement foreign investment restrictions abroad for their citizens beginning 2017 coupled with a foreign buyers tax in Vancouver in 2016. Toronto was the next natural choice for any investor interested in Canada.
80°-100° Hot - Once again, these highs almost exclusively happen during winter months. This range showing up during the warmer selling season is surely a glitch in the radar and is deserving of a closer look.
("Remometer"- World's First Real Estate Market Temperature Reading Tool - By The Dynasty Group)
70° - 80° Warm - Skewed slightly higher towards a seller's market. While this range has hit historically almost as many times as the 40-50 range (it's inverse), it doesn't have the same impact on the market.
50° - 70° Balmy - Normal operating temperatures. Anything within the 60 range is more or less balanced. This band is typically found during a regular Spring/Summer selling season in the GTA. The market begins to tremble when it dips below the mid 50's.
40° - 50° Cold - Buyer's and seller's take a seat back here as this range is typically hit during the month of January. These numbers were also hit north of the border repeatedly during the Spring and Summer of 2008 during the US Housing Crash and this past year in 2017 when the Provincial and Federal Governments slammed the brakes on the hyper-expanding residential sales growth in the Greater Toronto Area. With more listings than buyer's can handle, buyer's are free to pick and choose as they see fit.
30° - 40° Freezing Point - Markets are in a dangerous place as nothing seems to move and the marketplace is flooded with listings. Sellers struggle to sell and seemingly nobody wants to buy. The few who buy during this time will find themselves like a kid in a candy shop.
30°- Sub-Zero - Only once in recorded history has the market dipped below 30. Numbers like these would undoubtedly only ever appear during times of incredible market shifts, catastrophes or war. Let's hope we stay above this mark for good.
There are several key points that we can summarize from our study of the SNLR.
December is typically a seller's month. January, a buyers'. Prices are usually not synonymous with the SNLR but logic dictates that the higher the inventory and fewer sales, the better the opportunity for finding great deals. The economic and/or political landscape is probably going through challenges if the SNLR is seen dipping below 49° more than 2 to 3 times in any given year and in quick succession.
The biggest drop ever recorded was when the SNLR hit 25.3% in January '09 coinciding with the US Housing Crash and set the average sale price back 3 years. The market recovered later that same year setting a new record for the average sale price, surpassing the $400k mark.
While the Remometer is able to read market temperature, it doesn't necessarily guarantee that prices will follow. Its main use is to determine the flurry of activity to help consumers gauge the Real Estate market at any given time.