Ask any Canadian what tomorrow's weather will be and you will never get a straight answer. On November 9th in Toronto the temperature hit a high of 8.9C. The following day it dipped to a "high" of -3.4C. Appropriately enough the Real Estate market is following suit. Market temps like these haven't been seen since the US Housing Crash in 2008.
Enter the Sales-to-New-Listings Ratio (SNLR). This statistic pits the amount of sold units against newly listed properties over a period of time. It is a statistic that can be used to measure the overall health of the market as well as determining whether it's a buyers or sellers market. A low ratio shows less homes selling compared to the amount of newly registered listings. A higher ratio means a sellers market - more units are being sold than replaced in the market.
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. Whenever a sale is made, one unit is removed from the bin. Every time a new listing is registered on the market, another unit falls into the bin. Right now, there is a big sign with the writing "Christmas Sale" on it as the conveyor belt slows down and the mountain of piled-up product far and above the rim of the receptacle decreases at a slightly quicker rate than last month.
(SOURCE: TREB. Data Compiled & Presented by The Dynasty Group)
The SNLR was analyzed as far back as TREB stats were made available over a period of 22 years more or less from Jan/1996 to Oct/2017. Out of those 260 months the SNLR dipped below 50% a total of only 39 times. That's 15% of the total pie. How many times did it dip below 40%? Only 11 times - that's 4.62% of the total time.
What's more interesting is seeing when these extreme lows and highs were hit over time.
History tells us that people of the GTA do not like to list properties for sale during the cold winter months or that a greater amount of people rush to buy before the year ends. Regardless, the SNLR and Average Price Change Percentage stats closely follows one another except during the month of December which shows a normal spike in the SNLR - more units sold than listed. This is a typical, normal spike. What isn't normal is what's happening now and what happened in 2008.
What Goes Down, Must Come Up
The numbers were steady from 1996 up until when the first shock occurred in 2008 coinciding with the US Housing Crash. The impending shockwave slammed the brakes on the housing market in the GTA. From January 2008 until August 2008, the SNLR averaged 49%. The following month in September was the beginning of the bottoming out. The SNLR hit below 40% five times between September 2008 and February 2009- culminating in the lowest SNLR ever reached in the past 21.5 years at 25.3% in January 2009. That same summer saw the SNLR swing back up to highs of over 80% in June and July before peaking for the year at 99% in December 2009.
Fast forward to today. Instead of taking an immediate plunge from normalcy, the SNLR for December 2016 spiked to the highest ever recorded at 127.3%. A few more months of consecutive highs ensued followed by a huge slump where the ratio hovered on or near 40% for four months beginning in May 2017 to where we stand today at 47.8% for October 2017.
The SNLR hit between 30% and 40% a total of seven times during these two phases of market shock. Only four other times in recorded history has the SNLR ever dipped below 40%.
Predictions Were Made to be Broken
The government measures intended to slow the market did its job. April 2017 saw the Ontario Government implement a 16-point housing strategy stamping a foreign buyer tax on the sale of any properties to non-residents, a vacant home tax and stricter tenancy guidelines among several other speed bumps. In lock-tune and step the Bank of Canada announced it's first interest rate hike in 7 years on July 2017 by 0.25%. A second interest rate increase came earlier than expected two months later in September by the same amount.
These combining factors sent the market into a deep chill. Over 25,000 listings appeared on the market in the spring, an increase of close to 20%. As we turn the corner into 2018, new mortgage rules will make a stress test mandatory for all mortgages, not just insured mortgages with less than 20% down payment. That means qualifying at the Bank of Canada rate at 4.99%. Expectations abound of prices dropping even further than it already has once these guidelines kick in on January 1st/2018. Adding into the pot is a new study showing that Canada ranks #1 in household debt in the world. Leverage room is running out and the banks are calling in their numbers.
------Continued Next Week "SNLR Thermometer"