Rob's Real Estate Report
January & February 2024 Housing Stats & Analysis
By Rob Pilon:
Well, January and February definitely broke free from stagnant and depressed housing activity in the fall. As of this moment, the 2024 resale market is progressively improving. I decided to track "WEEKLY" sales of "DETACHED" homes from January 3rd to March 5th 2024 by adding all detached sales across the GTA (Toronto, York, Peel, Halton & Durham). Check it out:
Weekly sales of detached homes increased steadily from only 329 sales in the Jan 3rd to 9th week to 687 sales in the Feb 28th to Mar 5th week. That's an increase of 108%, or over double the weekly sales. Note how each week's sales increases from the previous week throughout the first two months of 2024 with one temporary dip during the February 14th to 20th week (because Valentines Day and the Family Day long weekend fell in that week). That represents a sustained material change in buyer behaviour from mostly apathetic buyer sentiment in the fall 2023 market (fall markets typically enjoy strong buyer demand).
Examine the orange bars in the chart above. They reflect the number of weekly detached sales that sold over the asking price. For example, January 3rd to 9th had 329 detached sales. Of those 329 sales, 42 detached homes sold over the asking price which is 12.8% of all sales that week. In other words, 12.8% of detached properties sold over asking.
Each successive week had more detached homes selling over the asking price from the previous week, which means each week brought more aggressive and determined buyers than the previous week except during the February 14th to 20th week (again, Valentines Day and the Family Day long weekend fell in that week). Only 12.8% of all detached sales in the January 3rd to 9th week sold over asking, whereas 42% of all detached sales sold over asking in the February 28th to March 5th week.
With increased sales (demand) come increased detached house prices. Average detached home prices were $1,350,828 at the end of January 2024. Prices jumped 6.9% by the end of February 2024 to $1,443,612.
Let's test the theory that when sales increase over a few months, prices increase as well. In the chart below, I plotted 10 years of sales (blue bars) and average prices (maroon line). These are average prices of every residential property type combined (detached, semis, townhouses & condo's).
Look very carefully across the maroon line above. Focus only on the times the maroon line went up (meaning prices went up). Now look at the underlying blue sales bars each time the maroon line went up. What do you notice? In the great majority of cases, when blue bars increased in height (meaning increased sales), the maroon line went up (aka prices increased).
Here's a closer look at the increased sales/increased price relationship (and conversely, the decreased sales/decreased price relationship):
Sales are expected to increase further into spring, which if true, property prices should continue to appreciate in kind.
However, if an avalanche of new listings sweeps across the market this spring, price increases could falter even with increased sales, but new listings would have to greatly outnumber buyer demand for this to occur to the point where the number of unsold listings increases every month leading to a glut of unsold homes (known as "ACTIVE LISTINGS"). Not sure if that'll happen. Active listings are the acculated number of unsold properties at the end of every month. It's the sum total of each and every old and new listing that hasn't sold at the end of the month. Clearly, if the number of unsold listings continues to pile up in successive months, prices will fall unless an equal excessive number of buyers enter the market to absorb the glut of unsold homes.
The ebb and flow of the number of sales (buyers entering the market and purchasing homes) and the number of unsold properties at the end of any month will have an affect on home prices. This is measured by a metric called "Months of Inventory" or MOI for short. MOI is calculated at the end of each month:
At the end of January 2024 there were 10,093 active listings (unsold properties)
January 2024 sales were 4,223
January MOI = Active Listings (10,093) divided by Sales (4,223)
January MOI = 2.39 months [this formula answers the question of how many months would it take to sell 10,093 active (unsold) listings at the rate of 4,223 sales per month, if theoretically, there where no other listings that came on the market]
At the end of February 2024 there were 11,102 active listings (unsold properties)
February 2024 sales were 5,607
February MOI = Active Listings (11,102) divided by Sales (5,607)
February MOI = 1.98 months [this formula answers the question of how many months would it take to sell 11,102 active (unsold) listings at the rate of 5,607 sales per month, if theoretically, there where no other listings that came on the market]
It stands to reason that if there are less sales and higher active (unsold) listings at the end of any month, then the MOI will be higher. For example, if there are 500 sales and 1,000 active (unsold) listings at the end of a month, it will take only 2 months to sell 1,000 active (unsold) listings at the rate of 500 sales per month. BUT, if there are only 250 sales and 2,500 active (unsold listings) at the end of the month, it will take 10 months to sell 2,500 active (unsold) listings at the rate of 250 sales per month. In this eaxmple, it becomes apparent that 10 months of inventory means that there are too many unsold listings against too few sales (aka low buyer demand), so prices would have to be reduced to entice the too few buyers to purchase (high supply with low demand leads to falling prices).
Therefore the following assumption can be made. When MOI is trending lower for a few months, home prices will increase. And when MOI is increasing over time, home prices will fall.
The following chart bears this out:
The maroon line represents MOI (Months of Inventory). The blue bars represent Average Sale Prices. Look at the first red arrow on the left of the chart. It's pointing downwards because it's following a decrease in MOI over the months from Jan 2016 to April 2017. Now look at the corresponding blue bars (average sale prices) during the same period. The blue arrow is pointing upwards because it's following an increase in average sale prices from Jan 2016 to April 2017. Conclusion: As MOI decreases each month, homes prices increase. You'll see this principle at work throughout the chart. Glance over to Jan 2024 and Feb 2024. MOI has been falling (2.39 months of inventory for January 2024, then 1.98 months of inventory in February 2024). Consequently prices rose from $1,026,703 in January 2024 to $1,108,720 in February 2024. That's a substantial 8% price increase from January to February 2024.
Another criterion used to determine direction of prices is the average "Days on Market" (DOM). DOM indicates how many days it takes a property to sell.
Study the chart below:
The maroon bars represent average DOM for each month. The blue line shows Average Sale Prices. Look at the first red arrow on the left of the chart. It's pointing down. Average DOM fell from Dec 2016 to Apr 2017 which led to prices rising during the same time period (see first blue arrow on the left). Similarly, take note of all the red arrows along the chart, then observe the direction of prices for each red arrow. A clear trend emerges. As average DOM increase, prices decrease. As DOM decrease, prices increase. Why? Because when the average number of days it takes for properties to sell decreases every month, it means the market is heating up and buyers are submitting Offers quicker and buying homes more rapidly. That puts upward pressure on prices.
DOM over the last two months:
January DOM = 37 days (average sale price = $1,026,239)
February DOM = 25 days (average sale price = $1,108,720)
So, where does the market go from here?
Some predict prices will continue to increase throughout 2024, especially if the Bank of Canada (BOC) begins to reduce their policy rate in the second half of the year. Others think a potentially meaningful recession is imminent which will dampen current buyer demand as the year progresses, further exasperated by the unaffordability of prices, especially for first time buyers. The run up of home prices this spring may be viewed as inflationary by the BOC which could delay rate cuts to later in the year. We may see a repeat of last year when prices increased in the spring, then corrected and remained flat. Or, prices correct after the spring market only to pick up again in the fall if rates are cut. Buyer sentiment is fickle and can change on a dime. If buyers believe prices will continue to increase if they don't act now, they'll remain aggressive in making home purchases. If that sentiment ends for whatever reason(s), the market will change,...then change again.
Notwithstanding the charts and brief analysis of this report, which is based on the entire GTA market, individual cities and communities will vary slightly to substantially from the averages. Below are stats for major GTA cities and towns:
