Kudos to Appraiser, Housing Bear, Chris, Derek, and Professional Shanker for mixing it up on Tuesday. They did so with purpose, conviction, and respect. Plus, they all made fair arguments with their stats in hand, which is what I’ve been saying for years.
Any of us could be accused of “cherry-picking” stats, and while you’ll have to blindly trust me when I say that I never do this, intentionally, perhaps a confirmation bias is present in all of us.
Then again, I have posted blogs in the past about how I felt about the market, and how the market stats told a different story. In those cases, I usually felt the market was slow, when the stats suggested the market was fast and strong, so don’t lump me in with agents pumping tires, cheerleading, and lighting the world on fire.
On Tuesday afternoon, I went over the July TREB numbers with a fine-toothed comb, and tried to draw conclusions about where we are in the market.
Since the relationship between supply and demand results in price, I always start with active listings, sales, and then look at prices.
I also try to avoid looking at any social media or newspaper headlines before I view TREB stats, since, again, a person can make numbers say anything he or she wants, so I like to avoid all bias.
This month, there were five figures that I felt either jumped out at me and required further examination, or that I saw incessantly posted on social media over the last two days.
Today, I’d like to go over those figures and show you how I tried to look at them on both an absolute and relative basis, and provide you with my conclusions…
1) Average Home Price Down 3.1%, Month-Over-Month
On the surface, obviously this looks bad.
3.1% in a year isn’t bad, but in a single month? That’s a huge number!
Most of us know that a market cycle is made up of increases and decreases; peaks and valleys. And I think most of us would also know, if we gave it two seconds of thought, that July is typically a slower month, and thus prices should drop from a peak month like June.
So how does this number look on a relative basis?
Here’s the respective +/- from June to July in the previous eight years, which of course, are all minuses:
July 2011: -3.6%
July 2012: -6.3%
July 2013: -3.4%
July 2014: -3.3%
July 2015: -4.7%
July 2016: -4.9%
July 2017: -6.0%
July 2018: -3.2%
So in actual fact, the 3.1% decline in average home price from June to July of 2019 points to………a strong market? On a relative basis?
The average drop during this time period is 4.3%, so a drop of “only” 3.1% tells us that July was, in fact, a very strong month for prices.
2) Average Home Price Up 3.2%, Year-Over-Year
I’ve seen a lot of people touting this number on social media, and again, we have to put this into context.
Is 3.2%, year-over-year, a great return?
Frankly, if I were making only 3.2% on my money, through the various investment vehicles in which I ride, I would be disappointed. In a historical context, 3.2% per year is not a good return.
Is this a good return in the context of the last few years? Or the last twenty years? I think it’s fair to say that, given the rough ride in 2017, and the decline in average Toronto home price in 2018 for the first time since 1996, seeing prices up again in 2019 is a good thing.
Now from 2019 standpoint, again, I would ask, “Where does July stack up against the rest, and what does this tell us?”
For that, I would look at the year-over-year average sale prices in each month of 2019 thus far:
Well, I’m not sure what this looks like to you, but to me, it looks like a trend.
Three consecutive months of 3%+, year-over-year price growth, from May to July, and thus a pattern is spotted.
Personally, I think if we see a strong August, then September is going to be nuts.
For what it’s worth, the average home price in August of 2018 was $765,292.
If the 2019 August average sale price were to top that by 3.0%, it would mean a price of $788,251. Does anybody think this August’s price will fall below that number from where it currently sits in July, at $806,755? I don’t. And thus that would mean four straight months of 3%+ year-over-year price growth as we head into the busy fall market.
3) Sales Down 3.0%, Month-Over-Month
The same argument can be made here, as it was for the 3.1% drop in average home price.
Except this time, the numbers are even more convincing.
July 2011: -22.6%
July 2012: -19.6%
July 2013: -5.7%
July 2014: -9.7%
July 2015: -17.6%
July 2016: -22.0%
July 2017: -25.7%
July 2018: -13.8%
It’s nuts, right?
Something must be off in my math that resulted in 3.0%?
There were 8,860 sales in June and 8,595 in July. These numbers are legit.
The average drop in sales activity from June to July over the past eight years is a whopping 17.1%. And yet this year, we only saw a 3.0% drop.
Surely the most ardent market bears must recognize the strength behind these numbers, no?
4) Sales Up 24.3%, Year-Over-Year
I’m sure this sounds repetitive by now, or at least thematic, but each of these statistics is being used with regularity out there right now, and the massive increase in sales probably leads that list. Even yours truly is guilty of using this stat on Instagram, although to be honest, I don’t really know how to use Instagram and I have help…
A year-over-year increase of 24.3% is huge, no matter what market you’re in. And while I might have suggested that the 2017 insanity would have led to 2018 stats that perhaps weren’t very indicative of how the market is actually performing, I don’t think we have any outliers this year.
So how have previous July’s looked for year-over-year sales increases/decreases:
See what I mean about 2017, right?
In any event, looking at previous July’s isn’t the best indicator (looking at previous months in 2019 is, which we’ll do in a moment) but I wanted to have a look regardless.
I think that sales dropped so dramatically in 2017 that to see these big increases of 16.8% and 24.3% in July of 2018 and 2019 respectively, we’re really just climbing “back” to where we were. Consider that the 8,595 sales in July of 2019 is far greater than the 6,916 and 5,921 in 2018 and 2017, but still well, well shy of the 9,929 in 2016, 9,880 in 2015, and 9,152 in 2014.
Now if we look at 2019 thus far, as we did with prices above, there’s a different conclusion to be drawn.
This somewhat traces the trend we saw above with respect to price, in that the year started very slow (sales actually down in February, and off a mere one sale; 7,188 vs 7,187 in March), only to turn on a dime later in the spring market.
Again, I think that with a very slow July in 2017 and 2018, these numbers are somewhat skewed. But overall, it looks like there really was tremendous strength of both sales and prices in the month of July.
5) Active Listings Down 9.1% Year-Over-Year, Down 8.7% Month-Over-Month
Let’s throw these two stats together so we can keep to our “Fab Five” data points.
There’s a consensus that if sales are up and inventory is down, that prices will rise. Pretty simple, right?
Year-over-year for July, sales are up 24.3%, active listings are down 9.1%, and prices are up 3.2%. That confirms just about everything we know about supply and demand!
But can we put the July inventory numbers in context? Let’s try.
We saw 17,938 active listings in July, and over the preceding eight years, we saw:
Again, we see the outlier, except this time it’s 2016. The massive increase in sales in 2017 is part of the reason for the drop in prices, but that’s a whole other story.
Over the eight years preceding 2019, the average active listings in July is 17,951.
The difference between this average and 2019 is seven 100th’s of a percent!
So can we really claim that listings are down in July?
Well, just for good measure I suppose we should look at the 8.7% drop in active listings from the month of June, and see how this figure compares to previous periods:
Now we see that the 8.7% drop is the highest in our nine-year range, so does the opinion change?
The first number set suggests that inventory is completely in line with previous months of July.
But the second number set suggests that the drop in inventory during the same market cycle (ie. June) was far more pronounced in 2019 than in most years.
What I saw in July was quite interesting, since it felt like a slower month for me and my team, but that data says that the month was busy and that there was significant upward pressure on price.
Much of what I have been doing, as mentioned, is getting ready for fall. I would not list a freehold home in August, and I would avoid listing it in the latter half of July at all costs. The condo market is less cyclical, but again, if a client has a 1-bed, 1-bath condo, I’d much rather list in September when buyers are fully engaged and the market is in full swing, despite the increased competition.
So call me surprised by July, but not uninformed.
I think these numbers prepare us for the month of August, which is typically the second-slowest outside of December. And if we see a strong August, relative to previous years, I think my inkling about the fall will prove correct.
With no interest rate hikes on the horizon, and in my humble opinion, a cut coming in 4-6 months (Justin and Bill are too proud to cut rates right after the U.S., so they’ll wait, and pretend like we don’t follow the U.S. like a sad lap-dog), I see no reason to believe prices are going anywhere but up.