March 21, 2019 | Toronto Real Estate Market
Here’s an alarming statement: “Canadian home values fell last year for the first time in three decades amid falling prices in some of the country’s priciest markets, even as debt burdens increased.” The above statement was from a March 2019 article in the Economics section of Bloomberg entitled “Canada Home Slump Deepens With First Drop in Value in Decades.” An alarming title too. Click here if you would like to read the whole piece.
There are some things that are very true about the statement. Canadians are carrying a larger portion of debt, and Canada, in general, is seeing a slow down, even a drop in real estate prices. Though this article makes some good points, I think discussing real estate as a national event is not very helpful. Real estate in Canada is regional. On top of that it varies from city to city, even neighbourhood to neighbourhood. Real estate in Ottawa, for example, has increased in price, year over year, from February 2018 to February 2019. The West, whether it is Vancouver or cities on the Prairies are seeing prices retreat, on average, during that same time frame. A national average is just a flattening of all the markets across Canada.
I think a more helpful metric to gauge the health of a given real estate market in a Canadian city would be to look at the MOI or Months of Inventory for February 2019.
This number can be an important measure when comparing the supply and demand equilibrium in a given housing market. This ratio tells us the number of months it would take to completely sell the homes that are currently listed for sale based an area’s data available to us.
To give you your bearings on MOI, here is a general rule of thumb:
It’s a seller’s market if there are four months (approximately 120 days) of inventory or less.
It’s a balanced market if there are four to six months (approximately 120 to 180 days) of inventory.
It’s a buyer’s market if there are six months (approximately 180 days) or more of inventory.
With tighter inventory or a lower MOI, prices are more likely to rise. With a higher MOI, there is more supply for buyers to choose, and prices are more likely to go down. If we look at the MOI across major Canadian cities, we see how different this MOI number can be, and we can see how differently these markets are performing.
Here’s the MOI across some Canadian cities for February of 2019.
Vancouver – 7.8 (average price – $1,016,600)
Edmonton – 7.5 (average price – $354,548)
Calgary – 6 (average price – $461,092)
Greater Toronto Area – 2.6 (average price – $780,597)
Greater Montreal Area- 5.1 (average price – 388,398 )
With these MOIs in mind, we can see the Western cities have more inventory and prices that are falling.
In the GTA, we see that we are still in Seller’s Market territory, suggesting prices are going up. To be clear, prices are down from 2017 in some suburbs outside of Toronto in the GTA since April 2017. There has been an increase in inventory in the suburbs. Still, the MOI for the GTA is low enough to indicate a seller’s market.
I should also point out that the MOI for Toronto in December of 2018 and January of 2018 were 3. So, it was higher at the end of last year and dropped in February. It’s still a healthier number than what we’ve seen in recent years. To give you some perspective, the MOI averaged 1.2 in 2016 and 1.4 in 2015. And of course those were two years that had prices rising quickly in the GTA. In comparison to those years, the GTA is healthier now, though the MOI is down from end of last year.
I don’t know if this is part of a bigger trend where tightening inventory will return to the GTA market, but I do think we are seeing inventory going down in the suburbs where there has been some weakness in the past two years. Inventory in the old city of Toronto has largely been moving under the $2 million mark. I know MOI is not everything, but it is one metric to see just how healthy the real estate market is performing in the GTA. Of course, even in the GTA, you’ll need to know the specifics of the area you are looking at with a person who knows how to develop the right strategy to address that market, whether you are a buyer or a seller. It is best to work with someone who knows how the market is working so you can have the best results.