The Truth About The Real Estate Market

Feels a little like 2008 again, doesn't it? 

In the latter part of 2008, the media brought a halt to the Real Estate Market through their doom and gloom reports.  Papers, in their best impersonation of Chicken Little, screamed "the sky is falling, the sky is.falling". Property values were supposed to dip by 20-30% according to the media's real estate "experts".  This had Buyers salivating at the thought of hot deals waiting around the corner. Sellers went into a holding pattern, waiting it out until the market would return to its glory.  Soon everyone realized that it was all just idle talk.

So what exactly happened in 2008?  The number of listings declined as sellers chose to hold on to their properties. With the limited number of homes for sale, and buyers sitting on the fences, sales declined. The holding pattern continued until the summer of 2009.  Listings hit all time lows, and when the buyers realized there was no price drop ahead, they came out in full force.  Selling prices started to climb, and climb, and climb some more. Overnight, more and more buyers realized they better jump in before they were left homeless. With 2008 buyers holding off until 2009, we had double the buyers out there and demand was significantly greater than supply. Therefore, one could argue that the media's Chicken Little Act (2008) caused the multiple offer phenomenon and forced buyers to pay more for the home they love than they would have.  Traditionally, the average sale price in the Toronto area is between 96 and 98% of list price. When supply and demand are in order, this is true. When listing inventory drops, sale prices often go above 100% of list due to multiple offers and limited choices for buyers.

Fast forward to Now. July 2010 numbers are out and the media is in a "creative journalism" frenzy once again. Realtors that try to eliminate misconceptions about the market are accused by the media of distorting the truth. The numbers speak for themselves and in their unadulterated state, they tell the true picture as follows:

Sure, July sales were down about 30%, but year-to-date sales are still up 12% according to actual sales data compiled by the Toronto Real Estate Board. Record sales in the winter and spring had sellers that would normally sell in the summer racing to hit the market early. With buyers hungry to scoop up the good properties, sales exploded for an incredible first half of 2010 for the Real Estate market. The average price for a home in the GTA was $420,482 in July 2010. This represents a 6% INCREASE over July 2009. Over the first seven months of 2010, the average price was up 12% from last year at $432,253. So if sales were down 30%, how did average price go up 6%?  Average price is dictated by competiton.  As number of listings decline and demand is greater than supply, average price will increase.

Let's look at what homes sold for in comparison to list price. Looking at the East districts, homes sold for 97% of what they were listed for in July of this year. Year-to-date figures have the average sale to list price at 99%, due to early 2010 averages hitting 103%.
In the West Districts, the results are very similar. July saw homes sell for 98% of list and year-to-date figures have homes selling for 99% of list. Again, early year sales were at 103% of list due to the shortage of listings on the market.
If you're in the Central Districts, July's "drop" in price - lol - brought sale prices down to 98% of list and forced the year-to-date figures down to 100% of list!! That is incredible!
Not to be outdone, the North Districts saw July sale prices at 97% of list price. These "poor" sales brought the North's year-to-date average DOWN to 99%!!

Earlier I spoke about potential summer sellers moving up into the winter/spring markets to get in on the action. That was just one factor in sales dropping 30% in July. Another factor was the awesome weather we have enjoyed. It has been years since we have had a summer as nice as this. The weather combined with the heated winter and spring selling market are the leading causes for July's 30% decrease in number of sales.

Now, unit sales have declined for July, listings inventory is reduced, and yet the media reports that price drops are on the horizon??  Ladies and gentlemen, the media's Chicken Little Act 2010 is now under way.  The market is ALWAYS good!  It is either good for a seller or good for a buyer. It is never good for both at the same time. Recent history has shown us that listening to the media's armchair realtors and their creative interpretation of sales records could have negative ramifications on the market. To recap 2008: Media reports tough times ahead for homeowners, Buyers freeze, Sellers hold off, and listings decline. Shortly after, buyers scramble to scoop up the limited number of listings on the market and multiple offers rule the real estate landscape, forcing buyers to pay premiums for their homes.

Currently, we are in a buyers' market. However, listings continue to decrease.  Sellers should be licking their chops as a sellers' market is around the corner. History is repeating itself.  The media is reporting a decline in prices, buyers are holding and sellers are waiting.  As listing inventory decreases further, we will begin a shift towards a sellers' market and voila!  Prices will start to rise. That's why savvy investors have started to scoop up the remaining inventory out there at favourable pricing. This is the time to buy if you intend on building a real estate portfolio of any size. Buy low, sell high. That is the secret that builds a fortune in real estate. 
Another point worth noting is that the sale of a home contributes tens of thousands in revenue back into the economy. The real estate market is the engine that drives our economy and was the leading factor in our nation's quick recovery from the economic downturn. Why does the media start harping on a home sales "decline" and threaten our economy yet again?  Only the editors will know the answer to that question. Rather than hunt them down and ask for explanations, let's just ignore their rambling and continue to lead the world back to economic recovery.

If you'd like a true market analysis of your neighbourhood, and in particular your home, give me a call at 416-985-5426 or email me at info@asifkhan.ca. 
 

Asif Khan, Realtor

Re/Max All-Stars Realty Inc.

 

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Posted via email from Markham Real Estate Today with Asif Khan