Johnder Perez

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email: jp@johnder.com

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Sales Up 362.1%… Price Up 33%…

May 7, 2021 by Johnder Perez Leave a Comment

The real estate market continues to set records. A triple digit sales increase and double digit price gains seem gargantuan. Mind blowing even. But then you start hearing news about how the average price dipped from March to April. And how sales are declining, while number of listings are rising.

What should you believe?

Let’s put a little bit of context into understanding what’s happened in April 2021 and figure out how to make sense of the current market conditions.

It almost doesn’t make sense to refer to the year-over-year comparison when it comes to sales and prices. As the COVID-19 pandemic proliferated over a year ago, lockdowns, virus fears and a myriad of other factors slowed down real estate sales drastically.

When you look at April 2020 sales amounting to a mere 2,957 properties, and then compare it to April 2021 sales at 13,663, the 362.1% increase is simply astounding.

But how does it look historically?

April 2021 is the second highest sales month ever recorded in the history of the Toronto Regional Real Estate Board… second only to… March 2021’s record breaking 15,652 sales.

The following graph, handmade by Ron Hauth from TorontosBestDigs.com, shows it best.

The explanation is simple: pent up demand as a result of the early months of the pandemic resulted in catapulting sales pushing inventory down and shooting prices upward.

The significant effect of this wasn’t felt only in the Greater Toronto Area, but also in surrounding small towns and cities… throughout all of Canada and the United States. Market conditions in North America reflected many similarities — record low inventories, record high sales, and record breaking prices.

Yet in spite all this, we saw prices dip in April when compared to the previous month. Does that mean the real estate market is about to crash? Should buyers waiting on the sidelines rush in now?

Well — let’s take a look at how prices are doing from an historical perspective. For that let’s look at this chart, composed by Robert Ede of Uncle Bob Explains.

Despite an average price decline from March 2021 to April 2021, Robert points out that the year-over-year change in price from April 2020 to April 2021 amounted to an increase of 26.33%. The average price, currently sitting at $1,090,992, is the second highest average price recorded… second only to… you guessed it… March 2021’s average price of $1,097,565.

Seasonally, average prices tend to dip after a busy spring market usually around June before rising again in the fall market. This early dip can simply be attributed to the rapid escalation in prices we saw early on in the year.

Will this slight dip start a momentum leading to greater price drops?

It’s not that likely. Here’s why.

Real estate has a lot to do with supply and demand. When you look at the following chart showing the number of active listings since 1996, you’ll see that we are seeing a relatively low number of properties listed for sale — and for good reason.

Not all homeowners are keen on listing their home amidst rising COVID-19 cases and a third lockdown.

Those who are looking to make a move and are existing homeowners are likely searching for homes currently listed, while holding off on listing their home for sale until they find a suitable property.

Then you have first time buyers that are competing in the same property pool as downsizers.

Add to that young buyers moving out of the big city and into smaller cities and towns — competing against local buyers who may end up getting priced out of their own neighbourhood.

As sales rose and inventory levels dropped, prices surged and saw double digit growth.

To cool this aggressive price growth (aside from the adjustment in the stress test, or a rise in interest rates), new listings have to outpace sales and the sales-to-new-listings ratio has to drop.

But we’re not seeing that yet… and we don’t know when that will actually happen.

Some buyers are waiting for prices to drop before they enter the market. In some instances they are getting disappointed when they see prices continue to climb in certain neighbourhoods.

Some sellers are wondering if this is the best time to sell to take advantage of selling at the ‘peak’ of real estate prices. And they, too, may see disappointment when they underprice, don’t get the price they’re looking for on offer night, and then proceed to cancelling and relisting at the price they really wanted in the first place.

Nobody can predict what the future of the real estate market will look like. The decision to make a move now really depends on what your needs are. This important decision requires knowledge about what’s going on in the specific neighbourhood you’re looking at.

Are prices still climbing because of low inventory and very few options to choose from, amid competing buyers who want the same house you do?

Or are there a lot of competing listings on the market, leading to competition amongst sellers resulting in a selling price that was a little bit lower than expected?

Understand the local market you’re working in instead of listening to the news and assuming prices and sales are “dropping” — otherwise, you may be disappointed in the strategy you decide to use on your next offer… or when you list your house.

Filed Under: Market News

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