July 2014 Prices Continue to Fall
Strange headline, particularly when everyone says the market is going up. Let’s see what the Toronto Real Estate Board has to say:
“Sales and Average Price Up Year-Over-Year in July TORONTO, August 7, 2014 –
Toronto Real Estate Board President Paul Etherington reported strong year-over-year growth for July 2014 sales and the average selling price. Sales reported by TREB Members through the TorontoMLS system were up by 10 per cent to 9,198. This was the second-best July sales result on record.
“The second half of 2014 started where the first half left off, with very strong demand for the diversity of affordable home ownership options in the Greater Toronto Area. Sales were up strongly for most major home types and market conditions actually tightened, with sales growth outpacing listings growth. The result was average price growth well-above the rate of inflation,” said Mr. Etherington.
The average selling price for July 2014 sales was $550,700 – up by 7.5 per cent compared to July 2013. The strongest rate of price growth was reported for the detached market segment in the City of Toronto, with a year-over-year change of 11 per cent. The better-supplied condominium apartment segment experienced average price growth of 5.3 per cent for the GTA as a whole.
“Strong demand for ownership housing will underpin robust average price increases for the remainder of 2014. In fact, the pace of price growth that we have experienced over the past year will continue until growth in listings outpaces growth in sales for a sustained period of time,” said Jason Mercer, TREB’s Senior Manager of Market Analysis.”
Review and Analysis
We really should have a closer look. Let’s examine the monthly numbers:
So, at this very moment the average house price is $550,700. TREB is reporting that is a 7.5% increase. But, look carefully. It’s a 7.5% increase compared to July of 2013. That’s a year ago. If you called your stockbroker would you expect to receive a one year comparison or something a little more relevant?
What we should be doing is reviewing all the numbers, not just selected numbers.
Here’s the real estate calendar cycle:
The market starts off in January, increases in February, March and April, peaks on one of three dates in May (1st, 15th, 31st), then the market declines in June, July and August, turns around in September and starts and upward trend, peaks again on October 31st , (at a price representing 99% of the May peak) and then declines again in November and December.
Now, if you really don’t want anyone to know that there is a little bit of a roller coaster here, you could avoid that by always comparing the present month to the corresponding month, one year ago, or 10 years ago for that matter. You will always (well almost always) be able to show an upward trend.
No one likes bad news. So, don’t give it to them! That’s the approach of the Toronto Real Estate Board and just about all other real estate boards. This type of presentation of the facts has become the norm. But, you would think that the local newspapers would love this stuff? However, their ad revenue is tied to the housing industry (agents, builders, appliances, home renovations etc.) so there’s no point annoying the “golden goose”!
One additional fact that you need to know is that the market peaked, this year on the 15th of May when the average price of a single family home reached $590,132. Since then, we have had a $40,000 drop. How would this be for a headline:
“Average GTA House Drops $40,000”
Not too good, And, that’s really not entirely fair since we know that prices are headed for the upswing in September. Appreciating that, there is certainly some value in full disclosure and the one year comparisons. But, let’s make all the numbers available and not try to place a “spin” on the message. The facts are the facts, and they speak for themselves.
I should also mention one more thing. These numbers are all averages. They are not the same house being sold over and over. When you are talking about the stock market, each share of the stock of a company is identical. This is not true when it comes to real estate. The very best and premium houses are all placed on the market strategically in May. Buyers stretch for them. They are the best of the best. So, is it any wonder that the May numbers are high. Still good houses are available in June, but for the most part, they were passed over in May and their asking prices were reduced. They may be even better deals than the ones in May. That’s how the market works. There are fewer buyers around during the summer. That same premium house sold at the peak of the market really hasn’t lost any of its value. It will still sell for 99% of that value in October, and also likely the summer if it were to become available, but, it won’t.
Looking at the numbers, we have a decline of $39,432 from the peak. That’s a 6.68% drop.
When we compare July to February this year, the number is just marginally better, up by $2,157 (.0039%) or not quite one half of one percent. So, we could say that this year the prices are “holding their own”, but that would not be a particularly interesting headline. We wouldn’t sell many newspapers saying that.
However, let’s go back 18 months. The average price was $482,028. It’s up $68,672, which is 14.24%, or 0.079% on a monthly basis over that time period. This works out to an annualized 0.949%. Real estate should be measured over longer periods of time. If you had a property at the beginning of last year, then it has gone up about 9 and a half percent since then. That outperforms inflation and many stocks you will find on the stock exchange. If it’s your principal residence, your gain is tax free. That’s how to build equity and how to create wealth.
See you next month, when we already know that the market will be eroding a little further while all the buyers (with money) have gone on vacation.
Brian Madigan LL.B., Broker