The resale housing figures for the first two weeks of June have been released by the Toronto Real Estate Board; the charts below summarize this information. (The sales figure was derived by extrapolation.) These data show that the Toronto area market remains very strong, with prices almost 10% higher than last June, and total sales higher than last year for the second month in a row.
There are also signs that we are nearing the end of the spring market and that the typical summer slowdown will soon begin. Prices, though very high, are slightly lower than last month for the first time since January, and I expect that this trend will continue through July and August as it did last year and in every year for the past decade and beyond.
The summer decline in prices doesn’t actually signify that there is a market correction going on, rather, it reflects the fact that many buyers and sellers take the summer off. Fewer new listings hit the market during the summer, as many sellers believe that the summer isn’t the best time to sell. The overall quality of homes for sale therefore tends to be somewhat lower than in the spring, because there is a higher proportion of “picked-over leftovers” that didn’t sell in the spring. This is one of the main reasons for the apparent decline in average selling prices during the summer.
Many buyers also feel that the summer isn’t a good time to buy because there are so few new listings. There is thus a certain self-reinforcing quality to the summer downturn, and this is further enhanced by the natural tendency of both buyers and sellers to turn their attention to summer fun during our relatively brief vacation season.
The truth is that the summer can be a great time for both buyers and sellers, because there is less competition than in the spring. For sellers, there are fewer quality listings on the market, and a good property at the right price will stand out from the crowd. Buyers also have less competition, so that if a great house comes up for sale there is a better chance of securing it without a bidding war.
The outlook for the fall market is hazy at this point. All year we have been hearing that the Bank of Canada will be raising interest rates in the second half, possibly as early as July. Were this to happen, it would likely lead to a more balanced fall market and more stable prices. Now, however, it seems more and more unlikely that interest rates will be raised before early 2010 (see this article, for example). If so, we should expect a very vigorous fall market once all the buyers & sellers have returned from their summer vacations.
Even if interest rates stay low for the rest of the year, however, the fall market will probably be less crazy than the spring market, simply because the rising prices are reducing affordability rather quickly, and this will likely squeeze many buyers out of the market.
Stay tuned, the next few months promise to be very interesting.