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Tightening market will mean higher prices

Richard Sil­ver – Toronto Sun

I’m excited to share with you, a recent report­ing addi­tion to TREB’s monthly hous­ing mar­ket sta­tis­tics report.

Start­ing with its Novem­ber 2011 Mar­ket Watch pub­li­ca­tion, the Toronto Real Estate Board (TREB) has been pub­lish­ing a new Months of Inven­tory (MOI) indi­ca­tor.  MOI shows how long, on aver­age, it would take to sell all actively listed homes assum­ing the level of sales remained the same and no addi­tional homes were listed.

When the MOI trends down­ward, the mar­ket is tight­en­ing with fewer list­ings from which buy­ers can choose.  Gen­er­ally speak­ing, tight­en­ing mar­ket con­di­tions trans­late into more com­pe­ti­tion between buy­ers and more upward pres­sure on the aver­age sell­ing price.  When the MOI trends upward, the oppo­site would be true: com­pe­ti­tion between buy­ers will ease and the rate of price growth will likely moderate.

The aver­age MOI was 2.3 months over the last two years.  In the years lead­ing up to the reces­sion (2000 through 2007) the aver­age MOI was 3.0 months.  In response to tighter mar­ket con­di­tions, the aver­age annual rate of price growth was stronger in 2010 and 2011 in com­par­i­son to much of the pre-recession period.

The low months of inven­tory over the past two years resulted from very strong sales rel­a­tive to the num­ber of homes listed.  In 2011 in par­tic­u­lar, there was a short­age of list­ings in the GTA.  We con­tinue to expe­ri­ence tight mar­ket con­di­tions and con­sid­er­able upward pres­sure on the aver­age sell­ing price.

Toronto Real Estate - Months of Inventory

The strong price growth we have seen over the last two years has largely been mit­i­gated by low bor­row­ing costs.  TREB’s afford­abil­ity indi­ca­tor shows that a house­hold earn­ing the aver­age income in the GTA can com­fort­ably carry a mort­gage on the aver­age priced home, based on cur­rent lend­ing standards.

Based on the cur­rent mar­ket tight­ness and pos­i­tive afford­abil­ity pic­ture, TREB expects the aver­age sell­ing price to con­tinue grow­ing in 2012.

I asked Jason Mer­cer, TREB’s Senior Man­ager of Mar­ket Analy­sis to offer more insight.

Bar­ring a reces­sion in Canada, the aver­age sell­ing price is expected to grow by approx­i­mately 4% in 2012 to $485,000 dol­lars.  This price will remain afford­able based on cur­rent lend­ing stan­dards.  At the same time, the lower rate of price growth in com­par­i­son to 2011 points to an eas­ing of sell­ers’ mar­ket con­di­tions in the sec­ond half of this year,” said Mr. Mercer.

So based on the cur­rent mar­ket tight­ness and pos­i­tive afford­abil­ity pic­ture, we expect the aver­age sell­ing price to con­tinue grow­ing in 2012.

I encour­age you to take a look at the lat­est reports, as well as TREB’s hous­ing charts posted on our pub­lic web­site www​.Toron​to​Re​alEstate​Board​.com. I look for­ward to pro­vid­ing more mar­ket insight in the com­ing months.

Con­tact Lau­rin Jef­frey for more infor­ma­tion – 416−388−1960

Lau­rin Jef­frey is a Toronto Real­tor with Cen­tury 21 Regal Realty. He did not
write these arti­cles, he just repro­duces them here for peo­ple who are
inter­ested in Toronto real estate. He does not work for any builders.


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