Greater Toronto real estate inventory is piling up, but is it really as high as some people are making it seem? Numbers obtained from the Canadian Real Estate Association (CREA) show a massive build of inventory relative to last year. Crunching the numbers however, relative inventory is still low compared to historic trends. The question is, does that matter?
Oh Yeah, Months of Inventory… What’s That Again?
Today we’ll be looking at an indicator we don’t typically use, months of inventory. Basically, it’s the velocity of real estate sales. It determines how long would it take to sell off the current inventory, if there was no more added stock. It’s a primitive measure to determine “buyer” and “seller” markets. The number goes up when inventory grows faster than sales. It goes down when sales grow faster than inventory.
The general rule of thumb is over six months of inventory, and you’re in a buyers market. Less than 4 months of inventory, and you’re in a sellers market. Between those, and you’re in a “balanced market.” Some markets rarely go into “balanced” territory, so it’s best to look for deviation from norms.
Greater Toronto Area Jumps Over 144%
The Greater Golden Horseshoe (GGH) is coming off of historic lows, but made a huge jump in a very short time. First off, the GGH is the new government buzzword for the economic zone surrounding Toronto, and includes suburbs like Hamilton and Niagara. August saw the GGH hit 2.3 months, which is down 11.53% from the month before. However it’s up 109.09% from the same month last year. The historic low was hit in January 2017 when it was just 0.9 months. August was 144.3% higher than this low. It’s hard to argue the climb wasn’t steep.
Canada vs Greater Golden Horseshoe (GGH). The GGH is the economic zone surrounding the Greater Toronto Area, including bordering real estate boards around TREB. Better Dwelling, Source: CREA.
This is still dramatically lower than the long-term average. According to CREA’s calculations, the long-term average for the GGH is 3.1 months of inventory, 34% higher than August’s number. August was below the long-term average, but we haven’t hit the average since February 2013. The median months of inventory since 2010 was only 2.6 months however, so we’re only 13% from that. Inventory is lower than it has been historically, but the quick jump is sure to be felt the same way the quick drop was last year.
Canada Average 6 Months If You Exclude the GGH
The months of inventory across Canada is in buyer market territory if you exclude the GGH. Canada had 6 months of inventory in August, up 1.6% from the month before. However, it’s still 7.69% down from last year. The long-term average according to CREA is 6.2 months, which was last hit in January 2017. The trendline moved in the same directions as Greater Toronto, just not at the same extremes.
2016 saw real estate sales pick up across the country, sending inventory to lows. Greater Toronto saw this trend amplified, with people buying into the frenzy at a very steep premium. As quickly as months of inventory disappeared, they began appearing. It’s unclear how much more last year’s frenzied buyers paid than they should have, but we’re probably going to find out as this trend levels off.
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